News from and on Japan, Jan. 22 – Febr. 4, 2017

On February 10 Japan’s PM Shinzo Abe will meet with president Trump. Mr. Abe was the world’s first foreign leader to meet the just elected Donald in November. At this second meeting Mr. Abe will come with a present, nicely wrapped as it is based upon a consensus among Japan’s business leaders: jobs, jobs and jobs to be created in America by Japanese companies. At the same time, the US new defense chief toned down Trump’s rhetoric when the latter said that Japan has to pay more to the US for its defense umbrella. Mr. Mattis showed satisfaction about Japan’s current financial contribution. But there is more to report on Japan over the last two weeks.
  • Politics:
    • While European leaders are ostensively showing their indignation of president Trump’s actions, the Japanese government is keeping quiet. Or rather: PM Abe and his team have been quietly studying the Donald Trump presidency in hopes of gleaning some policy lessons. “In particular, the government is transfixed by the strong U.S. economy backed by Trump enthusiasm and the middle-class rebellion that propelled him to the top. Prime Minister Shinzo Abe believes understanding how long the economic boom will likely last and how middle-class frustration builds up will help him steer his own economic policy”, writes the Nikkei. “Tokyo is also watching out for political ripples from Trump’s election. “Some people say what happened in the U.S. can happen in Japan, while others say that Japan as a conservative country will not go that far,” Chief Cabinet Secretary Suga said. But the government – and Abe in particular – is keeping an eye on the middle class, whose frustration with establishment politics contributed to the rise of Trump in the U.S. The government drew up a guideline to close the wage gap between temporary workers and permanent, full-time employees at a meeting in December. At the end of the session, Abe unexpectedly took the floor. ‘Temporary workers feel that they are being snubbed on bonus payments, and companies that introduced equal pay for equal work apparently saw greater motivation among such workers,’ he said. ‘This debate has convinced me that we can create a system where workers and consumers can both benefit.’” So, whatever you think about Trump, it looks like a wake-up call, or rather, a reality-check for other governments.
    • As I reported 2 weeks ago, Japanese investments in the USA are very substantial indeed: > USD 400 bln in plants and companies, 839,000 direct and many more indirect jobs, a shrinking trade deficit  now < 10%, but the Abe government plans to do more and with Abe and Trump are expected to meet on Feb. 10, major Japanese newspapers cited a draft of the proposal that calls for cooperation on building high-speed trains in the U.S. northeast, Texas and California. The two sides would also jointly develop artificial intelligence, robotics, space and Internet technology. On a broader basis, the two countries would cooperate in building liquefied natural gas facilities in Asia to help expand exports of U.S. natural gas and work together to expand nuclear energy-related sales. Abe’s proposed public-private initiative is intended to create several hundred thousand jobs, the reports said Thursday, and involve USD 150 billion in new investment in U.S. infrastructure from Japanese government and private sources over the next decade. Asked in parliament about his plans for talks with Trump, Abe said Japanese companies are making significant contributions to the U.S. economy. Overall, the expectation is that the plan would generate USD 450 billion in new business (Star Tribune).
    • And Japan will raise its defense budgets, Abe told US Defense minister Mattis who visited Tokyo last week. “One focus will be the defense budget’s annual growth rate, excluding spending related to reforms of U.S. military bases. The rate has averaged 0.8% in recent years”, reported the Nikkei. Specific defense equipment being considered includes a new anti-missile system, due to the progress North Korea is making with its ballistic missiles. Any Japan-U.S. joint development could focus on stealth fighters and drones.

