The Year of the Snake Returns to Japan in 2025. In Western culture, snakes are malevolent and duplicitous creatures, as attested by the serpent's role in the expulsion of Adam and Eve from the Garden of Eden. Not so in East Asia, where they are considered wise, intuitive and bearers of good luck. In Buddhist lore, a cobra-like naga protected the Buddha from torrential rain after his enlightenment.
The last Year of the Snake, 2013, was a great one for Japan. It featured an explosive rally in the long moribund stock Nikkei Index and the first signs that the "lost decades" of deflationary stagnation were about to end. Nobody is going to get excited about the policies of current Prime Minister Shigeru Ishiba in the way they did about the late Shinzo Abe's "Abenomics" twelve years ago.
Nonetheless, there is every possibility that the Snake will deliver prosperity, safety, and stability. Relative to many other countries, Japan will look better and better just by calmly carrying on.
Olympic Triumphs and Economic Surprises
Last year's Predictions 2024 once again turned out to be a mixed bag. At the Paris Olympics, Japan did even better than I expected, coming in third, not fourth, in the overall medal tally. Notably, Japanese competitors brought home medals in new sports, such as skateboarding, as well as traditional areas of strength, like judo and gymnastics.
Other predictions, such as anticipated strength in the yen, never came to pass, leading to ills such as overtourism. Still, there were also economic benefits, such as onshoring of production by Japanese and foreign companies. At its current level, Japan's currency remains massively undervalued relative to purchasing power parity, which the OECD calculates at ¥95 JPY per US dollar. Such a distortion cannot last.
Japan-US Ties Will Keep-a-Rollin
In 2016, Prime Minister Shinzo Abe broke protocol and flew to New York almost as soon as Donald Trump's victory over Hillary Clinton was declared and visited him at Trump Tower. Subsequently, the two men were to bond over golf, and little came of the anti-Japan rhetoric Trump had deployed on the campaign trail.
Current Prime Minister Ishiba's favorite hobby is not golf but trainspotting, an activity unlikely to interest the president-elect. On his first visit to the United States after taking office, Ishiba was not granted a meeting with Trump. However, Akie Abe, widow of the late Shinzo Abe, was invited to dinner with the President-elect and his wife.
Still, there is every reason to expect good relations between Team Trump and Japan, especially now that Elbridge Colby is to be Undersecretary of Defense for Policy. Colby is fully aware of Japan's geopolitical indispensability in the effort to block Chinese hegemony.
Meanwhile, Japan has already embarked on a doubling of military spending. No doubt American defense companies will be looking forward to some juicy contracts.
The Trump Tower Accord
What might Trump do to try and improve America's industrial competitiveness? Using the threat of tariffs to make companies shift production to the US is one answer. Another is to devalue the dollar against currencies that are massively undervalued, as are the Euro and all Asian currencies, with the exception of the Singapore dollar.
The last time currencies were forcibly rearranged for political reasons was forty years ago when the Plaza Accord was signed in a New York hotel. This resulted in a much stronger yen and West German Deutschmark.
There are many more players today, but the basic problem of a rampant dollar is the same. If a similar formal meeting were to take place today, a suitable place for it would be Trump Tower. Incidentally, it is just a five-minute walk from the Plaza Hotel.
In such a scenario, many countries would be forced to stimulate domestic demand or sink into deflation. For Japan, austerity would be out of the window. The challenge would be to generate a high-wage and high-consumption economy without the asset bubble that did so much damage last time around.
Japan's First Female Prime Minister
In the murky world of Japanese politics, as I forecasted, Fumio Kishida did not see out the year. He resigned in October under a cloud of low-grade financial scandals. As is usually the case with weak prime ministers, he was unable to shake off the influence of the powerful ministries, particularly the Ministry of Finance.
I also hinted that his replacement would likely be Japan's first female prime minister. That looked a sure thing when Sanae Takaichi easily won the first round of the ruling Liberal Democratic Party's (LDP) internal election. Strangely, though, in the second round, the faction belonging to Taro Aso, an important power broker and long-serving Minister of Finance, switched its backing to Ishiba. Until then, despite four previous attempts, Ishiba had failed to become prime minister.
Riding Out the Storm
What prompted this change in support? One theory suggests that it was done to placate the Biden administration, which wanted a united front of Japan and South Korea to confront China. Takaichi – populist on economic issues but right-wing on cultural issues – might have raised Korean hackles by, for example, visiting the Yasukuni Shrine war memorial.
