News from and on Japan, August 6 – 20, 2017

Who is who in Japan’s new government? Corporate ghosts, Elvis-style in Japan and sake from France; Japanes economy in full swing and a sad book about the tsunami

From an economic perspective, the biggest news in the last 2 weeks were the better-than-expected figures of the Japanese economy. That should have been a boost to Abenomics and its name-giver. But there was more news, incl. Japan’s decision to place Aegis equipment to counter North Korean (and Chinese?) missiles.
  • Politics:
    • 72 years after the end of WWII: at the occasion of the commemoration of the end of WWII on August 15, Emperor Akihito expressed “feelings of deep remorse” at a ceremony commemorating Japan’s war dead, the same language he used the last two years”, reported Nikkei. The Emperor, who most likely will step down in December 2017 or March 2019 latest, first used the expression in 2015, which marked 70 years since the end of World War II. “I now pay my heartfelt tribute to all those who lost their lives in the war, both on battlefields and elsewhere, and pray for world peace and for the continuing development of our country,” he said at the Tuesday event, which he attended alongside Empress Michiko. 
      More than 80% of Japan’s population had been born after World War II as of 2014, according to the ministry of internal affairs. It is becoming harder to pass on memories of the war as those who lived through it age and pass away.
    • On August 3 PM Shinzo Abe presented his newest cabinet, with some new but mostly old faces of the ruling LDP party. You might think that Japan’s ruling LDP, supported by junior coalition party Komeito, is a seamlessly operating political group. All but that, and that has been explained thoroughly by The Diplomat, an online Tokyo-based magazine. There are 7 different factions with each their representatives in Shinzo Abe’s cabinet. Who is who in the Japanese government? This article lists all ministers and the factions they belong to. 
    • It will take 10 minutes for a North-Korean missile to reach Japan and with all the rhetorics between Washington and Pyongyang over the last weeks, the Japanese government is informing its citizens on shelter locations. It also decided to acquire land-based Aegis system to intercept incoming missiles, writes think-tank Stratfor. The graph in this article also shows the difference between the Aegis system and the THAAD system, deployed by South Korea.

 

  • Economy:
    • Are you still in doubt about the Japanese economy? Read this: “Japan’s economy, as measured by real GDP, is now 7 per cent larger than when prime minister Shinzo Abe took office in late 2012, notes Emily Nicol at Daiwa Capital Markets. With the exception of trade, she notes the economy was firing on all cylinders in the second quarter”. The Financial Times, as does Bloomberg and all major other financial publications, agree that “the world’s third largest economy has recorded its best growth streak in over a decade”. The article also states analysts’ views on the next 2 quarters.
    • Take-aways: Japanese GDP increased by annualized 4% in the 3 months ended June 30; private consumption rose 0.9% in the second quarter from the previous 3 months; business spent 2.4% more. Japan’s economy grew for the 6th straight quarter. But there is a caveat: the Bank of Japan has more than once revised its published figures, so let’s hope that these fine data will be firm this time (Bloomberg)
      And how does this all translate into share prices? The Nikkei 225 closed Friday August 20 at 19.470, one year ago it closed at 16.598.
    • Industry policy: Japan was once famous for this, but those days have gone. The Nikkei carried an article on the INCJ, or Innovation Network Corp. of Japan, the government’s vehicle to support, trim and relaunch often troubled companies. The fund’s form is a PPP, a Public Private Partnership and it has been founded in 2009. No small figures in terms of investments: the government invested JPY 286 bln (EUR 2.22 bln), while 26 companies, incl. Toyota Motors invested JPY 14 bln only. The fund is backed up by JPY 1.8 trillion (!) government loan guarantees. But … as the Nikkei reported: “the fund has incurred losses in more than 80% of the cases where it has cashed out on investments, underscoring the difficulty that the public- private partnership is having with one of its core tasks: nurturing new businesses.” Japanese tax payers money … The article includes a list of investments by the INCJ.

