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 AOYAMA VIEW

NEW MISSILES, DIET DEBATES, BIG BUSINESS IN BIG PROFITS
- DOWN ON GROUND CHALLENGES REMAIN BASIC AND SIMPLE
Wonder if it was out of consideration for Japan's GW holidays, fear for US Navy ready to shoot it down or just a technical problem that kept Mr. Kim from launching his latest missile until this week? Finally it came: a new type that flew longer (higher) than any one before – a good 4000 km if it had been aimed for distance according to experts. It was equipped with the new powerful engine that was tested last month to big acclaim and putting three of them together in a Big One it would fly 13,000 km all the way to US continent, say the experts. Such missile should be ready in 2-3 years, not in 4-5 years as estimated before. That means it's well in time before President Trump retires. The window of opportunity to react is closing soon for Mr. Big Mouth and that makes the near future even more precarious.

Why the US Navy did not shoot it down after all bluster from Trump they would do that, a friend from Finland asked. Maybe it was not as easy as President fantasized or maybe the Navy commanders had a bit more sense and serious consideration to what North would do as next step, something beyond the Supreme Commander's thinking capacity. Tokyo government was certainly concerned of miscalculations, so Admiral Harris, the Pacific Commander himself, flew in from Hawaii to pacify Japan meeting PM Abe and FM Kishida in front of flashing cameras and live-television. Like his Marine colleague who is now Defense Minister, he certainly looked more serious, intelligent and informed than any of the civilian Trump government representatives, who have visited here or been in tv-news from Washington.

It was Pacific Command's own decision to send another carrier force to Japan Sea while the Yokosuka-based USS Ronald Reagan was going through repairs in its home port – Trump, in his usual modest manner, only took the acclaim for "sending an armada" there to himself when it was already on its way. Such able admiral is no good, China thinks and asked Trump to dismiss him according reports last week. Only then they would talk to North Korea – or was it invest money to Kushner family Manhattan real estate project? With the scheme exposed, of course, that means Harris will definitely stay and with the Yokosuka carrier steaming out to sea this week, US Navy has now two carrier forces out on Japan Sea. That should keep The Young Leader a bit cooler under collar.

Same time, it's reported that Japan Defense Ministry has made up its mind to select the land-based Aegis system for its next step to re-inforce the nation's anti-missile defense. Apart from being cheaper, something emphasized in the news, guess it's more compatible with the ship-based Aegis than the THAAD system that US rushed to install in Korea. Land based Aegis batteries in key positions on Japan Sea coast will effectively augment the Aegis-equipped destroyers out on the sea to create a credible line of defense. To top things off there are Patriot batteries that can be placed in landmark sites around Tokyo for for media effect, if nothing else.

For South Korea's new president, who promised to restart friendly relations with North, Kim's new missile test is like a wet towel thrown on face. It suddenly looks like good relation with USA and co-operation with Japan is much more important. The US anti-missile defense system might stay in Korea, after all, and cancelling out the "comfort women" agreement does not look that good idea either any more. Both are political losses also to China, of course, and come with compliments of its obstinate "protectorate" North Korea.

Despite all these meaningful manoeuvres going on in the background, life's been perfectly normal and quiet on the ground past weeks. The biggest news this week was Princess Mako's engagement with her International Christian University class mate, a commoner from Yokohama, which means there will be one member less of royalty here soon. There's only one male heir to the throne now in the next-next generation: Mako-sama's 10 year old little brother. He could well be the last Emperor in the 2000 year long family line unless his supposed future wife will one day produce a new male heir or the rules are changed to allow females to the throne.

In daily politics, the wrangling about the "conspiracy law" forbidding bureaucrats squealing all they know to the media and media reporting all they hear from them, has dominated the agenda pushing off any discussion on proposed Constitution change. It looks like little can be achiveved in this or overall during the ongoing session scheduled to end June 18.

The "Wanna Cry" ransomware cyberattack also hit some Japanese companies like Hitachi and Nissan this week while Western Digital has hit Toshiba with a US court threat it should not sell its memory chip unit to anybody else, even if better prices are offered. The US company claims this clause is written in their agreement for the 50/50 JV in Sun Disk Corp in California. The case could take one year to settle for Toshiba, who badly needs the USD 2-3 billion money on offer without delay to survive financially and to avoid delisting by Tokyo Stock Exchange. As many of us know, using court cases is normal business practice in USA, but certainly not in Japan, so Toshiba has been caught again unaware. How low can its management go?

