Week of April 18, 2016
- As I reported earlier, defense budgets of Japan, China, Australia but also of all other South-East Asia countries are rising quickly. And so are budgets to develop new weaponry. Last week saw the maiden flight of Japan’s X-2 stealth fighter built by Mitsubishi. The development of the X-2 reflects Japan’s dismay as it watches two powerful neighbours, Russia and China, develop stealth fighters while its US ally refuses to sell an equivalent aircraft. With this test fighter, Japan hopes to join future US stealth developing programs (Financial Times).
- Japan had high hopes to win a big contract to build 12 submarines for the Australian government with a contract value of 50 billion Aussie dollars or 34 billion Euro. Competitors are Germany and France. However, Australian Broadcasting Corp. reported last week that the Japanese bid had been "all but eliminated" from the tender process, here reported by Reuters. Apparently a leak, as no formal decision has been taken according to the Australian government. To my surprise no / not yet mention on this news in Japanese papers.
- President Obama will come to Hiroshima late May on a historic visit. Last week foreign secretary John Kerry visited Hiroshima (see previous News on and From Japan), a first time visit by a US Secretary. The Japanese government is not asking the American President for a formal apology: Obama's planned visit to Hiroshima is regarded as a signal that the outgoing president is renewing his campaign to seek a world free of nuclear weapons and the Japanese government has expressed its position that it is more important to continue with steady efforts toward nuclear disarmament than to demand an apology from the United States (Nikkei).
- The Financial Times, recently acquired by the Nikkei, reported last week about a visit by David Kaye, UN special rapporteur on the freedom of press. “A significant number of journalists I met feel intense pressure from the government, abetted by management, to conform their reporting to official policy preferences,” Mr. Kaye said at a press conference at the Foreign Correspondents' Club in Tokyo. “Many claimed to have been sidelined or silenced following indirect pressure from leading politicians.” Among Kaye's concerns is a law meant to ensure media-coverage fairness that allows the government to revoke broadcasting licenses over perceived violations. He said the so-called "secrets act" law, meant to protect national security and public safety, is so broad it could obstruct people's right to know. Then there are the so-called “Kisha Clubs”, closed groups of reporters that sit inside every government ministry, gaining privileged access to officials and information but self-censoring their reporting in return. “They should be abolished”, according to Kaye. On top of this, Reporters Without Borders, a Paris- based nonprofit organisation downgraded Japan to 72nd on its world press freedom list, from 61st last year. The chorus of critique accusing Tokyo of oppressing press freedom has the government on the back foot. During a Diet committee session Wednesday, Foreign Minister Fumio Kishida blasted Kaye’s comment, saying the government’s explanation was not sufficiently reflected (Japan Times).
- After the January 29, 2016 decision by the Bank of Japan to make the world’s third-largest economy a realm of negative interest rates, the Japanese yields moved further below zero and the country no longer has any current sovereign debt trading with a yield over 0.3%, reports the Financial Times. As a result, Japanese investors are increasingly looking overseas for higher fixed rates of return. "Full data for March have not been released but aggregate data for the month, say analysts, show a surge to a 10-year high of JPY 3.1 trillion (EUR 27 billion) in Japanese purchases of foreign securities. Some JPT 2.5 trillion of that was net purchases of foreign long-term bonds. Australian debt appears to have been a particularly favoured target. The term “helicopter money”, coined by former Federal Reserve chairman Ben Bernanke is on the table again if the government issues more Japanse government bonds in the supplemental budget after the Bank of Japan increases its domestic bond purchases.
- Now imagine that you are an average Japanese individual with some money to invest. Interest rates on your bank account are zero and are even for consumers moving to become negative. A Nikkei Index that dropped from 20,724 in July 2015 to 17,565 last Friday … So what to do? This “average private investor” is called Mrs. Watanabe - and she turned away from the volatile “big names” such as Sony, Toshiba and since some days also Mitsubishi Motors and invests now in small caps listed at the Mothers Index, which tracks 211 high-growth and emerging stocks listed on a subsection of the Tokyo Stock Exchange. The Mothers has soared 38 per cent to a nine-year high since early this year. Also foreign investors have discovered these stocks (Financial Times)
- Tough week for Mr. Tetsuro Aikawa who had to bow deeply last week when his company Mitsubishi Motors had to admit that emission data for some of its passenger cars had been cooked. So far the scandal relates to at least 625,000 vehicles sold. The cheating appears to be limited to four types of small car sold in Japan, but the company is aiming to establish whether any cars sold overseas are affected. Last week Volkswagen was expected to tell a federal judge in San Francisco Thursday that it has agreed to offer to buy back up to 500,000 2.0-liter diesel vehicles sold in the United States that exceeded legally allowable emission levels. That is a multi-billion (dollars, no yens) damage. Mitsubishi Motors’ shareprice dropped nearly 15% on Wednesday (Financial Times).
