Week of July 4, 2016

Politics:
  • Up for grabs in today's vote are 121 seats, or half of the Upper House. Abe’s coalition and their supporters need to win 78 seats to secure a two-thirds majority of 162. But the Yomiuri Shimbun / The Japan News made a recalculation and concluded that it has to be 75 seats. If that happens, PM Abe would have the votes in both houses to propose a revision and call a national referendum, though polls suggest voters might not support revision. Abe’s party LDP says the focus of the election is the economy and his “Abenomics” program is on track to pull Japan out of deflation. Opposition parties say Abenomics has failed to improve the lives of ordinary people, and urge voters to pay more attention to Abe’s security policy giving Japan’s military a larger global role, as well as his intention to revise the pacifist constitution. Abe said earlier this year he would make constitutional revision a campaign issue, but the topic is mentioned only as the last item in the party’s 26-page campaign pamphlet.
  • For those among you who have the stamina: here a long-read in the Asia-Pacific Journal on the subject of the change in Japan’s constitution. The Asia-Pacific Journal with its section "Japan Focus" is an open access, peer reviewed electronic journal providing in-depth critical analysis of the forces shaping the Asia-Pacific region and the world. Worth reading when you want to refresh your memory on Japan’s constitution.
  • A major driver for Shinzo Abe’s envisioned change in constitution is the increasing “assertiveness” of China’s government in East Asia and the South China Sea. There have been multiple incidents over the last year with Chinese warships  entering disputed territory and even, some weeks ago when a Chinese navy reconnaissance vessel entered Japanese territorial waters near Kuchinoerabu Island off Kagoshima Prefecture - the first time since 2004 that a Chinese military ship has done so. The Financial Times reported this week a near-incident that took place in June when Japanese and Chinese aircraft were close to a dog-fight. Accidents do happen, alas. 

Economy:
  • The Japanese Yen as safe haven: the Nikkei explained this week the mechanisms. According to Toru Sasaki of JPMorgan Chase Bank it is important to note that there is little correlation between the strength of a nation's economy and that of its currency. Currencies can come under selling pressure at times of economic turmoil, though currencies of lower-growth countries often strengthen. "Where there is a correlation is between prices and exchange rates. When prices of goods and services fall, the value of a currency increases. When goods and services can be purchased for less money, a currency gains purchasing power.” Then there is the Carry Trade: borrowing e.g. in Japanese Yen to buy other currencies with a high interest rate. And another reason is Japan’s huge foreign cash pile: as of the end of 2015, Japan's net foreign assets - overseas assets held by the government, companies and individuals minus their overseas debts - came to about JPY 339 trillion (USD 3.36 trillion). This is one of the world's largest asset piles. It is also behind the yen's haven status. An economic shock would prompt Japanese investors to repatriate their foreign-currency-denominated assets. In other words, there would be a sudden rush to buy Yen.
  • Japanese small- and mid-sized companies, or SMEs, generate about 55 percent of Japan’s economic activity, according to government data. A survey released by the Bank of Japan on Friday showed sentiment among such firms worsened in the second quarter while that for large manufacturers showed a surprise improvement. Bloomberg interviewed a number of owners of small factories, complaining about the curet economic climate, but still voting for PM Abe’s party as there is little alternative.
  • Why is Abenomics not taking off? One of the reasons is a lack of capex and here an incredible story in the Financial Times about “computer cannibalism”. A substantial number of mid-size companies are simply still using their 1990’s computers to operate their factories, warehouses, logistic systems. And when your 20-year old computer breaks down, why not look for 20 year old chips, wires etc. to replace them rather than buy new equipment? It also tells what decades of deflation does with an industrial society: cost cutting rather than investing.

