News from and on Japan, January 28 – February 10, 2018

It’s Valentine’s Day in Japan, North Korea’s new field of expertise, Japanese corporates earning big (also thanks to the Donald) and #MeToo arrived in Japan

Valentine’s Day in Japan: you have to be there to understand the craze – and the power of the Japanese chocolate industry that even invented “White Day” one month later to continue the choco mood. But there was more to note, incl. FUJIFILM’s relation with Xerox, Japanese executives’ pay and how profits on cryptocurrencies are taxed.
  • Politics:
    • Much attention in Japan and the UK for the high-level meeting between PM Theresa May and the largest Japanese investors in the UK on “Brexit”. The aggregated amount of Japanese investments in the UK is no small beer: apr. GBP 40 bln or EUR 45 bln, realised by apr. 1,000 Japanse companies employing 140,000 people. Even more important: many of these companies are manufacturing, incl. Hitachi (bringing back train manufacturing to the UK in 2015 with a EUR 100 mln ticket), Nissan, Toyota  and Honda (all started their UK operations in Britain in the 1980s and now build nearly half of all of Britain’s 1.67 million cars, the majority of which are exported). Different from service companies, manufacturing cannot be that easy moved to the continent. 
      On February 8, 19 Japanese CEO’s of the largest Japanese subsidiaries in the UK were told by Ms. May that Brexit would allow the UK to arrange its own free trade deal with Japan. But this would mean Japanese businesses would have to reconsider their arrangement with the EU if the UK could not guarantee free access to the 500m person EU market – and that is no viable option. Hence Japan’s Ambassador to the UK, Koji Tsuruoka’s comments, who told the journalists in front of Downing Street 10: “If there is no profitability of continuing operations in the UK, not Japanese only, no private company can continue operations. So, it is as simple as that.” (Japan Today)
    • With North and South Korea in the rapprochement mode, Japan and the U.S. get nervous. “The appearance of a sudden opening in relations between two Koreas poses a threat to the alliance between the U.S., South Korea and Japan in their effort to maintain ‘maximum pressure’ on North Korea”, writes Nikkei. “If Seoul puts its top priority on improving relations with Pyongyang, that could threaten cooperation of the United States, Japan and South Korea on bolstering pressure on North Korea, which has shown no sign of giving up its missile and nuclear programs. Readily compromising with North Korea without securing its denuclearization would create room for Pyongyang to further develop weapons of mass destruction” (quote by Kyodo News).
    • 150 years ago, January 1868, a revolution took place in Japan when a group of young samurai and their merchant sympathisers overthrew Japan’s Tokugawa shogunate and with it seven centuries of feudal rule. “The so- called Meiji restoration was the cue for such rapid industrialisation and modernisation that not even China’s more recent reforms have matched it”, writes Economist. The effect was to vault Japan into the ranks of the world’s great powers. Today the government of Shinzo Abe is making much of the anniversary but “for the prime minister, the proud story of the Meiji restoration is a lesson in how people should embrace modernity and change, while revering tradition. Many Japanese, however, are uncomfortable with this interpretation.” For those among you interested in the contents of a prime-ministerial speech, I attach this January 2018 speech for the 196th session of the Diet (Japanese lower house).
  • Economy:
    • North Korea has a population of apr. 25 mln with a GDP of USD 40 bln and a per capita income of USD 1.800, so you wonder how such a tiny economy is able to terror its neighbours with a sophisticated rocket and nuclear program. But also – and not mentioned often: the country is a big exporter of counterfeit American dollars (and I doubt if that is part of its GDP.) Reportedly the newest “product” is a very sophisticated 100 dollar “super note” that took many experts by surprise because of its sophistication (I once met in Japan the managing director of a company making equipment specialised in detecting false North Korean US dollar notes.) A new field of North Korean expertise seems to be hacking cryptocurrency agencies like Japan’s Coincheck, where JPY 58 billion (USD 526 million) in cryptocurrency XEM disappeared on January 22, reported Nikkei, citing South Korean News Agency Yonhap. 526 million dollars …, that is 5.26 million 100 dollar notes, quite a logistic challenge when you want to counterfeit them and bring them into the economy. Coincheck promised to pay back its 260.000 clients …  
      Japanese private investors were at the heart of a tenfold surge in the price of bitcoin, the original cryptocurrency, during 2017. Japan is one of the few countries to authorise and regulate cryptocurrency exchanges (Financial Times.)
    • Japanese cryptocurrency investors will pay between 15 and 55 percent on their profits declared on their annual tax filings this year, Bloomberg reported. The Japanese National Tax Agency had already ruled last year that capital gains on transactions of virtual currency are considered “miscellaneous income. The tax on cryptocurrency profits is higher than the around 20 percent tax levied on profits from stocks and foreign currencies, with the higher percentage tax applying to those who earn more than 40 mln yen a year (about USD 367,600).
    • Japan will have a record JPY 97.7 trillion (USD 890 billion) initial budget for the 12 months starting April 1. For lovers of graphs about Japan’s economy, Bloomberg provides us with a series of easy to understand graphs about Japan’s debt in absolute terms and relative to GDP, budget spending versus tax revenues, total debt per person (apr. JPY 8.2 mln), ballooning social welfare spending, total debt held overseas and – remarkable – financial surpluses and deficits by government, non-financial corporations and households. 
      Other news: the Bank of Japan is to reappoint its governor 73-year old Haruhiko Kuroda until 2023, so the pro-spending policy will most likely continue, the Nikkei business daily quoted anonymous government sources as saying. His current term ends on April 8.

