DUJAT News Coverage on Japan – updated on 5 June 2016

News from and on Japan in the week of May 30, 2016

All women on deck, was does Japanese companies do with their profits? and happiness in Japan

News often hovers between the big and the small: the biggest news was PM Abe’s decision to delay the VAT increase from April 2017 to autumn 2019 The retail news was the rescue of a 7 year old boy, this week’s hero, who survived one week in the forests of Hokkaido in an army barrack. But there was more, such as on the pay-outs of Japanese corporate profits,

• Politics:
  • “I will promise clearly here and now: There will be no more delays,” Abe said in November 2014, upon postponing the consumption tax hike from October 2015 until April 2017. But fast-forward to today, and financial markets had completely factored in another delay. The prime minister announced Wednesday that the hike will be pushed back two and a half years until October 2019. Public opinion is overwhelmingly on Abe’s side in this decision. But what is evenly important: the Decision to delay tax hike demonstrates Abe’s political dominance, according to the Nikkei. With the upcoming elections, Shinzo Abe plays hard ball to change the constitution.
  • What is at the basis of this change of the constitution? The Diplomat carries an in-depth study about the forces at work behind the scene to fundamentally change Japan’s politics. One of the main actors is a citizen group named the “National Society to Create a Constitution for a Beautiful Japan”. Then you have the Japan Conference,  often reported to be the largest right-wing or conservative organisation in Japan. It was established in 1997 and describes itself as a “national movement association which has nationwide grassroots networks.” As reported by The Asahi Shimbun, it has 38,000 fee-paying members, 47 prefectural headquarters, and 240 local branches with 1,700 local assembly members. “If the ruling Liberal Democratic Party (LDP) wins a landslide victory in the Upper House election, there is no doubt that the Japan Conference and Abe would keep their strong solidarity”, writes The Diplomat. “However, if the LDP loses the election, the Japan Conference would face difficulties. The worst scenario for the Japan Conference would be for the group to break up into several factions, such as Abe’s followers versus idealists, and thereby lose its strength and influence on politics. Therefore, the current Japan Conference has no choice but to focus on backing the Abe administration in order to win the next election, while persuading its members that Abe would absolutely achieve its goal of constitutional revision after the election.”
  • Meanwhile Chinese foreign minister Wang Yi had tough words for his Japanese counterpart Kishida when both met at the end of April in Beijing. At the outset of the talks, a stern-faced Wang shook hands with Kishida and said bluntly, “If you come with sincerity, we welcome you.” Wang looked as if he were picking a fight with Kishida – a highly unusual move for a host of diplomatic talks, says the Nikkei, reporting on this event more than 5 weeks later.
• Economy:
  • Different views on the delay of the VAT increase. The Economist isn’t convinced that this is a good decision, Forbes sees it as the correct decision. The delay will be compensated by a “comprehensive and bold” economic package this autumn, raising concerns that the Abe administration will fall back on big fiscal spending on infrastructure, which does nothing to reverse a decline in the working-age population. And the declining population is a major factor for disappointing growth figures in Japan. The government also wants to raise the birth rate to 1.8 per woman from 1.4, which is a step in the right direction but still below 2.1, the rate needed to simply prevent a population from shrinking (Economist, Forbes).
  • The Nikkei came up with a set of recommendations for the Abe government to boost the economy in the 40 months before the new planned tax hike in 2019. More enthusiasm about new drivers such as the so-called “sharing economy” and Industry 4.0, an initiative to promote manufacturing through advanced technologies, claims the newspaper. There has been some progress thanks to the weaker yen and the reduction of corporate tax: at the end of June 2012, just months before Abe took office, the average return on equity ratio among the top 1,000 listed companies in non-financial sectors stood at less than 5%. By December last year, the gauge had improved to almost 8%, the government’s minimum target. But it remains lower than that of Western businesses. But, “Japan cannot waste time by just waiting. It now has 40 months to go before the national consumption tax is raised from the current 8% level to 10% in October 2019. If companies fail to enhance productivity and profitability by then, the tax hike could end up being only painful.”
