News from and on Japan, April 22 – May 5, 2018
What to do with your broken robot-dog? Xi and Abe’s rapprochement, Fujifilm’s fight, Abenomics after Abe, Japan’s bachelors and how to speed-up R&D in Japan?
- In a first time ever telephone call, Japanese PM Shinzo Abe and Chinese president Xi Jingpin spoke with each other on North Korea. “Xi turns to Abe to keep a role in Korea talks; China courts US ally to make sure it is at table during peace process”, reported the Nikkei. “US President Donald Trump is to hold his own summit with Kim late this month or in early June. But Beijing is loath to cede influence over any Korean peace process to Washington. Kong Xuanyou, China’s vice minister of foreign affairs, said Friday that Japan’s active involvement will be essential in building peace on the peninsula. Insisting on Japan’s inclusion could give China some leverage to shape how peace and denuclearization play out. If the North demands economic aid in exchange for denuclearization, Japan could help put up some of the funding, making it worth China’s while to court Tokyo ahead of time.” The leaders of South Korea, China (PM Li Keqiang) and Japan will meet on May 9 in Tokyo for their first trilateral talks since 2015.
- In some way, Mr. Abe is like Bill Clinton a ‘come-back kid’, so let’s not underestimate his capabilities to bend adversity into his favour, but with a fresh series of scandals it is sure that Shinzo Abe’s rivals circle amid scandals and falling popularity, writes Financial Times. “Mr. Abe’s rivals know overt disloyalty will end their chances but, as the prime minister’s grip weakens, they are plotting in back rooms and trying to position themselves as heir apparent.” Two candidates are mentioned most: former Finance Minister Kishida and former Defense Minister Ishiba. “If Mr Abe quits soon, the new leader would be Mr. Kishida,” said Soichiro Tahara, a veteran commentator on Japanese politics. “If it’s soon, Mr Abe will still hold sway, and he’s most likely to back Mr. Kishida. The longer it takes, the more Mr. Ishiba’s chances rise.”
If Mr. Abe will step down in the coming months, what will be his legacy? Abenomics with its loose monetary policy will most probably be winded down (so investors in Japanese stock: be aware as it may result in a higher yen and lower share prices); but an equally hot issue is the change of Japan’s constitution, in particular the defense article 9. The majority of Japan’s population is against a re-write of Japan’s constitution, or as the left-leaning Asahi Shimbun writes: “Fifty-eight percent of voters oppose constitutional revisions under the Abe administration, up from 50 percent in 2017, a reflection of the growing unpopularity of the prime minister … Support for revisions by the current administration dropped from 38 percent to 30 percent over the same period.”
- With Shinto or the ‘Way of the Gods’ (https://en.wikipedia.org/wiki/Shinto) and Buddhism (https://en.wikipedia.org/wiki/Buddhism_in_Japan) as Japan’s main religions, the question is if the Emperor of Japan is a Shintoist. That is not easy to answer, claims Hiromi Shimada in Nippon.com. “Does the Emperor enjoy freedom of religion under the present constitution? This question is more difficult than it may seem. Members of the imperial family are excluded from the household registry law, and are therefore treated differently from the rest of the Japanese population. Although the Constitution guarantees freedom of religion for citizens, the provisions of the Constitution do not apply in a straightforward way to the emperor and his family.” It is an interesting read as it describes the long relationship between the Imperial House and Buddhism as well as the new connection with Shinto after the Meiji Restoration from 1868.
