News from and on Japan – April 16 – 30, 2017

Abenomics as export article? Japan Post’s big write-off, white collar productivity in Japan, a new bra for Premium Friday and a potato problem in Japan

What France needs is le Abénomics, I read in Bloomberg last week (should be l’Abénomics I think). Who would have thought that Japan’s new export article could be PM Shinzo Abe’s much discussed economic policy? The article, a personal view by French writer Pascal-Emanuel Gory, states that the drags on growth are broadly similar: large public debts, an aging population, deflationary pressures, a two-tiered labor market, an over-regulated service sector, a tradition of industrial policy and a revolving door between the upper echelons of business and government. Growth has been disappointing in both countries despite world-class infrastructure, a highly skilled workforce world-beating firms and cultural prestige. Like France, Japan in recent years was torn between those advising supply-side reforms, and those advocating demand-side reforms. Prime Minister Shinzo Abe essentially decided to slice the Gordian knot by doing both. “The best dish for the French economy is one already served in Japan”. 
  • Politics:
    • Also Mr. Taro Aso, Japan’s Finance Minister and a former PM, praised Mr. Abe in a speech at New York’s Columbia University. “Japan has undergone a ‘revolution of sorts during recent decades, making gains with a female labor participation rate that eclipsed that of the USA in 2015. Companies have also made strides with their efforts to increase shareholder return policies,” he said. And he told that Japan’s social fabric has not been torn apart: “Japanese people endured an economic slump, stayed calm and ‘the sense of pride among workers is still intact’ he said, adding ‘Japanese airline crew will not beat you.’”
    • Well, Japanese people had to stay calm this Saturday, when the subway trains in the Tokyo region halted as a ballistic missile was launched shortly after 5:30 a.m. from northeast of Pyongyang, flying for about 50 kilometers before falling on North Korean land. It was likely a medium-range KN-17 ballistic missile and broke up minutes after launch, the Associated Press reported, citing an unidentified U.S. official. In the past Kim Jung-un has fired several times rockets direction Japan, so the Japanese authorities wanted to play it safe (Bloomberg).
    • Long-read in The Diplomat, a Tokyo based Asian matters on-line magazine on Japan’s Nuclear Moment. “If Japan wanted to develop nuclear weapons, there would be no better moment than now to start. As the North Korean regime grows desperate to get a more generous ransom against its nuclear program, the threat it poses to Tokyo is multiplying.” … “Even high officials are beginning to openly talk about a possible nuclear option. Politicians close to Abe – including Deputy Prime Minister Taro Aso, who also serves as finance minister; Yusuke Yokobatake, who heads the Cabinet Legislation Bureau; Tomomi Inada, who is the defense minister and a possible candidate for future prime minister; and even the ever-skillful diplomat Foreign Minister Fumio Kishida – have made a number of claims over the past year or so that acquiring nuclear weapons is not actually against the Constitution, and is a possible option for the government to pursue.”
  • Economy:
    • Donald Trump may have aborted the TPP / Trans Pacific Trade Agreement among 12 nations, Japan is looking to revive it, without the USA. In his same speech at Columbia Uni, Mr. Aso told his audience that “we will start talks on an eleven-member TPP, minus the US, at the Asia-Pacific Economic Cooperation meeting in May.” There are several reasons for Tokyo to come back from its earlier statement that a TPP with the USA would make no sense. A TPP would reinforce the ties with countries like Vietnam and Australia, while it also could be a powerful tool for the Abe administration to restructure Japan’s out-dated agriculture system (Financial Times).
    • How inefficient Japan’s agriculture industry is organised, becomes clear when reading the article in the Financial Times on Japan’s import of potatoes. “For the past two decades, Japan’s food industry has worked with a domestic agricultural self-sufficiency rate (when calculated in terms of calories) of about 40 per cent. When it comes to potatoes, about 30 per cent of those consumed in Japan (in various forms) come from abroad (mostly the US). The 4.3 per cent tariff on imported fresh US potatoes does not seem prohibitive. The answer lies in the historic power of Japan’s agricultural lobby to arrange key strongholds of protectionism, and the particular success of Hokkaido in raising a series of potent non-tariff barriers. For decades, Japan cited fear of disease as a reason to block fresh (as opposed to dried potato for use in fast-food chips) imports. Even since that position was relaxed 11 years ago, Japan still only allows potatoes from selected US states, for certain months of the year and on condition they are processed at factories based near Japanese ports. Equally effective, however, has been the farming lobby’s instillation of a protective consumer credo: that Japan’s domestic produce is of measurably higher quality than anything from outside and that the best crisps, for example, must be made with Hokkaido potatoes.” I remember that 20 years ago French skies were refused as “snow in Japan is different” …
    • Brexit is still a hot potato in Japan and it seems that Japanese banks are not yet convinced what the best place would be in the old continent. MUFG and Mizuho have been quietly expanding their presence in Amsterdam, Nomura seems to opt for Frankfurt or Munich (Bloomberg).
