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 AOYAMA VIEW

Summer holidays, heat, rush and relax, while the world keeps turning
Welcome back from holidays for Finnish readers and happy holidays for the Japanese. The "real" summer in Japan has just started and big and small "matsuri" festivals and "hanabi" fireworkd abound. It's Obon week with the annual Great Migration on road and rail, so it's better stay home and watch the Rio Olympics. With Tokyo next in line Japan's expectations run high and the medals started coming in from the very first day. The time difference makes the big evening events good viewing time here. The colorful opening ceremony unfortunately co-incided with the Hiroshima memorial ceremony.

While we are relaxing the world keeps turning at increased speed so there's quite a bit to keep up with all the time. Topping the news end last month was the abominable knifing of disabled people in their beds in Sagamihara by a twisted young guy. It was the worst mass murder in post-war Japan and it's even scarier that he believed he was doing the right thing for the patients, the staff and the society, a thought of line coming all the way from Hitler. It really brought home the message that threat of violence in Japan is not coming from outside, but lives right here. And that The System does not work well enough to prevent such events.

In their own way, the recent attacks in Nice, Munich, Rouen, Orlando etc tell the same story: the world is full of disillusioned, deranged individuals who live right amongst us and can turn violent against the society anywhere, anytime. Tracking down terrorist organizations is easier than finding out and stopping individual loonies, who are making their plans alone. It does not make difference whether they are full of hate and ill will against others or just living in their own world apart from reality like the Sagamihara guy.

The biggest happy news over the past weeks must be the Pokemon Go frenzy that has wiped around the world, even if it has neither been without its drawbacks with fans risking life and limb roaming streets and parks or falling down from train platforms hunting the game characters. Businesswise, the launch that has by now extended to over 70 countries has proved a global hit and made for an incredible financial recovery for Nintendo, the Kyoto game company that that had fallen from its earlier heights when it refused to follow the trend from concrete consoles to downloaded mobile. The new super popular game, developed by an unknown US start up, lifted Nintendo corporate value USD 20 billion in just a few day past, for instance, Sony or Tesla. Suddenly the company was valued 100 times its projected profit, a striking comparison to average 6 times in Japan or even 20-30 times in artificially pumped-up China and another example that the equity markets don't always make sense to an old brick-and-mortar man like me. Anyway, it was impressive how the 20 year old character proved it's still such huge global attraction and how the new frenzy gave a boost to a long list of other related companies. It was not just Nintendo and game developer Niantec, but Google, whose maps it uses, and McDonalds Japan, who paid to have Pokemons hiding at its outlets, as well as many others who make Pokemon movies, Pokemon books, Pokemon games, Pokemon toys, Pokemon pachinko machines or Pokemon bread, even Kyoto Bank, Nintendo's main financier and shareholder.

Then there was the new huge money move from Softbank. As investors feared, Mr. Son could not keep himself from a new big M&A deal after he retook leadership at Softbank and got new play marks from cashing out Supercell and part of his shares in Ali Baba. With more than USD 20 billion fresh money in pocket and a new USD 10 billion loan from Mizuho Bank he surprised us all by splashing out USD 32 billion for an unknown UK chip company unknown following a seaside luncheon meeting on Turkish coast where its Cambridge owners were holidaying. As always, his timing was impeccable: thanks to Brexit the deal was 20% cheaper in JPY terms, loan interest rate was next to nothing and, Son claimed, this was the right moment to invest into special chips which will be crucial in the future Internet of Things business, where he plans to take his company next. Analysts could not but agree – provided he can somehow manage Sofbank's big debt load that stood over USD 100 billion already before the deal.

Time will tell if this move will prove any better than his previous big bet on a US mobile carrier 3 years ago, but I always tip my hat to Son-san as a rare Japanese executive who can make bold, unexpected decisions without procrastination. Many would agree that it is now a good time to spend your cash and take on some debt if you have a viable target that will bring results in the future.

PM Abe is one splashing out money grandiosely with his new stimulus budget that finally rose to JPY 28 trillion (USD 260 billion) when BOJ and other investors are paying money for the privilege to buy Japan government bonds. Unfortunately, it's just another futile effort to "fire up" the sluggish economy with big spending instead of focusing on real reforms that would have more lasting impact. While there are some positive elements like low-cost loans to help SME companies expand to overseas, repair infrastructure damaged in natural catastrophes and enhance welfare services, it seems the target is once again to impress voters with big numbers as all sorts of already existing incentives and credit guarantees that stretch out for years ahead are included in the headline figure. In fact, the bureaucrats have hard time to find viable, big enough projects to spend. No better example of this than inclusion of USD 80 billion allocation to speed up the Maglev-line's extension to Osaka same time with the Tokyo-Nagoya stretch that is expected to be ready in 2027.

