News from and on Japan in August 2018

Trump remembers Pearl Harbor, former PM Koizumi is “extraordinary”, Japan & immigration, Japan’s defense spending, Big Japan has Brexit worries, why no tipping in Japan and the art of apologizing

In Japan August is the month when Obon is celebrated, an annual Japanese holiday which commemorates and remembers deceased ancestors. It is believed that their spirits return at this time to visit their relatives. Many Japanese people visit their ancestors graves and the Obon week in mid-August is one of Japan’s three major holiday seasons making it one of the busiest times of the year for traveling.Also in August the end of WWII is commemorated, in Japan but also in The Netherlands, so let’s look for some related articles. The Washington Post published August 28 an article on the relation between Donald Trump and Shinzo Abe. “I remember Pearl Harbor,” the president said, referring to the surprise attack that propelled the United States into World War II. “The meeting, which left Abe exasperated, epitomized the paradoxical nature of Trump’s closest relationship with a foreign leader.” The article also describes PM Abe’s dealing with Trump: “During heated exchanges, Japanese officials say Abe waits for Trump to make his point, and finds an opening later on in the conversation to rebut him. “He understands if he categorically denies what the president says, it might hurt the president’s pride,” one Japanese diplomat said.” 

  • Politics:
    • The Defense Ministry requested last week a record budget of JPY 5.3 trillion (USD 47.6 billion, apr. 1% of its GDP) for the fiscal year starting next April, including costs to deploy a ground­based missile shield system to counter the North Korean threat, reports the Mainichi Shimbun. That is a 2.1% increase compared to the 2018 budget and it is for seventh consecutive year that defense spending in Japan is up. A substantial part of the spending is to buy US developed land­based Aegis Ashore missile defense batteries as well as other missile interception equipment. The threat from North Korea, China and Russia (that starts its largest war games since 1981, are the main drivers behind the increase. For the deployment of the first battery, the US side has said about six years are needed after “concluding a contract” with Japan, according to the Defense Minister Onodera. Also in the attachment an article from The Diplomat on Japan’s change in constitution.
    • The Guardian reported on a release of Japan’s wartime emperor Hirohito believed there was “no point living” during the final years of his life, fearing he would continue to attract blame for his country’s involvement in the second world war, according to a newly released diary of Shinobu Kobayashi, emperor Hirohito’s then chamberlain. In the diary Kobayashi alleges that Hirohito voiced “anguish” over the Pacific war, a sentiment that contrasts with other recent accounts of his feelings about Japan’s entry into the conflict with the attack on Pearl Harbor. For those of you looking for a good read, Herbert Bix’ “Hirohito or the making of modern Japan” is a very good book on this subject.
    • Japan is not only an importer of military equipment, it also seeks to export its technology and hardware. “The government greatly lowered barriers to exporting defense equipment and technology back in April 2014. But companies have failed to secure any overseas contracts for assembled equipment, partly because of the high cost of Japanese products. Berlin and Paris are interested in advanced technology used in Kawasaki Heavy Industries’ P-1 patrol aircraft, a Japanese government source said. The trio are now discussing which country will be in charge of what, with an eye toward three-way cooperation throughout the development process.” The Nikkei also reported that Lockheed offers Japan majority of work in plan for new fighter jet. The article gives some insight in the involvement of the Japanese industry in American military equipment.
    • The Financial Times carried a “Lunch with the FT” interview with Junichiro Koizumi, Japan’s most popular PM (2001 – 2006), whose lions hair, love for Elvis and opera made him also popular in the West. “‘I’m not strange. I’m extraordinary’”, is his statement. The retired politician is now an ardent anti-nuclear evangelist; his son Shinjiro is seen as a candidate for a future party leadership and PM.  
  • Economy:
    • What is the impact of a possible – or already present – all-out trade war on Japan’s economy? Capital Economics estimates that a global trade war could reduce Japan’s potential growth rate from 0.7% to perhaps 0.5%. It also has a number of different scenarios. “The value of Japan’s goods exports was equivalent to 14% of GDP last year, a touch higher than the global average of 11%. In addition, domestic value-added accounts for a higher share of the value of its exports than in most advanced economies (82% in 2014). And Japan participates more in global value chains than most: nearly a third of all exports are intermediate goods.” (Your iPhone is full of Japanese components.)
    • President Donald Trump’s tariff policies reflect a serious misunderstanding of the importance of free trade and Japanese companies’ contributions to the U.S. economy, Japan’s trade minister Hiroshige Seko said in an interview with Associated Press. “Trump should not blame Japan, because the US deficit with Japan today reflects years of effort by Japan to create thousands of jobs in the US., many of them lucrative in the auto industry, and become a major investor in the US (New York Times.)
    • Japan’s economy still has a big impact on the world, as decades of the country’s surplus savings have piled up. Japan’s net foreign assets – what its residents own abroad minus what they owe to foreigners – have risen to around USD 3 trillion, or 60% of the country’s annual GDP (The Economist). Japan’s net investment position is shown in the attached chart by the same magazine.
