News from and on Japan in the period between December 25 – January 7, 2017

News from and on Japan in the period between December 25 – January 7, 2017: the art of wrapping people, Japan’s defense spendings, how much did Toyota invest in the USA? Japaese companies buy themselves into the UK and from what age are you an elderly person?

When you enter a new year, you hope that at least for the first weeks the problems of the previous year won’t pop up again. Alas, that was not true for PM Shinzo Abe, who had to act on various fronts: S-Korea, China and now also Donald Trump whose tweets on Toyota’s plan to establish a new factory in Mexico put the Japanese government on full alert.
  • Politics:
    • In December 2015 an agreement was signed between the governments in Seoul and Tokyo on the subject of comfort women which stated that Japan’s reparations would “finally and irreversibly” resolve the issue. A fund was to be established to make payments to the 46 still living South-Korean victims and both President Park Geun-hye and PM Abe declared the subject closed. But as could be expected, with President Park’s powers suspended, opposition within South-Korea started to object the deal even more and now a serious row between both countries is developing. A bronze statue of a comfort woman in the South-Korean city of Busan that had been removed was re-installed and the Japanese ambassador to Seoul was recalled. (We know this ambassador, Yasumasa Nagamine, as he was the Japanese envoy to The Netherlands.) The row comes at a time that both the Japanese and South-Korean government are reinforcing their ties in view of the nuclear ambitions of North-Korea and the increasingly assertive stance of the Chinese government in the South and east China seas (BBC and The Japan News).
    • The Japan News /  Yomiuri Shimbun carried an article on the Japanese government’s plans to formulate by this summer an integrated defense strategy, which outlines how the Self-Defense Forces would respond in the event of a contingency involving China over the Senkaku Islands in Okinawa Prefecture, according to government sources. Have a look at the picture in this article with a summing up of major provocations by the Chinese and North-Korean governments in 2016, as well as a description of the strength of the Chinese and Japanese armies and the American presence in the region. Another article in the same newspaper lists Japan’s defense spendings compared to those of other major countries: “among major countries, the United States’ military spending in the last five years was 4.2 percent of its gross domestic product on average, Russia’s was 4 percent, China’s 2 percent, and Britain’s and France’s 2.3 percent. Japan’s defense spending stood at an outstandingly low 1 percent. The reason for Japan’s low defense spending is that it relies on the U.S. military’s deterrence, including its ‘nuclear umbrella.’”
    • The Nikkei presented three scenario’s on PM Abe’s plans to revitalise Japan’s economy for 2017:
      • Abe is to raise the consumption tax rate from 8% to 10% as scheduled in October 2019. But this is likely to foil his attempt to achieve a primary balance surplus in fiscal 2020, which starts six months later.
      • Abe may succeed in cutting spending by drastically reforming the social security system and in boosting Japan’s potential growth by reforming working conditions and making other structural reforms. In this scenario, the consumption tax goes up to 10% and fiscal health is restored. One possible way of getting here is for Abe to dissolve parliament for a snap election early this year on a pledge to complete his mission to rid the country of deflation. A landslide victory by his Liberal Democratic Party with its junior coalition partner, Komeito, would consolidate Abe’s political power and allow him to tackle social security reform, imposing pain on some.
      • The third scenario is the one in which the planned consumption tax hike gets postponed for a third time. Japan may opt to forgo a rate hike rather than risk sending the economy into recession. Japan’s current economic recovery, assuming the cycle last hit a trough in November 2012, is already longer than the post-war average of around 36 months. Though still short of the longest post-war recovery, of 73 months, between 2002 and 2008, the current cycle may end sometime this year or next.
  • Economy:
    • “Japan’s 2017 share market performance will define Abenomics”, claims the Financial Times. “The idea was to use the equity market, among other mechanisms, to create a cycle in which companies feel stronger, wages rise and Japan breaks cleanly free of its 20-year deflationary mindset. Along the way, runs the core underlying Abenomics ambition, Japanese households and particularly the younger ones should be tempted to shift some of their JPY 1,700 tln savings out of bank accounts and into riskier assets.” “Increasingly, however, the strong stock market is exposing a persistent failure of Abenomics. A buoyant Nikkei does not, on its own, constitute a success for the prime minister’s programme and 2017 could be the year that Mr Abe’s benefit of the doubt runs out.
