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 AOYAMA VIEW

In autumn downpours, Japan's wheels are slipping
Boy, have we been pummeled by typhoons past weeks and constant rain even without them! My country home lawn has turned into a mud pool with mushrooms springing out all over and the gravel road there is engraved with deep crevasses from a practical river running on it from time to time. Veggie prices are up 50-60% and some crops like potatoes in Hokkaido have been wiped out all together. There was a week when even fish disappeared from the shops for a while. And as the last typhoon was just No.16, there is plenty more to come.

While food retailers are lacking products and attractive prices, other shops are lacking customers, who prefer stay home in bad weather. Always looking for any trick to attract buyers, many shops changed to Halloween mood already end August just as beer cans changed their cover pictures from summer fireworks to autumn leaves. Once the leaves are gone, retailers will quickly start Xmas season. For us Finns it sounds strange to hear Jingle Bells chimed in early November, but Japanese retailers do just about anything to get the consumers in right mood to open up their wallets!

You can hear an insider story to all this at FCCJ Club Evening this week from three young Finns working in Japan's retail sector. Unfortunately I will miss that myself as will take a short trip to Motherland to meet old university pals from 50 years ago. That should be also interesting. And this time Finland could be less rainy.

As if the rains were not enough, we've been also pummeled by more bad news about Tokyo's new fish market pollution in Toyosu. Local politicians from City Council have been swarming like flies on dung pile in live-tv to wade the basement pools in rubber boots and collect water samples, which then have been tested to contain arsenic, benzene and cyanide, so far below safety limits but who knows how much later on. It has been revealed as well that the decision to build the USD 2 billion structures without protective land layer like the outside area was made in 2008 against all warnings just to save money and the accusing finger points to old man Ishihara, who ruled the city like his own fiefdom then for more than 10 years. Moreover, we learned that Tokyo Gas, who knew well how polluted the soil was after having its plant there for decades, was against selling the land for handling fish and veggies, but gave in to the persistent Governor when City promised to change deep layers of the soil there. Even more, we learned that local Koto Ward mayor turned supporter for the scheme when City promised to build bridges there to support his plan for new high-rise suburb at the other end of the island. Now there is all five (!) of them to serve the growing population of tax payers for Koto Ward.

Through all this, construction companies profited enormous money – another proof that the notorious triumvirate of politicians, bureaucrats and builders is alive and well. It will be interesting to see what the new governor Koike, back from another visit to Rio to receive the Paralympic flag for Tokyo 2020, will say of all this this week. During her absence, the City officials have not dared to utter even one word leaving the stage free for politicians' unsavory parading and for media to dig up all dirty details on their own. Where were they all when the unfortunate decisions were made in 2008-10?

With such scandal commanding all attention in the capital and involving father of one his key ministers, it's no wonder Prime Minister has preferred to stay away, this time in New York for UN General Meeting and to visit Castro brothers in Cuba. At UN, Abe requested member countries to put a stop to North Korea's nuclear weapon program and promised USD 2,8 billion more money from Japan for the global refugee crisis to top off his last year's promises for Syria etc. He also requested Hillary Clinton, if she makes it to the White House, to honor the TPP deal that USA itself initiated and Tokyo is now "working hard" to get ratified in the Parliament during the autumn session.

In Havana, Abe forgave USD 1,2 billion worth of Cuba's debt to Japan and promised that Japanese companies will establish presence there to build badly needed infrastructure supported with Japan public money. In return, he asked Cuba to persuade its North Korean friends to stop developing nuclear weapons. For all that, Abe got a rare 70 minute face-to-face session with the convalescent Fidel, who evidently managed to stay awake all through to listen to his pleas and promises. On way back to Japan to open the new Parliament session this week, the globetrotting Prime Minister already indicated he would next like to travel to Iran, another trouble spot that evidently needs his help and Japan's money.

We'll see how government will manage to bring through its long list of new issues: TPP, Constitution change, new SDF rules and Emperor's abdication, all but the last changes that opposition wants to stop. However, it looks like Democrats already shot themselves in the leg with the new party president Renho's nomination of ex-PM Noda as party secretary and several other old names as Vice Presidents. Such old guard at key roles is disappointing to many, who expected "new winds" to blow fresh air in DPJ that lost the majority of the vote just 4 years ago under old leadership and now languish at 8% support level. Noda has especially bad name among both voters and party members for driving through Japan's second ever VAT tax increase in 2012 with his "deal with the Devil", ie. accepting early election to get LDP support for the move that then wiped out the DPJ government and majority of party's MP seats. While probably stupid politically, I always thought it was a positive sign of Noda's strong feeling of responsibility to try stop Japan living over its means by increasing debt forever. That Abe has not followed through his promise to carry out the agreed second step to this day, seems instead irresponsible and fraudulent, yet it has helped him maintain high popularity. Noda back in front row of opposition attack must be like a ghost from the past for the Prime Minister. Bet we are in for fiery exchanges at the Diet. Or maybe not, if LDP's dirt digging machinery finds weak spots in Democrat lines.

The much expected BOJ new policy last week certainly was a disappointment to the markets: after some wild gyrations in FX rates and stock prices things quickly cooled back. That BOJ did not change its debt purchase volumes or negative interest rates, but focused this time on higher yields for government bonds, seemed rather like an aid program for bank profits than boost for its own inflation or growth targets, even an indication that the central bank is running out of weapons. Rumors say many BOJ board members are already thinking of when and how to wind down the whole unforeseen easing program, same as colleagues in US Fed have been doing all through this year. What the Americans have found out is that it isn't that easy to wean the patient off from the strong medicine once he got used to it without risking the growth that has been achieved. In Japan, no sustainable growth has been achieved emphasizing that there is only so much that a central bank can do without government action for reforms and without consumers and companies feeling confident to spend money on their own.

