On weekdays, before I leave for work, I take the time to watch an early morning economic program for a few minutes. Even if we are engaged in a profession or pursuit not directly related to the economy or finance, we all have at the very least an indirect connection, so it can still be helpful to our work. Most importantly, I consider myself intellectually curious, so I enjoy watching this program. Each day, the show features different experts—chiefly in the field of finance—who explain and forecast market activity in the short, medium and long term from their own perspective. But their predictions do not always come to fruition. Rather, it is more often the case that their forecasts miss the mark. In fact, if it is a prediction concerning specific figures related to economic growth, interest or exchange rates, or stock and commodity prices, these experts’ projections are rarely accurate.

These missed predictions, of course, are not necessarily an indictment of the competency of these experts. Based on their expertise, they ruminate on a variety of situations and data—including politics domestically and abroad, as well as international, economic, and financial conditions—to offer forward-looking projections. But those are predictions within the realm of expectations, and the world is a place where the unexpected occurs frequently. This could include, for instance, an event that shifts the geopolitical landscape such as an armed conflict, a statement by a key figure with a particular agenda, or a natural disaster. It is impossible to incorporate unexpected events into advance forecasts. Furthermore, the changes resulting from such events can give the world a rather different look. As this process is repeated, the disconnect between predictions and results becomes increasingly pronounced. Experts may adjust their projections in response to each such occurrence, but people are not interested in hearing new predictions each time. Given this, it’s not difficult to understand how experts frequently miss the mark with their musings. At the beginning of each year, the Nihon Keizai Shimbun (Nikkei; a renowned financial newspaper) carries forecasts by experts and prominent business leaders for the year’s economic growth rate and the Nikkei Stock Average. It is a bit foolish to think that the person who nails a particular projection is some kind of economic savant; it’s actually more akin to a game of roulette, where the ball happens to stop on the number on which they have placed their chips.

Of course, I am not saying that making predictions is a fruitless pursuit. All I’m trying to say is that the idea or reasoning supporting the prediction is important, and the result less so. But that should go without saying.

Now, one more variable that throws a proverbial wrench into the forecasting process is the long-term trend. Changes in such trends are not sudden, and it’s not certain how they affect the current state of affairs, so experts rarely incorporate long-term trends into their forecasts. The most recent long-term trend is probably the shift toward a borderless global economy that began in the 1990s. Goods were produced in optimal locations and distributed around the world, expanding supply and demand over time. Of course, it was not perfect, as it produced side effects such as contributing to the prolonged deflationary period in Japan. I believe, however, that this long-term movement is undergoing a major turnaround. The catalysts were the intensification of existing acrimony between the world’s two largest powers, the U.S. and China, and the international community’s ostracization of Russia in the wake of its invasion of Ukraine.

China and Russia have generally played major roles in global economic trends as suppliers, the former of a variety of goods and the latter of resources. But there is a significant change happening. This is sending the world scrambling to secure alternative sources of supply, which is proving a challenge from the perspectives of both volume and price. European countries, for instance, received natural gas supplies from Russia via cross-border pipelines. As this has become more difficult, these nations are attempting to manage the crisis by shifting to supplies from other countries or procuring from other sources, including renewable energy. This will force a restructuring of the supply chain, which obviously won’t happen overnight. In such a situation where procurement becomes impossible or delayed, inventory can no longer be viewed as “evil.” The phrase “just in time” was once in vogue, but it seems to have become obsolete. It appears certain that, with all of these changes having occurred, costs will have to change as well. The current inflationary state is not a temporary one, and we may be approaching a watershed moment where we transition from an era of deflation and low interest rates to one of inflation and high interest rates.

And in this context, nations can now be color-coded into three categories: democracies, tyrannies, and countries that incorporate the best of both worlds. The best examples of nations that fall into the third category are countries such as India and Turkey. Democracies want to somehow defeat tyrannical states whose ideals are incompatible with theirs, but the existence of a “best of both worlds” state presents an obstacle. This type of nation will shake hands with any country to further its own economic interests, as if to say, “Principles don’t put food on the table.” Is it this camp that plays both ends against the middle the one that will reap the benefits for the time being?

Sorry, it looks as though I let my imagination get the better of me. But don’t you think that a curious, impartial party taking this all in from a distance may be better suited to notice these long-term trends than someone with in-depth expertise in a focused area? After all, reasoning is more important than results…

Hirotaka Shimizu
Chairman and CEO
Kamakura Shinsho, Ltd.