News from and on Japan, October 22 – November 4, 2017

the Donald in Japan, more foreigners in Japanese boardrooms; are young Japanese ready to fight for their country? Japanese companies splashing into Asia’s dollar pools and North Korea in the heart …

With a solid mandate from his Japanese voters after the October 22 elections, PM Shinzo Abe should be at ease when Donald Trump visits Japan. But, a failed visit is only one tweet away and no doubt that all Japanese officials involved in the preparations of Mr. Trump’s first visit to Japan as President of Japan’s “guarantor”, will be relieved if all goes according to plan.
But there was more news from and on Japan over the last two weeks.
  • Politics:
    • President Donald Trump has arrived in Japan this Sunday with his wife Melania on a three-day visit, during which he will hold talks with PM Shinzo Abe, meet with Emperor Akihito and Empress Michiko; he will play golf with Abe and Japan’s best golfer Hideki Matsuyama (who might have the courage to win from Trump). The president will also meet with relatives of Japanese nationals abducted by North Korea. For his dinner he will not have a Kobe-beef but a true American steak (still subject to Japanese import restrictions) in a Tokyo-based American steakhouse. Mid-dinner he will have a private performance by Pikotaro, a Japanese comedian who will sing the Pen-Pineapple-Apple-Pen song, as Trumps granddaughter seems to love this ( The Nikkei carried an article on what to watch during Trump’s Asia visit incl. discussions on North Korea and the trade deficit (on an annual USD 200 bln trade between the USA and Japan, the American trade deficit is USD 70 bln).
    • “Time for Japan’s prime minister to change the constitution”, heads the Economist. “For more than seven decades Japan has flagrantly violated its own constitution by maintaining land, sea and air forces. Its military budget is the eighth-largest in the world. Its 300,000 troops are superbly equipped. Successive governments have clung to the fiction that this is somehow constitutional by using the label of “self- defence forces”. As legal camouflage goes, this is like trying to hide a tank by sticking a Post-it note on it. Mr. Abe is right to want to make clear in the constitution that Japan may, in fact, maintain armed forces. The rule of law matters, and is undermined when the government nakedly disobeys its principles. What is more, decades of double-talk over Article 9 have muddled the debate that Japan ought to be having over what role it should play in maintaining regional and global security.
    • Two days before Mr. Trump arrives, it was his daughter Ivanka who made headlines (albeit no crowds) in Japan during her preparatory visit. She was keynote speaker on Women Empowerment, or as PM Abe has coined it: Womenomics as part of Abenomics. Mr. Abe said Japan would contribute USD 50 million to the Ivanka Trump’s Women Entrepreneurs Finance Initiative, a program that aims to lend money to women’s businesses that Ms. Trump helped introduce earlier this year at the Group of 20 summit meeting in Hamburg (New York Times).

  • Economy:
    • Japanese companies have never been so cash-rich as now, but economic uncertainty (North Korea, China, Brexit, Mr. Trump, there are always reasons enough to claim that there are concerns about the economy) prevents them to increase wages. And that puts the brake on inflation. Ms. Yuriko Koike (Tokyo’s Governor and Mr. Abe’s competitor in the elections two weeks ago) vowed to levy taxes on companies’ exces-cash. PM Abe now demands a 3% pay-rise next year – and he might use tax-incentives as well to empower this. “Already, society is demanding wage rises from business,” Mr. Abe told his council on economic and fiscal policy, which met for the first time since the election on Thursday. “In next year’s wage negotiations, with solid progress on the productivity revolution, I would like you to realise wage rises of 3 percent.” (Financial Times)
    • TPP or Trans-Pacific Partnership Agreement, the envisioned trade agreement between 12 countries around the Pacific, incl. the USA and Japan, may have been declared dead and buried by Mr. Trump, Mr. Abe is revamping this plan without Mr. Trump. So: TPP-11, with a combined GDP of USD 12.4 trillion. The pact aims to eliminate tariffs on industrial and farm products across an 11-nation bloc whose trade totaled USD 356.3 billion last year. Negotiations have progressed and after next week’s negotiations in Vietnam, all is set to be signed later this year (Reuters).
    • Believe it or not, but with 20% cash in circulation as percentage of nominal GDP, Japan is still a cash-based society. Last year cash accounted for 62% of consumer transactions by value, according to Euromonitor, a market- research firm. That is down from 65% in 2015, but compares with just 22% in Britain, 34% in America, 10% in South Korea and 50% in China. ATM’s are everywhere in Japan, incl. in virtually all convenience stores that you can see on each corner. The Nikkei writes that mobile ATM’s have been introduced last June. But with Chinese companies offering digital payment systems entering the Japanese market, Japanese banks get worried (Nikkei).

