Japan’s start-up spirit awakens

Japanese salarymen — white-collar executives who supposedly trudge their way through working life — have long been a symbol of corporate Japan. 

Employed by the same company their whole working lives, arriving early at their desks and not leaving until the boss has clocked off, they are often seen as representing a working culture in which creativity is stifled, risks are avoided, and anonymity is rewarded.

A glance at the list of the FT’s 500 high-growth companies in Asia-Pacific, however, shows that these archetypes are being consigned to history by the country’s vibrant start-up scene.

Not only is the ranking peppered with businesses from Japan but Japanese start-ups are second in number only to South Korea in the top-500 table, and far outstrip those of India. 

The 101 Japanese companies in the ranking are anything but sleepy. There is KabuK, a travel fintech company that allows users to stay in accommodation around the world for a fixed monthly fee; Torana, a rental service for children’s toys, which rotates products every two months; and Chat Plus, an artificial intelligence chatbot provider. All have grown significantly. 

These companies show high energy and ingenuity and are helping dismantle the hypothesis that Japan’s salarymen are suffocating the economy. Their rapid growth also comes at a time when Japan is finally beginning to rouse from its decades-long economic slumber. 

Problems have far from disappeared but, in a historic move, the Bank of Japan last month put an end to an era of negative interest rates and increased the country’s borrowing costs for the first time since 2007.

Following a 7-2 majority vote, Japan’s central bank announced on March 19 that it would guide the overnight interest rate to remain in a range of roughly zero to 0.1 per cent. This came after Japanese blue-chip companies, including Nippon Steel and carmaker Honda, handed employees their biggest pay rise in more than 30 years.

The BoJ, although remaining cautious, said in a statement after
the policy shift: “Looking at the background conditions of wage developments, corporate profits have continued to improve and labour market conditions have been tight. In this situation, as indicated by the results of this year’s annual spring labour-management wage negotiations, it is highly likely that wages will continue to increase steadily this year.”

Mark Bivens, managing partner at Shizen Capital, a Tokyo-based venture capital firm, is much more optimistic: “Japan’s traditional corporations have experienced decades of stagnation, and now they are desperately playing catch-up. Collectively, corporate Japan possesses in the order of $2tn to $3tn of cash on [its] balance sheets.”

So, now that inflation has finally arrived, the opportunity cost of sitting on this cash has risen, Bivens explains — and companies are looking to invest their cash in innovative projects.

The way in which young people perceive work, and the fact that salarymen are no longer held up as the model of success in Japan, has allowed young companies to flourish.

“Joining a start-up or founding one is becoming more positively perceived, less stigmatised,” observes Bivens. As a career path, it is increasingly viewed as “offering more stability and agency over one’s financial independence” than traditional companies, he notes.

Norimitsu Shida, the founder and chief executive of Tokyo-based Torana, recognises this. His rental service for children’s toys is used by approximately 18,000 households across Japan and his company appears in 121st place in the FT list. Shida believes young people “are now ready to challenge the big corporations”.

It would have been very difficult for me to create the kind of growth I have from my company 20 years ago

“The stagnation Japan has lived through was caused by a closed economy centred on large corporations and seniority systems,” says Shida. “But that has changed, with the younger generation much more interested in start-ups than ever before.”

And the numbers reflect this shift. According to data provider Preqin, Japan was the only country in Asia-Pacific where the number of venture capital deals rose last year compared with the year before. 

Angela Lai, head of Asia-Pacific at Preqin, says: “Government policies have been supportive in recent years to VCs. In 2022, Prime Minister Fumio Kishida’s administration already remarked on boosting domestic start-up investments via the use of public pension funds and, now, there is more from his recent ‘new capitalism’ policy plan.”

One initiative encourages households to invest their savings by expanding the investment limits and scope of Japan’s tax-free savings accounts. “This should lead to more funding sources for unlisted companies, including start-ups,” says Lai.

Torana’s Shida is thankful for this and for not launching his company during the more challenging years for Japan. “It would have been very difficult for me to create the kind of growth I have from my company 20 years ago. I now hope to become one of Japan’s leading companies in the future,” he says.