From bidets to AI labs: Japan’s hidden innovators should step out and learn to play the hype game

Toto is the “most undervalued and overlooked AI memory beneficiary,” Palliser wrote. Its little-known business of chip parts recently accounted for half its operating profit. Yet, just a page was dedicated to it in the most recent investor presentation, with this limited disclosure leaving its value “effectively hidden from the market,” the fund said.

Palliser has a point here—and it’s one that extends beyond the porcelain throne.

Japanese firms often struggle to tell their success stories, particularly if they’re diversified or in niche industries. Carefully stage-managed domestic media engagements tend to dominate. While disclosure is improving, getting information out of some firms can still be akin to pulling teeth. Worse, for years even companies that were proactive often found it hard to reach a receptive audience.

But things are changing in the era of AI and robotics, where Japan has vast expertise in specialty chemicals and wafer substrates, sensors and motors. The country might have fallen behind in the age of software, but these physical hardware supply chains are exactly the kind of industries where firms still have an edge.

While some bemoan the lack of ‘creative destruction’ in the economy, innovation happens differently. Like Toto, companies reinvent themselves with alacrity and transition to new business models.

Take Fujikura. It was founded in 1885, the age of steam engines and gas lamps, but is now one of the world’s hottest AI bets thanks to its optical fibres used in data centres. Shares have risen almost 25 times since the start of 2024, the best-performing Japanese blue-chip.

Or Nitto Boseki, which began as a silk-spinning firm in 1898, the year H.G. Wells published The War of the Worlds. It’s now a leading supplier of glass cloth fibre, with its stock more than quadrupling since last year amid reports of its links to Nvidia and Apple. Printers Dai Nippon Printing (founded 1876) and Toppan (dating to 1900) might be associated with ink and paper, but are actually crucial makers of chip packaging materials and photomasks.

Yamaha is the subject of memes about its diverse output. It makes musical keyboards and pianos, even if it is mostly seen as a motorbike maker. The diversification continues: Yamaha aims to expand its own semiconductor backend business into a ¥100 billion ($633 million) earner by the 2030s.

I have had more than one conversation in recent weeks with people surprised to learn that Japan is the world leader in industrial robots, with a 70% market share according to the trade and industry ministry. But even I was unaware until recently that Omron, a company that most think of as making healthcare devices like thermometers and weighing scales, now makes two-thirds of its profits from industrial automation.

Despite this dominance, robotic tech is increasingly associated with China’s flashy-yet-impractical kung-fu fighting humanoid automatons and Tesla’s overhyped Optimus robots. This is where Japan must get better at promoting itself.

The advent of high-quality AI translation tools that make company materials understandable for anyone has helped. But in any language, you would struggle to learn much about one of the country’s biggest companies in this sector, the notoriously secretive Keyence. Shares of this maker of sensors for automating factories have been range-bound for five years, even as sales and profits have doubled. It would surely benefit from a little over-the-top robotics hype.

Japanese products tend to become world famous only after they get a little help from abroad. The movie Lost in Translation is often credited with awakening the world to Japanese whisky; a handful of Australian skiers first realized the potential of Hokkaido’s now-famous powder snow.

The government is currently trying to turn anime into a major export business, but it became globally famous not because of a top-down push, but by bottom-up fandom on pirate sites like Crunchyroll, founded by a group of Americans.

Japanese companies need evangelists. Palliser says rewriting the narrative could add another 55% to Toto’s shares. Some people in Tokyo have been getting a little uncomfortable with the growing power of activists, but these are the folks who could help spread the word.

In the original gold rush, it was all about picks and shovels. This time, it’s more about the plumbing. ©Bloomberg

The author is a Bloomberg Opinion columnist covering Japan and the Koreas.