Transcription
If you want to learn about real estate investment, it's Rakumachi. Now, from here, it's the latter half. We will continue to deliver this with Ms. Emi and Mr. Koizumi. Thank you both for joining us. Yes, for those of you who haven't seen the first part yet, please do watch it and give us a like and subscribe to Rakumachi. In the first part, we discussed space business and security, triggered by the rise of SpaceX. The staff is also telling me that although we prepared a script, your conversations, both of you, have gone beyond the script's assumptions, which is quite charmingly off-topic. [Laughter] Yes. The theme was supposed to be AI competition and the reality of the battlefield, but we would like to hear more about the latter half of the first part in this second part as well. Yes. Ms. Emi, it's a collapse of the power balance, isn't it? The competition between the US and China, and the struggle for dominance. Yes. That was the main theme, I believe. However, in the first part, we saw changes in the actions and sentiments of various countries due to Russia's decline. With that in mind, based on the history you've depicted, Ms. Emi, what do you foresee for the future global landscape? I believe that sooner or later, we will reach a point where China will need us to help Russia, to save Russia. Similar to how the US supported Russia against the Nazis in World War II, in a way. Although the situation with Russia is different now, it's about China. Japan will have to help Russia. Ah, so it's to balance with China. That's right. Yes. As a potential risk scenario for the future, in what is called the Far East region, if you think about it, China is currently arguing with Japan over the Senkaku Islands, isn't it? They're arguing about Taiwan, but what's more important is that in the 19th century, China's northeastern territories were all taken by Russia. Vladivostok and that area. And now, with Russia's population declining so much, there's almost no population there, yet it's incredibly rich in resources. What is it most rich in? Water. [Sigh] Yes, oil is important, but they lack water. But there is water. And as you know, with water, AI uses water. So, it's not going to disappear. And China, seeing Russia's decline, might say, "You took our territory in the 19th century, give it back." I think it's not impossible for China to say that, knowing that Russia is currently weakened. And when China takes military action, Russia, in its current state, won't be able to do anything. So, I think there will come a time when we, perhaps, will have to save Russia. It sounds strange, but it's the 21st-century version. Yes, yes. That's why I don't think the US wants Russia to completely collapse, even though it's weakened. If it collapses, it's over. Russia, which is struggling against Ukraine, wouldn't stand a chance against the Nazis. But if Russia collapses and China fills that power vacuum, that would be even worse, because then China would be impossible to remove from there. So, China and Russia, despite appearing friendly, have historically been enemies. Therefore, it's not good for Russia to weaken too much. That's right. So, there will come a time when we will have to save Russia, and Japan should be prepared for such scenarios. Yes. Mr. Koizumi. Sorry to interrupt your new high school story. [Laughter] I'm meeting you for the first time, and I'm quite shocked and processing it. I wonder what will happen with the Northern Territories issue. And I'm also thinking about how Japan's supply capabilities are being tested right now. What are your thoughts on this? I think Ms. Emi's scenario has a possibility of happening in the latter half of the 21st century. However, for example, within my lifetime, until I become a senior citizen, [Laughter] until I can say something about Japan's security, which is about 20 more years, I believe the Russian Federation will likely still exist. And another point is that the Central Asian countries are increasingly distancing themselves from Russia. They are indeed distancing themselves, and they are also facing pressure from Europe, but Russia's presence will likely remain to some extent. Turkey is expanding its influence, and China is certainly making a big move, but I believe Russia's ties will likely remain to some degree in Central Asia. So, while Russia cannot be called a superpower now, Alexander Dugin once said that it would cling to being a mini-superpower. They are trying to be a mini-superpower, but it's not working out, and at best, they might be able to manage as a regional power, but they are being pushed to that point. However, I think they might be able to manage as a regional power. In that context, Russia and China are likely quite aware that they have potential seeds of conflict between them, as others have pointed out. Russian strategists are actually aware of this. They start from the