Week of April 25, 2016
- Most probably around May 6, PM Shinzo Abe will meet with President Putin in Sochi, and the discussion will be on the status of the four islands that the Soviet union occupied following Japan’s surrender in 1945. The Soviet Union and later Russia promised to return these islands upon the signing of a peace treaty between both countries. If you want to see the location of these islands, see: https://en.wikipedia.org/wiki/Kuril_Islands_dispute#/media/File:Demis-kurils-russian_names.png.
In Japan the return of these islands is a major issue and this Yomiuri Shimbun / The Japan News article sums up the results of the meetings between Japan’s and Russia’s leaders over the last decades. Pretty surprising in this article is Chancellor Angela Merkel’s offer last year March to Shinzo Abe to join Nato. "Shinzo, why not join the North Atlantic Treaty Organisation ” Merkel asked. “I can convince British Prime Minister Cameron and French President Hollande.” Although what Merkel proposed is extremely unlikely to take place, Abe replied, “Maybe in the future” so as not to be impolite and with a hint of interest. He added, “If we join now, our negotiations with Russia will stop.” Let’s see what this meeting between PM Abe and Mr. Putin will bring.
- Japan had high hopes to get a major contract from Australia to build 12 submarines, contract value EUR 35 billion. The order went to French DCNS, a relative late comer in the bidding process (the other bidding country was Germany). What went wrong? Last week many papers and magazines tried to explain, but all agree to some major points: the Japanese contractors, Mitsubishi Heavy Industries and Kawasaki Heavy Industries had less experience in technology transfer, an essential element as there was increasing pressure by the Australian government to build the submarines in Australia. Former Australia PM Abbott had promised that Japan would get the job, but his successor Turnbull is looking for fresh elections and is wooing his voters by providing them with jobs. Also on the diplomatic front Japan’s negotiators were out manoeuvred by their French counterparts. Here two visions what happened by the Economist and the Nikkei.
- The markets expected Bank of Japan Governor Kuroda to up last week the dosage of monetary stimulus, using some combination of extra bond-buying, a deeper push into negative interest rates, or more aggressive purchases of exchange-traded funds (ETF’s). It did not happen and as the yen surged, the Nikkei went down. There is a good case for inaction, though, says Reuters. "First, the BOJ already buys JPY 80 trillion (EUR 655 billion) of government bonds a year, boasts a 409-trillion balance sheet, and may soon run short of debt securities to buy. Second, its surprise introduction of negative rates in January was both unpopular and counterproductive, since the yen actually rose against the U.S. dollar. Third, buying more ETF’s would be deeply unorthodox and yet unlikely to provoke big changes in corporate behaviour. And as Prime Minister Shinzo Abe is probably preparing to administer a big dollop of fiscal stimulus there is also a case for waiting to see what the government does first.”
- The United States on Friday flagged concerns over economic policies in China, Japan, Korea, Taiwan and Germany and put them on a new monitoring list, mostly due to their large surpluses, writes the Nikkei. A country is supposed to have a large surplus when this is over USD 20 billion. The US treasury Dept. rebuffed recent Japanese efforts to seek informal consent to act against an unwelcome yen rise, saying that the current dollar-yen market was "orderly" and reiterating all countries must abide by G20 and G7 commitments on exchange rate policies. Ironically enough, one of the reasons why the four subject countries have large surpluses is the low oil price, and this is also very much US policy. Speculation is growing that the rise in the value of the yen and the fall in Japanese stock prices will accelerate on Monday coming. Let’s see ...
- How to handle tax policy in the age of globalisation? That is a major question for all governments when taxing its wealthy inhabitants. Right now, for inheritance net assets over JPY 600 million are taxed at the maximum rate of 55 percent and that is considered high. Also Japanese individuals were named in the Panama Papers. Japan has 2.12 million people with net assets exceeding USD 1 million, the third- highest figure in the world, according to Credit Suisse Securities (Japan). The authorities are doing all they can to crack down on tax avoidance, reports the Nikkei. The National Tax Agency implemented rules in January 2014 requiring disclosure of overseas assets exceeding JPY 50 million = EUR 410K. It also levies income taxes on unrealised capital gains above a certain threshold when Japanese residents move out of the country.
