News from and on Japan from May 1 – 14, 2017

Mindfulness in Japan, naming & shaming of Japanese companies by its own government, Japanese M&A booming among SME’s, strange posters in Kyoto, Japan’s LGBT-scene and rising wages

Combined group net profit in the year to March 2018 is expected to rise 3.2% from the previous year, and that must be good news for Japan INC. Wages are rising, albeit moderately, in the fastest pace in decades. So: opportunities for Dutch investors. And why not invest in Japan by … acquiring a mid-size company that has succession problems? That is thinking out of the box! Herewith news from and on Japan from May 1 – 14.
  • Politics:
    • Golden Week: a series of national holidays in the last days of April and the first days of May. May 3 is Constitution Day or “Kenpō Kinenbi”, and it commemorates the date when the post-war Japanese constitution was enacted. On May 3, 1947 the new Japan Constitution came into effect, with its Article 9 that prohibits Japan from participating in war activities, except in cases of self-defense. General Douglas MacArthur first ordered Japanese government leaders to submit to him the draft of a new constitution, but he found it unsatisfactory. Then he ordered his general headquarters, under General Courtney Whitney, to produce a model draft that incorporated U.S. ideals, which was readied one week later, on February 13, 1946. Japanese leaders had few opportunities to make changes to it, and the final draft was published on March 6 and ratified by the Japanese legislature (see http://crisissome.blogspot.nl/2016/04/japanese-constitution-1947.html). This Constitution is what PM Shinzo Abe would like to change and the Economist wrote how prime minister Nobusuke Kishi, Mr. Abe’s grandfather, tried to change this U.S. enforced constitution in the ’50’s. Now his grandson is making an attempt, but popular support (referendum) is needed – and the outcome is not sure.
    • One reason for PM Abe to change article 9 is North Korea’s missile and nuclear program, the other China’s growing assertiveness. Last night another, new rocket type was launched by Pyongyang. Reuters reports that Japan favors Aegis Ashore over THAAD to boost missile defense … How strong are the armies around Japan? The attached article in Deutsche Welle shows that Japan’s military, how well trained and sophisticated it may be, is in terms of quantity inferior to that of its neighbours. 
    • In 2015, Japanese Prime Minister Shinzo Abe and South Korean then President Park Geun-hye signed a deal about the Korean comfort women. Mr. Abe ordered his “most sincere apologies and remorse” to all former comfort women, and Tokyo provided 1 billion yen (EUR 8 million) to a fund to help the Korean victims. The two countries agreed to “refrain from criticizing and blaming each other in the international society, including the United Nations,” according to CNN. The new South Korean president, elected last week, has an opinion different from his ousted predecessor – and that may trouble the relation between the two countries. 

  • Economy:
    • The country has moved from export-driven model to a headquarters economy, writes the Financial Times explaining Japan’s current account surplus that hit a 9-year high in the fiscal year that ended on March 31. “The greater significance of the figures, however, is showing Japan’s evolution from the export-driven model of the past to a headquarters economy that earns large sums from its huge international creditor position. Although down from the previous year, net primary income – from direct investment in overseas assets and portfolio investment in stocks and bonds – amounted to JPY 18 tln (EUR 146 bln), or 3.3 per cent of GDP. Inbound tourism is a substantial driver as well.
    • “Wages in Japan are rising the fastest in decades, in a shift that’s poised to divide the nation’s companies – and their stocks – into winners and losers”, according to Morgan Stanley, here quoted by Bloomberg News. The firm expects wage growth to accelerate to 2.8 percent by the end of next year, with higher hourly earnings canceling out fewer working hours and slower employment growth. While wage reflation means companies have to pay more in salaries, it also leads to stronger demand and revenue gains. The article also names the winners & losers of these higher wages.
    • Investors, look for Japanese stock! is the encouraging message by Alphaville / Financial Times’ Matthew Klein. US stocks are extremely expensive, and “Japanese businesses have several things going for them. First, they are far less indebted than their developed-market competitors. Net debt accounts for only about 28 per cent of the enterprise value of Japanese businesses, compared to 37 per cent for the US and a whopping 51 per cent for the Euro area. Not only are Japanese companies relatively cheap, but shareholders are positioned to get a bigger chunk of operating earnings compared to investors in Continental firms. Second, the Japanese economy and stock market is diversified. The top ten companies are worth less than 17 per cent of the market. They represent a range of sectors from vehicle manufacturing (Toyota and Honda) to banks (Mitsubishi, Sumitomo, and Mizuho) to telecoms and tech (Fanuc, Softbank, and Sony). And finally, there is upside risk. After decades of apparent stagnation, the Bank of Japan and the government of Japan have spent the past few years attempting to push businesses to treat shareholders better. The implicit promise was that tax cuts and yen depreciation would boost profits enough to justify wage boosts and fixed investment, while the spectre of inflation might reduce the appeal of sitting on cash rather than paying dividends or spending on capex.”