- “Japan’s Bull Market Wouldn’t Be the Same Without Abe. The Prime Minister’s likely successor won’t be as knowledgeable about economic issues or have the personal authority necessary to rein in the bureaucrats”, writes Bloomberg. “The job is not finished by any means. Japan needs to run the economy hot for several more years for a virtuous circle of wage and consumption growth to develop. Abe’s likely successor – current front-runners are the bland Fumio Kishida and the hawkish Shigeru Ishiba, neither knowledgeable about economic issues – will have nothing like the personal authority necessary to rein in the bureaucrats … The question for investors is how much this matters. Has Abe changed the game permanently as Margaret Thatcher did in Britain during the 1980s, or could Japan slide back into a deflationary funk and another lost decade? The article also quotes Facta, an investigative magazine that describes what is going on as “a counter coup d’état.” The original coup was Abe’s transfer of power from the bureaucracy to the prime minister’s office. Now, top officials – aghast at Abe’s electoral successes and particularly incensed by his move to control appointments and other high-level personnel matters within the ministries – are hitting back. Ousting Abe would be a victory for the bureaucracy and herald a return to business as usual. Haruhiko Kuroda would still be governor of the Bank of Japan, with new Deputy Governor Masazumi Wakatabe strongly committed to the reflationary cause. So a shock Abe resignation would probably be met with a stepping-up of the quantitative easing program.
- A stronger yen will be a driver for production outside Japan, writes Nikkei, that also described the dilemma for Japanese companies to produce at home or outside Japan. “Corporate Japan is at a crossroads over domestic production as exchange rates, labor costs, automation and consumer tastes pull companies in opposing directions”, writes Nikkei. “Japanese manufacturers had been steadily moving production of appliances and everyday goods back to Japan over the past few years, but the appreciation of the yen is making domestic production relatively more expensive. … The average cost of production in 20 Asia-Pacific economies last year was 78.6% that of Japan, compared with 80.6% in 2015 and 74% in 2012, a study from Mitsubishi UFJ Morgan Stanley Securities shows.” And it is also a matter of automation and robotization. “Automation through innovations like artificial intelligence may reverse the trend once again. Casio Computer is automating a Yamagata Prefecture factory that turns out USD 20 wristwatches, a move that will allow a domestic manufacturing operation to remain competitive in a low-price area. Production costs will be on a par with Thailand, which is a quarter as expensive as Japan.” Then there is the boom in foreign visitors to Japan, who expect that what they buy is ‘made in Japan’. “Almost 30 million tourists came to the country in fiscal 2017. Cosmetics maker Shiseido recently decided to build its first domestic factory in 36 years as foreign interest in made-in-Japan goods grows. Some Japanese companies have decided to boost domestic production in response to popularity abroad.”
- When in Japan I often hear from high qualified foreign workers that the pace of action in Japan is incremental, whereas in China often big steps are taken. Asei Ito, associate professor in the Institute of Social Science, University of Tokyo, where he specializes in the Chinese economy, wrote for Nippon.Com an analysis of the difference in R&D approach. How should Japan respond to China as the economic giant strengthens its position as a global hub of technological innovation? he asks. “As of November 2017, China had 120 “unicorns,” unlisted startup companies with a corporate value of over USD 1 billion (Japan has only one-rm). One hundred and five of these, or 87%, are found in the four cities of Beijing, Hangzhou, Shanghai, and Shenzhen, with 54 concentrated in the capital alone. These companies, emblematic of China’s new economy, are fast growing and overwhelming based in the coastal cities, the hubs of Chinese innovation.” The availability of risk capital in China, its huge domestic market, the widespread wireless internet service, government policies supporting innovation, relaxed regulations, and a strong foundation in basic research are all important drivers. In addition, China is aiming to become a world leader in such areas as artificial intelligence and use of big data, and Japan needs to wake up to the fact that we are now in an era in which policies of this kind are becoming commonplace in China, which remains a middle income country in terms of per capita GDP.
- Shigetaka Komori, Fujifilm’s Chairman, is having an epic fight with Carl Icahn, the corporate raider who owns with his partner Darwin Deason a 13% stake in Xerox, a company that Fujifilm wants to acquire. Fuji Xerox was established in 1962 as a 50:50 partnership with Rank Xerox. Rank Xerox was absorbed into Xerox Corporation in 1997. In 2001 Fujifilm raised its stake in the JV to 75% – and now it is also looking to control its JV partner Xerox. Icahn and Deason dismissed the members in the board of Xerox who are in favour of the deal with Fujifilm in an attempt to block the deal, but a New York court decided differently. Although the dismissal of the Xerox board members was annulled, it is clear that the fight goes on.
