News from and on Japan, July 24 – August 5, 2017

Japan’s Humanoids, cats in the office, a new Abe cabinet, Amsterdam’s role in post-Brexit and why Germany (incl. The Netherlands) and Japan should cooperate further

Some long reads on the Japanese economy, a mixture of news items incl. on Japan’s new cabinet and Japan’s defense systems to keep North-Korean missiles out AND: a very interesting video by Adam Yamaguchi for CBS News on Japan’s new generations of robots. Wherever you are, on the beach, climbing mountains or in your backyard: have a look to this 2-weeks News from and on Japan.
  • Politics:
    • Changer (in French) was PM Shinzo Abe’s motto this week. With a plunging popularity Mr. Abe had to take action – and he did. As a result a revamped cabinet, albeit with only a few new faces. “Safe hands cabinet”, “a recovery from the death-zone” are some of the comments in foreign media. With disrupting neighbor Kim Jung-un and an aggressive, self-confident China the Minister of Foreign Affairs seems to be key. Taro Kono became Mr. Abe’s top diplomat, a man from a political dynasty, fluently English speaking (and who donated part of his liver to his father when he became ill due to a 30-year-old hepatitis C infection.) See Another new face in Mr. Abe’s 3rd cabinet since 2012 is the popular politician Seiko Noda, She just has expressed her intention to run in the ruling Liberal Democratic Party’s presidential race in September next year.
      Big question is now if Mr. Abe can realize his dream of a change in Japan’s constitution that would enable Japan to strike rather than only defend. “Failure to boost ratings above 40 per cent, said one former adviser to the cabinet, could cast further doubt on Mr. Abe’s plans to push through the first revision to Japan’s postwar constitution – a project that was unpopular even when his ratings were above 50 per cent but that has underpinned his leadership ambitions”, writes the Financial Times. A poll by the Mainichi newspaper showed 35% of respondents support Abe’s government, up nine points from a month ago, while a Kyodo news agency survey showed a rise in support of 8.6 points from the previous poll, to 44.4%.
    • “Consider The THAAD: How An Armed Japan Could Help Tame North Korea”, headed Forbes with an article by William Pesek, a Tokyo based journalist. The South-Koreans are in the process of installing The High Altitude Area Defense System, that has to intercept Kim Jung-un’s missiles. Japan should arm itself in a similar way, also with this Thaad system. Pesek argues that “Hitting Seoul, just 121 miles (195 kilometers) away from Pyongyang, would be suicidal. Seattle, too risky for an ICBM program that’s a work in progress. Japan, a vital U.S. ally with tens of thousands of American troops, is the obvious target. THAAD wouldn’t just shoot down weapons – including Beijing’s – but put more U.S. radar and surveillance power in Xi’s backyard. The mere threat of THAAD installations in Japan – or the Aegis Ashore weapons- interception system – might bring clarity to Xi’s thoughts on the need to rein in China’s client state. … Few steps would upend the status quo faster than Abe reducing the offensive capabilities of both Pyongyang and Beijing. While Japan already has a two-step missile defense system, Kim’s ICBM advances – and the U.S. detecting “highly unusual” submarine activity – call for reinforcements.” The article also claims that “North Korea’s economy grew at its fastest pace in 17 years in 2016 – 3.9% – even as the trade noose supposedly tightened. Since Trump entered the White House, China-North Korea trade grew more than 10%. Far from docking Kim’s allowance, Xi has looked the other way as border-town Chinese factories help Kim elude United Nations sanctions.”
    • Interesting comment in the Nikkei of July 3: Japan and Germany must unite to protect the Western order. As the US retreats from the international stage, others must take the lead. “Much will rest on the shoulders of Abe and Merkel if the liberal international order is to survive,” John Ikenberry, a professor of politics and international affairs at Princeton University, said in his contribution to Foreign Affairs magazine. Japan and Germany have three ties that can bind them in the realignment. “First, both have been accused by the Trump administration of having overly large trade surpluses with the U.S., which is threatening to adopt unilateral measures to amend those imbalances. Japan and Germany can join together and check the U.S. in order to maintain multilateral free trade. Second, Germany and Japan can work together on medium- to long-term challenges facing the world, such as the fight against global warming – centered on the Paris Agreement – as well as tackling the twin issues of dwindling birthrates and aging populations that face many developed nations. Thirdly, the two countries can cooperate on technological innovation in such fields as information technology, focused on the fourth industrial revolution, and energy. An economic partnership agreement between Japan and the European Union, which is nearing the finish line after years of negotiations, is a litmus test for the Japan-Germany alliance.”

