• Week of April 11, 2016

Politics:
  • US Minister of Foreign Affairs John Kerry visited Hiroshima this week in the framework of the G7 top-diplomat’s meeting. With the G7 ministers he paid a visit to the Hiroshima Peace Memorial and hours afterward, Kerry still seemed to be absorbing all that he saw. “It is a stunning display, it is a gut-wrenching display,” he told reporters of the museum tour, recounting exhibits that showed the bomb, the explosion, the “incredible inferno” and mushroom cloud that enveloped Hiroshima on August 6, 1945. “It tugs at all of your sensibilities as a human being. It reminds everybody of the extraordinary complexity of choices of war and what war does to people, to communities, countries, the world.”  One of the pictures in this article shows what Kerry wrote in the Hiroshima Guest Book: "everyone in the world should see and feel the power of this memorial.” There is still a possibility that President Obama will visit Hiroshima next month when in Japan. One thing is sure: no apologies for the A-Bomb from the USA (BBC).
  • This G7 diplomatic meeting also resulted in a joint statement on China’s activities in the South-China sea, calling on countries to forgo "intimidating, coercive or provocative unilateral actions" in the South China Sea - without mentioning China by name. However, the controversy surrounding Beijing's military and land reclamation projects in the area is well known as parts of the body of water are also claimed by Taiwan, Brunei, Malaysia, Vietnam, and the Philippines. So all ambassadors of the G7 were summoned to the Ministry of Foreign Affairs in Beijing (Deutsche Welle).
  • Japan and Russia: neighbours without a peace treaty, the biggest obstacles being four islands off the coats of Hokkaido that the Soviet took in the aftermath of WWII. Foreign ministers Lavrov and Kishida met in Moscow, preparing PM Shinzo be’s visit to Russia in three weeks time. However, prospects look dim, given the statements after this week’s meeting. Russia maintains the view that negotiations over the peace treaty and the territorial dispute are "not directly connected," in contrast with Tokyo's position that resolving the islands' sovereignty is a prerequisite for concluding the treaty. In the press conference, Lavrov said Russia is ready to continue dialogue but at the same time reasserted Russia's sovereignty over the four islands since the end of World War II in 1945 (Nikkei).

Economy:
  • Japan’s rising yen is a serious problem for Japanese exporting companies as well as for the Japanese government that sees it goal of 2% inflation disappearing over the horizon. However, the Bank of Japan has little room to manoeuvre the yen to a lower level. Jack Lew, the US Treasury Secretary reminded BoJ Governor Kuroda that currency intervention wasn’t a good idea, the more as Japan and the USA agreed not to intervene  during a G-20 agreement in Shanghai in February this year. Speaking in New York on Wednesday, Kuroda said the BOJ still had "many ways" to ease policy, including deepening negative rates or topping up asset purchases, suggesting that the central bank could expand stimulus at a policy review later this month. He is a happy optimist (CNBC). 
  • "Japan, how are you?” “Fine, no, I mean terrible. Bankruptcies down, but the Tankan survey of sentiments was awful, although wages are rebounding  yet inflation is weaker ….”. The Financial Times has a story about the performance of Japan’s exporting companies vs. their performance in the Tokyo Stock Exchange. After prime minister Shinzo Abe launched his economic reforms in early 2013, the Nikkei 225 stock index nearly doubled in two years and the yen fell a third - exactly what a market expectation of higher growth and inflation looks like. This year, despite another rate cut, the yen is up a tenth, the Nikkei down a quarter. Both send an unambiguous message, and a bad one. Look at the graph at the end of the article and see how your favourite company is ranked.
  • The yen closed at 107 against the dollar last Friday, but according to Eisuke Sakakibara, a DUJAT Board member, former Dept. Minister of Finance and nicknamed Mr. Yen, said in an interview with Bloomberg News that the currency may appreciate to 105 in the next few months and could get to 100 by year-end. A yen at 105 per dollar is "no problem" for Japan’s economy, he argued, adding that any currency intervention could be done only with agreement from the US and other counter parties (Bloomberg, see also Video below).