premise that there are voices that desire conflict between China and Russia, and their conclusion is that they have no choice but to somehow get along with China, swallowing various things. I see. However, this is still possible because Russia has a certain backing of power. So, as Ms. Emi said, if Russia truly weakens and becomes completely broken, the possibility of the "give back the Far East" argument starting is real. Yes. There's also a novel by a Russian writer, Solovyov, called "The Tale of the Chinese Ambassador," which depicts a future where Russia is completely weakened, and the revived emperor speaks Chinese within the imperial court. [Sniff] The emperor rides in a Chinese car, uses Chinese planes, uses Chinese toilets when he needs to relieve himself, and even uses a Chinese-made bed for procreation. It's depicted as a kind of dystopia for Russia. Russian intellectuals actually have this premonition. And they are also thinking about how to avoid such a future. I think it will likely fluctuate between these dynamic scenarios and the surprisingly resilient reality of Russia. If Eurasia goes to an extreme scenario like the collapse of the Russian Federation, it will be a complete reset, and the issue of the Northern Territories might return to being unclear whose territory it is. However, in a more moderate scenario, I don't think it will go that far before I become a senior citizen. Hmm. Hmm. It will endure. Whether it's good or bad, I don't know, but the current Russian Federation system and the current East Asian order seem to be heading in this general direction, as far as I can see. [Cough] I would really like to ask both of you, what should Japan face and what should it do in that case, with the remaining time? Ms. Emi. As for where to face, Japan needs to confirm its strategic positioning flexibly. But what Japan must undoubtedly do is to possess military power that can defend itself, that can withstand other countries and defend itself. Yes. Yes. I completely agree with that. Yes. In more abstract terms, I believe the world will likely become more multipolar. The unipolar dominance of the United States will clearly decline, both physically and perhaps because the US itself will become tired of it. As American dominance wanes, a more multipolar world than now will emerge. In that context, facing China as one pole, and with Japan likely maintaining its position, Japan must have grounds to say, "We will not be swallowed by that." Of course, we want to continue to involve the US as much as possible, but its dominance will likely decline. Therefore, possessing Japan's own defense capabilities is crucial. However, it's likely that simply having conventional military defense capabilities won't be enough anymore. If we don't incorporate new technologies like drones, AI, and space, our legacy military power might lose its credibility. Ah. In that regard, the use of AI and drones in Ukraine is a significant reference point. On the other hand, Ukraine is a landlocked country, and Japan is surrounded by the sea, so there are likely differences in circumstances. Therefore, I believe we have no choice but to have our own AI, drone, and space strategies. Ms. Emi, to get a bit more specific, from an investor's perspective, what fields will be noteworthy in the future? I was asked the same question by someone else recently, and I gave the same answer then, and I keep saying the same thing. As investments, I have four long-term themes for the next 20 to 30 years. The first theme is communication and IT, which includes communication infrastructure, as well as AI and all software. The second is healthcare. Healthcare, because people are living longer and longer lives. So, we need to improve people's quality of life and extend the period of active life. That's the direction we're heading in. Not just living longer, but if you live to 100, you don't want to be sick for the last 30 years. You want to be healthy and live vibrantly for 80 or 90 years. This will likely involve gene therapy and AI. Healthcare, yes. This is quite significant. It's a strong field. A strong field. The third is energy. Yes. Yes. Because nothing can operate without energy. AI also consumes an enormous amount of energy. Considering this, and as we've seen from the war, Japan has a very high dependence on energy. Therefore, while alternative energy is currently facing headwinds, alternative energy will undoubtedly be re-emphasized and gain attention again in the future. Furthermore, Japan must restart its nuclear power plants. In the process of restarting them, safer and larger-scale reactors will likely emerge. Although Westinghouse didn't succeed, if they were still alive, they might have become a trillion-yen company. So, in that sense, the current era is catching up to that. And AI requires a lot of energy right now. This is one of them. The fourth is defense. Yes. In the field