DUJAT News Coverage on Japan week 3 – 14 October 2016

Shifting from a weekly to a bi-weekly Japan-News, I will maintain the four categories Politics, Economy, Corporate and Society. As extra I will add a separate category: News (if any) on DUJAT members. If I see interesting video’s and / or long reads I will include them as well. This time a long read with possible Brexit scenario’s.

  • Politics:
    • Who will be the successor to the next Emperor of Japan? Crown Prince Naruhito will most probably succeed 82 year old Emperor Akihito, but under current legislation it is not possible that his only child, Princess Aiko, will succeed him, as it only male-succession is possible. It is a dilemma for PM Shinzo Abe, who is promoting female empowerment, while at the same time his conservative supporters like to see only male heirs to the Chrysanthemum throne. Next week a panel appointed by Prime Minister Shinzo Abe will start considering the topic of abdication by the current Emperor. Domestic media and academics say the government appears to be leaning towards one-off legislation that would let Akihito step down in favour of eldest son Crown Prince Naruhito. “In a country where the population is rapidly ageing and projected to shrink about 30 percent by 2060, the dwindling royal family exemplifies a much larger trend that is also hitting succession planning at Japanese family firms”, writes the New York Times.
    • On September 9 North Korea conducted its fifth nuclear test. Both Japan and South Korea will have to rely on American support to defend their countries against any attack by Kim Sung Un. Of all the countries in the world, Japan has the most horrific experiences with nuclear bombs, so there is a broad consensus in Japan to refrain from developing these weapons of mass destruction. But what would happen if the country would develop its own nuclear arsenal? The National Interest sums up five factors that have to be take into account would Japan do so. “Last, the domestic consensus on Japan’s nuclear policy would lose stability. During 1968–70 and 1995 Japan conducted domestic debates on the issue, but studies revealed the expensive trade-offs involved with such a pursuit (including the lack of strategic depth). Recently Japan has invested in strengthening the credibility of the US alliance and sought to bolster its alliance contributions through the revision of the US-Japan Defense Cooperation Guidelines in April 2015 rather than simply ‘relying’ on the US nuclear umbrella. Japan and the United States also began holding regular bilateral nuclear deterrence dialogues in 2010 to enhance allied deterrence.”
    • The Japanese cabinet approved a plan last Tuesday to submit the Paris Agreement, the new global accord to curb climate change after 2020, to parliament for ratification. Japan is lagging behind many other major emitters, reports Japan Today. The government plans to send the bill to the Diet to seek approval from both the lower and upper houses before Nov. 7, when the next U.N. climate conference, or COP 22, begins in Morocco. Japan is late – like the EU …
  • Economy:
    • The Bank of Japan / BoJ holds now more than one third of all Japan government bonds or JGB’s. That is JPY 400 trillion or EUR 3500 billion worth of JGBs, of which JPY 344 trillion worth were long-term bonds. Market insiders have pointed out that the bank will be unable to buy more JGBs in one or two years. Would that be enough time to reach the targeted inflation of2%? See also the Bloomberg video below, where Mark Mobius, executive chairman at Templeton Emerging Markets Group, claims that the Bank of Japan has its back against the wall.
    • Japan is a country of many surveys, and also the Bank of Japan regularly investigates the view of Japanese consumers on the economy. The median forecast of households for inflation one year from now was 2 percent, a survey conducted by the central bank from August 10 to September 5 shows. Households also see 2 percent inflation in five years, according to the survey, which was released on Thursday. Companies are more pessimistic: they have cut their inflation projections and see inflation of 0.6 percent in one year, and 1 percent in five years, according to a separate BOJ survey released on Oct. 4. The glass is half full – or half empty I would say (Bloomberg).
