September 2018

September 2018 was a good month for PM Shinzo Abe, who got re-elected as leader of the LDP with 553 out of a possible 810 votes in the leadership ballot. The LDP limits its leaders to three terms of three years, and this is Mr. Abe’s last act. September was also a good month for  the Nikkei Index that reached almost a 27-year high. September was a bad month for Japan in terms of disasters: the typhoons (Jebi early September, Trami raging over Japan now) and the big earthquake in Hokkaido. 
But there is more to report, incl. the first video images that two Japanese robots sent back from the surface of the moving asteroid Ryugu, as part of an unprecedented mission by the unmanned Hayabusa2 spacecraft, aimed at shedding light on the origins of the solar system. That is no small technical accomplishment.

Politics:
  • During his campaign PM Abe promised to continue his current economic policy, to raise Japan’s retirement age and to pass a modest reform of the country’s pacifist constitution. Two interesting articles on “the making of Abe’s 3rd term”: one on the man behind Abe, Chief Cabinet Secretary Yoshihide Suga, the king-maker of the PM who convinced his boss to set out an above all pragmatic course (i.e. rather than just following his conservative agenda.) 
    Another article, also by Nikkei Asian Review, describes "Shinzo Abe's quiet social revolution”. Great read as it zooms in on the history and key success factors of the LDP. Remarkable party: in the words of former LDP Secretary-General Koichi Kato: “the LDP has forged a stable government by incorporating socialist policies …. We are the most successful and pragmatic 'socialist' party in the world.” How will the hawkish conservative PM Abe be remembered? “For a quiet social revolution that shifted the fabric of the country. Abe's administration has opened up one of the world's most closed-off nations to foreign talent, while also changing employment rules - including those that will allow Japanese people to retire older than anywhere else in the world.”
  • Trump, Trade & Japan: PM Abe, who visited his friend Donald last week reluctantly agreed to start bilateral trade talks, despite his earlier wish that the USA re-entered the Trans Pacific Partnership  agreement. "Japan’s USD 69 billion trade surplus with the United States makes up only 10 percent of the overall US trade deficit. Imposing tariffs on Japanese imports in the long term makes little sense. However, over 70 percent of Japan’s total exports to the United States stem from the automotive trade putting Japan in a vulnerable position”, writes The Diplomat. 
    "Trump Wants More US Cars in Japan, What's Missing Are Buyers”, writes Bloomberg. "Only about 7 percent of Japan’s total car sales are imports, but some foreign brands are in demand. German manufacturers claimed the top five importer positions - a point Japan uses to prove its consumers don’t shun all foreign marques”, but that is a fact that doesn’t land at Mr. Trump’s desk.
  • Japan may have the largest debt-to-GDP ratio in the world, but that does not prevent the government from allocating lavish sums to all kind of Public-Private Investment funds formed under Prime Minister Shinzo Abe. Many of these funds simply lack projects and there are requests to return the money. Now there is a new fund created: Japan Investment Corporation / JIC. "Born out of the Innovation Network Corp. of Japan / INCJ, the JIC will be one of the country's largest investment entities, reports Nikkei Asian Review. In addition to government guarantees of about JPY 2 trillion (USD 17.7 billion), the fund's war chest will be filled with recovered investments of the INCJ and fresh private-sector funds. Japan's newly revamped public-private innovation fund will target growth fields like medicine, artificial intelligence and biotechnology, moving away from its previous focus on big corporate restructuring and bailouts of ailing businesses. "I have absolutely no intention of prolonging the life of zombie companies," Masaaki Tanaka, president of the Japan Investment Corp., told a news conference, referring to the predecessor's rescues of large companies. "We will be smart about provider money.” Let’s hope so.