  • Economy:
    • Donald Trump and his trade negotiator Navarro accused Japan to keep the yen low: “Every other country lives on devaluation,” Trump said said. “You look at what China’s doing, you look at what Japan has done over the years. … They play the money market, they play the devaluation market and we sit there like a bunch of dummies.” Let’s look to the facts and quote Japan Today: the yen’s value fell steadily after the Bank of Japan implemented massive monetary easing four years ago, hoping to spur inflation and stimulate economic activity. By injecting massive amounts of cash into the economy, the central bank caused the yen’s value to fall from about 80 yen to the dollar to a low of about 125 yen to the dollar in mid-2015. Recently, the dollar has gained against other currencies, partly because the Federal Reserve is gradually raising interest rates and partly because investors are betting on bigger returns from investments under Trump’s administration. The dollar was trading near 100 yen in August but now stands at about 113 yen.
    • Moderate growth of the Japanese economy: ending its first policy meeting in the new year, the Bank of Japan said Tuesday it expected the national economy to expand by 1.4 percent in the year through March, revised up from October estimates of just 1.0-percent growth in the current fiscal year. The central bank also predicted GDP to expand by 1.5 percent in the next year through March 2018, up from the 1.3 percent pickup estimated three months ago. Despite the more optimistic outlook, the most recent estimates are still far below the 2.0-percent target set by the lender in April 2013 when it started an aggressive monetary easing campaign to overcome deflation and stimulate the economy (Deutsche Welle).
    • Goldman Sachs Asset Management is bringing an investment trust to Japan that uses artificial intelligence to make decisions. The product will be introduced on Feb. 24. Goldman’s AI processor will sort through huge amounts of data to select promising investment targets, according to the U.S. asset manager. The move is expected to fuel competition in Japan, where asset managers, including Mitsubishi UFJ Kokusai Asset Management, are introducing similar products. The instrument, dubbed “GS big data global investment strategy,” will invest in about 200 stocks in advanced economies in a bid to outperform the market average (Nikkei).

  • Corporate:
    • In Japan nuclear energy may be out, but Japanese companies still show interest in this sector. Japan Nuclear Fuel Limited (JNFL) and Mitsubishi Heavy Industries (MHI) agreed to buy a combined 10 percent stake in the new company being split off from French company Areva for 500 million euros last week, helping a state-backed rescue of the French nuclear group. Areva’s equity has been wiped out by years of losses. Areva has held talks about China’s National Nuclear Corporation taking a stake but the two sides could not agree on terms (Reuters).
    • About 6 months ago Sharp, a legendary name in corporate Japan, was acquired by Foxconn, a Taiwanese company. The company was heavy loss making and what followed was a long battle with the Japanese government that wanted to save the company by injecting tax payers money. Foxconn won and drastically reformed the company. It is profitable again. “Speedy management is the biggest contributor to the turnaround,” Executive Vice President Katsuaki Nomura said at an earnings briefing, hailing the swift decision- making style of Foxconn, the world’s largest contract electronics maker. Shares of Sharp have soared 300 percent since a capital injection from Foxconn, formally known as Hon Hai Precision Industry Co Ltd, was completed in August (Reuters).
    • Rakuten is the of Japan (or better: Japan’s Amazon) – and the company is stepping up its European activities. In November it signed a contract with FC Barcelona of EUR 220 mln. Last week Rakuten’s founder and CEO, Hiroshi Mikitani, had a strong statement on Trump’s muslim ban: he cried. “My dad is crying in the heaven. He went to Harvard, Stanford and Yale,” he tweeted. “He was so proud and I am too. Now I am really crying.” (Japan Today).

  • Society:
    • The crippled Daiichi nuclear reactors at Fukushima … it is a story without end it seems. Radiation levels inside a damaged reactor are at their highest since the plant suffered a triple meltdown almost six years ago. The facility’s operator, Tokyo Electric Power (Tepco), said atmospheric readings as high as 530 sieverts an hour had been recorded inside the containment vessel of reactor No 2. Now imagine this: the remote-controlled robot that Tepco intends to send into the No 2 reactor’s containment vessel is designed to withstand exposure to a total of 1,000 sieverts, meaning it would survive for less than two hours before malfunctioning …
      It will take at least 40 years before decommissioning will be completed. In December, the government said the estimated cost of decommissioning the plant and decontaminating the surrounding area, as well as paying compensation and storing radioactive waste, had risen to 21.5tn yen (EUR 177.5 bln), nearly double an estimate released in 2013 (Guardian).
    • How about a bookshop where you can read, drink coffee and … sleep? The Book and Bed Tokyo, introducing the new concept of an “accommodation bookstore,” reopened on January 21 in Tokyo’s Toshima Ward after a renovation. The expanded facility now features a bar lounge, enabling guests not only to sleep and read, but also to drink alcohol. 80% of the beds have been booked for the next 3 weeks (Nikkei).
    • Some of you might have visited Huis ten Bosch, a Dutch inspired theme park close to Nagasaki. It hosts a hotel, the “Henna Hotel” (“Strange Hotel”) where guests are welcomed by robots, one on the form of a dinosaur. There are now also robots trying to make pancakes, seemingly not an easy task. This Financial Times article also compares Japan’s robot tech with those in other countries. 

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Have a great week!

Radboud Molijn