  • Economy:
    • Long read in the Financial Times: Can Japan provide answers to the west’s economic problems? In 6 short chapters FT’s Robin Harding compares data on income, immigration, demographics, wage growth, crime rate, education between Japan, the USA, UK and Germany. The article starts with a reference to Ezra Vogel’s “Japan as Number One” in 1979. “The more I observed Japan’s success in a variety of fields, the more I became convinced that given its limited resources, Japan has dealt more successfully with more of the basic problems of post-industrial society than any other country,” Mr Vogel wrote. “It is in this sense, I have come to believe, that the Japanese are number one.” In December 29, 1989, Japan’s Nikkei Stock Average closed the year at an all-time high of 38916, more than twice its current level. In retrospect, it’s clear the market was at bursting point, but at the time the mood was still confident, with some analysts predicting a surge beyond 45,000 by the end of 1990. Now, as Robin Harding writes in the FT: “Ten years later, Japan’s bubble burst. A lost decade began. Far from a model, Japan became an example of what not to do; the foreigners who had once come to learn about lean manufacturing instead gave lectures on monetary policy. Yet now, as the west endures another crisis of confidence, a certain envy of Japan is creeping in. Its politics are boringly stable. Its high-tech manufacturers from Toyota to robot maker Fanuc prosper in a global marketplace. Living standards are high, earned income inequality is relatively low and Japan’s culture retains the cohesion of near total ethnic homogeneity. 
    • Also Bloomberg carries an article on Japan as wonderland for economists. “Japan is the graveyard of economic theories. The country has had ultralow interest rates and run huge government deficits for decades, with no sign of the inflation that many economists assume would be the natural result. Now, after years of trying almost every trick in the book to reflate the economy, the Bank of Japan is finally bowing to the inevitable” (i.e. no or low inflation).
    • Interesting read in the Nikkei on Japan’s “decisive year 2018” in terms of balancing government budgets. “The government, led by the Liberal Democratic Party, is under increasing pressure to call for a bigger budget. At a July 19 meeting, members of the LDP’s health, labor and welfare division expressed anger toward the Finance Ministry’s request to reduce the annual increase in social security spending in fiscal 2018 from JPY 630 billion (USD 5.62 billion) to JPY 500 billion. ‘Don’t let them put pressure on numbers!’ one participant said. Ahead of the once-in-six-years review of Japan’s doctor and nursing care fee tables in fiscal 2018, the Japan Medical Association and other organizations are lobbying aggressively to avoid any cuts to the fees. In other areas, calls are also mounting this year for more funding to be allocated under the fiscal 2018 budget. … The government’s plan to invest in people will need a lot of funds – JPY 1 trillion for free education for preschool children as well as nursery services, and JPY 3 trillion for free university education, for example. The government said in its guidelines on submitting budget requests that it will consider the requests along with possible measures to secure the necessary funding – options such as curbing expenditure, raising tax rates and increasing insurance premiums. But the government appears reluctant to discuss measures that will put an additional burden on the people.

