A Japanese maker of high-tech toilets has been causing a splash in the world of artificial intelligence.

Activist investor Palliser Capital recently called on the management of Toto, best known for its Washlet bidets, to do more to highlight that the firm is a growing AI play, thanks to its advanced ceramics segments. Toto is the "most undervalued and overlooked AI memory beneficiary,” Palliser wrote. Its little-known chips parts business recently accounted for half of its operating profit. Yet just a page was dedicated to it in the most recent investor presentation, with the limited disclosure leaving its value "effectively hidden from the market,” the fund said.

That one of the world’s biggest toilet makers is actually a growing chip supplier won’t come as a surprise to regular readers of this column. But 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 artificial intelligence 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 simply happens differently. Like Toto, companies reinvent themselves with alacrity and transition to new business models.

Take Fujikura, founded in 1885, in the age of steam engines and gas lamps, which is now one of the world’s hottest AI bets thanks to its optical fibers used in data centers. 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 HG Wells published "The War of the Worlds." It’s now a leading supplier of glass cloth fiber, 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 Holdings (dating to 1900) might be associated with ink and paper, but are actually crucial makers of chip packaging materials and photomasks.

Yamaha Motor is the subject of memes about its diverse output. In fact, the famed pianos are made by Yamaha Corp., from which the motorbike maker was spun out decades ago. The diversification continues: Yamaha Motor 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, a company that most think of as making health care devices like thermometers and weighing scales, now makes two-thirds of its profits from industrial automation.

Despite this dominance, the technology is increasingly becoming associated with the flashy-yet-impractical kung-fu fighting humanoid automatons of China or the wild hype around Tesla’s Optimus. 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 the maker of sensors for automating factories have been range-bound for five years, even as sales and profits have doubled. It’s hard to think it wouldn’t benefit from a little over-the-top robotics hype.

Japanese products frequently only become world famous after a little outside help. The movie "Lost in Translation" is often credited with awakening the world to Japanese whiskey; a handful of Australian skiers first realized the potential of Hokkaido’s now-famous powder snow. The government is currently targeting anime as 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.

Its companies need similar evangelists. Palliser says rewriting the narrative could add another 55% to Toto’s shares. So at a time when some in Tokyo are getting a little uncomfortable with the growing power of activists, they should be encouraged instead to help spread the word. In the original gold rush, it was all about picks and shovels. This time, it’s more about the plumbing.

© The Japan Times