News from and on Japan, December 3 – 16, 2017

Corporate tax rates have been dominating the news last weeks as the USA is overhauling its tax system. Also in Japan the tax regime is being reviewed, but with a different outcome than in the USA. Read news on this – and more – in this edition of News from and on Japan.

  • Politics:
    • Much international praise for Crown Prince Naruhito, who will succeed Emperor Akihito in April 2019. Reuters’ press release was taken over by all kind of media, incl. the South China Morning Post or SCMP, owned by Jack Ma’s Alibaba. SCMP is not always a Japan-friendly paper, but here it is as it claims that Oxford-educated, Crown Prince Naruhito is known as an advocate for environmental causes, and has taken part in international conferences on clean water. Moreover, he is a champion of women rights. 
    • Two weeks ago the late Emperor Hirohito’s memoirs, titled “Emperor Showa’s Monologue” were auctioned at Bonham’s in New York, reported Business Insider. The document records events dating from the 1920s, such as Hirohito’s stated resolve not to oppose future cabinet decisions. It caused a sensation when made public in 1990, reigniting a debate over the emperor’s responsibility for the war. “The account was dictated to one of Hirohito’s aides in 1946, when a defeated Japan was occupied by Allied forces and the emperor faced the possibility of being tried as a war criminal – a step that ultimately was not taken.”  
      For those interested in a a truly good overview of the the Hirohito-era, read “Hirohito and the Making of Modern Japan”, an account of the Japanese Emperor and the events which shaped modern Japan. The book won the Pulitzer Prize for general non-fiction in 2001. 
    • China, Japan and South Korea: all three countries are at odds with each other on a number of topics, incl. territorial claims and the Japanese occupation in WWII; all three have different views on democracy, all three have a common threat, North Korea and all three countries are economic powerhouses that compete and cooperate. So any shift in the balance between the three is worth looking at. “President Moon cozies up to China to the chagrin of Japan”, heads Nikkei. Moon was in China last week and the Chinese press did not stop referring to the past. “China and the ROK,” Chinese Foreign Ministry spokesman Lu Kang said, “have worked in unity and helped each other in resisting the aggression of Japanese colonialism. China stands ready to work with the ROK to safeguard the truth of history, fulfill our common responsibility and mission and jointly uphold regional peace and stability.” Closer cooperation between Beijing and Seoul in dealing with their shared history could unnerve Japan, potentially affecting diplomatic plans between Tokyo and Seoul going forward, concludes Nikkei.

  • Economy:
    • “Japan’s ruling bloc approved a plan on Thursday to slash the corporate tax rate to around 20 percent from 30 percent – but only for companies that raise wages aggressively and boost domestic capital spending”, writes Business Standard. “The carrot-and-stick approach is Prime Minister Shinzo Abe’s most aggressive step yet to convince companies to lift wages 3 percent, which he believes is needed to stimulate consumer spending and vanquish the deflation that has plagued Japan for nearly two decades. Qualifying companies would also need to substantially boost investment in factories and equipment.”
    • Japanese business confidence improved for a fifth straight quarter in the three months to December to hit an 11­year high, a central bank survey showed, a sign the economy is gathering momentum from robust exports and booming corporate profits. “The closely watched “Tankan” survey also showed capacity constraints and staff shortages were increasing price pressures, which would help the Bank of Japan achieve its elusive 2 percent target but could squeeze corporate margins ahead.” ((Nasdaq.com).
    • Japan’s conservative ruling parties have announced tax rises for higher earners, in stark contrast with the income tax cuts being pushed through the US Congress, writes Nikkei. In an effort to stimulate the economy and ignite inflation, Prime Minister Shinzo Abe’s government also said it would cut corporation tax – but only for companies that sharply increased wages. “The Japanese plans highlight growing divergences among rich countries over how to boost economic growth and respond to years of stagnant wage growth. Although Mr. Abe and his ruling Liberal Democrats are Japan’s conservative party, they have adopted a tax-and-spend programme as they attempt to spread the fruits of recent economic growth to a wider public.”
    • Interesting overview of wealth distribution in Japan over the last years in Bloomberg. “Japan has an income-inequality problem, and it’s getting worse. While the country is enjoying its best stretch of growth since the mid 1990s, many are missing out. The widening income gap – while nothing like U.S. imbalances – is making it tougher for the nation to deal with demographic challenges, as stagnant wages deter people from having children and an aging workforce hampers the government’s efforts to raise revenue to pay for the older society. See in this article also wealth distribution in the different parts of Japan. Tokyo is richest, Akita-ken in Japan’s north, is poorest.