    • However, so far so good as long as the dollar is the stronger currency, writes the Economist. “The ability of Abenomics to lower borrowing costs, weaken the yen and lift share prices was never much in doubt. The problem is that these gifts to Japanese industry have generated disappointingly meagre increases in domestic investment, wages and consumption. Many firms would rather hold cash or securities than make big capital outlays (although counting R&D as investment, as Japan’s new statistics do, improves the picture). They have also been happier paying one-off bonuses or hiring temporary workers than increasing the base pay of core workers, which would be harder to reverse. Abenomics has run into a bottleneck of corporate timidity.” But, as the weekly states, “for Japan to prosper, Japan’s firms must swap caution for courage.
    • Japan’s GDP, employment figures and price-pressure in graphs by IHS Markit. “As a whole, the amalgamation of the brighter business outlook, higher commodity prices, wage inflation and a shortage in labour will likely stoke inflationary pressures. This will be welcomed by the Bank of Japan and the government.
  • Corporate:
    • “Donald Trump just threatened Toyota – but it looks like he got the facts wrong”, headed the Washington Post after his tweet: “Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax,” Trump tweeted. Toyota shares fell more than 3 percent before recovering, and Honda Motor Co and Nissan Motor Co slid around 2 percent – even as the government and analysts sought to brush off the impact of the attack. Toyota immediately hit back: “With more than USD 21.9 bln direct investment in the US, 10 manufacturing facilities, 1,500 dealerships and 136,000 employees, Toyota looks forward to collaborating with the Trump administration to serve in the best interests of consumers and the automotive industry,” Toyota said in a statement as reported by the Guardian. The economy, trade and industry minister, Hiroshige Seko, said the carmaker had contributed to the creation of American jobs. Japanese firms employ more than 800,000 people in the US and contributed USD 78 bln to US exports in 2014, according to the US embassy in Tokyo.
    • At least one Japanese entrepreneur is living up to Trump’s standards: Masayoshi Son, the Korean born Japanese billionaire who visited Trump quickly after his victory and who pledged to invest heavily in the USA. What is behind Son’s visits to foreign leaders and make big promises?, asks the Asahi Shimbun. “Having between 2 trillion yen and 3 trillion yen at his disposal, which he raised or earned through the mobile business in Japan, the billionaire CEO intends to make effective use of the funds abroad, but not in Japan, where economic growth has already slowed.”
    • Sumitomo Rubber Industries bought Britain’s second-largest car tyre distributor Micheldever for GBP 215 mln, the latest in a string of post-Brexit deals that have positioned Japan as Asia’s most aggressive buyer of UK assets, writes the Financial Times. “The acquisition by Sumitomo, the world’s sixth-biggest tyre maker by revenue, would put Britain’s top two tyre distributors in Japanese hands, after trading house Itochu acquired rival Kwik-Fit for GBP 637 mln in 2011. 2016 was a bumper year for Japanese acquisitions in the UK. Japanese businesses spent USD 33.7 bln to purchase 43 British companies last year, according to Dealogic. That compares with 29 Japan to UK deals worth USD 9.5 bln in 2015.
  • Society:
    • Much ado the last weeks about “karoshi” or “death by overwork”, a Japanese word that is getting coined all over the world. Among the G-7 nations, Japan seems to be the worst offender when it comes to overwork, states Bloomberg. So, in an effort to curb excessive work hours and to spur consumption, the Japanese government and business groups are launching a “Premium Friday” campaign, scheduled to start on February 24. The economic effects are no peanuts: apr. USD 1.6 bln could be added to Japan’s GDP when everybody adheres to this Premium Friday. Interestingly enough, I read in different publications that this much lauded initiative was watered down quickly as it will be limited to some area’s in Tokyo to start with.
    • When are you an elderly person? At a news conference in Tokyo’s Chiyoda Ward, The Japan Gerontological Society and the Japan Geriatrics Society said it is “anachronistic” to continue describing people 65 years old and older as “elderly” because many people between 65 and 74 “are both mentally and physically healthy.” So the bar has been raised to 75: by then you are really an elderly person! 
    • We all know that the “art of wrapping” is to be found in Japan as nowhere else. However, I haven’t see people wrapped up so far. Otonamaki, or “adult wrapping” is a new feat and it finds its roots in baby wrapping. “As an anti-stress technique many of those who have experienced it, testify to its effectiveness. However, it still feels some way from being part of established physical therapy procedure,”, writes the BBC. Perhaps an idea to wrap elderly people, so: from 75 years old, try raise the 75-year limit even further?
Have a great working week and if I did not send you my best wishes for 2017 so far: have a great Year of the Rooster.
Radboud Molijn