    • Fintech and Japan: mixed signals. In May of this year, Japan made some regulatory changes to try and encourage the development of its fintech industry. These included the reduction of investment restrictions for banks that want to invest in fintechs, and the creation of a requirement that virtual currency exchanges be registered with the regulator. Recently, there are further signs Japan wants to encourage fintech in the country, and that its strategy is working. But at the same time, herewith BoJ’s opinion: “Digital currencies won’t topple hard money printed by central banks any time soon, particularly in countries such as Japan with a solid, established financial infrastructure”, a senior Bank of Japan official told Japan Today / Reuters on October 4. “The need for central banks to maintain public trust in their policies has increased as the evolution of financial technology – or “fintech” – gives the public an alternative to using cash, Hiromi Yamaoka, head of the BOJ’s payment and settlement systems department, told Reuters. Fintech has been under the global spotlight because of its promise – or threat – to “disrupt” traditional financial activity. “In Japan, public trust over the banking sector did not waver as it was relatively unharmed by the Lehman crisis, which meant fintech start-ups were better off cooperating – rather than challenging – traditional banks,” Yamaoka said.
    • The Panama Papers revealed that there is also  in Japan ax avoidance. Japan’s tax inspectors currently cannot access data held on tax-cheating suspects’ computers or servers unless given permission, since there is no explicit legal provision for the seizure of electronic information. While many suspects do choose to turn over information, attorneys or accountants can refuse to cooperate. There is now new legislation in the making that would allow investigators copying and viewing information on computers seized from suspects’ homes or offices without first asking permission. Email, account books and other material on servers, such as those in the cloud, could also be requested from service providers (Nikkei).
  • Corporate:
    • Brexit is a headache for any Japanese company based in the UK, as it is not clear at all what UK’s PM Theresa May’s strategy is to take the country out of the EU. So Nissan delayed some weeks ago a decision to invest substantially in its Sunderland plant. Last week Ms May assured Nissan’s President Carlos Ghosn that trading conditions for its Sunderland car plant will not change after Britain’s exit from the EU, in the first suggestion that the government could pick favoured sectors to shield from the impact of Brexit. Nissan’s concerns around trading barriers extend not only to the export of its cars from the site but also access to a European supply chain as well as international talent. 
    • One person hailed as Japan’s ultimate entrepreneur is Masayoshi Son, founder and President of Softbank, one of Japan’s major telco’s and investment companies. After his huge acquisition of Arm Holdings Plc, a UK semiconductor designer for a staggering USD 32 billion, Mr Son now announced that Softbank will set up an investment fund of no less than USD 100 billion. Aim? “To find companies that will become influential in the future.” Saudi Arabia’s public investment fund is contributing 45%, Softbank 25% and the remaining 30% will come from third parties. Debt loaded Softbank will receive without doubt a handsom management fee.
    • Like “sushi”, the word “karoshi” is a Japanese word, albeit with a completely different connotation: death through overwork. Alas, this is a phenomenon that is not uncommon in Japan, where white collar productivity is notoriously low and where many hours are to be made for – partly – internal use without significant output. Dentsu, Japan’s premier advertising and communication agency, is known for making its employees do much overwork and was raided by the Tokyo Labour Bureau after one of its employees committed suicide. Earlier this month the government published a White Paper on karoshi and more than a fifth of Japanese companies surveyed in the government white paper acknowledged that some staff work more than 80 hours of overtime a month – a level officially deemed dangerous to health. 
  • News on DUJAT members: 
    • Good news for Elon Musk, Tesla’ founder: safety while autonomous driving is a hot issue and Omron developed a in-car device for facial recognition  The company showed recently a prototype of hardware employing an infrared camera fitted to the dash which constantly monitors a driver’s eye movements and gestures. If your blinking alters from an established pattern or your head bobs and dips due to fatigue, the system will immediately sound a warning buzzer to wake you up. Charged with the dual task of monitoring drowsy drivers and checking whether a driver is alert enough to retake control of the car at a highway exit, Omron offers a triple array of state-of-the-art technologies. To ensure the technology captures as much of the driver’s information and vital signs as possible, Omron’s system also employs a seat-embedded pulse reader and a blood pressure gauge that the company says may be fitted to a driver’s wrist. These constantly monitor a driver’s vital signs looking for unusual fluctuations in pulse or blood pressure caused by potential drowsiness or Heaven forbid, an imminent stroke (Forbes).
