News from and on Japan in July 2018

Heat waves & floods, casinos in Japan, FUJIFILM’s failed attempt to buy Xerox, #metoo in Japan, the EU-Japan trade agreement, “uncles” in Japan and the Bank of Japan’s balance sheet

Floods, heat waves … and the impressive EU – Japan Trade Agreement: these were the main topics in July 2018. But there was also other news from Japan: in July all convicted cult leaders of the Aum Shinrikyo doomsday cult have been executed, Japan passed a controversial bill that legalizes casino gambling. There was uncertainty if the Bank of Japan would continue its generous QE. And China’s stock market, hit by the threat of a growing trade war with America and a slowing economic growth, has been overtaken as the world’s second biggest by that of Japan.
Let’s have a look to developments in Japan in the last month. Quite some attachments, for reading on the beach or at home.
  • Politics:
    • The EU and Japan as the “last men standing” when it comes to free trade? If there is anything that Japan wants to prove, it is its drive to create a level-playing fields when it comes to international trade. Mr. Trump decided to opt out from the Trans Pacific Partnership Agreement? Then let’s go without him. The EU looking for free access to Japan’s lucrative food market? Let’s compromise on other subjects and let’s go for it. The same can be said about the EU. It concluded a free-trade agreement with Canada, is negotiating with Mexico on a similar partnership – and just signed in Tokyo the EU- Japan Trade Agreement. This free trade agreement signed two weeks ago will eliminate 99 percent of tariffs on Japanese imports by the European Union and 94 percent of tariffs on European imports by Japan. Eventually, Japan will bring the amount of lifted tariffs on European goods to cover 99 percent of all traded goods as well.I have attached several articles on the largest trade agreement in history  that also includes access to government procurement. My biggest bet for the Netherlands: to “digitize” Japan’s public services. The Netherlands is way ahead of Japan. And of course: agriculture, where Japan can profit from the Dutch efficiency in producing quality food.
    • Two articles on two grand old man in Japanese politics: PM Shinzo Abe who will most probably be reappointed as party leader in September after having survived a series of scandals. If he wins this internal party election, Mr. Abe will serve for three consecutive terms and become Japan’s longest-serving prime minister. 
      Another article in The Diplomat on Deputy PM Taro Aso, the Minister of Finance and by far the most wealthy man in Abe’s cabinet. He has a remarkable background, including being part of Japan’s Olympic team in 1976, being connected to Japan’s Imperial Family, a lover of pop culture, a Roman Catholic and someone who has stirred controversy by putting his foot in his mouth. 
    • Japan considers creating its sovereign wealth fund, somewhat like that of Norway, albeit in volume apr. 10% of the Norwegian fund. “While Japan’s foreign asset position is the world’s largest, the overall balance is still strongly domestically weighted because so much of the private sector’s savings are held at home. A sovereign wealth fund could help mitigate this by increasing savings, shifting assets abroad and dampening the tendency of the yen to surge on haven trades during global economic downturns”, writes the Financial Times. One of the investment targets: US infrastructure! 
  • Economy:
    • Much speculation last weeks about the Bank of Japan’s policy as there was quite some volatility in bond rates. However: “BoJ defies global move to roll back crisis-era stimulus“, headed the Financial Times. The BoF sticks to its JPY 80 tln-a-year (that is EUR 622 bln, for an economy that is 25% of that of the EU.rm) quantitative easing program  thus not joining the Federal Reserve, the European Central Bank and the Bank of England in unwinding its stimulus. Richard Koo, Nomura’s top economist and inventor of the term “balance sheet recession”, is puzzled about the BoJ’s strategy in this Bloomberg interview, as well as Michael Every, head of financial markets research at Rabobank Group in Hong Kong, also for Bloomberg. “The Bank of Japan just admitted defeat”, wrote William Pesek in the Nikkei, quoting Albert Einstein’s “Insanity is doing the same thing … but expecting different results.” By endlessly delaying the target day for a 2% inflation, BoJ’s President Kuroda effectively conceded that this ultimate goal is off-limits. “The BOJ should put the onus on politicians by changing targets from inflation to wages – or some level of gross domestic product. At the moment, GDP is about USD 4.9 trillion. Why not target an increase to USD 5.2 trillion or USD 5.5 trillion? There is a disconnect, for example, between Abe’s free-trade deal successes and the BOJ’s price target. Trade deal effects tend to come in two steps: First prices drop, then in the years ahead incomes hopefully rise. If the BOJ’s only metric for success is inflation, Tokyo could face a public perception problem. Meanwhile, the Bank of Japan’s balance sheet as part of the nation’s GDP is 100% (see graph in article.)
    • When it comes to the market cap of its public companies, Japan just overtook China, reported Japan Today, mainly thanks to the looming trade war between the USA and China. A part of Japan-stocks’ popularity is the low yen, making it more attractive for foreign investor to “go for Japan”.
    • With the loss of hundred’s of human lives caused by the torrential rains in July in the Hiroshima and Okayama prefectures, also comes the costs for repair. “Japan is staring at a more than JPY 270 bln (EUR 2 bln) bill to rebuild infrastructure destroyed by torrential rains that swept through the western part of the country earlier this month, straining an already overstretched government budget”, writes the Nikkei. “Authorities estimate it will cost JPY 260.9 bln to fix levees, railway bridges, roads and other public works damaged by floods and landslides, which left over 200 people dead or missing. Another JPY 9.5 bln will likely be needed to restore farmlands, as well as farm roads and other supporting structures, while JPY 250 mln would be required to repair storage and other facilities owned by agricultural and fishing cooperatives. The estimates were compiled in mid-July, and could change depending on later surveys.  

