Weeks of June 11 - June 24, 2017
Is Japan’s economy improving, or is there a stand-still due to consumer’s hesitation to spend? This is a key question that the IMF tried to answer - and to which the Japanese consumers are responding with their feet: hardly an increase in spending.
But everything becomes very relative when you read this story of Hideko Umeno, an 84-year old “ama-diver” who makes her living (summer, winter) by collecting treasures from the sea (abalone, sea urchin), despite what happens in politics, the economy or the society at large. Nevertheless, let’s have a look to what were some of the most important topics in the last two weeks in Japan.
Politics:
Is Japan’s economy improving, or is there a stand-still due to consumer’s hesitation to spend? This is a key question that the IMF tried to answer - and to which the Japanese consumers are responding with their feet: hardly an increase in spending.
But everything becomes very relative when you read this story of Hideko Umeno, an 84-year old “ama-diver” who makes her living (summer, winter) by collecting treasures from the sea (abalone, sea urchin), despite what happens in politics, the economy or the society at large. Nevertheless, let’s have a look to what were some of the most important topics in the last two weeks in Japan.
Politics:
- "With or without Trump … ” It is a frequently used headline in newspapers. The Trump effect plays on all kind of topics, incl. Paris Climate Agreement, defense spending and free trade agreements. Japan is eager to move more center stage now that the world’s main actor, the Donald, is focused on his own drama. A Free Trade Agreement with Europe is important for Japan and there is progress indeed in the negotiations: "Japan eyes opening procurement bidding, lowering tariffs as EU trade pact bargaining chip”, writes The Japan Times. Imagine, Dutch hospital operators active in Japan (while they have restrictions at their home market)! Or Dutch national railways bidding for concessions in Japan … Lifting duties on importing cheese in Japan is an issue. I would like to add: potatoes. There is a potato shortage in Japan, while importing potatoes is very, very limited.
- PM Abe is not yet out of the danger zone with all kind of accusations of cronyism and favors rendered to his friends. His popularity is down 12 percentage points to 49 percent, according to a poll conducted by the Yomiuri newspaper over the weekend. "That was the lowest figure in a year and the biggest drop since he took office in 2012. A raft of other surveys also found substantial slides, with a Mainichi newspaper survey showing his approval rate at 36 percent, lower than the disapproval level of 44 percent.” (Bloomberg)
- Interesting read in The Japan Times by writer Michael Hofman, who lives in Hokkaido at the sea, on PM Abe’s dream to shape a “Beautiful Japan”. In his policy speech in 2006, when he was appointed PM for the first time he unfolded his vision as follows: Firstly, "a beautiful country, Japan" is a country that values culture, tradition, history, and nature. Secondly, "a beautiful country, Japan" is a country underpinned by free society, respects discipline, and has dignity. Thirdly, "a beautiful country, Japan" is a country that continues to possess the vitality to grow toward the future. And fourthly, "a beautiful country, Japan" is a country that is trusted, respected, and loved in the world, and which demonstrates leadership. Hofman writes about the status quo of this ambition.
- Japan has done enough to stimulate its economy and simply needs to keep policy loose until inflation rises, according to an upbeat verdict by the International Monetary Fund, reported the Financial Times. “We’re comfortable with the present stance of monetary and fiscal policy,” said David Lipton, the IMF’s number two official, after the fund’s annual mission to Japan. “What we see as important is the maintenance of the approach that’s been laid out.” …
- … that may be true, but the Nikkei claimed a less optimistic outlook. “Neither the cabinet, the business community nor the public seems truly confident that things are looking up.” Blame the Japanese consumer: "Consumers still show a strong propensity to save, reflecting a certain amount of anxiety about the future. Thus even as real incomes rise, spending fails to follow. Total wages earned by Japan's workers have risen 3.5% since January 2015, while consumption grew just 1.8% over the same period. And according to preliminary data from the country's top business lobby, the Japan Business Federation, summer bonuses are shrinking for the first time in five years -- an indication that workers will stay reluctant to open their wallets. This weakness is even starker in historical context. Consumption is growing in the current economic recovery at less than one-tenth the pace it did during a 57-month economic expansion that began in 1965 or the 51-month bubble of the late 1980s, and therefore lacks the power to propel the economy as a whole.” The sake-cup is half full or half empty. Like Shakespeare taught us: economic prosperity is in the eye of the beholder.
