News from and on Japan – November 28 – December 10, 2016

Abe & Putin, Abe & Pearl Harbor, Japan’s economy bigger than reported, Tokyo Olympics in … 1964, Japanese bananas and how to reserve a most exclusive hotel in Japan?

Coming week we will see the long planned visit by Vladimir Putin to Japan, where he will be the guest of PM Shinzo Abe at his home turf: in Yamaguchi. Aim: to come to a peace treaty between Japan and Russia 71 years after WWII ended. It doesn’t take me too much effort to imagine the frenzy in Mr. Abe’s team at this moment to have everything prepared, scenario’s discussed, negotiations tactics defined, Plan B and C worked out.

For Japan the best possible outcome of the Abe-Putin summit would be the handing over of four islands of the Kurils, that were Japanese territory until September 1945. That is only a remote possibility, given Mr Putin’s statement in September: “We do not trade territories.”

And there was another reference last weeks WWII when PM Abe announced to pay a visit to Pearl Harbor to “comfort the spirits of the dead” caused by Japan’s attack in December 1941 that took place on December 8. Let’s take a close look to these and other events.

 

  • Politics:
    • Among the possible enticements for Russia is the revival of a mothballed proposal to build a USD 5.3bln gas pipeline between Russia’s Sakhalin Island and Tokyo,writes the Economist. Japan is also dangling billions in soft loans for the development of Russia’s impoverished Far East, as well as a boost to private investment. Russia, meanwhile, is wary of becoming a junior partner to China in Asia. “We can’t put all our eggs in one basket,” says Alexander Panov, a former Russian ambassador to Japan as quoted by the Economist. But the obstacles to a deal are forbidding. A recent poll found that 78% of Russians are opposed to ceding all four islands; 71% object to handing over Shikotan and Habomai.“In Russia, if any president, even Putin, gives away two of our islands to Japan, he’ll bring down his ratings catastrophically,” Dmitry Kiselev, Russia’s propagandist-in-chief, said last month. “The Japanese like to talk about saving face, but they forget that Russians have faces too,” says Anatoli Koshkin of the Oriental University in Moscow. The islands guard the passage from the Sea of Okhotsk to the Pacific, “a life or death issue” for the Russian navy, says Shigeru Ishiba, a former Japanese defence minister. Small wonder, then, that Mr Putin said flatly in September: “We do not trade territories.” Valentina Matvienko, speaker of the upper chamber of the Russian parliament, said on a visit to Tokyo in November: “Russia’s sovereignty over the Kurils is indisputable and is not up for revision.” Further reinforcing the message, the Russian armed forces announced the placement of missile-defence systems on Etorofu and Kunashiri last month.
    • Abe will visit Hawaii on December 26 and 27 and hold a summit with outgoing President Obama. “On this occasion, along with President Obama, I will visit Pearl Harbor” Mr. Abe told reporters at his official residence in Tokyo.“The purpose is to comfort the spirits of the dead.” The visit is possible since Obama visited Hiroshima in August this year (Financial Times).
      And like when Obama visited Hiroshima earlier this year, no apologies for the attack on Pearl Harbor are expected. With the personal relations between Obama and Abe in good shape, I wouldn’t be surprised when Barack Obama would be consulted informally from time to time by Japan’s Prime Minister, in particular with a for Japan unpredictable Donald Trump in the White House.
    • For Donald Trump TPP is finito, but nevertheless, Japanese Prime Minister Shinzo Abe won parliamentary approval last Friday for ratification of the Trans-Pacific Partnership,despite Trump’s plan to withdraw from the 12-nation trade pact. And Japan is not the only country that continuous its ratifying procedures. Leaders in New Zealand and several other countries have said they still hope to find a way to rescue the initiative. The outgoing Obama administration welcomed Japan’s parliamentary approval of TPP. State Department spokesman Mark Toner said that TPP was important for establishing trade rules in the Asia-Pacific and it was in everyone’s interest who has signed on to it to see it come into effect. He said that regardless of what happens in the U.S., “the rest of the world is moving forward.”(Japan Today)
  • Economy:
    • The Japanese economy may have grown less than expected (seasonally adjusted 0.3% quarter-on-quarter) in the three months to September 30, but as by magic! …its entire economy as measured in 2015 figures has grown on the night of December 7 on 8 by no less than 6.3%!What happened? Japan became the latest country to apply new UN standards for compiling national accounts. In absolute terms: Japan’s economy increased from JPY 499 tln to JPY 531 tln (EUR 4.3 tln). The impact of this changing accounting standards is substantial: Japan’s debt as compared to its GDP is now a little smaller and domestic consumption is a bigger part of the economic pie. What makes the difference? Under the new rules, countries treat spending on research, development, patents and copyrights as investment, adding it to GDP for the first time. Japan’s high R&D spending means the change has a big impact. Similar changes in  the US raised GDP only by 3.2 per cent. This is good news for Abe-san who has vowed to lift output to JPY 600 tln by 2020. Economists estimate Japan’s long-run growth potential at around 0.5% a year, given its falling population. If the economy keeps growing faster than that, it should gradually run out of underemployed workers, a situation the Bank of Japan hopes will lead to wage rises and an escape from two decades of on-and-off deflation (Financial Times).
    • Japanese shares showed impressive gains over the last days.The benchmark Nikkei average extended its winning streak to a fourth session Friday, reflecting higher overseas equities overnight, and rewrote its 2016 closing high for a second straight day, reported the Japan Times / JiJi Press. The 225-issue Nikkei average added 230.90 points, or 1.23 percent, to close at 18,996.37 on the Tokyo Stock Exchange after topping the 19,000 threshold for the first time in about a year.On Thursday, the key market gauge advanced 268.78 points. Why? The continuation of the ECB’s QE, the weakened yen, Japanese shares vs. US shares and obviously the Trump rally in New York.

