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 AOYAMA VIEW

TPP is dead – or is it? What comes next?
Quite a shake again Tuesday morning! It was only M4 in Tokyo, yet the building was swaying for long time, so it must have felt really bad in Fukushima, Sendai, Iwaki etc. It certainly brought back bad memories of March 11, 2011 to us all even if the magnitude at the site was this time "only" M7,4 and the ensuing tsunami just 50-140 cm high. Again, the evacuation systems did not work perfectly well despite 5 years of practice and a cooling water pump at Fukushima No.2 nuclear power plant was incapacitated for a while just like its unfortunate sister plant No.1 was in 2011. The plant was off-line like most other NPP's, yet it was holding 2360 still-hot spent fuel rods and 184 unused ones that would heat up and melt if not submerged in cold water. As much as I'm for restart of NPP's which have been re-built and tested safe again, as an economic necessity and effective solution at short term until sufficient alternatives have been developed, I am worried about the safety of the management of those that are "closed" yet continue to keep hold massive amounts of nuclear fuel.

Outside Japan, "continental plates" of global politics are also shifting following the US election result and it remains to be seen what kind of tsunami will hit the rest of us from the new emerging policies there. The picture remains unclear and keeps changing with the moods of the new President, yet many US friends fear the worst while enemies are moving to take benefit of the confusion. Only financial markets seem to be sure that the new Trump government will start big public spending and tax cut spree and have moved billions into US shares and USD currency. In return, this has quickly turned around Japan's big business and financial markets outlook, something all "Abenomics" and BOJ's big monetary easing has failed to do this year.

It was certainly a brave move from Japan Prime Minister to go talk with the new US President-elect as first among leaders of other countries. What is achieved in terms of concrete results, is often considered secondary in Japan; the main point is to take initiative, show keen interest and get to know the new player personally. Seems his positive attitude was not lost to the host, who arranged the meeting in his lavish faux-rococo, gold and marble living room at top of his Tower together with his daughter and son-in-law. Of course, there was also Trump's new US security boss, who had visited Japan in secret two weeks earlier to assure LDP leaders that nothing would change in US-Japan military alliance and all campaign talk about change was just, well campaign talk.

With Japan's No.1 worry relieved in advance and the TPP issue agreed to remain off the topic list, wondered what they talked so long that the meeting ran for 90 minutes instead of scheduled 45. Concluded it must have been golf as both men are keen players on their spare time. Sure enough, it emerged that Abe's "omiage" had been a Japanese "Honma" driver. Not just any driver, but a special version with golden shaft and gold colored head costing JPY 540,000 in retail shop. Would not be surprised to learn that, in turn, he got invited to come play at Trump's Mar de Lago resort in Florida as next step. It's hard to imagine US president to come any time soon to Abe's home course at Kawaguchiko close to Mt.Fuji as, for one, Abe's Finnish log house there would be much too small and simple for the real estate billionaire's taste. For another, Trump will have other issues on his priority list.

Giving notice to US backing out of the Paris climate deal and Trans Pacific Partnership trade deal has been declared to be the first issues on Trump's "to do list" followed by stopping terror by blocking immigration and registering moslem citizens. So it was probably just a bad joke that Abe tried to get him to back TPP by promising the name would be changed to "Trump Pence Partnership" for his honor.

It was reported that Abe was received as hero by other TPP participants next day at APEC meeting in Peru who all wanted to hear his verdict of Trump's real policies stripped from the campaign propaganda. The news were obviously not good, but some TPP countries said they would like to stick to the deal with Japan only by changing the rule that now requires both USA and Japan to remain on board – minimum 80% of combined GDP values in actual text. This is a long shot that Abe possibly could not back in view of his "new friend" in New York and soon in White House, so we can only entertain hope that that the Republican majority in US congress will try change Presidentfs mind about the deal. It's still too much for Japan to take up the role and responsibility from US as the leader for a free trade regime in Asia Pacific. In its place, we Europeans put our hopes in that the government will now endorse the EU-Japan Economic Partnership Agreement which has been practically finalized and just pushed back to wait for TPP clearing up first.

My view is that TPP was mainly a domestic political vehicle for Abe to show his "leadership" to Japanese voters, so with the Big Brother refusing it now, he can drop it unembarrassed and shine instead by endorsing the EU-Japan EPA instead. The expected TPP benefits for the consumers in lower Japanese tariffs for food and for car exporters in lower US tariffs were anyway marginal and scheduled years away, while Abefs promised gcompensationsh to farmers were big and immediate, now already passed through the Diet and unlikely to be cancelled as they will help buy votes. Meanwhile the benefits from EU-Japan EPA deal would be clearly more remarkable for both consumers in food products and export industries in cars and electronics. For many European companies its mutual recognition of technical standards part, if retained in the final version, would make business here much easier: no more bureaucratic and expensive JIS and JAS accreditations instead of ISO standards.