- Toshiba, already in trouble because of an accounting scandal, is to write-off nearly JPY 300 bln (EUR 2.4 bln) on Westinghouse, a nuclear power plant building company that it acquired in 2006, according to the Nikkei. The company is accelerating restructuring efforts and will cut more than 14,000 jobs in Japan and abroad through early retirement and other means. Home appliance operations are slated to be sold to a Chinese appliance company, its medical unit has been sold to CANON. If I were Mrs. Watanabe, I also would revert to the Mothers Index …
- Japan's listed companies may be sitting on some 100 trillion yen (EUR 800 billion) in cash, but more and more they are looking for bank loans for (overseas) M&A activities. They can drum up money from the financial markets through public share offerings and bond issuances. However, a Sumitomo Mitsui Banking official explained one reason why they frequently opt for bank loans instead: "Since M&A deals require swift decision-making, many companies use bank loans for their flexibility, rather than tapping the capital markets. Also Bank of Tokyo-Mitsubishi UFJ noted that "some businesses borrow money to fund takeover deals without touching their internal reserves."
- The earthquakes in Kumamoto taught us again how vulnerable Japan is in terms of seismic activity. Japan counts for 25% of all major earthquakes in the world. "Preparing for the Big One”: The Economist has a long read on the way Japan’s building regulations have become strict. "For decades Japan has tightened its construction codes - by now the world’s strictest - and supported other innovations in quake-proofing construction methods. All buildings constructed after 1981 had to be sturdy enough to withstand collapse in an earthquake with an intensity of “upper 6” or higher on the scale used by the Japan Meteorological Agency (which measures shaking at individual points whereas magnitude measures the size of an earthquake). The regulations were strengthened again after the quake that hit Kobe in 1995, which had a magnitude of 6.8. Those building regulations have sharply reduced both the rate of collapsed structures and the risk of fires spreading. When the March 2011 earthquake struck off the Pacific coast of Tohoku it was the ensuing tsunami that wrecked the coastal region”.
- One of Japan’s iconic entrepreneurs is Hiroshi Mikitani, the founder and CEO of Rakuten, Japan’s Bol.com (but many times bigger), is into English. Read his article in the Nikkei on the way he eyes to make his company truly global: "Five years ago, I stood before several thousand mostly native Japanese speakers and addressed them in English. From now on, I told them, Rakuten - Japan's largest online marketplace, of which I am CEO - would conduct all of its business, from official meetings to internal emails, in English. I still remember the shocked expressions on listeners' faces. Their reaction was certainly understandable. No major Japanese company had ever changed its official language. But the simple fact is that adopting the English language is vital to the long-term competitiveness of Japanese business.” That is a great vision.
- Brian Ashcraft, a Texan now living in Osaka, came up with a article on a Japanese book published some years ago by video game site Kotaku: English Words That Don’t Appear on Tests (here and here). It’s a hilarious English book filled with silly drawings and words and sentences that probably don’t appear in daily conversation, and herewith some examples.
- Abenomics: a buzz word for the last 2 years, but is it delivering what it is supposed to do? Don’t give up, says Mikio Kumada, global strategist at LGT Capital Partners: Japan Report Card: Has Abenomics Failed?
- What is the impact of tourism on Japan’s economy? Watch this Bloomberg video: Can Tourism Save Japan's Economy?
- “Karakuri” Technology is based upon the spring mechanisms in clocks - and has been introduced to Japan by the Dutch in the 17th century when they brought a Huygens clock. We had a great DUJAT seminar on the subject in 2014. This Karakuri technology is now being used by Japanese car makers. http://ignition.co/559