A simpler theory is that whoever took over the prime ministership would inherit the lingering unpopularity caused by the scandals. Ishiba is perfect for the role of short-term stopgap.
Recent events in South Korea guarantee fraying relations between the two countries as President Yoon Suk-yeol, a rare Japanophile, loses all credibility after his bizarre attempt to impose martial law. The likely upshot: the South Korean left – anti-Japan, anti-American, and pro-North Korea – take over, making any united front impossible.
Meanwhile, the LDP's financial misdeeds will eventually be replaced by other, fresher scandals. If so, the factors that derailed Japan's first female prime minister will no longer be relevant.
The Vultures Swoop
One of 2024's predictions was that Apple would make a bid for Nintendo, which did not happen. However, Canadian company Alimentation Couche Tard's declared intent to buy Seven & I, which owns Japan's iconic Seven-Eleven convenience store chain, is, if anything, even more astonishing. That is because the would-be acquirer is significantly smaller in terms of sales and number of outlets.
Its stock market value, though, is a different story. In 2006, Seven & I's market capitalization was 12 times larger than Couche-Tard's. Today, the Canadian company is the larger one, with its stellar growth record rewarded by investors.
New Era of Corporate Strategy
The fate of Seven & I has yet to be decided ー a management buyout is in the cards too ー but the precedent has been created. Surely, there will be more hostile takeover bids in the Year of the Snake. It will be interesting to see how managements respond to that possibility.
One approach would be to increase returns to shareholders or to go for growth by acquiring other companies. Another approach would be to leave the stock market entirely. Being listed on the stock market has always been a matter of prestige for many companies. However, now, new risks have come into the frame.
Hostile takeovers have been almost unknown in Japan in the past half-century, to the extent that the very concept seemed an affront to the Japanese value of wa (harmony). In reality, however, there was plenty of hostile activity in the era before the system of cross-held shares made it impossible. For example, the two rail and real estate tycoons who made Shibuya what it is today were well known for their ruthless acquisition strategies.
Now, the cross-holding system is barely extant. The way is clear for a new era of corporate takeovers featuring Japanese companies as acquirers as well as acquirees.
Energy: The Road Back to Reality
In 2020, energy titan BP promised to cut its oil and gas output by 40% by 2030 and substitute it with renewables such as wind and solar power. In 2023, the target was chopped to a 25% reduction. Now, the target has been abandoned entirely.
Even more remarkably, the company is now targeting new investments in the Gulf of Mexico and the Middle East. Both of those would boost its oil and gas output.
As Daniel Yergin, guru of the energy world, stated in his book The New Map, the energy transition is real but the timescales drawn up by governments influenced by activist groups are totally unrealistic. In 30 years, "oil will maintain a pre-eminent position as a global commodity, still the primary fuel that makes the world go around," he declares. However, its share of the global energy mix will be on a downward slope.
If correct, this is good news for Japan, which has a singularly unsuitable topography for renewables. It creates enough time to build the only domestic source of energy that can provide sufficient scale – nuclear power.
A recent opinion poll showed that the Japanese public supports "the maximum possible use of nuclear power stations" by 55% to 31%. With all the activity around safer, more efficient Small Modular Reactors, there could be a renaissance of the dream of a nuclear-powered world, as envisaged by Osamu Tezuka, the "God of manga."
Reaching the Pinnacle of Sport
Without wishing to diminish the tremendous feats of baseball star Shohei Ohtani, it is worth noting that his sport is a minor one in global terms. Indeed, it has fewer fans than cricket. The biggest global sport is undoubtedly football ("soccer" to some), which has over two billion fans and also boasts the largest participation. So, to reach the pinnacle of the world's number one sport is a wonderful achievement.
That is what Wataru Endo, captain of Japan and stalwart at Liverpool FC, has achieved. Liverpool is comfortably top of the English Premier League and, after beating Real Madrid, also favorites to win the European Champions League.
Admittedly, the 31-year-old Endo has had few starts this season, often coming on towards the end of the match. Liverpool has a new manager who has a different, so far highly successful game plan. Endo, a model professional analyses the games from the bench, aware he may be called on any minute.
The top clubs feature star players from all over the world, which puts them on a level above the national teams. If Liverpool does triumph both at home and in Europe, it would be reasonable to call them the best team in the world. Let us hope that the Year of the Snake sees Endo celebrating many times with his teammates.
Follow our special New Year's series, Predictions 2025.
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Author: Peter Tasker, Arcus Research
