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Q1 is Q4 in Japan – a review of business cycles

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Perhaps one of the most fundamental differences between Japan and many other countries is the fiscal year boundary. Unlike in the UK, which is probably the source of this tradition, the beginning of April in Japan marks the start of a new cycle of, well, everything. Families move apartments, school years end and start, companies roll out their re-organizations, university graduates enter their new employers, and hanami or cherry blossom viewing becomes a national past-time. In other words, the fiscal year ending and starting time applies to everything, not just businesses.

Let’s compare how this applies to business activity in the US and Japan. In the US: Jan-Mar is slow, activity builds through summer, August is an off-month, and activity climaxes by November. The Thanksgiving holiday is when business activity, and most people, collapse, right through Christmas and New Year. In Japan: April-June is slow, activity builds through the summer, Aug is an off-month, and Sep-Dec grow increasingly hectic, with Jan-Mar becoming frantic. Q1 is Q4, but even more so, because preparation for the next cycle must be completed. And remember, everything in life is organized around this calendar structure. The “collapsing” part is reserved for Golden Week, a national holiday that occurs around end of April/early May.

It would be interesting to compare the US and Japan to the UK, which uses early April as a kind of administrative boundary in government. Many governmental conventions in the UK were adopted in Japan at the beginning of its modernization, but they have since evolved in uniquely Japanese ways. It is fair to say that this fiscal year convention does not apply in such a complete way to life in the UK, though the cycle of activity is similar in some ways and Easter marks a kind of pause in life. Outside of Japan, companies tend to follow their own fiscal year definitions, but it is also true that the general cycle of activity follows an overall pattern based on underlying cultural conventions.

So what happens in Q4/Q1 (Jan-Mar)? Most foreign businesspeople who have some experience in Japan see Q4 as a prime selling season, and depending on market conditions, a lot of new business can occur then. This is simply because annual budgets need to be spent or allocated elsewhere. The slow decision-making process that occurs during the rest of the year can suddenly turn into hasty purchases. However, this is only true when budgets are plentiful and the market in question is growing. When budgets are tight or a down trend is in progress, purchase activity can be more limited, simply because budgets have run out and departments are fighting over the scraps that are left. A classic behavior that can be seen in a down trend is when there is purported interest but the decision keeps getting delayed every fiscal year, year after year. This is further complicated by the fact that staff in Japanese companies are shuffled around at the end of every fiscal year.

Within specific industries, there are other cyclical factors. For example, new mobile handsets are released in spring and fall, and that can determine timing of purchases related to components in those handsets. Consumer-facing businesses observe cycles related to consumer behavior and certain holidays or life activities, which in Japan can be somewhat uniform in timing but behavior varies widely by demographic segments. Large infrastructure and general IT purchases have long cycles, and in some cases longer than elsewhere. IT equipment is replaced more slowly than in the US, for example, so a 3-5-year cycle can become a 7-10-year cycle. And large infrastructure upgrades or replacement have long cycles, as elsewhere, but when they happen they can be massive because they happen in concert.

The 2020 Olympics has created a large cycle affecting major infrastructure, real estate and the economy overall, so this is a prime time to be active in Japan. The infrastructure purchases happening now and through 2018 will be huge. After that, it will be a long wait for the next infrastructure cycle. It remains to be seen if some industries, like advertising, can benefit from current growth beyond the Olympics. Abenomics has not failed yet, and inflation seems to be taking hold, but whether Japan really leaves its decades of doldrums behind is not yet clear.