Japanese businesses are trapped between America and China

NOT since the 1980s have Japan’s businesses generated so much excitement. Japanese companies’ profit margins have doubled in the past decade or so. They are forking out twice as much to their owners in the form of dividends and share buybacks as they did 10 years ago. Shareholder-friendly changes to corporate governance in Japan have caused foreign investors to flock to the country once again.

Having languished for decades, the Nikkei 225 index, which tracks the value of the country’s largest listed firms, is up by 25 per cent over the past year. In February, it at last exceeded the record it set in 1989, just before Japan’s bubble burst.

Much of this success reflects Japan Inc’s transformation over the past 35 years. Faced with economic torpor at home, brought on by the stock market crash and an ageing population, Japan’s industrial giants have spent the past few decades hunting for growth abroad. In 1996, revenue booked by the foreign subsidiaries of Japanese manufacturers was just 7 per cent of their total sales. Last year, that figure reached 29 per cent, a record high.