Japan will eclipse Macau, but no need to rush in

TAGs: Editorial, Japan, Macau

Integrated gaming resorts in Japan would be the greatest development for international gaming since Macau. The coming Japanese Diet will hopefully be the one to pass the legislation making it official, though there is no need to jump on an investment trying to anticipate who will win the coveted licenses, sure to be extremely scarce and certainly big newsmakers.

It is generally agreed upon by gaming analysts that the first resorts won’t be online until the middle of the next decade, and that takes into account a strict gaming-industry-only perspective. From what these analysts know about their own industry and how long it generally takes parliaments to do anything to legalize it, 8 years is the accepted ballpark timeline. I see that as a minimum. It will likely take longer because there is no economy more bloated with dead weight in the world than Japan, and this by far.

Japan will eclipse Macau, but no need to rush inThe next recession—and there will be one eventually, certainly before 2026 when these new resorts are estimated to go live—will likely bring down the entire rickety scaffolding of the Japanese economy and the winners of these licenses may then have to delay their plans while Japan restructures and cleans house. Don’t get me wrong though – even though the monetary and fiscal picture in Japan right now is quite monstrous, Japan will recover. Its people are too resourceful not to and it doesn’t have a totalitarian culture like China. How fast Japan will recover depends on how fast the Japanese government can get out of the way.

My feeling is that since Japan’s government sector is so intensely bloated, when the credit fueling it dries up, it won’t have that much power to interfere in the economic restructuring to follow. It might want to, but it won’t be able to.

Here’s what I mean by bloated. If you thought Greece was bad with a 180% government debt to GDP ratio, Japan’s is 253% and still rising. The only way Japan’s private sector can shoulder this abomination is negative interest rates. Japan achieved this by having the Bank of Japan print an ungodly amount of money since 2008, the BOJ’s balance sheet going up from ¥100 trillion to ¥533 trillion. Due to that massive expansion, interest rates on 10-year Japanese government bonds plummeted from an already extremely low 1.7% down to -0.29% in July of 2016. Short term rates are even deeper into negative. Rates have since “skyrocketed” on the 10-year, if such a word can be used to describe such a crazy situation, 114% to 0.04%. This is slightly faster than rates have risen iman the United States since July 2016 at 108%.

Now, granted, Japan’s debt crossed the value of its entire economic output back in 1995 and 2008 didn’t collapse the country. But the next recession will. The Bank of Japan was actually not that expansionary until 2013 when Prime Minister Shinzo Abe introduced Abenomics and the BOJ printed more money over the course of 4 years than it had over the course of its entire history. The Japanese economy cannot get any more primed than it already is, and we’re supposedly 10 years into a very rickety economic recovery. Japan’s GDP, as inadequate of a calculation that the figure is, has dipped into contraction 3 times since the 2008 recession despite Abenomics. There is nothing else Japan can do monetarily to loosen the effects of the next downturn when it comes.

Those planning to invest in Japan’s new casino industry should hope that all the dead weight of the Japanese economy gets cleared out before whoever gets these new licenses starts expending capital. Getting caught in the middle while its happening will cause investors to scurry away when they are needed most. Whether Japan’s current Diet is the one that approves a new gambling regulation bill or if it’s the next one doesn’t really matter in the scheme of things. Perhaps it would be better for the legislation to pass the next one rather than this one just to give a little more time for economic law to run its course.

The quicker Japan’s economy cleans house, the more desperate Japan’s political class will be for economic growth and tax revenue. That means Japan’s Diet will probably be more amenable to cutting better deals in terms of taxation and regulation in order to encourage business and international gamers to come. The rule of thumb here is, the worse Japan’s economy gets from now until these resorts start being built, the better it will be for the firms that do get involved.

Over the long term say 20 to 30 years, Japan will be bigger than Macau simply because, despite the monetary machinations, Japan is still a much freer country than China ever will be. China is becoming more totalitarian every year with Xi Xinping now king for life and launching grandiose creepy totalitarianistic plans for a country-wide social credit system that will rank Chinese citizens by how well they obey the government. This is, to me, the scariest crackpot Chinese government scheme since the Great Leap Forward and it will lead to massive systemic corruption, bribery, harassment of political dissidents, fear, and a culture of tattling, blackmail, and seedy sexual favors galore. I don’t even want to think about it.

Beijing also has a history of harassing casinos and jailing their executives without warning. Japanese authorities wouldn’t do that. They’d talk to you first, nicely. So whatever regulatory environment springs out of Japan’s Diet for its new gambling industry, it will be predictable and consistent, at least more so than Macau’s, whereas the regulatory environment in Macau can change on a dime depending on Beijing’s mood and cause the entire industry to crash overnight. We already saw this happen with Xi’s money laundering crackdown, from which some Macau casinos have yet to recover from. Shenanigans like these are much less likely to happen in Japan.

So long term, Japan will probably eclipse Macau, even if it erects a strict and expensive regulatory regime for the new industry. For now though, there is nothing to do but wait.


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