Any trade deals, however good they look for politicians, pale in business impact to the rapid, dramatic change in USD/JPY and EUR/JPY rates that has taken place in recent days and weeks as investors have placed billions to US equities in wait for Trump's promises for big tax cuts and public spending. As result, USD has surged 10% against JPY and Nikkei stock index has risen 20 pct in wait for better profits at big international companies, a welcome return from stagnation that has prevailed this year despite all empty talk from Abe and Kuroda. Toyota can now add USD 4 billion to its USD 17 billion profit forecast and Japan's import energy bill will rise at least as much putting up prices so that BOJ's evasive 2% inflation target seems suddenly back in sights. So you can say that Trump victory has saved Abenomics and PM's political credibility. For that an expensive golf club souvenir is a cheap "thank you".

In regional politics, if TPP will not proceed, the remaining 11 members are likely to re-line their wagons with wider China-led RCEP trade initiative that would marginalize USA economic presence in Asia Pacific and leave its military reach as its only political game here. Combined with China's Silk Road initiative leading all the way to Middle East and Europe and backed up by China's own Asia development bank, RCEP would set the economic rules in this part of the world long into future and make big parts of Asia, especially small SEA nations, China's backyard. Even USA's own old backyard in Latin America, if Trump cancels NAFTA, seems gone as China is more than willing to take over there, too. In fact, its weight as investor there and export market for Latin countries' minerals and food products has already passed USA.

All this would leave USA alone to try tackle China with import tariffs and other trade blocks "to bring the jobs back" as campaigned by Trump. While it is true that China numerically depends more on US market than USA with its vast domestic market depends on China, it is especially those low-income voters that Trump pledged to help, who would suffer most if low-priced Chinese products would go 45% up in price at their Walmart stores. Moreover, as we know just too well from trade history, China will always hit back where it hurts most and the leading Communist Party newspaper already detailed the planned action: Boeing orders - USD 38 billion worth promise last year on president Xi visit to USA - would all go to Airbus overnight, Apple phones and GM cars would face all kind of manufacturing problems in China and chickens, corn and veggies from 300,000 US farmers would be sourced elsewhere. President himself added his voice to the warning when he told Obama that the US-China relation is now "hanging on its hinges". All in all, Trump's battle plan looks weak without old US allies, so let's hope reality will still dawn to the president-elect before he is given the keys to push the buttons.

What's clear is that it's a wake-up call for Japan to finally grow up, cast off its overwhelming reliance on USA and develop ability to stand up on its own. And I'm not talking only economically and militarily, but also politically and, dare I say it, mentally.

In this respect, I sympathize with Abe-san's recent moves to try make amends with Putin's Russia with formalized relation and expanded economic co-operation. Japanese technical knowhow, financial resources and hunger for oil and gas combine perfectly with Russian Far East needs and resources on offer, but the issue of "illegally occupied" islands remains a political block for progress together with sanctions agreed with other US allies. We can assume that Trump, who says he wants to rebuild good relation with Putin himself, is less restrictive toward Abe's initiatives, yet it also looks that Putin has noticed the same and is now hardening his bargaining position vis-à-vis Japan as he expects the US-EU policy front against Russia will crumble. This week he stacked up cards against Abe even further by telling Russia had already deployed missiles pn the the two biggest islands that with range over Hokkaido. With such insults, we should expect even less from Abefs much touted summit with Putin in his home Yamaguchi-ken and it would be best for the LDP hawks to pack up their plans for another useless election in its expected afterglow. We can expect to hear decisions on that soon after PM has returned back to Japan.

Looking at the big figures, the economy seems to chug along OK. The July-September GDP racked up 0,5% gain from the previous quarter, which means 2,2% annualized speed of growth, not bad at all in today's world. The worry is that it was not consumers or corporate investors leading the charge, but rather the gain from external trade, where exports declined less than imports, whose value is down thanks to record low oil prices and recent strong yen. Yet, job market continues tight with job offers outnumbering job seekers by 1,38 times nationwide and real wages finally rising as manpower shortage has intensified and prices fallen. The aggregate salary income rose 3% in July-September, yet salary earners decided to put the increase in the bank, not spend it. You can't really blame them: the future looks confusing and the prices don't show any sign of increase, so why to rush and spend money now? Instead of building for special political achievements, PM and his government should try put voters at ease that everything will run smoothly and without surprises. Reinforced confidence into stable future is the best way to get consumers open up their wallets. Moreover, there is still so much untapped potential choking back Japan that, if released through more deregulation and better management, it could speed up the growth remarkably.

