For Japan, Prime Minister Shinzō Abe’s so-called three arrows strategy is certainly trying its best to jolt a country into inflation and growth. And while on the surface the latest move, to appoint Yasuhisa Shiozaki as health minister, would appear relatively minor, it carries the potential to join together various other government actions to connect an ecosystem of state institutions and private enterprise.
The health ministry runs the ¥126.6 trillion ($1.3 trillion) Government Pension Investment Fund (GPIF), which has historically invested mainly in bonds rather than equities – about 11%.
This might change as Shiozaki is regarded as a pro-market reformer. One consequence of a shift towards a 20% equities allocation by GPIF could be to provide a fillip to share prices on the Tokyo Stock Exchange, whose stocks have an aggregate market capitalisation of about $4.5 trillion.
While helpful, the ramifications could be more significant if GPIF takes an even more nuanced position.
As a potentially large shareholder in most companies, GPIF would have the voting rights to encourage companies to consider their own strategies of how they find and fund innovation or offer above-inflation pay rises to employees. It could inspire further uses of corporate venturing to incubate or invest in startups and take advantage of the Industrial Competitive Advantage Law, which came into force in January with unprecedented speed and makes 80% of corporate venture investment through funds tax deductible.
Positive shareholder support might result in large corporations using mergers and acquisitions to buy entrepreneurial businesses, providing an alternative exit route for venture-backed businesses beyond flotations.
There has already been significant investment in the supply of Japanese entrepreneurs and the early funding they need to prove concepts and create nascent businesses.
Through a $1.2bn university venturing programme, four academic institutions – Tokyo, Tohoku, Kyoto and Osaka – are developing their proof-of-concept and venture capital funds, while the Ministry of Economy, Trade and Investment has setup its Jump Start Nippon Project to build a venture ecosystem through a network of mentors and supporters, and the $20bn Innovation Network Corporation of Japan has already been backing more startups through its venture programme.
Adding in the next-generation companies that have themselves previously been venture-backed, including Rakuten, Gree, Dena, Softbank and CyberAgent, and are showing both fast growth and an ambition to use venturing and mergers and acquisitions tools to maintain their successes, and the arrow could indeed be about to hit its target.