  • Corporate:
    • Much ado about …. last week “post -Brexit” news was dominated by the rumours that MUFG, Japan’s biggest financial institution, plans to transfer parts of its activities from London to Amsterdam. Some days ago there was the announcement that RBS is to transfer some of its staff to Amsterdam. The Financial Times makes up the balance until now. MarketAxess and Tradeweb, two of the world’s largest fixed income trading venues, have been joined by MUFG, the Japanese bank, and possibly Royal Bank of Scotland’s NatWest Markets division. They may not be the last. “Amsterdam is emerging as one of the beneficiaries as banks and traders search for a new base to access the EU when Britain leaves the bloc in 2019. Frankfurt took an early lead as an alternative to London, with many banks opting to site themselves close to the European Central Bank. But in the last two weeks there has been a rush of financial services companies turning to the Dutch city.” Follow some remarks of Amsterdam as an early trading place, including in black tulips in 1630 and Amsterdam as a Mekka for high-frequency trading firms such as Optiver and IMC. Question remains how many staff will be transferred effectively from London to Amsterdam. Trading requires les and less staff, except for IT. My guestimate is that as for derivaties and HFT Amsterdam will be hot, less so for real investment banking.
    • The disruption in the automotive sector creates new bedfellows, incl. this week’s new combi between Toyota and Mazda, writes the FT. “Toyota and Mazda will jointly build a USD 1.6 bln assembly plant in the US and co-ordinate work on developing electric and self-driving vehicles as part of a deeper partnership agreement between the two Japanese carmakers. In a boost to Donald Trump’s US investment agenda, Toyota and Mazda will build a manufacturing plant with an annual capacity of 300,000 units that will create up to 4,000 jobs.” It looks like a pre-emptive strike: there was some concern at Toyota that Apple or Google would buy Mazda with its decades of car manufacturing expertise.
    • As I wrote in previous News from and on Japan editions, blue collar productivity is top of the world, white collar productivity is notoriously low. At a Tokyo seminar last week on raising white collar productivity a number of drastic tools were mentioned: “One attendee at last week’s symposium, an executive at an electronics company, said his company’s policy was now to encourage teleworking since employees were spending at least two hours a day commuting. The founder of another company announced that he had got rid of meeting rooms, thereby making meetings physically impossible and thus shortening the work day. A third executive pointed out that eliminating chairs would also cut the time spent in meetings, while allowing for greater flexibility and leading to more rapid decision-making. Another participant noted that when Rakuten, the largest Japanese e-commerce company, switched to holding its board meetings in English, they dropped to below an hour. (Though someone else observed that the time saved was more than offset by the need to explain everything all over again in Japanese, forcing people to spend even longer in the office, given how low the standard of English proficiency is. – Financial Times).

  • Society:
    • One thing that Dutch school children could envy their Japanese counterparts for is the Japanese school lunch. Bento boxes rather than the Dutch traditional slice of bread. What I did not know is that food education is included in the curriculum of Japanese elementary schools. The school lunch regime “is part of Japan’s 2005 Food Education Law, a regulation passed in recognition of the importance of (food education), with the objectives of ‘fostering understanding, decision-making and eating habits for an appropriate diet,’ and supporting ‘further appreciation of the gifts of nature that support us, fostering respect of life and nature and encouraging a spirit of environmental conservation,’”, writes  Metropolis Magazine.
    • Pets at the office: 15 years ago I wrote in the Dutch Financieele Dagblad about a software company that allowed pigs to walk around the offices to create more interaction between the software developers. The Nikkei has a sequel. “A growing number of Japanese companies are introducing pet-friendly benefits, offering employees days off for the birthdays or losses of their dogs or cats – and even allowing them to bring their pets to the office. … These measures, believed to reflect the increasing predilection of treating pets as family members, are aimed at maintaining morale and slowing employee churn.” The Japan Pet Food Association estimates that people in Japan in 2016 were keeping 19.7 million dogs and cats – 4 million more than the country’s 15.7 million boys and girls aged 14 and younger. Izumi Takei, a senior researcher at Mitsubishi UFJ Research and Consulting, said some people now think that employees with pets should be offered the same level of benefits given to employees with children. Some employers, Takei said, embrace the idea. In Western countries, many businesses allow employees to show up with their pets. In this regard, Japanese companies seem to be taking a cue from their Western counterparts, partly by looking at those operating in Japan.”
    • Robots & Japan: it is a fascinating combi. Apart from industrial robots, the so-called humanoids are marching in and I think that in some years it will be difficult to distinguish a humanoid from a real person. Have a look at this truly interesting CBS video “I Robot” on Japanese robots / humanoids: Dylan Glas is an American who received his PhD in robotics at the University of Osaka. He came to Japan because he knew Japan was ready to embrace robotics in Erica, a semi-autonomous robot. Dr. Glas essentially created her mind – which is a highly advanced, learning machine. She banks memories and is able to carry on basic conversations, based upon what she’s learned. She’s also frighteningly realistic. “Glas says that he feels like she depends on him, and that he feels a responsibility to help her.
      For the ones among you that want to go one level deeper, read Anjana Ahuja’s column in the Financial Times: “Given a particular input, one can often predict how a person will respond. That is not the case for the most intelligent machines in our midst. The creators of AlphaGo – a computer program built by Google’s DeepMind that decisively beat the world’s finest human player of the board game Go – admitted they could not have divined its winning moves. This unpredictability, also seen in the Facebook chatbots that were shut down after developing their own language, has stirred disquiet in the field of artificial intelligence. … At a conference held at Surrey University last month, a team of coders from Bath University presented a paper revealing how even “designers have difficulty decoding the behaviour of their own robots simply by observing them”.  Food for thought.

Have a great week, working on holidaying.
Radboud Molijn