of security, defense is not just about simply building tanks, fighter jets, or drones. It's about thinking broadly, including cybersecurity, food security, and water security. All of these are included. So, food companies and fishing companies are also, in a sense, defense. Yes. Indeed. So, the defense premium will be applied to important sectors in the future. Yes. These four fields are mega-themes. Companies involved in these areas will likely be bought, even if some outperform others at different times. Hmm. Hmm. Yes. While I'm focusing on AI, I wrote a book called "The Collapse of the Everything Bubble" in 2022. In it, I wrote that Japanese defense stocks are extremely undervalued. Companies like Mitsubishi Heavy Industries, Kawasaki Heavy Industries, and IHI are incredibly undervalued right now. I mentioned this on TV at the time. I said, "Aim for Mink," referring to Mitsubishi, IHI, and Kawasaki Heavy Industries. So, I focused on Mink, and indeed, Mitsubishi has increased 15 to 20 times in the last three years. It's not just AI. So, people tend to be drawn to flashy things, but in our world, surprisingly simple stocks can soar. After all, even with AI, if you want to use it for war, you ultimately need something to exert force, don't you? That's something large and heavy, which is heavy industry. That's right. So, I feel that with shipbuilding declining to the point where the US can't even build new frigates on schedule, Japan's ability to properly build warships and vessels is a significant strength from an outsider's perspective. Not many countries can do this. Yes. And I believe this will be Japan's revival in the future. This is also the basis for my scenario that the Nikkei average will reach 300,000. I said that 10 years ago. By 2050, the Nikkei will be 300,000. The current 60,000-something yen is just a milestone. It's about five times from here. [Laughter] Yes, really. But when I said it would reach 300,000, the Nikkei was 15,000 yen. I was laughed at a lot back then. Now, Nomura is saying 240,000 by 2040, and Daiwa Securities is saying something like 350,000. [Laughter] So, I'm probably being very conservative now. Yes, you're saying things that seem conservative, but everyone is catching up and surpassing me. They've surpassed me. So, I'll probably become so conservative that I'll say, "It will probably reach 300,000." Ah, I see. But the fact that each company is releasing these figures means that it's undoubtedly the trend. So, at that time, one of the reasons I thought so, and one of the important reasons why Japanese stocks would rise, is that the world is entering a new Cold War era. The previous Cold War was a huge tailwind for the Japanese economy. Yes. Yes. Japan, in a sense, started its post-war boom with the Korean War, and the US, to prevent Japan and Germany from being absorbed by the communist bloc, gave them preferential treatment. As the Cold War neared its end, the US thought Japan was no longer needed and started to attack us. We were bullied by the US. So, starting with the Plaza Accord, the US-Japan trade war, or trade friction. Japan's automotive and semiconductor sectors were severely bullied by the US. They were destroyed, in a sense. We, as Japan, couldn't compete with the giant US. This time, with the new Cold War era, the US needs Japan more than before. They are running out of missiles and can't produce them, and when it comes to physical AI, robots, and drones, the US has few production bases. So, who will make them? Since they can't make them in China due to it being an enemy, who will? Then there are only three options: Taiwan, South Korea, or Japan. But if Taiwan is attacked, they can't do anything. And if South Korea is attacked by North Korea, they're finished. Then there's only Japan. So, the US wants the supply chain to return to Japan. They want Japan to make things. They want Japan to make ships and missiles for the US. They will probably ask us to make fighter jets and drones too. They will ask Japan to make robots. So, while the brains might be in the US, the physical parts, these detailed parts, Japan is good at them. I think the space industry is also like that. So, this is a huge tailwind for Japan. No matter how you look at it. However, this time, instead of relying 100% on the US, Japan must have its own military power. When the Cold War nears its end again, if we are bullied by the US, Japan will be able to fight back. Last time, we couldn't fight back and just endured the bullying. [Sniff] Yes. I think this is where, from a cool-headed perspective, Japanese people tend to feel a sense of unity with the US, thinking, "We'll work with the US." Honestly, yes. But, you know, having a leverage, like "If you cut me, I have other options," is something that Russians also have. I think Japanese people should learn a bit more about such bargaining tactics. And also, regarding the strengths