 

  • Corporate:
    • The Japanese government will require large enterprises to pay subcontractors in cash as it tries to stamp out unfair business practices, reported the Nikkei. The Fair Trade Commission and the Small and Medium Enterprise Agency will issue a directive outlining the new requirements by the end of the year. The move is in line with PM Abe’s pledge, made in September, to “put all his strength into improving business terms” for subcontractors. In addition to asking that promissory notes be replaced with cash as a payment method, Abe also urged big manufacturers to refrain from demanding across-the-board price cuts. The aim is to make it easier for small and midsize enterprises to manage their capital and thus raise wages. It would mark the first major policy change regarding subcontractor payments in 50 years. Toyota is mentioned as a shining example. The company currently pays about 80% of its payments in cash. By going a step further, the carmaker will help subcontractors boost cash reserves, reduce interest costs and generally become more competitive. The article in the Nikkei also learned me that a Toyota car has roughly 30,000 parts while Toyota buys 80% from external manufacturers. Toyota deals directly with around 450 primary suppliers such as Denso. Beyond that are roughly 10,000 secondary subcontractors and tens of thousands of suppliers below that. If Toyota and core upstream suppliers work in step, it will help spread the cash payment practice quickly throughout the group, the thinking goes.
    • Two sizeable acquisitions abroad by Japanese companies: general trading house Sumitomo bought the Irish company known as Fyffes of … yes: the bananas (although it also trades in pineapples, melons and mushrooms.) Sumitomo paid EUR 753 mln in cash plus some net debt. The premium paid by Sumitomo is 49% and paying 16 times earnings puts it on par with US-listed Fresh Del Monte and Ireland’s Total Produce, formerly a sister company of Fyffes. (Financial Times)
    • A second acquisition was done by Kyocera that will acquire Annodata, a UK-based supplier of office equipment and information technology services. Kyocera aims to shore up its own printer and copier operations in Europe and the U.S. to compensate for its flagging component business. The Japanese company is expected to buy Annodata through subsidiary Kyocera Document Solutions for around JPY 10 billion. Based in the English county of Hertfordshire, Annodata sells and maintains printers and copiers from manufacturers such as Kyocera. It also offers IT services such as server and network setup and cloud services. It employs about 340 people and logged roughly EUR 80 million in sales for the year ended in June (Nikkei).
  • Society:
    • Tokyo Olympics: when in Tokyo last week I heard that the preparations for the 2020 olympics are in a mess. But, writes Robert Whiting in the Nikkei. “Memories are short, and it is worth remembering that this is roughly the same thing that happened in the run-up to the previous Tokyo Olympic Games, held in 1964.”He quotes Shinichi Ueyama, the head of the Cost Cutting Panel of Tokyo Government recently installed by its new Governor Yuriko Koike. “There is nobody in charge, no chief executive officer,” Ueyama said, recommending that the Tokyo Metropolitan Government, which will contribute most of the money required, should serve as chief financial officer. He expressed incredulity that there was no central government budget for the games, urging the organising committee to establish one as soon as possible. The problems with the relocation of the Tsukiji fish market to Toyosu does not help, as this last site is heavily polluted despite earlier claims by Tokyo that all was safe. But, when pressed to the limit, countries can be fairly resilient.
      “Tokyo may eventually get its act together, just as it did in 1964”, writes Whiting.Great read, this article in the Nikkei: “Then (1964) there was the water shortage caused by an abnormal lack of rainfall in the months preceding the games. As the summer of 1964 began, the municipal government instituted water rationing. Bathhouse hours were restricted, swimming pools closed, and police water trucks, usually employed to quell leftist riots, filled housewives’ buckets with water hauled in from nearby rivers. Tokyo bars urged thirsty patrons to drink their whiskey without water to help save the city.”
    • December 8, 1941 was Japan’s attack on Pearl Harbor– and I came across a long read about Japanese poems, or more specifically: “tanka”, that were written on the occasion of the attack on Pearl Harbor. A tanka is an unrhymed verse form of thirty-one syllables. This essay, that I found in the Asia-Pacific Journal Japan Focus, explores tanka poetry written shortly after the Pearl Harbor attack and they served as a window into both the public fervor and private anxieties of early Pacific War Japan. Like WWI led to many war-poems published by British soldiers, the events and worries of December 8, 1941 also triggered a substantial number of these tanka in Japan.
    • When we go to Japan it is often for business reasons, but as I stated in this place before, Japan is also a great holiday destination. When you plan a visit to this country with unparalleled scenic beauty, try this hotel:Tomaya Inn at Iwate Prefecture. But … no Expedia, comor Hotels.comwill help you here as it has a unique reservation procedure. Potential lodgers are required to send a letter or postcard in order to make a reservation at the inn, which has no Internet or telephones. Once they receive a reply in the mail from Tomaya, they’ll be able to stay inside the beautifully rustic building (RocketNews24) I’m sure DUJAT will help you to write this postcard, in Japanse.

 

Have a great working week.

 

Radboud Molijn