- MMC or Mitsubishi Motors Corporation shares tumbled nearly 50% since the emissions scandal went public two weeks ago. Mind you, shares noted 1,100 apr. one year ago. And Mitsubishi Motors als produces mini-vehicles for Nissan, so the damage is wider than for Mitsubishi Motors alone. There was an earlier scandal, back in 2004 when Mitsubishi Motors was saved by other Mitsubishi companies. Will it have to rely on its brothers and sisters again? Not likely, says the New York Times. MMC’s has more than $4 billion in cash and low debt, the automaker should contain the potential damages. S&P analysts, who placed MMC's credit rating on negative watch, said they had thought the company's restructuring and improved governance following previous scandals had helped its performance. "However, we recognise that the fraudulent testing is evidence of a significant problem in the company's management and governance," they said.
- Sharp has been bought by Taiwanese company Foxconn / Hon Hai and Sharp’s new masters are now making deeper cuts in its work force than anticipated. In 2012 it reduced its workforce by 3,000 people, last year with another 3,200 and and now another 1,000 employees are asked to leave. "For Sharp, stopping its brightest employees from quitting on their own accord poses a challenge as it rushes to downsize”, writes the Nikkei. "Engineers are already bolting the LCD business to join rival companies, and it is unclear whether this loss of talent will stop under Hon Hai ownership.”
- Poverty in Japan is on the rise, says this Bloomberg article and it shows a graph where you can see that it increased since the mid ’80’s. Why is that? One possibility is low productivity. Labor productivity has fallen along with wages, and total factor productivity (which takes capital into account as well as labor) has stagnated. Another possibility is the impact of trade competition. Even though Japan has remained more protectionist than most rich countries, protection of domestic markets is no guarantee of success in international ones. Japan's exporters have come under increasing competition from Asian rivals, and from innovative American companies, in areas such as electronics, machinery and cars. More direct competition from nations that make similar goods means smaller gains from trade, so Japanese workers could be feeling the pinch despite the government's protecting hand.
- Like in The Netherlands, Japan now also has its food banks and one of its promotors is Charles McJilton, founder and Chairman of Second Harvest Japan. “Probably the biggest problem is that Japanese people don’t believe there’s poverty in Japan”, he says in this article by Ignition, an on line magazine based in Tokyo. "A second problem is that people in Japan equate poverty with homelessness, when poverty in Japan is not related to homelessness at all. Out of 127 million people, there are 7,500 homeless people in Japan, but this number clearly does not include everyone living in poverty. If you look at posters in trains or other places about poverty and helping others, they’re always about helping outside of Japan, never in Japan.” See this article by clicking here http://ignition.co/567
- It is Golden Week in Japan, a cluster of national holidays: Showa Day, the birthday of former Emperor Hirohito on April 29, Constitution Memorial Day on May 3 (the new constitution was put into effect on May 3, 1947), Greenery Day on May 4 and Children’s Day on May 5. Have a look at tis article and note how festive this week is with a lot of traditional clothing, horse riding, dance performances etc. Great time to be in Japan.
- An American view on Japan’s economic issues by Fed's Kaplan: BOJ Easing Won’t Address Japan's Issues Somehow the diagnosis looks too simple.
- Australian PM Turnbull on his choice for the French in the submarine deal, see: France torpedoes Japan's Aussie sub bid
- Even more special: this video that shows Japan’s ability to use tradition with top-of-the bill high tech. See in this video a “ballet” of drones on samisen music with Mount Fuji in the back. Go to the second screen and start playing the video on full screen. Mesmerising! http://en.rocketnews24.com/2016/04/30/watch-over-20-drones-dance-in-unison-with-a-trio-of-shamisen-players-in-front-of-fuji%E3%80%90video%E3%80%91/