of Japan that Ms. Emi mentioned, I think we should have the attitude of saying, "We have all these strengths, so please value us highly." Yes. Both the US and China and Russia tend to think, "We shouldn't anger the great powers." While we shouldn't engage in pointless friction, we should speak up when necessary and try to bargain. I thought so too. That is, what is often said is diplomacy rather than military power, but I think bargaining between the two is the most important thing. And we are not good at this. Especially in Kanto, I think we are not good at it. Ah. I was born and raised in Kanto, and I can't grasp things. I think it's coolest to say, "Give me that." Yes, that's the spirit. But, you know, Kansai people negotiate, don't they? That kind of approach should at least be standardized in Japan's foreign policy. I agree. Because Trump, I've always said, is a bazaar merchant. So, sending an ordinary person is useless. So, you should have someone like a merchant from Osaka, who does business in the streets of Istanbul. [Laughter] Someone like an Osaka merchant as a negotiator with Trump. Yes. Yes. Like, "Have some candy." [Laughter] So, if they push, we should push even harder. We should then lower the bar. That's negotiation. They won't think badly of it. That's negotiation. If you worry about what the other person might think, or if it might be rude, then it's over. Yes. Yes. Yes. Ultimately, you're not doing it for yourself, but for your country. Yes. So, I think at least foreign policy officials should have that kind of thick skin. Especially if a Trump-like America continues, or if we have to deal with Russia or China, that kind of thick skin will definitely be necessary. Even when dealing with Europe, they are not exactly gentle people. So, when there are situations where Japan has to take the lead, we should be that thick-skinned. Learn from bazaar merchants. Yes. Yes. Yes. Yes. Send people from the Ministry of Finance to the Turkish bazaar. Yes. Yes. But looking at Turkey's movements over the past 200 years, they have skillfully used various powers against each other. For example, they approached Britain because they saw Russia as a threat, then approached Germany when they saw Britain as a threat, and then borrowed help from Russia when they thought the European powers were dangerous. In a sense, they have continued to pursue national interests. So, that kind of flexibility might be necessary. So, I don't think we should always be in conflict with China. Yes. Yes. Depending on the situation, we should also have that as a card against the US. The relationship with China too. Whether China itself has that much foreign flexibility is another discussion. Well, perhaps emotions are stronger than economic rationality for China right now. But we have to manage that well. That is, that is also a strategy. Skillfully. For example, Russia is an enemy, but there are times when we borrow help from Russia, like the Ottoman Empire. Even under the current Erdoğan administration, they are considered enemies, but they suddenly buy missiles from Russia. They do. So, I'm impressed by Turkey's flexibility. On the other hand, they supply drones to Russia and have helped Russia's drone industry. So, they do both. They play both sides. They hedge their bets, keeping their options open. They have to move like a hedge fund, not betting everything in one direction, but keeping some options open. We might have to get along with Russia sometimes. I feel like this brings us back to the initial topic of investment. That is, when you form various partnerships, like putting some resources in, there's likely some sense of values involved. Yes. Yes. And while there's a large portion of the portfolio based on values that we shouldn't compromise on, it's still good to invest a small percentage, say 5%, in something that doesn't quite align. It's like having many legs, but with different thicknesses. That's what makes the most sense to me. And the latter two of the four investment areas that Ms. Emi mentioned, energy and defense, including food in a broad sense of security, are about self-reliance. I truly believe that's the case. Because as the world becomes more multipolar, it also means a certain degree of bloc formation. Yes. So, we might be enclosed. For example, AI becoming sovereign AI, and what about the energy resources that power it? Or, for physical AI, we need iron and rare metals, and those will also be enclosed. If we can't do some of that ourselves, our voice will be diminished as one of the poles. However, Japan cannot achieve self-sufficiency in all of these domestically. So, it comes down to having pipes to various places within those blocs. I think that's what it comes down to. Yes. Yes. It's stylish. The air quality is not good. You want to lower management fees. For such concerns, get a free comprehensive quote from a management company. By