Corporate:
  • A company that I had never heard of: JERA. I is a 50-50 JV between Tokyo Electric Power (TEPCO) and Chubu Electric Power selling LNG. Tepco is the world’s second-biggest LNG buyer with currently about 25 million tonnes a year. Chubu Electric, the third-biggest, takes in around 14 million tonnes. But even with 40 of Japan’s 42 nuclear reactors off-line, Japan’s LNG market is contracting so JERA is looking for markets abroad, incl. in Europe. A first deal has been made with EDF, I wouldn’t be surprised when there are more European deals in the making …
  • Top bankers in Japan - including the head of one of the country’s largest financial institutions - have told the Financial Times of their “huge discomfort” in having to prepare for upheaval in Europe while avoiding the appearance of leading any exodus from the UK. According to two of these high-ranking executives, Japan’s banks are most likely to be influenced by the decisions taken by their US counterparts, such as Goldman Sachs. “There is a feeling in Tokyo that if you do something similar to Goldmans, you won’t be making a mistake,” said one of the bankers. If a big US bank takes a definitive step to move part of its business out of the UK, that would give Japanese banks the confidence and the cover to do the same, he said. Amsterdam is in the picture, according to this FT article, along with Frankfurt, Paris and Dublin.
  • Investing from abroad in a Japanese company: Line, the Whatsapp / Twitter of Japan, is a shining example. Line began as a response to disaster. Japan's devastating Tohoku earthquake in March 2011 damaged telecommunications infrastructure nationwide, obliging employees at NHN Japan, a unit of South Korea's NHN Corp, to rely on Internet-based resources to communicate. The company's engineers developed Line to facilitate this, and the company released their app for public use in June 2011. The company is to debut next week in New York as well as in Tokyo and will pay off handsomely to its partially South-Korean owners. Also after a meeting earlier this week with a small Japanese listed IT company that is to expand in Europe, I am impressed by the skills, drive and vision of young Japanese It entrepreneurs.  

Society:
  • Michael Scott is an FT journalist now on assignment to Nikkei, its owner. He wrote this week about his Japan-experiences, incl. on Japanese politics, its economy and society. "The yawning chasm that has opened up between rich and poor in the U.S. and Europe has no echo in Japan, where ostentatious displays of wealth are frowned upon and company bosses are expected to show modesty and humility in public. The Western cult of the star CEO, who earns enormous bonuses and stock options because of supposedly extraordinary personal qualities, is shunned. The Japanese bosses who win admiration are those who work hard and plan for the long term, rather than flipping the company to a bidder. It is not all perfect, of course. Perhaps the biggest blots on the Japanese copybook are the country's failure to use the full potential of its talented and educated women in the workforce, particularly in senior positions, and the conservatism of some of its biggest corporations.”
  • Dutch daily De Volkskrant reported this week that The Netherlands will have a blockchain “campus” in September wherein banks and financial companies will work together for the development of blockchain applications for payments and the wider financial industry. Willem Vermeend, the Secretary of Finance and Minister of Social Affairs in Netherlands has revealed that the country will open a blockchain-centric campus in early September 2016. Under the single roof, banks, financial and Fintech companies will jointly work toward the development of blockchain applications and solutions. Now how about Bitcoin and Blockchain and Japan? Bank of Tokyo-Mitsubishi UFJ announced this week that it will form a capital tie-up with U.S. bitcoin exchange operator Coinbase, looking to jointly develop a secure, low- cost system to transfer funds using blockchain technology. The banking unit of Mitsubishi UFJ Financial Group will invest several hundred million yen (100 million yen equals $993,200) in Coinbase, becoming the first Japanese bank to hold a stake in a digital currency exchange. Other investors in the San Francisco-based startup include the New York Stock Exchange and Banco Bilbao Vizcaya Argentaria of Spain (Nikkei). As I reported earlier: Bitcoin and Blockchain are to be big in Japan.
  • Vice Media, never to be valued for their politically correct language, came up with a story on expensive grapes in Japan (it took the Japanese grower 14 years to reach perfectness). There of course the famously expensive melons for USD 160 a piece (I once tasted it: more than perfect) and as of this week, you can add to that a single cluster of Ruby Roman grapes that sold for 1.1 million yen (about USD 10,900) on July 7 at a wholesale market in Kanazawa, Ishikawa Prefecture. A cluster of 30 grapes, that makes USD 366 per grape. Sometimes it is better not to look to the ROI of what you buy but get the instant “good-feel” for some seconds ... 




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