  • Corporate:
    • Major Japanese companies expect to set another record combined net profit for fiscal 2017 through next March following the previous year due to robust overseas demand and the yen’s fall, according to data compiled by SMBC Nikko Securities Inc., reports Japan Today. “Combined group net profit in the year to March 2018 is expected to rise 3.2% from the previous year, based on earnings data released by Thursday from 860 firms, or about 60% of all the companies listed on the Tokyo Stock Exchange’s First Section that close their books in March. In the fiscal year ended in March this year, group net profit rose 15.4% to a record high, as recovering resource prices more than offset the yen’s strength.” As a result wages are rising, see Bloomberg article above.
    • Why not invest in Japan by acquiring an excellent, mid-size company with a succession problem? A lack of succession is the motivation behind about half the deals struck in the M&A brokerage market for SMEs, says Nomura, here quoted by the Financial Times. “Government figures show how rapidly the tradition of keeping businesses in the family has eroded. Among presidents who took the helm of Japanese SMEs 40 years ago, 82 per cent were sons or daughters of the previous incumbent. During the past five years, almost 40 per cent assumed the role after the company was sold to a third party.” Japan counts many aged bosses, who often own & manage world class players in niche-markets. 
    • You remember the word “karoshi”? Death by overwork, alas a phenomenon that still occurs from time to time. The Japanese government is promoting to work less, i.e. less overwork. But theory differs from practice and the government started to name & shame a number of companies that did not follow its recommendations. The list published this week on the country’s labour ministry’s website includes major firms like advertising agency Dentsu (again…!), where the 2015 death occurred, electronics maker Panasonic, as well as a local unit of Japan Post, according to Reuters (the Independent).

  • Society:
    • In Kyoto a number of posters were published: “I’m glad to be Japanese. Raise the Hinomaru with pride in your heart,” the poster states, using the Japanese word for the flag. No indication is made of who produced or has been putting up the posters, though popular speculation is that they are made by a political or Shinto group with strong nationalistic leanings. Kyoto residents began noticing the posters around the city earlier this month. They feature a girl smiling in front of the Japanese flag. OK, it could be a variation to “Make America great again”, but there was something slightly unexpected about the poster: it was actually a Chinese woman pictured, according to BBC News. Blue Jean Images, the Beijing-based company which produced the original photo, confirmed to the BBC the model was Chinese and that the picture was taken in 2009. The Jinja Honcho told Huffington Post Japan this was “not a problem”, as the poster “does not specifically state that the featured person is a Japanese person”. The discovery has been greeted with disbelief and amusement not only in Japan, but also in China. On the popular Chinese microblogging network Sina Weibo, one user posted the inflammatory joke: “Surely this proves that Japanese people are actually Chinese?”
    • Long article by Vice Media about the LGBT-scene in Japan. In April 2015, Tokyo’s Shibuya Ward became the first place in the country to recognise same-sex partnerships as equivalent to marriage. Several municipalities have since followed in Shibuya’s footsteps, with support for same-sex relationships growing steadily in Japan over recent years. A poll in 2015 suggested the majority of people were now in favour of marriage equality. Many businesses in the country, such as Panasonic, have started to adopt policies to recognise same-sex partners for benefits such as health insurance and pensions. Vice published an article about a photo book that sheds light on the LGBT-scene in Japan.
    • Mindfulness & Japan: look like odd bedfellows, but here an article in BBC Travel on “shisa kanko”. Shisa kanko is literally ‘checking and calling’, an error­ prevention drill that railway employees here have been using for more than 100 years. Conductors point at the things they need to check and then name them out loud as they do them, a dialogue with themselves to ensure nothing gets overlooked. A 1994 study by Japan’s Railway Technical Research Institute, cited in The Japan Times, showed that when asked to perform a simple task workers typically make 2.38 mistakes per 100 actions. When using shisa kanko, this number reduced to just 0.38% – a massive 85% drop. The BBC article compares this shisa kanko with mindfulness and looks for different “mindfulness” phenomena in Japan. Zen is mindfulness and read in this article the story of the zen student and his umbrella. Whatever you thing about mindfulness or zen: fact is that “the awareness of the moment” is highly valued in Japan, be it at a tea ceremony, cherry blossom viewing or just: “being there, without distraction”. Could be mindfulness? Great read.
This news reaches you on Mother’s Day: In Japan, Mother’s Day (母の日 or Haha no Hi) was initially commemorated during the Shōwa period as the birthday of Empress Kōjun (mother of Emperor Akihito) on 6 March. This was established in 1931 when the Imperial Women’s Union was organized. In 1937, the first meeting of “Praise Mothers” was held on 8 May, and in 1949 Japanese society adopted the second Sunday of May as the official date for Mother’s Day in Japan (wiki).
Enjoy the Sunday – and your week ahead!
Radboud