    • “Maybe Japan’s not done so badly after all”, writes Seeking Alpha in an in-depth analysis of Japan’s economy with charts and graphs. The on-line platform seems to see the economy of the country sui generis. “Japan not only got a return from its public investment, this return is, in all likelihood, absolutely massive. When the private sector hunkers down in the wake of a bursting asset bubble, it cuts borrowing and spending in order to repair the tremendous damage to balance sheets. … Since the private sector prefers paying down debt even at zero interest rates, monetary policy is ineffective and fiscal policy is the only response. Japan, even with all its policy errors regarding its immediate monetary reaction to the bursting bubbles and mountains of bad debts at banks, is the shiny example of this. Despite having the world’s worst demographics and the world’s worst asset price implosion, Japan’s economy simply kept on prospering on par with other rich economies.”
  • Corporate:
    • Brexit continues to worry Japanese companies, and Keidanren (the employers association of “Big Japan”) claims that Japanese companies are increasingly frustrated by the double talk from the British government over Brexit and are hamstrung on how to respond. “We just can’t do anything. Everyone is seriously concerned,” said Hiroaki Nakanishi, chairman of Keidanren (and Chairman of Hitachi), in an interview with the Financial Times about Brexit. “Various scenarios get discussed, from no Brexit to plunging into Brexit without any kind of deal at all. We’re now in a situation where we have to consider what to do in all of them,” he said. He added the British government has not acted on requests in a 15-page memo from the Japanese government in September 2016 and British ministers do not speak to him with one voice. “When you talk to the UK government, they say something a bit different depending on who is speaking.” (Nikkei.) 
      Panasonic European HQ’s move from the UK to the Netherlands is a clear example of what Brexit may be (albeit it that the move has been presented as a way to avoid fiscal difficulties as the UK wants to lower corporate tax: when this is below a certain threshold the country is considered under Japanese legislation as tax-haven.)
    • Japanese and German companies are said often to share a number of similarities. “Europe’s largest economy strongly resembles Japan in its corporatist structure, cross-shareholdings, a strong role for founding business families and a traditional emphasis on balancing the interests of investors and employees. Fortunately for Japanese companies, activist investors focused on Germany before their latest move on Japan, so Japanese companies have a chance to examine the German experience,” writes Jochen Legewie in the Nikkei. Behave as a company as if you were an activist, is his advise.   
    • Japanese companies are earning more on income from royalties and license fees: Corporate Japan took in JPY 1.5 trillion yen (USD 13.6 billion) more from use of its intellectual property overseas than it spent for the half-year ended June 30, a 30% jump on the year, driven chiefly by the drug and automobile sectors. The figure is a record for any half since comparable data came available in 1996. Also Japan’s payments for use of intellectual property from Europe improved significantly (Nikkei.) The pharmaceutical industry is a major contributor and Japanese companies have done some serious acquisition, with as latest example Takeda’s acquisition of London based Shire for GBP 45 billion.  
  • Society:
    • Japan & Immigration: they look like incompatible terms. But does that still hold? Over the years the Japanese government has established several programs to allow  migrant workers mainly from SE Asian countries, to enter the labour market, but often under different terms (trainees or interns). The country also invited second, third and even fourth generation Japanese émigré’s to come back to the motherland, but it simply isn’t enough to cater for the huge demand in a country where there are per day apr. 1,000 less Japanese due to the rapidly greying population. So something has to happen, claims Foreign Affairs in its August edition. What would a comprehensive  road map look like? As example, Foreign Affairs mentions South Korea that introduced in  2006 a new system, the Employment Permit System EPS, explicitlyy designed for the temporary employment of the foreign worker, incl. well defined rights. “On it’s current path, Japan may go the way of the Gulf States, in which both high-­ and low­s-killed foreign workers remain excluded from the national community and low­-skilled workers are denied access to legal recourse in the event of a labor dispute or right-abuse. Doing so, however, could endanger Japan’s reputation as one of the world’s liberal democracies.” 
    • With temperatures in Japan peaking at record 41.1C in July, the Tokyo Olympic Committee mulls to introduce a one-time “summertime” in 2020 from July 24 – August 9 (Olympics) and August 25 – September 6 (Paralympics). It isn’t a popular topic for the Japanese, also as Japan only operated a daylight saving time from 1948 to 1952 under the Allied Occupation. Another possibility would have been to transfer some of the games to cooler places in Japan like Hokkaido, but that does not sound realistic in this stage. The Tokyo Olympics in 1964 were held in October. Interesting as also the EU doubts about the daylight saving time. 
    • As every Japan visitor knows: no tipping in Japan. Why? Sora News 24 listed five reasons, all to be found here. The last reason is for me is the #1: “Bad service isn’t part of Japanese culture, from either a business or a customer’s perspective”. 
    • At the BBC site an interesting article on The Complex Art of Apology in Japan. “Hidetsugu Ueno, owner of Bar High Five (read the House Policy of this bar in Ginza 5-chome!), delved further into this concept, agreeing that mindfulness is part of apologizing in Japan – but adding that it goes hand in hand with empathy. “Of course we don’t want to apologise if we don’t need to. But we can put ourselves in other people’s shoes and feel sorry for them, so we want to say it aloud.” The practice of mindfulness includes being aware of other people within its scope, but, put like this, apologizing also stems from a wider emotional ability to understand the feelings of others.

Have a great working week.

Radboud Molijn


Global Bridges for DUJAT / Dutch & Japanese Trade Federation