- Not only Japan’s population is aging rapidly, also its sewer systems - and renewing them is a huge challenge as there is much resistance to privatisation of Japan’s water works. Reuters sees the lack of structural reform that PM Abe is looking for (his third arrow) symbolized by the lack of appetite of cities to outsource their water supply and treatment. No or little enthusiasm for inviting companies to operate Japan’s infrastructure system could be a serious disappointment for the EU that seeks opportunities for its companies to tender in Japan.
- What cities are for the major Japanese financial institutions the most likely ones for their operation post-Brexit? Paris? Berlin? Brussels, Amsterdam, Luxembourg? Well, Frankfurt does not seem to be bad choice as well. At least for Nomura and Daiwa: for them it will be Bratwursten und Schnapps over a Pie and a Pint. But, looking to numbers, it’s clear that the majority of Nomura and Daiwa bankers will stay in the UK. It looks like the decisions by MUFG and Mizuho: part of its personnel is moving to Amsterdam, but London will remain the main location.
- Attention tax lawyers: try to understand Softbank’s complicated and seemingly highly unusual set-up of its USD 100 bln (!!!) investment fund as here described by the Financial Times. "Mr Son, who is driven by a belief that he has a unique ability to predict future technology trends, has made clear he is ready for the gamble. “We only live once, so I want to think big. I have no intention of making small bets,” the 59-year-old entrepreneur told investors in May. “My life really starts from here.”
That debt provided by the Vision Fund’s investors will be in the form of preferred units, which will receive to an annual coupon of 7 per cent over the fund’s 12-year life cycle. While the preferred unit holders will eventually receive their principal back, they will only receive a return for the equity portion of their investments in the fund.
All outside backers of the fund are receiving 62 per cent in preferred units and the rest in equity, allowing them to reduce their downside risk, while still generating a good return. In other words, the fund - created so that Mr Son could make investments without further encumbering SoftBank’s stretched balance sheet - is relying in part on pre-funded debt to back its deals." Time will tell … - Toshiba was a blue-chip company even as recent as three years ago. Now it has a negative net worth for the year ended in March that is expected to widen to JPY 581.6 billion (USD 5.2 billion). This is up from a forecast of JPY 303.9 billion that was made in May.” Wow, I knew Toshiba as a company with big numbers, and this one IS big. Questions is what the Japanese government will do to rescue the company - and more importantly: to keep highly qualified jobs and technology in Japan. So far no firm commitment (Nikkei).
- What a great story about Hideko Umeno, 84 and living on the isle of Tsushima. She is diving into the sea every day, winter or summer to make her living by collecting abalone, seaweed, sea urchin and oysters. Starting at the age of 15, she was able to make enough money to send her kids to university. “I am happiest when I am in the sea. And what I love most is the sea in winter when it is freezing and there are many abalone.”
- This grand old lady of the sea is asked by her son to join living with his family in Tokyo. No way. Compare this with the ambitions of Japan’s millennials. "Among those in their 20s, 55 percent agreed with the idea of spending their entire lives at one company, up from 34 percent in 2004, according to a survey released in September by the Japan Institute for Labour Policy and Training. Nearly nine in 10 said they supported the idea of lifetime employment, up from 65 percent in 2004, the survey found”, wrote Bloomberg. "Blame two decades of economic malaise for the shifting attitudes, said Masato Gunji, assistant director of the labor institute’s research department. "Since they were born, they’ve only experienced bad economic conditions," Gunji said of those in their 20s. "Even if the economy is now recovering, it’s a recovery they aren’t actually feeling.”
Two weeks ago I quoted Mr. Taizo Son, Softbank’s Masayoshi Son’s younger brother and a billionaire in his own right. He complained about the risk-averseness of young Japanese. In 4 days I will meet with some executives of Mistletoe, Mr. Taizo Son’s investment vehicle. I am curious about the discussions we will have. - For the literati: here an article in the Economist about Junichiro Tanizaki, one of Japan’s most read writers who lived from 1886 to 1965. No better way to understand a culture than by reading its literature hence this article. “Facts and statistics struggle to capture the emotional effect of sudden social change on the everyman. That is where fiction excels, and no one chronicles that feeling of the world moving underfoot better than Junichiro Tanizaki. One of 20th-century Japan’s most acclaimed writers, Tanizaki was a prolific author who chronicled his country for six decades. He offers a lens on history that is at once thorough and compelling, simultaneously domestic and outward-looking.” Look for The Makioka sisters, his most famous novel.