consulting multiple companies at once, you can find a management company that satisfies you. Get a free comprehensive quote. Is that it? Will the pipes between Japan and Turkey connect well? Well, recently, I went to Turkey, and the Japanese Ministry of Defense is purchasing drones from Turkey. Yes. They're talking about introducing them experimentally. There's also talk of introducing them, so in that sense, we can probably cooperate. Turkey is also very interested in space development. So, perhaps JAXA and Japan can cooperate in some way. Yes. Yes. In space development. Michael Freedman wrote a book called "The Next 100 Years," didn't he? He wrote it about 10 to 15 years ago, and he predicted that by 2050, Japan would revive militarily. Ah. And he mentions Japan, Turkey, and Poland in that book, which was written 15 to 20 years ago. So, these three countries would become a significant pole. He also wrote that Japan would become the world's leading country in space warfare. We have to work a bit harder on that. [Laughter] Yes. Yes, yes. It's become surprisingly close. Yes. I see. What's the basis for that? Is it a mechanism where there's a pushback against the land power of China and Russia? I suppose so. Yes. Well, his argument is that maritime nations are strong. That's his thinking. So, countries that were maritime nations in the past, or have that tradition. So, truly maritime nations are like that, aren't they? So, Japan, the UK, and Turkey. And the US, well, it's also a descendant of the UK. From that perspective, ultimately, Spain and Portugal are also involved, but indeed, the world is, in a sense, experiencing clashes between land powers and maritime nations. All the clashes in the last 200 years. Ultimately, Japan should be on the side of the maritime nations. Yes. So, the concept of geopolitics, land power versus sea power, is often criticized, and whether it can be applied to individual situations is debatable. However, I believe that over a span of 100 to 200 years, that structure still holds true to some extent. Yes. So, in that sense, countries like Turkey and Japan, and the UK, Italy, and Japan are currently building fighter jets together. I feel that there might be some geopolitical inevitability in such combinations. Also, when I spoke with an Indian person in Moscow, they told me, "Do you know why we get along well with Russia?" They said, "Because we don't share a border." If they shared a border, it would be impossible for such strong-willed countries to get along. [Laughter] They said it works because there's a country in between. So, isn't it the same for Turkey and Japan? If such strong-willed countries were next to each other, they would probably be much more hostile. [Laughter] That was it. This is it. Ah, George Friedman. Not Michael. "The Next 100 Years: A Forecast for the 21st Century." He wrote, "In 2050, Japan, Turkey, the US, and Poland will wage war in space." Ah. [Laughter] Yes, yes, yes, yes. And in the book from 20 years ago, he wrote, "Solar power generation in space in 2080." Ah, but that's something JAXA has dreamed of for a long time, isn't it? Space solar power generation. That's amazing. SpaceX is also talking about data centers, so it's fitting, isn't it? It's a 20-year-old book. I read it about 20 years ago and was quite shocked. Yes. Everyone, please welcome George Friedman's "The Next 100 Years." In our world, when we say Friedman, there's a strategist named Lawrence Friedman who wrote a thick book called "The Evolution of Nuclear Strategies." I thought it might be him, but it wasn't. [Laughter] There are several Friedmans. I thought it was Michael Friedman, but it was George Friedman. Yes. It was good. Well, it's a common name. Yes. And so, we've had a very wide-ranging discussion with both of you today. Yes. So, to summarize today's discussion, in the first part, we talked about the potential IPO of SpaceX. And the latter half was about Japan's defense. The theme was particularly significant. Yes. Yes. Japan's defense budget has exceeded 9 trillion yen for the first time, and it is expected that this amount will increase in the future. I would like to ask both of you to speak from your respective areas of expertise. Specifically, regarding AI-related fields, defense stocks, or how Japan should approach security in general, let's conclude today's discussion with that. Well, it's one of the major mega-themes for the future, and Japan has been forced to act due to geopolitical necessity. Therefore, there will likely be more market opportunities than before. Companies will emerge there, and this year, for example, although growth stocks have declined slightly recently, they had been rising significantly since the beginning of the year. Looking at the Growth 250, the top 10 companies account for about 30% of the weight of Japan's growth stock index. And about one-third of those are related to space. Companies