 

  • Corporate:
    • “Corporate Japan’s earnings recovery has broadened, with a record 68% of nearly 1,600 listed companies booking higher net profit for the April-June quarter as growth among makers of autos and electronics spread to their materials and equipment suppliers”, reported Nikkei. “Aggregate net profit at 1,582 listed companies reporting quarterly results as of Tuesday rose 33% on the year, the largest gain since the 2008 global financial crisis”.
    • One of the companies that was considered to be funded by the above mentioned INCJ was Sharp, a household name in Japan and proud manufacturer of a wide range of electronic products. In January 2016 the INCJ offered to invest JPY 200 billion (USD 1.71 billion) to help bail out Sharp. The company would also seek JPY 150 billion in existing loans from lenders to be converted to preferred shares in a debt-for-equity swap. The INCJ planned to invest in Sharp with the intention of splitting-off its display division and merging it with rival Japan Display, a company in which the INCJ is the biggest shareholder. However, Sharp was eventually acquired by Hon Hai Precision Industries of Taiwan, better known as FoxConn. Tough guidance from the Taiwanese it seems, but In fiscal 2016, Sharp registered its first annual group operating profit in three years (Nikkei). That saved a lot of tax payer’s money.
    • “Nearly three in five (listed) companies still have the former president or chief executive hanging around as a special adviser, according to a survey this year by Japan’s Ministry of Economy, Trade and Industry”, reports The Financial Times. The article defines them as corporate ghosts and it seems to be very difficult to quantify their contribution. “These ghosts, say analysts, have long been the bane of both domestic and foreign investors: their influence is nearly impossible to quantify and even harder to punish when it can be detected in soured deals, accounting scandals and other negative shocks. And at a workaday level, the greater presence of ghosts near the boardroom tends to be a tell-tale signal of low corporate governance standards and poor attention to delivering good return on equity.” The Tokyo Stock Exchange will intensify its role in Japan’s push for better corporate governance by raising pressure on companies to admit how badly their boardrooms are haunted by these corporate ghosts.  

 

  • Society:
    • August 16 it was 40 years ago that Elvis died. With probably an exception to North Korea, this date has been commemorated all over the world, so also in Japan. Rockers in Japan: CNN published an article on Roller Zoku (tribe) and there are some great hairstyles to be found, see also http://edition.cnn.com/2017/08/16/arts/roller-zoku-fashion-tribe-japan/index.html
    • The book “Ghosts of the Tsunami, Death and Life in Japan’s disaster zone”, by Richard Lloyd Parry, has been reviewed here in the Financial Times by David Pilling (whose book “Bending Adversity” is a worthwhile read as well.) “One section deals with the last 51 minutes in Okawa primary school, where the split-second decisions of those in charge – meticulously and painfully recounted – caused the deaths of 74 children. Japanese rule-following and deference to authority turn out to be partly to blame. One teacher moves from hero to villain in the time it takes for the sea to rise up from its depths. Parry admires the angry parents whose contempt for the school administrators breaches the Japanese etiquette that says they should bear it and struggle on.” Some parents went to court and in 2016 the Sendai District Court ordered the city of Ishinomaki and Miyagi Prefecture to pay a total of apr.  JPY 1.4 billion (EUR 11 mln)  in damages to the bereaved families of 23 students killed at Ishinomaki Municipal Okawa Elementary School.
    • Wine used to come from France and sake from Japan, isn’t it? Well, Japan has a flourishing wine industry (apr. 110.000 kiloliters are produced here), and now there is in France a sake brewery set-up by Frenchman Gregoire Boeuf, according to the Yomiuri Shimbun / The Japan News. He studied the art of sake brewing with Umetsu Shuzo Co., a sake producer in Tottori, Japan. “We’ve managed to fuse French water with traditional Japanese craftsmanship,” chief brewer Kenichiro Wakayama, a 46-year-old from Kitakyushu, Fukuoka Prefecture, southwestern Japan, said proudly. In its first batch, the French brewery produced 8,000 liters, equivalent to 5 percent of France’s sake imports in 2016. The price is expected to be around EUR 20 per 750-milliliter bottle. In the future, the brewery aims to expand its annual production to 30,000 liters. It is also considering using French rice as an ingredient”, writes the Yomiuri. For those among you who master some French, here is the article in Le Progress.
Have a fruitful working week!
Radboud Molijn