The Independent Investor: Japan Embraces Bushido

It was a word rarely spoken in postwar Japan. Bushido, or the "Way of the Warrior," evoked too many embarrassing and shameful memories culminating in the horror of Hiroshima and Nagasaki. But times have changed.

On Dec. 26, Prime Minister Shinzo Abe did the unthinkable. Defying the Koreas, China and the U.S., he visited the Yasukuni war shrine. It is where the memories of 2.4 million Japanese dead from three wars are remembered. His 30-minute visit sparked outrage from Japan's neighbors who view the shrine as a symbol of Japan's imperial military past.

Last Tuesday, the Japanese government confirmed my thesis presented to readers six months ago. On Tuesday, it announced a significant increase in its defense spending over the next five years amounting to 24.6 trillion yen ($237 billion). That's an increase over the current plan and, in my opinion, the defense budget will be increased again and again as time goes by.

They will use the money to acquire surveillance drones, 28 American F-35A fighter jets, 17 Osprey aircraft, five naval destroyers, six submarines plus amphibious vehicles. That's not all. Japan's existing Self-Defense Forces will be beefed up with a new amphibious unit (similar to the U.S. Marine Corp) whose job would be to re-take islands captured by the enemy.

Abe also announced the establishment of a U.S.-style National Security Council and gained support for changing the country's constitution, specifically Article 9, which prevents Japan from "collective self-defense" (coming to the aid of its allies).

Clearly, Japan is rebuilding its defense capability. This sea change will have long-term repercussions for the Japanese economy and the balance of geopolitical power in Southeast Asia. It also adds to U.S. security while reducing our costs as we begin to share the role of the world's policeman.

In my last column back in August, "Japan's New Frontier," I argued that this island nation was on the eve of re-inventing itself. I predicted that as part of an economic renaissance, Prime Minster Abe and his cabinet was preparing to expand its defense capabilities. Re-armament, in my opinion, would address several issues simultaneously.

An expanding defense industry would provide a large number of highly skilled, highly paid jobs for the country's workforce. It would also be an easy avenue for the government to provide spending and additional stimulus to the economy. It would answer the U.S. government's on-going request that Japan shoulder more responsibility in policing their side of the globe, specifically Southeast Asia. And finally, the return of the samurai in the form of a stronger army, navy and air force would provide a strong detriment against encroachment from China, North Korea and, someday, possibly a more aggressive Russia under Putin.

Recent events have played into the hands of Abe in martialing support in his quest toward bushido. China's arbitrary declaration of an exclusive "air-defense identification zone," covering the disputed Senkaku Islands recently lent credence to Abe's argument that Japan must be willing and able to protect its own territory or else others would take it from them.

This argument reverberates in other parts of Asia. Vietnam and the Philippines have their own disputes with China over territory. It is no accident that Japan, using last month's typhoon damage in the Philippines, dispatched troops, ships and generous amounts of aid while China did next to nothing. It was the largest deployment of Japanese forces since 1945.

Most readers are aware that I have been bullish on Japan, its economy and stock market for the last two years. Everything I see convinces me that my investment stance is correct.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.