News from and on Japan, September 18 – 30, 2017

Shinzo Abe’s gamble – and a summary of his economic achievements, electronic payment in Japan, diabetics in Japan on the rise, cities go independent (in energy) and what went wrong with Toshiba?

 

Monday September 25: PM Shinzo Abe announced to resolve the Diet (Japan’s lower house) and have new elections by October 22. A total of 465 seats are up for grabs in the lower-house election on October 22, of which 289 are to be elected from single-seat districts and 176 by proportional representation. Mr. Abe hoped to capitalise on a weak and fractured opposition to sweep back into power, as polls had shown him regaining ground for his hawkish stance on rising tensions with nearby North Korea.
At this moment his LDP and junior coalition partner Komeito have  329 seats out of 475 seats (the new Diet will have 10 seats less due to restructuring of some constituencies), so Mr. Abe has now with more than 2/3rd of the seats a so-called “super majority”. 
However, Mr. Abe may seems to have made a risky gamble, now that Ms. Yuriko Koike entered the arena with her new Party of Hope. According to the most recent poll by the Yomiuri Shimbun 34% of Japanese plan to vote for Abe’s conservative Liberal Democratic Party (LDP) while 19% favour the party formed this week by Tokyo Governor Yuriko Koike. The other parties play a minor role. End of Abenomics and the start of Koikenomics? Let’s look into that, as well as in other notable news on and from Japan.

 