The estimates of high corporate profits during FY2016 that ended March 31 keep coming in as expected. One analysis says combined net profits at major non-financial firms climbed further 21% from previous year's record level with one in three companies recording best ever result. Some of the stand-outs were construction giant Kajima and rear estate developer Mitsui Fudosan as well as Nippon Steel & Sumitomo Metal Corp. All big trading companies returned to good profit for the huge write-offs they had to take for their mining, oil and gas investments one year ago. Then Mitsubishi Corp and Mitsui & Co recorded their first ever historical loss, now they staged a sharp recovery to JPY 440 billion (USD 4 billion) and JPY 306 billion (USD 2.7 billion) net profit respectively. The usual No.1 Toyota's net profit is 20% down – for the first time in 5 years! - to "just" JPY 1.8 trillion (USD 16 billion), mainly due to stronger JPY rate and slowdown in US market. In contrast, Nissan, who has majority of its production outside of Japan, saw profit gain 27% up to JPY 660 billion (USD 6 billion).Chairman Carlos Ghosn says Emmanuel Macron's election to French president should bring new impetus to his longtime wish that French government would reduce its ownership in Renault, something that would make closer financial and technical relations with Nissan possible for benefit of both companies.

Next to Toyota in Japan profitability ranking is now Masayoshi Son's Softbank Group that says net profit for the past year tripled to JPY 1,4 trillion (USD 12,5 billion) thanks to turnaround at its US subsidiary Sprint. The newly acquired majority stake at UK semiconductor designer ARM also helped to boost the overseas part of Softbank profits. Still, about half of the profits came from its strong position in mobile carrier and internet service business at home. CEO Son confirmed that he is talking with Terry Gou of Hon Hai and Sharp of working together for acquisition of Toshiba's memory chip unit. Meanwhile, Softbank's USD 100 billion tech fund plan has been now subscribed to USD 95 billion level with USD 45 billion coming from Saudi Arabia's sovereign wealth fund, USD 15 billion from Abu Dhabi's similar development company and USD 25 billion from Softbank itself.

Down on the ground, far away from these stratospheric sums of money, the business looks much different. Despite all the money in the corporate cash box and economical theories, salaries don't go up as much as you would expect nor are companies, especially industrial, investing it to new capacity as they don't see any prospect for rising demand from the declining, ageing population. In fact, Japan's working age population started to decline already 20 years ago followed by the total population 10 years ago. For this reason, many service industries and small manufacturing industries outside of big cities, are having hard time to find people to work for them. Last year companies with less than 500 employees had 1.1 million jobs open. As such companies make 90% of Japan total and form the basis of supply chain that leads to those famous big names, it is problem that entails the entire economy.

The good news is that such SME companies, who still have a very low level of automation, are now looking to invest into that area. According a BOJ survey, SME's plan to boost investment by 17% in contrast to big companies, who project just 0.6% increase, and much of that is expected to go into automation and robots. These don't need to be just assembly line welders or GPS programmed digging machines for manufacturing and construction companies, but also "helping hands" for property managers, food and drink makers, even hotel chains. The first Henna Hotel ("Crazy Hotel") where hundreds of robots perform the service tasks usually provided by human personnel, opened up at Huis Ten Bosch resort owned by HIS travel company last year and proved immediately wildly popular. Tokyo Disneyland followed this year with similar of its own and you might see more such facilities in Japan soon. Banks and hospitals are said to be interested, too, to use robots for their reception etc. Robot makers like Fanuc and Yaskawa Denki are reporting growing sales, something rare in Japanese manufacturing.

Tokyo's popular Governor Koike was selected in Time Magazine's 100 World's Most Important Persons list. The other Japanese names who have made the list are novelist Haruki Murakami, popular around the world, the 80 year old colorful painter Yaoi Kusama, the home organizer Marie Kondo and another politician, Prime Minister Shinzo Abe. From PM's point of view the message is clear: now even foreigners know that there is a political challenger for his popularity and well-built image as Japan's leader. No wonder, LDP is feverishly organizing its stand-off for the City Assembly election on July 2 to prevent it turning into a landslide win for Koike, something that could lead into a power challenge on national level. All party Big Guns are expected to be on Tokyo streets to support their local colleagues against Koike's green colored troops of young amateurs. New, more attractive candidates are being recruited as well: in central Chiyoda-ku the 75 year old male veteran has been substituted by 27 year old female newcomer, who claims she jumped off Koike bandwagon when she found out "that it hasn't got the wide and deep understanding of people's true needs like LDP has".