Corporate:
  • Japanese companies have a long-term vision and this is well illustrated in this interview with the Chairman of the Nikkei, Tsuneo Kita. Nikkei is not looking for an immediate return from the company’s £844m purchase of the Financial Times and will judge the success of the deal over the next 10 to 20 years. He added that Nikkei’s philosophy was “not maximisation of profit” but the “maximisation of content”. That wouldn’t qualify for a statement by any US shareholder. In the interview you can see clearly the difference between a Japanese and a European / British newspaper in terms of digitalisation. My guess is that Nikkei will profit tremendously from the FT’s advancement in its use of digital media.
  • Nomura slashes its European equities research: more than 500 staff in Europe, followed by 250 redundancies in its US operations. This comes after a USD 2 bln cost reduction over the last years. In Japan Nomura is well profitable, but its overseas business is loss making albeit it less than in the previous years. Lehman’s European and Asian activities were bought by Nomura in 2008 and Nomura’s then COO sold the Lehman deal to the board on the basis that a slew of US and European banks would fail. Instead, governments saved them with direct bailouts and indirectly through the quantitative easing that boosted their trading arms. That was a clear example of intervention … (Financial Times).
  • Good news for Japan visitors as Uniqlo, Japan’s largest clothing brand, will lower its prices and return to its original, simpler pricing strategy. The Nikkei carried an extensive interview with tadashi Yanai, Uniqlo’s founder and CEO (and wealthiest man in Japan).  Uniqlo raised prices 5% in 2014 and followed up with a 10% hike in 2015, in part to reflect changes in foreign exchange rates. The company's stated thinking was that pricing should reflect fair value, and retailers are being selfish when they avoid price hikes and force suppliers to endure thin margins. Also the organisation will be overhauled and Yanai clearly states in what way (Nikkei).

Society / Kumamoto Earthquake:
  • Japan is one of the most seismically active areas on earth, accounting for about 20% of global quakes of magnitude 6.0 or greater. Seismometers are recording some kind of event every five minutes, on average. Kumamoto, on the island of Kyushu (same size as The Netherlands) was badly hit by two earthquakes (6.3 and 7.1) and numerous aftershocks this week. According to latest reports 41 people died, numerous people missing, nearly 200,000 people sleeping in shelters and activities of several companies in the area (Sony, Toyota, Honda, Nissan) suspended. The government is to dispatch 25,000 army personnel to the area. Even more worrying is that the seismic activity is expected to move eastwards and will continue for some time. Mount Aso had a (small) eruption. Bad weather makes rescue activities challenging. 
    Also other parts of the Ring of Fire, the 40,000 km horseshoe shape area in the Pacific Basin are active, such as last night in Ecuador. Let’s keep fingers crossed …  
  • Mossack Fonseca & the Panama Papers: sounds like a comic book but this duo is now also a household name in Japan; or better, at least at the tables of some 400 wealthy Japanese. According to the Asahi Shimbun, a partner to Suddeutsche Zeitung and the ICIJ, the International Consortium of Investigative Journalists, there is quite some unrest among a number of doctors, professors and entrepreneurs: by early May all 214.000 names will be published. So far no leading Japanese politician or public figure has been connected to the offshore companies set up in tax havens. Under Japanese tax laws, individuals must declare overseas assets worth JPY 50 million (EUR 450,000) in total or more. If the number will limited to these 400 Japanese, out of 214,000 world wide, Japanese tax evaders are not over-represented. According to the Tax Agency, about 8,000 individuals submitted papers on foreign assets totalling more than 3 trillion yen in 2014.
  • Suicide in Japan is decreasing, but still high enough to be a major problem. Last year 24,025 people killed themselves and in 2014 Japan’s annual suicide rate was 20 people per 100,000 – more than double the rate in the USA, more than three times that in the UK and higher than the average (12.4) for the OECD countries. The on-line magazine Ignition carried a moving article on a Japanese former TV producer, Yasuyuki Shimizu, who started LIFELINK, a suicide prevention network. Shimizu was able to put the theme “suicide” on the national agenda and even legislation was implemented through his hard work. Great example of personal courage and determination.

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