Jesper Koll, who became widely known as chief strategist and head of research for major US investment banks J.P. Morgan and Merrill Lynch, went on to become, in 2015, founding CEO of Wisdom Tree Japan. Currently he’s a senior advisor to Wisdom Tree Asset Management.
True to the nickname he earned years ago, “the last Japan optimist,” he’s relatively sanguine about how the coronavirus crisis will leave Japan. He has more reservations about how certain other countries, notably the United States, will come out of it, as he revealed in a talk with journalists and financial professionals in Tokyo.
One of the ways Japan is better off than the US, in his view, is that the big Japanese companies are so rich that in crises they are not in a hurry to lay employees off.
Even though Japan suffers big drops in economic activity, it is “extremely resilient.” The leading – listed – companies together have cash cushions totaling 130% of GDP. The US figure is 48%. This is “a huge positive. Means they don’t have to fire, don’t have to cut their wages. It affects whether this is a transient shock.”
In view of US companies’ historic tendency to “fire people radically,” he said, “for the US unemployment rate to double would not be a weird forecast.”
He cautioned that the biq question now is whether the virus is seasonal and will go away when it gets warmer. “If this corona thing does go away, Japan will have a V-shaped recovery.”
On the other hand, because of secondary effects – people getting laid off – the US is more likely to have a U-shaped recovery, he said. Managers will be hesitant to rehire, will want to focus on productivity improvement. Unemployment will spike first, then come down slowly.
More apocalyptic predictions are not for him. “Every crisis seems bigger and badder,” Koll said, and while this time “there is enormous uncertainty,” it’s encouraging that “we’re getting out of the panic stage into a constructive, more healthy stage.”
Japan has been Koll’s focus since the German native arrived in the country in 1986 to work for three years as an aide to a member of the Japanese parliament. He still maintains close ties with those who control the levers of power, serving currently as a member of Governor Yuriko Koike’s Tokyo Financial Center Advisory Board and also of Keizai Doyukai, the Japan Association of Corporate Executives.
“A crisis is really a test of civil society,” Koll said. “The Japanese are acting responsibly. In that, they are second to none.”
He had kudos for the country’s “very good” policy response to the coronavirus. Given that small and medium enterprises now are tightly squeezed, it’s fortunate that “the Japanese government is good at making sure the zero-rate financing goes where it should,” he said.
Avoiding the worst
Asked if we are likely to see another Great Depression this time, he replied, “Probably not.” Compiling estimates from big banks suggests the damage in terms of lost GDP percentage points will average about half of what countries suffered from the 2008 financial crisis with Japan and the US coming in close to that average.
Asia Times asked Koll about the fact the United States has tripled its debt since 2008-9 and corporate leverage has greatly increased. In this crisis and beyond, who wants to buy and hold US debt? Is the American habit of living off the largesse of the rest of the world finally coming to a halt?
He replied that the main thing is to avoid currency wars. “If the US enforced against Europe and China a 21st century version of the Plaza Accord, that would be a real problem. At the Plaza only Germany said no. This time China would say no.”
If policy responses are not coordinated globally, if we do start to see a currency war, that would be “a real red flag,” he said. Fortunately neither the US nor China has done “anything weird.” The yuan-dollar exchange market is relatively stable.
Already the US interest rate is at zero. The US dollar has not collapsed. “What’s very interesting is why did the yen not appreciate? Because Japan is going to run a current account deficit.” Inbound tourism is down and interest received on overseas investment will start to collapse because of zero rates. “Why is the yen not at 95 to the dollar? Because of the balance of payments.”