Analysis: Womenomics

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Analysis: Womenomics

Miyuki Kashima Head of Japanese Equities BNY Mellon Investment Management Japan Limited

Makiko Togari BNY Mellon Investment Management Japan Limited

July 2017

Executive summary

Womenomics is a secular investment opportunity in Japan with a focus on easing barriers to female employment outside the home, promoting women to leadership levels in companies, and closing the gender pay gap.

We believe the growing economic power of women translates directly into faster growth for the companies which have women as a core or targeted customer, compared with firms that do not put women at the core of their proposition.

In 2015, the female labour force participation rate was 66% compared with the male rate of 85%, which means there is room for improvement.

Gender parity in labour force participation is projected to increase GDP in Japan by almost 20% over the next 20 years, according to the OECD.

In 2013 Prime Minister Shinzo Abe embraced Womenomics as "the core of my growth policy". Principal targets for 2020 include raising the female employment rate from 68% to 73% in the 25?44 year-old age group.

The government also offered subsidies and incentives for companies deemed "women friendly".

With women increasingly poised to enter the Japanese workforce the purchasing and decision-making power among the Japanese worker is clearly moving towards women.

Alicia Levine

Table of contents

Director of Portfolio Market Strategy BNY Mellon Investment Management

Womenomics in Japan Population and labour force

projection

2

Gender wage gap

5

Why invest in Japan?

Growth outlook

6

The investment thesis

7

Conclusion

Why Japan equity womenomics

strategy today?

8

Analysis: Womenomics

Womenomics in Japan

Population and labour force projection

Many assessments of the economic growth potential in Japan inevitably focus on its negative population growth.

Japan's prime working age population is set to shrink by around 30% by 2060, particularly as there is very little immigration to supplement the internal birth rate.

Japan population and labour force projection

In millions 140

120

100

80

60

40

20

0 CY2010 CY2015 CY2016(E) CY2020(E) CY2030(E) CY2040(E) CY2050(E) CY2060(E)

75 years or older 0 to 14 years old

65 to 74 years old Working age

15 to 64 years old

Source: National Institute of Population and Social Security Research in Japan, as of December 2016. 2015 Population Census by Ministry of Internal Affairs and Communications, National Institute of Population and Social Security Research. Projection of population between 2016 and 2030 were based on population projection released in Apr 2017 by National Institute of Population and Social Security Research.

In 2015, the female labour force participation rate was 66% compared with the male rate of 85%.

In recent years, many economists and government officials in Japan have focused on harnessing the power of women in the labour force as an offset to the projected decline of the labour force. Female economic power is recognised as an important pillar of future Japanese economic growth. For example, according to the Organisation for Economic Cooperation and Development (OECD), gender parity in labour force participation is projected to increase GDP in Japan by almost 20% over the next 20 years.1

Labour force projection in Japan Female labour force participation rate (15?64 years old)

In millions 60

58

56

54

52

50

48 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Rate stays at 66.8%

Rate rises to 85.0% in line with male

Source: Calculated in April 2017 by BNY Mellon Asset Management Japan based on 2015 Population Census by Japan's Statistics Bureau, Ministry of Internal Affairs and Communications and Population Projection for Japan released on 10 April 2017 by National Institute of Population and Social Security Research in Japan built on 2015 Population Census.

1 OECD, Closing the Gender Gap, Act Now, Japan, December 2012.

2

Analysis: Womenomics

Women are increasingly entering the Japanese workforce.

Womenomics: a secular theme Percentage of women employed (15?64 years old)

68% 66% 64% 62% 60% 58% 56% 54%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Prepared by BNY Mellon Asset Management Japan Limited based on the target indicated in the Japan Revitalisation Strategy, Ministry of Internal Affairs and Communications. Data as of December 2016.

Room for improvement: Despite recent gains, Japan's female labour force participation rate remains well below that of other countries.

Japan female labour force participation rate compared to the Organisation for Economic Co-operation and Development (OECD) Female labour force participation rate (15?64 years old)

90% 80% 70% 60% 50%

40% 30% 20% 10%

0%

Turkey Mexico

Italy Chile Korea Greece Poland Hungary Ireland OECD countries Belgium Slovak Republic Luxembourg Czech Republic United States Japan France Slovenia Israel Spain Portugal Austria United Kingdom Australia Latvia Estonia Germany New Zealand Canada Finland Netherlands Denmark Norway Switzerland Sweden Iceland

Percentage of women participating

Percentage of Japanese women

Source: Organisation for Economic Co-Operation and Development (OECD) data as of December 2015, . The employed and unemployed together are known as the labour force according to the International Labour Organisation (ILO).

