SoftBank’s $100 Billion May Get Dwarfed By Tokyo’s $1.6 Trillion Fund

Fumio Kishida just did something that no Japanese leader has in eons: surprise global investors with a creative and doable plan to revive the economy’s once-fabled animal spirits.

The prime minister pledged to open a path for the $1.6 trillion Government Pension Investment Fund, the world’s largest such entity, to finance the startup boom his predecessors didn’t. It’s an eminently wise move as India and Indonesia blow away Japan Inc. in producing tech unicorns.

Free-market ideologues won’t like the idea that a public fund is endeavoring to reinvigorate Japan’s venture capital game. Yet even the world’s most important VC power, SoftBank founder Masayoshi Son, barely invests any of his $100 billion Vision Fund at home in his aging nation.

Enter Kishida, who took office just over six months ago promising a “new capitalism” policy mix to rekindle innovation, increase competitiveness and boost wages. Along with harnessing GPIF’s vast asset pool, Kishida wants to woo more foreign investment and get Japanese to take financial risks.

That, Kishida says, means simplifying Japan’s circuitous initial public offering process and making things more attractive for multinational companies looking to set up new business centers. It also means strengthening corporate governance, forcing Japan Inc. to increase transparency.

It’s a work in progress. And Japan’s powerful business lobby, which looks out for huge legacy conglomerates towering over the economy, is sure to push back. But in just six months, Kishida has taken yet another step to remind global economic circles that Japan still matters—and to communicate that Tokyo can learn from its mistakes.

Kishida’s tenure is proving to be a stark contrast with that of his political benefactor, Shinzo Abe. During his nearly eight years in power, from 2012 to 2020, former Prime Minister Abe did frustratingly little to push Japan out of its comfort zone. Mostly, Abe prodded the Bank of Japan to get radical with efforts to end deflation.

Corporate profits soared; innovation and household wages didn’t. Nor did Tokyo make bold moves to respond to China’s powerful economic rise. Abe and China’s Xi Jinping came to power the same year. While Abe bet big on the trickle-down strategies of 1985, President Xi Jinping deployed hundreds of billions of dollars to fund “Made in China 2025.”

As an Abe protégé, Kishida must navigate egos within his Liberal Democratic Party. If he outshines Abe too ostentatiously, waving the reform banner, there’s a risk that the LDP old guard might strike back—Abe included—and ensure Kishida’s tenure is a short one.

But it’s instructive to look at how in just six months, Kishida is showing signs of being a far more consequential premier than Abe, Japan’s longest-serving leader.

Exhibit A: how rapidly Tokyo signed on to global sanctions against Russia over Vladimir Putin’s Ukraine invasion. That simple act buttressed U.S. President Joe Biden’s argument that there’s a global coalition against Moscow, not just a western one. Kishida also is banning Russian energy imports and even welcoming some refugees from Ukraine.

Now, Kishida is turning to putting some economic wins on the board.

Slogans are cheap. Xi’s big “common prosperity” plan remains more vague talk than reality. In South Korea, outgoing President Moon Jae-in’s “trickle-up economics” pledges amounted to little more than Abe’s “buy my Abenomics” sales pitches. Already, though, Kishida is detailing how he plans to generate a “virtuous cycle of growth and distribution” that’s long eluded Japan: with new economic energy from the ground up.

Relying on the Sony’s, Toyota’s, Mitsui’s and other giants at the top of the economic food chain is among Tokyo’s biggest mistakes these last 20 years. All pumping up their profits with BOJ cash and a weak yen did was fuel share buybacks. What’s needed is a new generation of entrepreneurs to disrupt the economy with high-paying jobs and more productive corporate cultures.

There are lots else for Kishida to do, including the long to-do list Abe didn’t bother with during his 92 months in power: reducing bureaucracy; internationalizing labor practices; increasing productivity; revolutionizing corporate governance; and attracting more foreign talent.

The good news is that Kishida’s Ukraine policies gave his support rate a bump—into the low 60s. Kishida should take that support out for a ride and cajole his party to get serious once and for all about raising Japan’s economic game.

With his plan to pull GPIF’s $1.6 trillion of assets into the mix to turbocharge things, Kishida proved he can surprise us. And few more such surprises and Japan could prod Son to deploy more of his giant Vision Fund at home. And have China looking over its shoulder.