  • Corporate:
    • Improvement of Japan’s corporate governance was a main goal when Shinzo Abe started his second tenure in 2012. And yes, “in the six years since, there has been improvement but change has not been as fast as many would like. Conflicts of interest, underperforming chief executives and a lack of diversity are among the issues that companies and investors have been slow to tackle”, writes the Financial Times. “Corporate Japan is changing, there is no question about it,” said an international investor. “But if you look at it from the governance lens, and ask if those changes are fast enough, [they] have not taken place to anywhere near the degree as if it were an American or European business.
    • As for FUJIFILM’s acquisition of Xerox, Shigetaka Komoro, FUJIFILM’s CEO, found his nemesis in US activist investor Carl Icahn, who was against FUJIFILM’s wish to buy Xerox, at least for the conditions offered by the Japanese company. Three months have passed since Fujifilm’s attempt to acquire Xerox was blocked by a U.S. court and the  split between the two companies seems to be definite. “”Fujifilm can grow without the acquisition, which does not mean we will lose our future,” Komori said, indicating that the Japanese group may give up on the buyout bid. Icahn and some other Xerox shareholders may believe Fujifilm will succumb under their pressure and offer terms more favorable to them, Komori said, calling such a possibility the purpose of their opposition. “But I make it clear that we will offer no more terms than what we have done. The terms we offered in January are the ceiling,” Komori said. Although Fujifilm has the funds to sweeten the terms, it needs to use them for medical and other fields it is seeking to grow, he added (Nikkei.) To my personal opinion, the Anglo-Saxon hard core capitalism is less compatible with the Japanese business mentality than the European approach.
    • Working from home was – and still isn’t – a common habit in Japanese companies, but it is slowly making inroads into Japanese corporations. “Hitachi has about 300,000 employees worldwide, including 170,000 in Japan. As of now, 8,000 to 15,000 work remotely. The company decided to expand the scope of remote work after a total of 90,000 employees expressed a desire to do so in an in-house survey,” reports Nikkei. “Hitachi employees are currently allowed to choose any day to work from home for any number of times a year, regardless of their division. This allows them to tend to children or spend time on other activities as long as their work permits it. The company also has a system allowing employees to videoconference with people at the office as well as external business associates, for which it has provided 30,000 sets of display monitors and headsets to them.”

  • Society:
    • #japantoo … Like in most countries, also women in Japan suffer from sexual harassment on the work floor. The Asia Pacific Journal Japan Focus carried a long-read about a cause célèbre in Japan: that of journalist Shiori Ito against Yamaguchi Noriyuki, a former Bureau Chief of Tokyo Broadcasting System (TBS)’s Washington Bureau. “In June 2018, the BBC broadcast documentary called Japan’s Secret Shame, a distressing tale of sexual violence toward women pegged to the experience of Ito Shiori. The documentary, by one of the world’s most respected broadcasters, was the climax so far of Ito’s struggle to win recognition and justice for rape victims in Japan, but it inadvertently served to highlight how little impact she has made in her home country.” A distressing story, also by the suggested involvement of government officials. 
    • Do you remember the 1995 sarin gas attack in the Tokyo subway by members of the Aum Shinrikyo doomsday cult members, killing 13 and injuring apr. 2000 passengers? The 13 attackers now all have been executed, reported Deutsche Welle. Two years ago Montenegro deported 58 foreign members of the same Japanese doomsday cult. But it is far from clear why they were there in the first place and where they have gone since. For those among you to looking to shiver on the gruesome story of this sect, read the attached article in The Daily Beast.
    • Japan already has legal public gambling, with people able to lay wagers on horse racing, bicycle and powerboat races, as well as “pachinko,” a form of pinball. On July 20 a bill passed in the Japanese Diet to allow casinos, reports Deutsche Welle. It is, as one of the opponents of this bill claims, a bad law that will bring in much money for the government but that exposes ordinary citizens to the perils of gambling. The yakuza, Japan’s organised crime, is never out of sight when it comes to gambling, so it will be a challenge for the government to keep these antisocial groups at bay.
    • After the torrential rains, Japan started suffering from a heat wave with temperatures over 40C. Anybody who visited Japan in high-summer knows that the humidity creates a true urban jungle (Japan Today.) The Netherlands is hot, very hot with temperatures not very different, as reported by the Japan Times.
    • For the middle-aged men among us there is Ossan or “uncles”; a Japanese agency offers interesting opportunities, albeit it with limited income, no physical contact and high-entry hurdles: out of 10,000 applicants only 78 “uncles” have been selected. No boring men please. However, the happy few will have the opportunity to learn themselves better and will often find themselves in very different situations.
    • There is a revival of Japan’s great, early 20th century novelists. A selection of Junichiro Tanizaki’s stories and essays just have been translated in Dutch (De Brug der Dromen / The Bridge of Dreams) and now there is a new biography of Natsume Soseki, know from his novels Kokoro and I am a Cat. One learns a country best when reading its writers. 

  • Japan and East Asia:
    • A very disturbing article in last week’s Nikkei: Asian plastic is choking the world’s oceans. More than 80% of marine plastic pollution comes from Asia. Well, this would be a fantastic challenge for a Dutch – Japanese cooperation, including companies and government initiatives on both sides to change this pollution.
    • Like it or not, North Korea still poses a substantial threat, to Japan and the rest of the world. https://www.38north.org/ is a good site to consult what is happening in the “hermit kingdom”.
Have a nice summer – and above all: keep cool.
Radboud Molijn
Global Bridges BV for DUJAT / Dutch & Japanese Trade Federation
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