  • Politics:
    • Nine parliamentarians from across the political spectrum, including a deputy minister in Mr. Abe’s ruling Liberal Democratic party, have already quit to join the Ms.Koike’s Party of Hope. The governors of Osaka and Aichi prefectures agreed to join forces in the snap election for the lower house of parliament scheduled for Oct. 22. 
      Despite rumors, Koike maintained that she would not run herself. Ms. Koike, now 65 year-old, was an environment minister and defence minister in the LDP before she defied Mr. Abe last summer, ran against his candidate for the Tokyo governorship and won in a landslide. She set up a local party called Tomin First (Tokyo-ists First). Her new Party of Hope is an attempt to repeat that success on the national stage. With the LDP holding 28 seats in Tokyo city alone, and another 66 in the wider Tokyo region, Ms. Koike could take a big chunk out of the prime minister’s majority even if her party struggles to go nationwide. The Financial Times presents a short description of what her Party of Hope stands for: “politics free of vested interests, reform conservatism and freedom of information, a repeat of the anti-establishment platform that brought her success in Tokyo.” 
      But she has a conservative agenda: “many of her political beliefs mirror those of Mr. Abe: she favours constitutional reform and has been a regular visitor to the controversial Yasukuni shrine, which commemorates Japan’s war dead, including its war criminals.” Big difference from Mr. Abe: she wants to phase-out nuclear energy in Japan and she doesn’t want to raise the sales tax / VAT from 8% to 10% next year.
      Voting age has been lowered from 20 to 18 years and I wouldn’t be surprised when many of the young voters will vote for her Party of Hope.
      Have a look at her first promotional video: https://www.youtube.com/watch?v=B4c2KZ-f-P8&feature=youtu.be and see this video by France 24: https://www.youtube.com/watch?v=TcUn4xrRqeI
    • October 10 is a national holiday in North Korea, as the founding of its Communist Party is celebrated. As North Korea more than often has “celebrated” an important day with a military activity, incl. a missile launch, Japan’s Defense Minister Onodera warned for a possible provocation on that day (Japan Today).  
      Several North Korean missiles were recently spotted moved from a rocket facility in the capital Pyongyang, South Korea’s Korean Broadcasting System (KBS) reported late Friday September 28 amid speculation that the North was preparing to take more provocative actions.
    • The Nation, a 150 year old NY based publication, carried an article about Trump’s relation to Japan. Is Trump following a Japan First policy against Kim Jong-un? The Nations states that Shinzo Abe has a key influence on US policy: “Abe has become Trump’s closest confidant on North Korea and the man he inevitably calls first during every crisis. …. On September 17 Abe published an unusual op-ed in h New York Times endorsing the idea of a military attack if sanctions fail to to dissuade North Korea….” 
  • Economy:
    • Bloomberg made a wrap-up incl. graphs of Shinzo Abe’s economic performance since taking office in 2012: Japan’s GDP has expanded in the last 6 quarters; Investments and domestic consumption have been growing; Hourly pay is rising, although wage improvements are still very moderate; Unemployment is at a 2-decade low; Inflation: yes, but very moderate and way below target of 2%; and Japan’s debt has been growing, not moderately. Nevertheless, Abenomics will a key topic during the election campaign, with Ms. Koike claiming that Japan needs a new economic road map (let’s call that Koikenomics).
    • The effect of the elections on the Japanese stock prices is “Snap! Crackle! Pop!”, writes the Financial Times. Goldman Sachs has been data-crunching the development of Japanese stock prices vis-à-vis the elections: when the elections “are first rumoured and then called (the Snap! phase), they start to rise, often led by a small basket of stocks that brokers guess will stand to benefit. … In the two to three weeks between the dissolution of parliament and the vote itself, the market progresses through the Crackle! phase – a tendency of the benchmark Topix index to trend steadily north on the broader theme of stronger mandates. … The final part of the trade – the Pop! – begins the day after the vote, and sees the market reverse on a “buy the election, sell the result” argument. The Goldman Sachs’ calculation, based on eight Japanese general elections going back to 1993, shows the Topix rose during the 20 days spanning the period, just before the election is called up to polling day, in 88% of cases. In 62% of cases, the benchmark fell over the 20 days after the vote.” 
    • Here something not related to the elections: crypto-currencies in Japan. Both MUFG and Mizuho Financial Group have launched their cryptocurrencies, but alas: two different types, the MUFG Coin and the J Coin, writes the Nikkei. However, Japan is lagging behind: “Japan initially led the world in electronic prepayment technologies and services. About 16 years ago, a consortium of companies introduced the Edy system, which allows for contactless payments to be made with prepaid “smart cards.” Around the same time, JR East, one of Japan’s big commuter railway operators, introduced prepaid Suica cards, which can be used to zip through train stations and to pay for stuff at participating retailers. But Japan has since fallen behind. Apple Pay and Google’s Android Pay arrived in Japan late last year. And Japanese retailers are increasingly introducing Alipay to lure Chinese visitors, whose numbers have swollen in past years. Alibaba sees its opportunity in Japan: It is partnering with Japanese banks so Japanese consumers can start using Alipay.” 
      Should the virtual currency and electronic payment hoopla going on overseas take up residence in Japan, it could disrupt the country’s unique commerce culture as well as the companies that feed off it. If these companies are to survive the disruption, they need to begin coordinating their efforts with government policymakers – and among one another – so they can create an electronic settlement system that consumers and businesses want to use.
  • Corporate:
    • Great read in the Nikkei about Japan’s personnel system: “Toshiba exposes roots of Japan Inc.’s chronic indecisiveness; It’s not about the people – it’s about the personnel system”. Toshiba that faces serious troubles due to its liabilities at its nuclear power plant business, is selling its semiconductor division to a combi of Bain Capital, Apple and SK Hynix. “The problem lies in a personnel system – all too common in corporate Japan – that divides employees and locks them in specific sections of an organization for years, with little movement or interaction between units. After joining Toshiba in 1979, current Toshiba president Tsunakawa spent 36 years proving himself in the medical device business. Laziness was not the reason he never visited Toshiba’s chip plant: semiconductors simply had nothing to do with his job. … There are striking parallels in the story of Kozo Takahashi, a former president of Sharp. An engineer by trade, he spent 26 years helping to turn the copier business into a cash cow. But once he became president, his lack of experience in the core liquid crystal display business became apparent.”
      How to overcome this? “Poaching outside talent is rarely an option for Japan’s traditional corporate giants. Almost always, these companies pick top executives from their own ranks. One exception is when a company accepts foreign capital, as in the case of Nissan Motor, which welcomed Carlos Ghosn as president. Another is when a company goes bust: Japan Airlines turned to Kazuo Inamori, chairman emeritus of electronics company Kyocera. There are no easy answers. But companies can start by destroying rigid personnel structures and giving promising employees the opportunity to shuffle between different units, gaining diverse experience. Successful conglomerates in the U.S., such as General Electric and 3M, rotate employees around their sprawling organizations. This helps them nurture future executives. Another option, for conglomerates like Toshiba, is to spin off various units and become specialized companies. Hitachi, for instance, significantly reduced its semiconductor and domestic appliance operations to focus on infrastructure, such as power generation and railways. One strategy may not fit all aspects of the infrastructure business, but there is a lot of overlap.”
    • Semi-conductors were once called the “industrial rice” of Japan. That is finito: due perhaps to the above mentioned reasons the country lost a vital industry. This Nikkei article summarizes Japan’s loss of this industry.
    • China has initiated its “One Belt One Road” initiative, with rather reluctant reactions from Japan and the USA. But the first Japanese company is jumping on board: Nippon Express. The company is teaming up with Kazakhstan’s state railway company to transport goods from Japan and China to Europe. It takes about 15 to 18 days for a train to carry goods from an eastern Chinese city like Shanghai to Germany and surrounding areas. The cost is about USD 5,000 to USD 6,000 per 40-foot container. Shipping by sea costs about half that but takes almost twice as long. By air, the shipment would take a few days but cost more than twice as much.
  • Society:
    • Japan’s nuclear regulator approves first TEPCO reactors since Fukushima disaster, reports WebWire. The reactor is located at Kashiwazaki, a town at Japan’s north west coast. I visited this power plant in 2000 by invitation of TEPCO. Little that I knew about the specifics of the location: 23 seismic fault lines run through the TEPCO site, located in Niigata prefecture. “The utility admitted earlier this year that due to the soft sand under the site, areas of the plant are vulnerable to soil liquefaction. Small chance that the reactor at Kashiwazaki will restart: for this prefectural approval is needed – and from an electoral perspective this seems unlikely.
    • While at the opposite side of Honshu, the troubles with the Fukushima Daiichi reactors continue, there are also unexpected, positive developments. Some cities are striving for energy-independence, like Higashi Matsushima, a city with apr. 40.000 inhabitants, reports Japan Today. “After losing three-quarters of its homes and 1,100 people in the March 2011 temblor and tsunami, the city turned to the Japanese government’s ‘National Resilience Program’, with JPY 3.72 tln (USD 33.32 billion) in funding for this fiscal year, to rebuild. The city chose to construct micro-grids and de-centralized renewable power generation to create a self-sustaining system capable of producing an average of 25% of its electricity without the need of the region’s local power utility. The city’s steps illustrate a massive yet little known effort to take dozens of Japan’s towns and communities off the power grid and make them partly self-sufficient in generating electricity.
    • Japan’s number of suspected diabetics hit 10 million for the first time last year, according to health ministry estimates released Thursday, reports Nikkei. Increasing obesity and ageing are the main reasons. “These patient numbers rose by 500,000 since the last assessment in 2012. Japan had 6.9 million diabetes patients in 1997 when the ministry began issuing such estimates, and the number has risen steadily. The ministry collects data on diabetics every four to five years as part of its annual national health and nutrition survey.”
Have a great working week!
Radboud Molijn