  • Corporate:
    • Labor productivity in Japan: manufacturing output is world class, white collar output is depressingly low. “The nation’s overall productivity ranks worst in the G7, dragged down by a lack of progress in the services sector, where the white-collar work culture demands long hours rather than efficiency”, writes Bloomberg in an article with two graphs, on manufacturing and on service industry productivity. “Domestically protected industries, which face limited competition from overseas, such as retailing and farming are also proving barriers to improved productivity. Services sector productivity in Japan was about half that of the USA from 2010 to 2012, according to data from the Japan Productivity Center.” My assessment is that white collar mentality in Japan is focusing on procedures and internal reporting rather than on real efficiency and output. Exception to service industry’s inefficiency is the convenience store industry, probably as it is a recent phenomenon, with its own characteristics.
    • Two examples of overseas acquisitions by Japanese companies: Japan Post acquired 2 years ago Australian logistics company Toll Logistics and Nidec, a manufacturer of micro-motors and precision equipment, just bought German compressor manufacturer Scope, its 53rd acquisition.
      Last week Japan Post wrote off 70% of the acquisition price, so that’s USD 3.6 bln down the drain (The Australian.) I know the person who was responsible for the PMI of Toll into Japan Post quite well and he told me that it was virtually impossible for him to carry out his task in an atmosphere that was in-transparent and geared to “not loosing face” on a far too high acquisition price.  
      Nidec is a complete other story. “We have never booked an impairment loss on our 52 acquisitions,” Nidec’s CEO Nagamori said confidently in Nikkei, contending that 88% of overseas acquisitions by Japanese companies fail while only 2% succeed. It is an interesting dilemma for Japanese companies: integrate your acquired company of manage it at arm’s length. And perhaps there is a preceding answer to this question: have your HQ’s white collar force prepared to cope with white collar reporting abroad.
    • Dutch iconic company ASML together with its German partner Zeiss are in legal battle with Nikon on cross licensing agreement payments, reports VLSI Research. Nikon launched separate cases for each of 11 European patents it claims ASML infringes. It brought a case citing two of the European patents in Mannheim, Germany, where Zeiss makes optical components for ASML. Nikon also is asserting two Japanese patents against ASML in Tokyo District Court. “Nikon was the leader in lithography systems with greater than 60% share in the early 1990’s. It was among the first to start publicly working on today’s immersion technology. However Nikon continued to handle development in Japan while ASML gained ground using a collaborative approach, working with chip makers in their own fabs”, according to VLSI Research. “Today, ASML has 84 percent share on the lithography market and 93 percent in immersion steppers. Nikon now is a distant second with nine percent share of the overall lithography market”.
  • Society:
    • Japan is home to more Buddhist temples than convenience stores, but many are struggling to find the parishioners they need to stay afloat, writes Nikkei. As congregations shrink, thousands of temples are going without resident priests. A survey released by the Kyoto Shimbun newspaper this week shows that nearly 13,000 of the approximately 75,000 Buddhist temples in the country do not have resident priests or are co-managed by chief priests from other temples. That does not sound too unfamiliar for Dutch people where churches are converted into apartments, bookstores or disco’s.
    • “What do you want at the end of your life?”, was a survey in the USA, Brazil, Italy and Japan by the Economist / Kaiser Foundation. Interesting outcome: in America and Japan not burdening families with the costs of care was the highest-ranked priority. (The Japanese may be worrying about the cost of funerals, which can easily reach JPY 3 mln, or EUR 24,000; Americans may be worrying about medical bills, which can be ruinous.) In Brazil, where Catholicism prevails, the leading priority was being at peace spiritually. What Italians wanted most at the end was to have their loved ones around them. What is revealing as well is that for the Japanese respondents “being comfortable/without pain”, “with your loved ones around you” and “having your wishes for care followed” are least important. 
    • After all this end-of-life considerations, some upbeat news from Triumph Japan, the bra maker. Premium Friday is a recent phenomenon allowing employees to leave their office at 15:00 of the last Friday of each month. A better work / life balance is what it has been established for, but the economic benefits are large as well: Dai-ichi Life Research Institute in Tokyo calculated that, if most workers, including those at small and medium-size firms participate, private consumption could rise by about JPY 124 billion (EUR 1 bln) on each Premium Friday. On Wednesday, Triumph unveiled a special Premium Friday Bra. The Premium Friday bras feature built-in purses in the cups and an alarm clock that sounds at 3 p.m. to remind the wearer to get out of the office and into the shops (Japan Today).
Have a good working week!
Radboud Molijn