Economy:
  • Investors in Japanese listed stock should be happy: the Nikkei closed September at 24.120 and this was a near 27-year high, also fuelled by the inflow of foreign funds. A weak Japanese yen, an overheated US economy, the looming trade war between the USA and China and above all: record profits by Japanese companies. But, … “we were searching for a reason not to buy Japanese shares," said an analyst at one foreign securities company in the Nikkei. And, with two feet on the ground: a 27-year high is still only 60% of an all-time high in December 1989 when the Nikkei closed at 38.915.
  • In view of the new EU Japan Trade Agreement, subject of a DUJAT seminar on October 2 in Amsterdam,  it is good to understand what the position is of the USA, that fears it is left out of the new free-trade agreements, incl. the TPP / Trans Pacific Trade Agreement and the EU - Japan agreement. "An important element in Prime Minister Abe’s decision to agree to bilateral negotiations was a concession by the United States that Japan’s market-opening in agriculture would not have to exceed the tariff and non-tariff concessions Japan had already made in the previous agreements" (International Centre for Trade and Sustainable Development / Bridges.) 
    The USA and the Netherlands are the #1 and 2 agri-exporters in the world, and Japan may be a new battleground for them.  Attached also an article by Marcus Schürmann, Managing Director of the German Chamber of Commerce and Industry in Japan on the benefits of this agreement from a German perspective. Business leaders in the EU and Japan look for a speedy ratification EU - Japan trade agreement. 
  • The number of working women in Japan is increasing considerably. The employment rate among women in Japan between the ages of 15 and 64 reached 70% for the first time in August, government data showed on Friday, reflecting a deepening labor shortage due to demographic pressures, reports the Asia Nikkei Review. There is some concern as well: "'More women want to be administrative assistants than are needed, while the labor shortage is a big issue in industries including nursing and transportation,'" says Naoki Hattori, senior economist at Mizuho Research Institute. 'Introducing part-time jobs in such sectors to promote flexible work is necessary to attract female workers.’” (By the way, have a look to the handbags pictured in the picture to this article. Japan is a huge market for ladies' handbags, Japanese company Laxus started some years ago a Handbag Rental service.)

Corporate:
  • Brexit is an absolute headache for Japanese companies with subsidiaries in the UK. The Financial Times reported on Toyota’s deep concerns. "Toyota’s car plant in Derbyshire will close for an unknown period of time if Britain leaves the EU without a deal, the facility’s manager has warned. The Japanese group becomes the latest carmaker operating in the UK to warn of hits to production from a no-deal Brexit, after BMW’s Mini opted to move a planned shutdown to coincide with the weeks immediately following Britain’s departure. Toyota’s Burnaston site, which employs around 2,500 people, will close because it will be unable to source the parts needed from Europe to build its cars, plant director Marvin Cooke told the BBC.”  The factory at Burnaston produced 150,000 vehicles last year, with about 90 percent of the units shipped to the EU, while components come the other way.
  • Japanese corporate profit margins are breaking out to the highest on record, reports Seeking Alpha. The chart shows the profit margin for Japan (with the US as benchmark.) "The breakout in corporate profit margins is a really important development for Japan, and Japanese equities in particular. It reflects both strong cyclical macro currents and the first signs of a structural shift. One of the many initiatives of Abenomics has been a push to improve profitability and corporate governance (Japan has been basically a case study of poor corporate governance, with little emphasis historically on maximising shareholder value).” Big question is what the result would have been with a stronger yen.
  • Japan as Asia’s M&A King: China’s acquisitions in Europe and the USA are facing more regulatory roadblocks due to fears of selling high-tech to China Inc. and there are restraints on capital outflows from China. So now it is Japan that pulls the M&A strings, reports Bloomberg. I wouldn’t be surprised if the EU - Japan Trade Agreement catalyses more acquisitions by Japanese companies in Europe.  

Society:
  • On September 21 Japan’s Hayabusa2 spacecraft touched down on asteroid Ryugu after a journey of more than three years and released the MINERVA-II1 container from a height of about 60 meters, reports Science News. It is a first time that a spacecraft landed on an astroid and that is an impressive feat of engineering. Japan’s space program may be less spectacular than a “landing on the moon” or a “mission to Mars” program, but it rather seems to focus on niches, like the removal of space debris as reported by The Diplomat earlier this year.
  • Feet on the ground again: 7.5 years after “Fukushima” the situation is still not under control, as reported by the Asahi Shimbun and Tepco. The amount of contaminated water (both water from the crippled reactor and groundwater) on the Fukushima site is enormous. Tepco only says it has the capacity to store up to 1.37 million tons of water through 2020 and that it cannot stay at the plant forever.  Also in view of the Tokyo Olympics in 2020 the government pressures Tepco to treat the water as quickly as it can. "On September 28, Tepco acknowledged that about 80% of the water in giant storage tanks on the premises exceeded government standards for radioactive materials even though it had already been processed. Some of the ‘processed' water showed concentrations of radioactive materials at more than about 20,000 times the standard used to determine if the water is safe enough to discharge into the ocean (Asahi Shimbun.)
  • Everybody who visited Japan recently has - or should have - visited the Tsukiji fish market. That is no longer possible as this the market has been relocated to Toyosu, not that far away but without the charm and tradition of the old market. Is Tokyo’s new fish market a white elephant? asks Financial Times. "There are cracks in the concrete and an army of rats left behind, but as the USD 3.5 billion replacement for Tokyo’s Tsukiji fish market finally opens, one fear looms largest of all: that the city has sacrificed its best tourist attraction for a white elephant.”
  • Octogenarians of all countries: unite - and have a look how you can still be active in Japan. In quite some companies the age ceiling for its part-time workers to stay after retirement is raised to 75 and even 80 years old. 


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