According latest data, households had JPY 920 trillion (USD 9 trillion) cash under mattress or deposited in bank, second highest level ever, while the unused corporate cash and deposits stood at JPY 242 trillion (USD 2,2 trillion), highest ever. As for innovation, Japan has long been the world leader in issued patents ahead of USA and China, yet the risk averse Japanese companies are left behind those two and many others in introducing new innovative products to the world. Meanwhile, we know that Japan management holds the dubious honor for the lowest productivity-per-hour of all major industrialized G7 countries. To summarize it all, the Head of OECD Japan office said recently: "Japan has great people, assets and capital, both in quality and quantity, but we don't see that benefitting the output."

Thatfs worth another story next time.

Timo Varhama  
Tokyo, 24 November, 2016   


Previous Columns

14 November 2016
"US uproar shakes up the old world order, Korea in turmoil"

2 November 2016
"Showdown in U.S., Japan battles on"

25 October 2016
"Nobels, Narita and Niigata - Olympics and popularity politics"

26 September 2016
"In autumn downpours, Japan's wheels are slipping"

16 September 2016
"Moomins, Metsä, Mitsubishi and missiles - business, politics and sports"

6 September 2016
"Uunivited Guest Crashes the G20 Party"

31 August 2016
"It's not Super Mario, It's Super Abe! -- And Super Japan! "

8 August 2016
"Summer holidays, heat, rush and relax, while the world keeps turning"

12 July 2016
"Fog of uncertainties ahead: Japan, Britain, China and USA, each in their own way"

24 June 2016
"UK Splits, shakes EU, even Japan"

13 June 2016
"Rainy season: it's pouring on Prime Minister "

30 May 2016
"Obama is a Class Act, G7 Meeting Was for Japanese Audience "

8 May 2016
"With More Headaches at Home, Abe Takes Golden Week Europe Tour "

23 April 2016
"Dramatic Giant Quake, Business Slowdown, Election Mode in Politics"

7 April 2016
"Tokyo Great City, Japan hmmm...Colorful People "

22 March 2016
"Spring energy, child care and train travel "

11 March 2016
"Five Years from Japan "3-11" - Making Best Out of Gigantic Recovery Task "

28 February 2016
"A Dig Deeper into Politics: Ignorance, Camouflage, Chicanery "

15 February 2016
"Markets in turmoil, economy in decline, challenges grow for Abe"

5 February 2016
"Minister scandal distract, economy slow down, Kuroda rides for rescue "

28 January 2016
ABE: THE REALITY BEHIND ALL THAT TALK "

20 January 2016
"Bear Outlook for Monkey Year Grows, Taiwan Votes to Keep Distance from China, but Pop Group is More Important for Many "

12 January 2016
"NEW YEAR VIEWS - AND A LOOK BACK AT 2015"

17 December 2015
"Global Environment, Food Tax, National Stadium: Historical Decisions or Political Parading? "

8 December 2015
"Challenges in Paris Conference, Challenges Back Home in Japan "

27 November 2015
"Refugees, bombs, business and global warming - can we control them all? "

3 November 2015
"Japan, USA, UK or Germany - China Impacts Us All Today "

22 October 2015
"New Ministers, New Trade Deals, All Political Play"

7 October 2015
"Power games, ball games, trade deals and refugee misery"

25 September 2015
"Big Problems, Big Talk and Big Figures - Each in Their Own Way".

9 September 2015
"Challenges in Japan, Tougher in USA and Europe ".

1 September 2015
"Looking at Neighbors, Japan Seems Stable and Safe ".

19 August 2015
"End Summer, Ceremonies and Holidays Over, Back to Work for All".

6 August 2015
"Hot Weather, Hot Air in Politics - From War Anniversary to Whisky in Space".

23 July 2015
Greece, China, EU, Japan: looking for the lost reality

23 June 2015
World No.1 City? The Difficulty of Passing New Laws, the Easiness of Spending a Lot

16 June 2015
"Only in Japan?" - Somethings, Yes, But Others Are Same All Over

4 June 2015
Security and Finances: Pensions, Companies, Banks, Olympics, FIFA

21 May 2015
Economy Back on Track, Record Profits at Big Companies

11 May 2015
Spring Events: Odaiba Rock, Shibuya Sex, Capitol Hill, White Hall and Red Square

22 April 2015
Elections, Elections - Finland, Japan, Around the World

30 March 2015
Sakura: beautiful, but just for a short, fleeting moment

16 March 2015
Better late than never - Japan moves slowly

2 March 2015
Three struck out, three more in doubt - Abe's ministers under attack again

19 February 2015
Spring, Sibelius, Chocolate, Budget and Big, Bad Putin

5 February 2015
Reform Work Starts - Energy, Farming and Food on Wish List

26 January 2015
Terror strikes, plenty work, sad memories wait

15 January 2015
Watching AKB, Eating Mochi, Spending JPY 96 Trillion - Japan Off to Better 2015 After So-So 2014



About the Columnist

The columnist is a Japan veteran among Finnish business, our Chamber ex-president and today Member of the Board of Trustees.
After running a major Finnish industry company's Japan business for over 20 years, he is now Senior Associate in a strategic consulting company.

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