  • Japanese companies are set to pay out more than half of their fiscal 2015 net profit to shareholders via dividends and share buybacks. Japan’s roughly 3,600 listed companies will spend a record 16.2 trillion yen ($148 billion) on dividends and buybacks for fiscal 2015, equivalent to 53% of total net profit. That ratio is the largest in the past 10 years except for fiscal 2008 and 2009, when corporate earnings tumbled following the U.S. financial crisis (Nikkei).
• Corporate:
  • Uber, one of the symbols of the new sharing economy, is finally to start business in Japan in … Tango, part of Kyotango City on Japan’s west coast, with a population of just 5,560 and abandoned by the local taxi firm eight years ago. Does not sound as a big deal, moreover as the ageing population has to learn how to order an Uber taxi by using a tablet or smart phone that many do not possess. Uber is making available 50 tablets – easier for the elderly to read than smartphones – for free for six months to book one of 18 registered cars (New York Times).
  • Toyota is to buy Boston Dynamics, a manufacturer of robots, from Google. With the acquisitions, Toyota is expected to welcome some 300 personnel into the group. Toyota has been working on the development of nursing care and medical robots since 2005, when it set up a special unit. The carmaker apparently hopes Boston Dynamics and Schaft (set up by a graduate of Tokyo University) help advance its autonomous driving robotics. However, Boston Dynamics is foundering, so let’s see if this is a good deal at all. The Japanese automaker believes robotics will be a key driver of its future growth. With the two companies – Boston Dynamics of the U.S. and Schaft – Toyota’s fledgling robotics division would get a huge boost (Nikkei).
  • Dividend payments and share buybacks: Japanese companies are set to pay out more than half of their fiscal 2015 net profit to shareholders via dividends and share buybacks amid the tighter focus on corporate governance, though putting funds at hand to good use through other means remains a challenge. Japan’s roughly 3,600 listed companies will spend a record 16.2 trillion yen ($148 billion) on dividends and buybacks for fiscal 2015, equivalent to 53% of total net profit. That ratio is the largest in the past 10 years except for fiscal 2008 and 2009, when corporate earnings tumbled following the U.S. financial crisis (Nikkei).
• Society:
  • Last week my hero was 7 year old Yamato Tanooka, who went missing after being put out of his parents car as a short punishment. Finally he was found in an army shelter in cold and rainy Hokkaido after one week missing. The search for Yamato gripped Japan. At its peak, it involved several hundred shouting rescuers beating through heavy bush, as well as soldiers on motorbikes and police on horseback. News programs gave regular updates throughout the week, and NHK sent a news flash when he was found. The incident set off a flood of social media comment, with most of those posting comments lambasting the parents for their carelessness. On Friday, most expressed relief. The event also sparkled a debate on child raising.
  • A success story of Japan’s “womenomics” program: Miho Otani seems to offer it all. She is a working, mid-forties mother with a stellar career, the respect of male colleagues – and she is in control of a 3,500-tonne warship. Cdr Otani is a self-declared patriot who decided while studying at university to enter the National Defence Academy after seeing television coverage of the 1990s Gulf war. She became one of the academy’s first female graduates. “I was shocked to discover what was going on in the world, and how different it was to the peaceful life I led here in Japan,” Cdr Otani said in her first interview since being made captain of the JS Yamagiri earlier this year. “I will do everything to protect my country.” PM Abe’s initially stated target of putting women into 30 per cent of management positions by 2020 has been dramatically scaled back, with officials conceding that the ambition “was not shared by society as a whole” Financial Times).
  • The Japan Times quoted  the 2016 World Happiness Report: ”Denmark named happiest nation; Japan frowns at 53rd”. The authors of this report said six factors – GDP per capita, social support, healthy life expectancy, social freedom, generosity and absence of corruption – explain almost three-quarters of the variation across different countries.

• Recommended video:
  • Japan isn’t doing bad at all, says Bloomberg Gadfly’s David Fickling, claiming that Toyota’s, Shiseido’s and Asahi Beer’s domestic sales are outperforming their global sales:  Are Investors Underestimating Japan’s Economy?
  • And, surprise surprise: Japan’s debt burden is falling: Japan’s Debt Burden Quietly Falling Why? because the debt is shifting from private hands to the BOJ. Hmmm, looks like a recipe for massive debt write-offs or zero interest perpetual bonds.

Have a great Sunday and working week!

Radboud Molijn

DUJAT | Dutch & Japanese Trade Federation

Radboud Molijn | Managing Director