  • Corporate:
    • Dujat’s Japan Advisory Board Chairman Shigetaka Komori, CEO of FUJIFILM (whom I had the pleasure meeting many times) got what he has been looking for: FUJIFILM obtained controlling interest in Xerox. Nikkei carried an interview with this veteran: “We have about 300 subsidiaries, with 177 located overseas. We have been managing all of them. But this is the first time we have acquired a large corporate icon. Managing people who are very proud could be a challenge. … Japanese often hesitate [to say what needs to be said]. You have to have strength.”
    • Nearly 70% of Japan’s listed firms logged net profit growth in first three quarters, reported The Japan Times. A relatively low yen, stronger-than-expected sales and efforts to improve operating efficiency are the main drivers plus:  tax cuts in the USA as a result of Mr. Trump’s new tax legislation. Aggregate net profit of listed Japanese companies for fiscal 2017 is expected to be JPY 27.9 trillion (USD 256 billion), up 27% from the year before, the second straight year of record profits. The US tax regime contributed JPY 1.6 trillion, apr. 5% of this JPY 29.9 trillion.
    • While the average pay rise for Japan’s corporate workers is expected not to be more that 1%, this large net profit is not to be spent to Japanese board members. Japanese executives receive lower pay than their counterparts in other parts of Asia, “and those seeking to change jobs increasingly cite money as their main motivation”, according to studies by Hays as reported by Bloomberg. 

  • Society:
    • #MeToo has arrived on Japan’s shores and Politico carried an article by Shiro Ito, herself a journalist who was raped by a colleague. In May 2017, female journalist Shiori Ito went public with allegations that she was raped by an older male journalist in a Tokyo hotel room in 2015 after being plied with alcohol. She had gone to the police, but prosecutors dropped the case following a two-month investigation, according to the New York Times. She held numerous news conferences and openly accused the alleged perpetrator (who worked at the time for TBS, a prominent national television network, and denied the allegations). She was a rare accuser who gave out her name and showed her face, prepared to meet the consequences of what such an exposure would entail. The Japanese are naturally close-mouthed about themselves and especially sensitive about names. Still, Shiori Ito said she didn’t want to be labeled “Victim A,” which is how the press usually refers to rape and assault victims. “I am not some unnamed victim,” she said. “I am a human being named Shiori Ito. I want to use my voice to display the reality of sexual violence.” he reported the case to the police, the case was closed after some time, she managed to re-open it and as a result legislation has changed in Japan since.  
    • Life-expectancy in Japan is among the highest in the world and that is a great quality. But … the pension system is not coping up with age-increase. “Cash for pensioners: Keeping long-lived Japanese from going broke”, headed Nikkei. “The government, for its part, is studying the possibility of raising the starting the age to collect the public pension to over 70, from 65 now. It is also considering allowing older people to borrow against the security of their homes and defer repayments until after death. Many elderly Japanese face not being able to make ends meet as they grow old. According to the Central Council for Financial Services Information, citizens aged 60 and above have financial assets averaging JPY 22.02 million (EUR 165.000), 58% of which are held in deposits and savings … More than 60% of the country’s financial assets held by individuals are owned by people aged 60 or older, and the Financial Services Agency wants to increase the options they have to manage these assets. On the assumption that retirees have an average of 35 million yen set aside, Nomura estimates they would run out of money at age 83 if they withdraw JPY 120,000 per month at age 65. So, private  financial institutions such as Nomura Securities and Mitsui Sumitomo banking Corp. are developing new annuity products.
    • Let’s finish with some bitter-sweet news about Valentine’s Day. Next week it is February 14, so in Japan it will be chocolate all around. Let’s first set the scene. In Japan, it’s women who do the gift giving on Valentine’s Day. Men reciprocate – or not – a month later (March 14) on White Day, when they may return the show of affection. Valentine’s Day chocolate, however, is not limited to just husbands, boyfriends or that cute guy down the hall. Friends, family and office workers are on the list, as well. The Chocolate and Cocoa Association of Japan estimates USD 500 million is spent annually on chocolate for Valentine’s Day (so: mostly from women to men), while Japanese (mostly men to women) spend another USD 500 million on chocolate for White Day. White Day was first celebrated in 1978 in Japan. It was started by the National Confectionery Industry Association as an “answer day” to Valentine’s Day on the grounds that men should pay back the women who gave them chocolate and other gifts on Valentine’s Day. There are three types of choco-behaviour: Giri­ choco is “obligatory chocolate” you give colleagues to smooth the day­-to-­day office routine. Honmei­ choco is “the real thing,” what you give a romantic interest. Jibun choco is what you give yourself just because you deserve it. Obviously it is the first one that brings in a lot of unnecessary obligations. 
      “Bittersweet campaign to liberate Japan’s office workers. Buying chocolates on Valentine’s Day is just one of many workplace tyrannies”, reported the Financial Times, and Belgian Godiva is gonna change this, at least: there is a try. Last week Godiva’s President Jerome Chouchan called with an article in the Nikkei “for an end to the mental imprisonment of the giri choco. The advertisement notes the sense of relief that descends across corporate Japan in those blessed years where Valentine’s Day falls on a weekend.” 
      According to the Financial Times, “giri choco is on a spectrum of unspoken obligations which, at their most destructive, create the impulses that make the workplace bullying of pregnant women or new mothers – “maternity harassment” – a real thing, and leave the phenomenon of karoshi – “death by overwork” – seemingly impossible to dislodge.”
Let me wish you a sweet, pleasant working week and why don’t you give yourself a honmei choco on February 14 as a token of self-appreciation.
Radboud Molijn,
Global Bridges BV for DUJAT / Dutch & Japanese Trade Federation