Exports and imports, often used barometer for economic health at home and abroad, certainly do not give energetic picture of Japan. In August, imports tumbled 17% from year ago for 20th consecutive month, yet actually most of the decline comes from lower oil prices, a happy gain for Japan, the buyer. It's more worrisome that exports continued to decline for 11th straight month with strong yen pushing down the value. Of Japan's two biggest markets, it was this time USA, who led decline with 14% fall while China's slowdown took 9% toll. As result, Japan recorded this time a monthly trade deficit, just 3 months after it had gained back its traditional surplus. Going forward, the strong JPY will continue to harm exports as well as the profits that companies are repatriating from their overseas business.

A recovery in land prices indicate that something is still going right here. For the first time in 9 years Japan commercial land price average increased as the city prices increased more than the prices in countryside declined. It was only marginal 0,005% up, but, remarkably, the rise that started in Tokyo, Osaka and Nagoya has now spread to Sapporo, Sendai, Hiroshima and Fukuoka. The biggest single rises were recorded again close to Kanazawa JR station +25% thanks to new Hokuriku Shinkansen line and +27% in Niseko, Hokkaido, Japan's No.1 ski resort, where Australian lodge and restaurant operators have been joined by Chinese and other Asian investors. In contrast, the residential land prices continued to decline for the 25th year in row and the biggest decline was once again in remote Akita prefecture, where young people are moving away in preference of city life elsewhere. It's all part of the ongoing change in the Japanese society.

Demographic change is difficult to stop and despite all government efforts Japan continue to lead the world in getting old. A fresh reminder how far we have gone and how the change is just getting faster was news that the number of over 65 years olds has already reached 34,6 million or 27% of the total population. It seems just yesterday when the figure was 25%, now we are rapidly approaching 30%. Even the number of 100 year olds reached new record 65,692 prompting a practical change in public policy: until now all reaching such high age received a silver plate from government, but from now on it will be only silver plated (!) to save costs. Afraid, it's much the same with public pensions.

Yet, many old people are well-to-do with big savings and "silver market" is an important target group for many kind of businesses. Travel is one: over 65 year olds are frequent travelers both in domestic and for overseas making high proportion of customers in "onsen" hotels and most of passengers in new luxury liners. Health products are another: every cable TV channel is full of commercials how this pill and that drink makes you feel good and strong to spend an active life. Blueberry imported from Finland is one of the most successful ingredients in these.

I don't know what pills he was taking, but "ozeki" Goeido looked full of power and energy when winning the autumn sumo tournament last weekend. It's been awhile since a Japanese wrestler has won any of the bi-monthly series, so this really excited the older population, who make most of the followers of the traditional sport. In fact, the lack of top success for domestic "sumotori" has been rather embarrassing for years. There has not been a Japanese "yokozuna" Grand Champion since Takanohana retired in 2003 and today all three "yokozuna" are Mongolians. While Japanese still make the majority of the "makunouchi" first division, the public has been misled too many times with profuse media praise for every new Japanese winner candidate only to be let down during the last days of each two week tournament. Now Goedo broke the bad spell with a glorious 15-0 record, but all talk again that he will finally make it to the long coveted Japanese "yokozuna" is overly premature.

As always, good companies continue to do well whatever the situation. One of them is the ubiquitous Seven-Eleven, who expects to expand its domestic outlets from 19,000 to 20,000 next year to ward off challenge from the new Family Mart-Circle K merger as well as to increase its outlets in USA from 8,000 to same 20,000. As you probably know, Seven-Eleven is the famous business story where "daughter ate mother", ie. Japan's Ito Yokaido imported the business model from USA, perfected it to big profit earner, bought off the American partner here and then turned back to USA to buy out the originator. This took place in 2005 and now 11 years later the Japanese feel the US unit has been trained well enough into the Japanese-style product and service mode to make it ready for expansion.

Then there are those companies, who make mistakes that cost them dearly. Takata, a family company from Nagoya, who became a global leader in safety airbags with factories across USA and Mexico, is one of the latter. Like Samsung’s flammable battery in last column, Takata made a mistake in selecting a new, “better” inflator material that started to explode much too rapidly in cars driven in high moisture areas. With car makers around the world compelled to call up to 100 million defective air bags for replacement, it was clear that the company could not stay alive long once the costs started to be passed on to it. That moment is now approaching, but instead of going down in bankruptcy and leaving customers high and dry, the company with otherwise healthy business is trying to sell itself to new owners.

Unexpectedly, the range of prospective buyer candidates are the usual bunch of vultures and competitors including US Carlyle Group with a Chinese airbag maker, Bain Capital with another Japanese maker as well as the distress asset specialist KKR & Co. Same time, Takata is negotiating with its car maker customers, who are led by Honda, for the final compensation for replacements. The target might prove difficult as Japanese and foreign car makers reportedly have different views of compensations while some 70 million air bags remain to be replaced over the next 2-3 years. Then again, if Takata goes bankrupt, nobody gets anything.

Timo Varhama  
Tokyo, 26 September, 2016   


Previous Columns

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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