  • Corporate:
    • “Japanese companies appear likely to issue JPY 10.9 trillion (USD 96 billion) in bonds this year, up 4% from last year and the most since 2009, as they rush to take advantage of low interest rates while they last”, according to Nikkei. Interest rates are low but expected to rise, and the number of corporate bond floats in Japan likely will hit 530 this year, up about 10% from 2016 and the most since 1998. Too much money available for too few opportunities: “Even the high level of bond issuance has not been enough to keep up with investors’ demand,” said Koji Mori of Daiwa SB Investments.
    • In the Netherlands the mobile telephone market was dominated by 4 parties, and with #3 and 4 now on the brink of merging, 3 will be left. How about this market in Japan? NTT Docomo, KDDI and SoftBank Group control 90% of Japan’s cellular market. “There are some competitors”, writes Nikkei, “including mobile virtual network operators, which rent network infrastructure – offering low-cost smartphone plans, but the trio has protected their market share by offering similar inexpensive services. Opening a chink in their armor would usher in a new era of competition, and likely push down fees. Now a new company is to enter this market: Rakuten, the Japan’s version of Amazon. … Rakuten plans to apply with Japan’s Ministry of Internal Affairs and Communications as early as January for wireless frequencies currently used by the Ministry of Defense and other bodies and set up a new mobile carrier company possibly that same month. It also plans to raise up to JPY 600 billion (USD 5.31 billion) by 2025 to invest in base stations and other infrastructure.
    • Some well-known Japanese companies were – and are – in trouble because of internal fraude ranging from cooking the books (Toshiba) to lax internal material inspection control (Kobe Steel, Nissan, Subaru, Toray) – and that is threatening Japan INC’s reputation as an undisputed quality supplier. A Reuters Corporate survey, conducted Nov 21 to Dec 4, showed that nine out of 10 Japanese companies said they were worried about impact of the scandals on the country’s reputation for excellence in manufacturing. Of those 28 percent said they were highly concerned while 61 percent said they were worried to a certain extent. “That trust in Japan’s reputation for high quality has been shaken is a big problem and it will take time for it to recover,” a manager for a construction company wrote in the survey. In response to the scandals, 44 percent of companies overall, and 48 percent of manufacturers, said they had taken or were planning to take steps to ensure quality control. Many respondents said they were strengthening compliance training and paying stricter attention to the details of contracts with their clients. (Japan Today)
  • Society:
    • The Financial Times is running an end-of-the-year campaign to raise funds for research on Alzheimer’s. The paper also looks to Japan, “the world’s fastest ageing country – more than a quarter of Japanese people are over the age of 65 – Japan confronts a ‘pandemic of dementia’, according to Masaki Muto of the International University of Health. … By 2025, 7.3m Japanese will be living with the condition – one out of every 20 people in the country. By 2050, if nothing changes, it will be one in 10. The treatment and care of people with Alzheimer’s and other types of dementia costs Japan JPY 14.5 trillion (USD 128 billion) a year, according to a study by Keio University. “The numbers aren’t the issue,” tells Kumiko Nagata to the Financial Times. She is a former nurse and now director of research at the Tokyo Centre for Dementia Care, of the staggering number of Japanese people living with the condition. “What we need most of all is a change of values. Even with Alzheimer’s, there are things a person can do. They don’t need to be expelled from society. We mustn’t repeat the mistakes of the past,” she added, referring to the 1960s and 1970s when people with dementia were institutionalised in large care facilities.” But a major problem is the lack of young people to care for patients. “Community care offers hope of a kinder future for people with dementia and their families, she and others say. But it also relies on there being a community to offer that care. In the years ahead, the number of people with dementia in Japan’s large cities is set to grow and the childless postwar generation has no loving sons to help them.” There are now 650 Alzheimer’s café’s all over Japan, where regulars meet with patients.
    • “Describe japan in two words”, asked Gaijin Pot, an online magazine focusing at expats and foreigners in Japan. Here is the top 5: 1. Work Work, 2. Ganbatte Kudasai (do your utmost best), 3. Time machine, 4. Hierarchical Phobic, 5. Fancy toilets. Read the other 15 two-word combinations: https://blog.gaijinpot.com/asked-readers-describe-japan-just-2-words/
    • Japan as a tourist destination for (Dutch) bikers: Memoirs of a Geisha author Arthur Golden and FT’s Stephanie Drax explored a not much visited  part of Japan, Noto peninsula. I have biked myself in Japan and have to admit that biking is better in the countryside than in hectic Tokyo. 

  • Curious:
    • Tokyo-based in-line magazine carried an article about a book published in 1925 by British author and naval analyst Hector Bywater: “Sea Power in the Pacific: A Study of the American­ Japanese Naval Problem”. Bywater’s novel was popular in the 1920s and 1930s and that has been studied by Isoroku Yamamoto, navel attaché in the USA and later admiral of the Japanese Imperial Navy that attacked Pearl Harbor. While he was based in Washington D.C. from 1926 to 1928, “Isoroku Yamamoto read it with great interest, as William H. Honan notes in his book Visions of Infamy: The Untold Story of How Journalist Hector C. Bywater Devised the Plans That Led to Pearl Harbor. Bywater and Yamamoto met several times. In 1934, Bywater interviewed Yamamoto in London, who in turn questioned the novelist extensively on naval strategy. (Yamamoto purportedly agreed with Bywater’s assessment that Japan could not hold out for more than 18 months in a war with the United States.)”
Have a great and festive week!
Radboud Molijn
Global Bridges BV for DUJAT / Dutch & Japanese Trade Federation