- More about Japan’s outbound M&A activities: the pace is accelerating considerably. In the first four months of 2018 alone, Japan acquired over USD 100 bln (incl. debt) by investing in foreign companies. Biggest transaction is the USD 65 billion acquisition of US company Shire by Japanese pharma giant Takeda. Major reasons for this speed-up are the global consolidation (so Japanese companies have to follow this trend); its shrinking population (that will reduce its income from domestic sales); a government that, since 2013, has been explicit in its support for outbound deals; corporate governance-driven pressure to produce better returns on equity; and a banking sector that sees acquisition financing as an oasis of growth in a domestic market starved of loan demand (Financial Times.)
- Japan’s champion in acquisitions is Masayoshi Son, who established his Vision Fund with USD 100 bln as a war chest from investors from all over the place, incl. the Saoudi Public Investment Fund, Apple, Taiwan based Foxconn and US Qualcomm. Is Son a visionary or daredevil, asks Nikkei. One thing for sure: Masayoshi Son has known successes (incl. his investment in Alibaba) and losses. Softbank’s debt has grown too, and is now apr. USD 140 bln. The least that you can say about him is that he likes big numbers. One of Son’s earliest backers was Tadashi “Rocket” Sasaki, former VP of Sharp who died earlier this year. He put his pension and his house as a collateral when sponsoring a young Masayoshi, see article in Nikkei.
- Short but alarming article in Nippon.com: an increasing number of Japanese people are reaching the age of 50 without ever marrying. In the immediate postwar era, when it was taken as read that adults would wed and start a family, only around 1% of the population were still single at 50. A 2015 census, however, found that 23.4% of men, one in four, reached this life landmark without tying the knot.
- Now, combine this with the report that the number of children in Japan fell for the 37th consecutive year to a new record low (Japan Today.) “The number of children, including foreigners, fell 170,000 from a year earlier to 15.53 million as of April 1, the lowest level since comparative data became available in 1950, according to the Ministry of Internal Affairs and Communications. … The ratio of children to the overall population dipped to a record low of 12.3 percent, down for the 44th straight year since 1975. Among 32 countries with a population of 40 million or more, Japan ranked lowest in terms of the ratio of children to the overall population, lower than that of Germany at 13.2 percent and South Korea at 13.1 percent, the United Nations Demographic Yearbook showed.
- “All things have a soul”, claims Bungen Oi, one of the priests at Kokufuji, a 450-year-old Buddhist temple in Isumi, near Tokyo, as reported by the Guardian. Priest Oi has conducted services for 800 ‘dead’ Aibo dogs. To be sure, an Aibo is a robot dog, manufactured by Sony. Until 2006, when it stopped production of the robot animals, Sony manufactured 150.000 Aibo dogs and it started again in 2017 with a new generation of Aibo dogs. However, the new generation Aibo is much more intelligent, incl. AI and internet connectivity, so what to do with the older generation dogs? You burn incense and have priests in traditional robes chant sutras and pray for the repose of their souls. Each dog wore a tag showing where they had come from and the names of their grieving owners. I think there must be quite some people who envy Aibo for this service.
- The new and the old Japan: have a look at the website of teamLab (https://www.teamlab.art/) of Toshiyuki Inoko, whose exhibition in the Mori Building in Odaiba, Tokyo opens on June 28. A must go for Tokyo visitors.
- Recently a story by Izumi Kyoka has been translated into English and published in the Asia Pacific Journal: The Enchanted Sword. Kyoka (1873-1939) wrote over three hundred narratives; he was famous as a quirky, anti-mainstream writer, a romantic-idealist, and an impressionistic stylist, whose narrative aesthetics ran counter to the prevailing naturalism of his time. He frequently wrote supernatural ‘gothic’ tales haunted by a dark, perverse eroticism, and many stories made protagonists, or antagonists, of people inhabiting the newly defined domains of the social abject or the uncanny of the era, such as geisha, outcastes, ghosts and demons (wikipedia.)