    • Eurus Eurus Energy Holdings Corp announced last week that its has completed the acquisition of two wind farms in Finland, with a combined capacity of 27.5 MW. Eurus purchased the plants from a joint venture between renewable energy investor Maas Capital Renewables, which is a subsidiary of Dutch state-owned financial institution ABN AMRO Bank NV, and wind energy developer YARD ENERGY. With its partner Peregrine Corporate Finance, Global Bridges initiated this deal.
    • Siebold may not be known to too many Dutch, in Japan it is a household name. In Leiden we have of course the famous Sieboldhuis at the Rapenburg. Interestingly enough Siebold and his Japan collections are right now the subject of the exhibition “Revisiting Siebold’s Japan Museum,” on show into November at the Edo-Tokyo Museum in Ryogoku, Tokyo. The current exhibition results from new discoveries about Siebold’s Japan collections in Europe that have enabled the re-creation of an exhibition that Siebold himself mounted in Munich, Germany. You will see nearly 300 items, some of the most notable of which come from Siebold’s fine collection of lacquerware. Many were commonly available at the time as household items, but there are also some very fine elaborately decorated pieces with family crests on them, suggesting that they were gifts to Siebold. There is also woodcraft such as imaginative netsuke, ornaments for hanging objects, and miniature models of houses and people that were popular with foreigners in Dejima. The examples of metalwork are concentrated on Buddhist ceremonial items — a reflection of Siebold’s interest in the spiritual life of Japan. There are numerous maps and illustrations of animals and plants that Siebold ordered as part of his scientific work (Yomiuri / The Japan News).
  • Society:
    • More than 5 years after the disaster, Tepco is still dealing with the aftermath of the nuclear meltdown in Fukushima while the costs are rising through the roof.  So far Tepco has allocated 2 trillion yen (USD 19.3 billion) in preparation for the decades-long process to decommission its Fukushima Daiichi nuclear plant. But it is expected to need trillions more once it starts to remove the melted nuclear nuclear fuel from the site. The bulk of the cost will not hit until the 2020s, so the government has made little progress in creating a framework to provide assistance, unlike efforts in compensating victims and decontaminating the surrounding area. Now the billion dollar question is: who’s to pay for it? My guess .. the taxpayer.
    • But it is not only Fukushima where big costs are being made. In the year 2000 I visited the nuclear power plant at Kashiwazaki-Kariwa, opposite Fukushima at the other side of Honshu. I was honored to be invited by Tepco to visit the largest nuclear power plant in the world. The Economist wrote last week an article about this plant. “The Kashiwazaki-Kariwa nuclear plant, the world’s largest, is a hub of activity. Its 6,619 employees dutifully clock on and off every day. Tokyo Electric Power Company (Tepco), its owner, spent JPY 606 billion (USD 5.8 billion) last year maintaining it and its other nuclear plants. Yet Kashiwazaki-Kariwa has not generated a single watt of electricity since 2011, when it was shut down along with the rest of Japan’s nuclear reactors after the Fukushima Dai-Ichi nuclear accident.” The article gives an overview how electricity is generated in Japan. “Before the disaster, imported fossil fuels accounted for 64% of the electricity it generated; now that share has risen to 82%, one of the highest among rich countries. Steady imports require good relations with the Middle East, a combustible region. The expense of importing more natural gas, the main substitute for the lost nuclear capacity, has prompted power prices to soar. That is unpopular with the public, and has contributed to a deteriorating trade balance.” And another question is … the Paris Agreement. How is Japan to comply with a drastic reduction of its CO2 emissions?
    • To finish in an upbeat mood: the number of Rolls-Royces, BMW’s, Lamborghini’s, McLaren’s etc. sold in Japan is going through the roof as well. Bloomberg interviewed Hideo Kumano, chief economist at Dai-ichi Life Research Institute, who told that “the trend is baffling and difficult to explain.” His best guesses at what might might be driving the gains: baby boomers reaching their 70s may be buying a set of wheels they long desired, or newly rich from backing tech startups. In the mean time, sales of cars with small engines is decreasing considerably. Also in Japan the gap between big and small (engines) is growing.
  • Long read: 
    • Lionel Barber, Editor of the Financial Times (owned by Nikkei), lectured last week at the Daiwa-Anglo Japanese Foundation about Brexit. He defined three possible Brexit scenario’s – for Japanese and Dutch readers alike a great read.

Have a fruitful and rewarding week!

Best regards,

Radboud Molijn
Global Bridges BV