  • Corporate:
    • “Asia has more dollars than in the past and investors are looking to put that money to work,” states Bloomberg. Where until recently debt was sold to mainly US and European investors, Japanese companies are now increasingly tapping into the big dollar-pools in Asia. “Japanese borrowers have churned out USD 17.6 billion in dollar debt targeted to Asian and European buyers – the bulk of which market players say has gone to Asia. That’s a record high, and already more than 60 percent greater than such sales for all of last year,” according to data compiled by Bloomberg. Behind the surge is a recognition of the benefits that Japanese issuers can get from a relatively new investor base closer to home. The rapidly expanding Asian dollar-bond market is being propelled by China, which makes up more than half of both sales and purchases.
    • The new Japanese corporate governance code asks for more outside directors in Japan’s boardrooms. So we have seen a rise of women and of Japanese non-executive directors over the past two years. It seems to work out also for appointing foreign board members, writes the Economist: nearly 15% of companies in the Nikkei 225 stock index now have at least one non-Japanese on their boards. That is still less than half the share in Britain’s FTSE 100, but it is up from 12% in 2013 and the trajectory seems set. That proves not always that easy for traditional Japanese boards, but it is needed: “unless Japanese business changes its ways, firms risk staying dangerously out of touch, agrees Christina Ahmadjian, a non-executive director at Mitsubishi Heavy Industries. The number of Japanese companies in the Fortune Global 500, a scorecard for big business, has dropped from 149 in 1995 to 51. A bit of disharmony can be productive.”
    • Corporate Finance people are fond of rankings: biggest, most complex, best fees … etc. Well, it turns out that Japanese financial advisory firms are less in demand by Japanese companies looking to buy themselves companies abroad. Only three of them popped up in the top-10 in the last 6 months, with Nomura Securities on top of the pecking order (Nikkei).

  • Society:
    • With increasing nationalism all over the world, the BBC had an interesting question: would young Japanese be prepared to fight and die for their country, like the kamikaze pilots in WWII? The answers is simple: hardly. The BBC article ranks a number of countries where this question was asked. Pakistan tops the list: 89% of the respondents said they were ready to fight for their country, in India this is 75%, in China 71%, in the USA 44% and in the UK: 27%. In Japan this is a low 11%. That will be quite a challenge for PM Abe, as you can change the constitution in any way you want, but if there is little appetite among Japanese to fight for their country, it is to little avail. 
    • Japan’s declining population and the move from the countryside into the big Japanese metropoles, result in something I never thought about: unclaimed land. It is substantial as no less than 41.000 km2 of Japan’s land is unclaimed for. That is the same size as the Netherlands. It also creates a big economic loss, reports the Nikkei: “In 2016, economic losses resulting from unknown ownership of land came to about JPY 180 billion yen or EUR 1.3 billion. If no measures are taken, the losses will reach JPY 310 billion per year by 2040. Total accumulated economic losses between 2017 and 2040 will reach an estimated total of a staggering JPY 6 trillion” or EUR 45 billion.      
    • For Japan-visitors with a small or bigger addiction to coffee, here a list by Japan Today where you can have your intake cheapest. Renoir is the most expensive for a cup of coffee (JPY 580 or EUR 4.40), most economical is Veloce (EUR 1.42). My advise: settle for Starbucks, as it is one of the few places where you can order a “latte with a double shot” – served with free wifi.
Recommended video: North Korea and Japan, an uneasy combi. VOX Media made a short but highly interesting documentary on the presence of North Korea inside Japan. Worth a 14 minutes watch. Scroll down to “North Korea’s bubble inside Japan” and click.

Provided by Global Bridges BV / グローバル・ブリッジズ B.V. for DUJAT / Dutch & Japanese Trade Federation