Koike-san was already featured on equal footing to Abe-san at Global Summit of Women conference that drew 1300 business and political leaders from over 60 countries last week to Yokohama. She pledged to field as many women as possible for her "school" in the coming election to do her own part to correct the "shameful" low female participation in politics and business management here. True, Japan's ranking in World Economic Forum's Global Gender Gap Report went this year further down from 101st to 111th out of total 140 countries. Tokyo Assembly is a bit better than the National Diet in this respect with 20% women against national 13%, yet there's plenty left to do for Koike-san. We'll see how it all goes in July. The noisy rallies have already started in front of railway stations etc.

In Olympic arrangements, Koike took a loss in her fight to cut costs for Tokyo when she had to accept that Tokyo must pay for the cost of grading up to Olympic standards those facilities in neighboring communities, who will take over some of the sports so that Tokyo can avoid building totally new, more expensive facilities of its own as outlined in the original plan. These include several stadiums for baseball, soccer and basketball, sailing harbor, a cycling velodrome, a shooting range and spectator stands for the private golf club that finally accepted to accommodate women members, too, as demanded in Olympic rules. Happily, even if these venues have been changed from the original plans, all visiting top sports people have been highly satisfied with what is being offered. The only cry of dissatisfaction and protest so far has come from environmental agencies, who have complained that the plywood used for casting the cement base of the upcoming wooden main stadium comes from Malaysian companies, who have been long accused for deforestation in Borneo and endangering rare animals, now even for violating human rights of indigenous people there. The first two accusations are long standing and well known around the world, yet plywood, timber and biofuel made from Borneo wood has continued to be used around the world – including Japan.

In my own experience, recall well that the Rainbow Bridge, which was built to connect Odaiba Island to City in 1995 and now makes the main highway artery out of town, was the very last construction project in Japan where environmentally friendly, sustainably grown Finnish plywood was used in the lowly role of concrete casting. Since then, tropical plywood from Borneo and other suspect places came in at half price and took over the cheap end of the market that was never to return. Those of us with pure minds and clean products had to develop more added-value products for more advanced end uses – like home interiors, trucks and vans and LNG tankers - to remain in the business. At the end, that proved the right thing to do for Finland. Today we all understand that Finland cannot compete with low prices, but must focus on other benefits and values.

Timo Varhama  
Tokyo, May 18, 2017   


Previous Columns

9 May 2017
"Golden Week, Special Trains, Luxury Spending, Even North Worries Makes for Good Business"

20 April 2017
"North Korea, USA both worry Japan - Koike worry Abe and LDP even more"

5 April 2017
"Spring, Sakura and New Year Start in Japan - Commotion, Tensions Rise Around the World"

27 March 2017
"Questions Unanswered, Unasked – Lifestyle and Surveys Bring Light"

21 March 2017
"Finland in Focus: Friendship, Dictionary, Music, Food - Even Elevators?"

13 March 2017
"Uncertainty Increases Around Japan - At Home Rebuilding Uncompleted in 6 Years - Abe Popularity Takes a Hit."

3 March 2017
"Book Readers, Police Jokes, Nerdy Napoleon and Poison Scare"

24 February 2017
"Populism, Ignorance and Isolationism Leads to Mayhem and Mess"

16 February 2017
"Golf Diplomacy, Chocolate Festa and Hokkaido Deams-Come-True"

9 February 2017
"Tokyo overcoming winter, business changes, political battle and Trump threats "

2 February 2017
"Warm Feelings in Japan, Wild Winds from USA"

20 January 2017
"Ready for Rooster? It will be a wild ride!"

2016

17 December 2016
"AOYAMA AWARDS: THE BEST AND THE WORST IN JAPAN 2016"

9 December 2016
"Finland independent with free word, good education - Japan and USA: Abe to Pearl, Son in Trump Tower"

4 December 2016
"Statistics, politics and plain bad management - difficulties to plough through it all "

24 November 2016
"TPP is dead – or is it? What comes next?"

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"

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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