As a result, "Womenomics," the encouragement of women to work outside the home and participate actively in the public sphere, is a secular investment theme in Japan. In fact, in 2013 Prime Minister Shinzo Abe embraced Womenomics as "the core of my growth policy." Principal

targets for 2020 include raising the female employment rate from 68% to 73% in the 25?44 year-old age group, and raising the percent of women in leadership positions to 30%. The Japanese government increased childcare leave benefits and rolled out an infrastructure plan to open an

incremental 500,000 spots in day care facilities by 2019. The government also offered subsidies and incentives for companies deemed "womenfriendly." A 2016 law to support female employment requires documentation on action plans from companies with over 300 employees.

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Analysis: Womenomics

Employment recovery since the financial crisis has been much stronger among female workers than male.

The focus on Womenomics is already visible in the employment numbers. The recent growth in the labour force is overwhelmingly due to the influx of women into the workforce. In 2016, female workers increased by 470,000 while male workers only increased by 170,000, while female university students had a higher job hunt success than male students (87.3% vs. 83.1%).

The number of female employed persons Female labour force participation rate (15?64 years old)

28.50

6.0%

28.00 27.50

5.5% 5.0% 4.5%

27.00 26.50

4.0% 3.5% 3.0%

26.00

2.5%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Women employed (in millions)

Percentage of unemployed

Source: Japan's Statistics Bureau, Ministry of Internal Affairs and Communications. Data as of February 2017.

In addition, the female labour force participation rate has climbed from 63% in 2010 to 68% in 2016.

The number of male employed persons Female labour force participation rate (15?64 years old)

38.00

6.0%

37.25

5.5% 5.0%

36.50

4.5% 4.0%

35.75

3.5% 3.0%

35.00

2.5%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Men employed (in millions)

Percentage of unemployed

Source: National Institute of Population and Social Security Research in Japan, as of December 2016.

4

Korea Estonia

Japan Latvia Chile Finland United States Portugal Canada Austria Germany Switzerland United Kingdom Mexico Czech Republic Australia Ireland Netherlands OECD Average France Iceland Sweden Slovak Republic Lithuania Colombia Poland Hungary Greece Spain Norway Turkey Denmark New Zealand

Italy Slovenia Luxembourg Costa Rica Belgium

Analysis: Womenomics

Gender wage gap

Despite recent progress, the gender wage gap in Japan is one of the highest in the developed world.

Closing this gap, even to the OECD, average, would lead to a huge boost in the spending power of working women. Further, women only comprise 3.5% of all corporate board seats, leaving much room for improvement.

Women are also currently more likely than men to work on a part-time basis. Recent data show that 56% of women workers are not full time; if this ratio falls to the part-time level of men, which stands at 22%, the potential total working hours for women could rise even further. The difference in pay is clear ? full-time workers make more than twice the annual salary compared to non-full timers.2 Recent labour action plans (March 2017) promote equal pay for equal work, regardless of part-time status which encompasses wages, bonus, promotion, training, and social benefits. The outcome of this is that even part-time work will be better remunerated.

Gender wage gap of OECD countries 40% 30% 20% 10% 0%

Percentage of women participating OECD average

Percentage of Japanese women

Source: OECD statistics as of March 2017. Note, the latest available data on the platform for Korea, Estonia, Japan, Latvia, Finland, Portugal, Austria, Germany, Switzerland, Australia, Ireland, Netherlands, Iceland, Lithuania, Poland, Greece, Turkey, Denmark, New Zealand, Italy, Slovenia, Luxembourg, Belgium is from 2014. The latest available data for Chile, United States, Canada, United Kingdom, Mexico, Czech Republic, Slovak Republic, Colombia, Hungary, Norway, and Costa Rica is from 2015. The latest available data for France and Spain are ones in 2012. The latest available data for Sweden is from 2013.

The same recent labour action plan also limits the number of maximum hours of overtime which we believe will incrementally benefit women in the workforce as data show that men are

presently more likely to work overtime. Limiting overtime will equalise hours worked across the labour force and should prompt companies to incrementally hire more workers.

With women increasingly poised to enter the Japanese workforce and remain after childbirth, and with the effort to close the wage gap: the purchasing and decision-making power among the Japanese worker is clearly moving towards women.

According to the Organisation for Economic Cooperation and Development (OECD), the pace of change of women entering into the labour force over the past 10 years has risen more rapidly than others.

Female employment rate 70%

65%

60%

55% 2005

2010

Japan

US

UK

France

Source: OECD Female Employment Rate of 1?64 year olds, December 2015.

Australia

2015

2 Source: Statistics Bureau Ministry of Internal Affairs and Communications, the National Tax Agency.

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