like Astroscale and Space Perspective. Yes. Yes. So, companies like Sares, and in the future, dealing with space debris, and so on. I believe these are areas where Japan can grow. Yes. I also went to the Expo in Sapporo last year, and the space business is indeed quite lively. So, large companies will enter this field, and new companies will emerge. And those companies, along with SpaceX, which has a high valuation, have the potential to boost the space-related sector. So, I think there will be opportunities for future IPOs and POs. In a sense, for investors, finding and identifying good companies is like building a nation. As the saying goes, "There's no loss in investing in the nation." Yes. There's no loss. That's right. In the market, investing in the nation is important. Yes. In that sense, this is right in the middle of it. Mr. Koizumi, what are your thoughts? Regarding Japan's defense policy, one aspect is that we will still need to develop legacy capabilities. This is because, in the structure of Japan's defense policy, there are many areas that were intentionally not pursued or were not pursued due to lack of funds. For example, intentionally not pursuing long-range attack capabilities. So, Japan is now taking steps to regain its self-reliance. And what couldn't be done due to lack of funds, for example, infrastructure development. The Self-Defense Forces' facilities are all above ground, aren't they? Yes. Yes. But the war in Ukraine has shown that it's overwhelmingly safer to keep things underground. Military forces hidden in tunnels in the mountains are incredibly difficult to attack. Unless you send ground troops and suffer heavy casualties, it's hard to defeat them. Missile forces are also hard to defeat. Yes. And while it's uncertain whether we'll go that far, it's clear that it's better to have as many things underground as possible. So, for example, defense infrastructure development, especially tunnel construction. Yes. We've also been severely lacking in ammunition. In a parliamentary inquiry a few years ago, it was reported that the Self-Defense Forces only had about 250,000 rounds of ammunition. At the pace of the Russian army in the Ukraine war, that would be used up in about three weeks. However, since they don't have as many artillery pieces as the Russian army, they can't fire them all at full capacity, which is a pathetic situation. In any case, we are short of everything. And yet, due to demographics, the number of Self-Defense Force personnel is bound to decrease. This is stated in the Ministry of Defense's estimates online. By around 2040, the Self-Defense Forces will be reduced to about 60% or 70% of their current size in terms of personnel. If the international situation, including relations with China, does not improve during that time, we will have to compensate for the decrease in personnel with machinery to maintain deterrence. Therefore, AI and unmanned aircraft will likely become areas of focused resource allocation. Let me say it again, even if we talk about unmanned systems, Japan is surrounded by the sea and sky, so we need platforms. And those platforms tend to be relatively large. In that sense, ships and aircraft, and things that fly in the sky, and there's also discussion about airships being useful recently. Things that can float on the sea or in the air will be essential when advancing unmanned systems in Japan. Yes. Well, ultimately, war is a battle of resources and logistics. So, having only 250,000 rounds of ammunition is a bit concerning. Yes. If something happens, we'll run out. Japan should have such reserves. I think so. I heard from someone in the Self-Defense Forces that although there's more capacity for ammunition, it's stored in the back because the expiration date has passed. And they have to bring it out and dispose of it, but this is done by private companies. However, the capacity of companies that can handle demolition is small. So, it's difficult to dispose of them, and the back is filled with ammunition that can't be used, so there's no room to store ammunition that should be kept. In that case, if we invest more in allowing those companies to process old ammunition, the government will have to provide funding. Yes. I think there are things like that. When you hear about it, you realize, "Ah, I see." So, if defense is a focus area, it's probably about listening to the actual situations of those people. Yes. Yes. Thank you very much. And so, today, we've discussed space business, AI competition, and the global order with both of you. Please feel free to leave comments in the comment section if you have any other topics you'd like us to cover or any opinions. We would be very grateful. Thank you both very much for today. Thank you. Rakumachi, Rakumachi, Rakumachi, Rakumachi, Rakumachi, Rakumachi, Rakumachi, Rakumachi. [Singing] Real estate investment is Rakumachi. [Singing] Yes.