Markets & Economy

Japanese Equities

The Times Are A Changin’ And So Is Japan

July 31, 2018
Japanese society is changing. A large part of what we do involves identifying these secular trends early and investing in those areas that we anticipate being the key long-term beneficiaries.

Key Points

  • One of the biggest changes that we are seeing is in relation to Japanese workers, who are increasingly changing jobs throughout their career. This is a modern phenomenon and a major shift away from historical expectations of lifetime employment.
  • Similarly, consumer spending patterns are also changing, and the trend toward online retail is another key theme that is growing rapidly in Japan.
  • The services sector is another rich area of opportunity, in our view, specifically for nurses and care workers for the elderly. The over 60 years demographic makes up more than 33% of Japan’s total population, the largest of any country in the world.1
  • A large part of what we do involves identifying these secular trends early and investing in those areas that we anticipate being the key long-term beneficiaries of the changes taking place in Japanese society.

One of the key investment themes that we continue to focus on is the significant change taking place in Japanese society. From aging demographics and labor shortages to changing consumption patterns and dietary habits, Japanese society is evolving, and being on the right side of these long-term, secular trends offers a rich vein of potential rewards, in our view.


One of the biggest changes that we are seeing is in relation to Japanese workers, who are increasingly changing jobs throughout their career. This is a modern phenomenon and a marked shift from the previous mind-set of many Japanese workers, where the general expectation was one of lifetime employment. As a result, we are invested in a number of staffing agencies that we view as the most direct beneficiaries of the growing trend toward greater job mobility. The largest of these is a company called Recruit Holdings (1.93% holding, as of June 30, 2018).

At the same time, we also own a number of companies that are indirect beneficiaries of the employment mobility theme. One example is Benefit One (1.51% holding), a business that provides employee reward programs to companies. The host company pays a small monthly subscription per employee, and, in return, Benefit One provides a broad catalogue of discounted goods, services, and partner deals, from haircuts, to rounds of golf, to cheap deals at bars and restaurants. By providing this kind of benefit program, at minimal cost to the company, employee retention is greatly improved. This is very important when you consider the labor shortages that exist in Japan and the fact that companies are finding it increasingly difficult to hire new staff within a tightening pool of talent. In this way, Benefit One stands as a potentially major beneficiary of Japan’s evolving employment landscape.


As with the rest of the world, the trend toward online retail is growing rapidly in Japan. To this end, we own Start Today (2.49% holding), one of the largest online fashion portals in Japan. Traditionally, Japanese consumers would always go to the physical shops to buy their clothes; however, over the past 10 years, we have seen a significant shift toward online shopping and having the clothes delivered to your home. Start Today has started a wardrobe service whereby they send customers a tailored box of clothes, based on their historical purchases/preferences; they keep what they like and simply return whatever they don’t, free of charge. Another company we own within the retail space is istyle (0.68% holding). The company operates the popular @cosme beauty and cosmetics user site, as well as a number of offline specialty cosmetics shops.


The broad IT and services sector within Japan’s TOPIX Index continues to be a rich source of opportunities, particularly within the services component of the sector. Many service companies in Japan are benefiting from structural and socio-demographic shifts, as well as from a gradually improving macroeconomic backdrop.

One such example is SMS (1.88% holding), a leader in recruitment services for nurses and workers in elderly care and a provider of a management support software package for in-home nursing care operations. The company continues to benefit from an acceleration in its nursing care business. Similarly, our holding in Solasto (2.31% holding) is also a potential beneficiary of the growing demand for care services in Japan. The company is one of the leading players in the staffing and operational outsourcing market for medical institutions. It has been reinvesting earnings into its nursing care business, where it has been able to raise salaries and reduce staff turnover. Nursing care is a significant long-term opportunity in Japan as an aging population means the elderly are the country’s fastest-growing demographic (Figure 1). The company also highlighted accelerating revenue growth in its February 2018 results, due to the successful recent acquisitions of two other large providers in the health care space.

Major changes are taking place in Japanese society, resulting in the emergence of long-term secular trends. As a long-time investor in Japan, a large part of what we do revolves around identifying these trends early and investing in those areas that we anticipate being the principal beneficiaries of this societal change.

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1United Nations World Population Ageing Report, 2017.

Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of July 2018 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

As of July 2018, the securities listed in the article represented the corresponding percentages of the Japan Fund’s portfolio. The managers’ views and portfolio holdings are historical and subject to change. No assumptions should be made that the securities identified and discussed were or will be profitable.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance cannot guarantee future results. All investments are subject to market risk, including the possible loss of principal. International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. These risks are heightened for investments in a single country. All charts and tables are shown for illustrative purposes only.