JR Tokai, who is financing the project on its own, has planned to take a break after starting Nagoya traffic, load up some profit and balance its debts before embarking on the Osaka extension plan. Doing the two parts simultaneously must be also stretching its technical resources, so no wonder the company did not take the government announcement with open arms, but only says it will "consider" it. JR Tokai knows too well that with bureaucrats and politicians involved in the business comes with all kind of infringement. It already had more than its share with the Tokyo-Nagoya line with local politicians from Yamanashi and Nagano demanding the new train should stop in their towns and villages, something that badly fits with the actual plan of high speed travel between the two metropoles. The topic must be sensitive for the FCCJ member company as we all know its former chairman and CEO is a close friend of the Prime Minister and the two have together pushed for the Shinkansen technology for high speed line plans in USA, Indonesia, Vietnam, Malaysia etc.

The big stimulus will artificially pump up the GDP figures for a short while to vindicate the case for "Abenomics" but will not support sustainable growth nor solve any of the problems that are dragging down Japan's speed of growth. While the government itself now accepts this year's growth will not be more than 0,9%, IMF's fresh estimate puts it at just 0,3%. This does not mean that Japan is in risk of serious recession, but rather just "going sideways" as one analyst aptly put it. Consumer spending kept cool in June as price deflation increased to 0,5%, yet industrial production kept up and practically full employment strengthened further to just 3,1% officially unemployed. Sizeable current account surplus has been now joined with surplus even in physical trade balance thanks to cheap energy imports and Jan-June tourist flow reached almost 12 million (another 28 pct up) with each one of them spending average JPY 160,000 on Japanese products and services. That the total wages just don't grow despite all this is reflected in the recent news that women and retirees over 65 year old make now more than half of Japan's work force. You can say Abe has succeeded in his target to get more of them into working life, yet they are all part of the "arbeiter" army with temporary work contracts and, right or wrong, wages 30-40% less than the permanent employees. As they neither have normal social benefits or pension plans, you cannot blame them for not spending their small earnings but saving instead whatever they can.

It must have been a disappointment for the government that BOJ decided not to join Abe's stimulus party with some new dramatic move for more easing or even more negative interest rate for the banks. Certainly it was that for the market players, who had high expectations after Bernanke visit here and all talk about "helicopter money". No wonder they cried loud out they were "let down" and some doomsday prophets already forecast JPY will now rise to 90 against USD and Nikkei index fall down further. Yet, maybe it was as well that the central bank decided to wait and see through the global confusion from Brexit and what have you sort itself out. The decision not to do anything big probably also reflected a growing realization that the bank has reached the limits what it can do alone, a feeling probably shared by all central banks around the world. This also comes out clearly from BOJ's announcement that it will have a thorough review of its policies in the next board meeting end September. Yet, don't count out yet Kuroda's knack to surprise us when we least expect it.

April-June earning reports from listed companies follow predictions for profit decline from weak demand at home and overseas as well as impact of JPY value rise. Over 1000 listed companies that announced their results so far saw their profits decline average 18 pct. Carmakers alone got USD 5 billion less net income and cried aloud that "something should be done" to counter the strong JPY now 18 pct up this year. Yet, in fact, they are still doing reasonably well with Toyota alone pocketing USD 5 billion in three months while for Nissan this was the first quarter in years when the result did not improve from earlier.

In consumer electronics, Sony, who just got back to profits last year after years of losses, said its sales fell 11% and profit 74% as demand for its consumer products like phones was down, Kumamoto earthquake cuts its production of cameras and semiconductors and the JPY value shaved off 20% from its overseas earnings. On the positive side company pointed out again to Play Station 4 consoles and related game software as well as Beyonce music and "Angry Birds" movie. We Finns are naturally happy for our small contribution for the once great company, but wonder that if these are the business areas where the money is made why in the world Sony keeps making TV's and mobile phones?

Another company, who recently made even more spectacular recovery, but now hit turbulence in demand for its service, was JAL, who reported 50% profit decline in April-June from decline in passenger numbers. The cancellation of more than half a million trips to Kyushu following the April earthquake ruined the domestic sales while terror news from Europe led to serious decline in outbound travel. It seems the pilot shortage has grown acute at JAL, too, and led to flight cancellations and rising costs. It's a problem that has hit airlines around the world including our own Finnair as their management plans have failed to forecast the imbalance between growing business and retiring "baby boomer" pilots. Just a year or two ago, airlines were busy firing staff and cutting wages, now they are trying to recruit new staff as quickly as they can. You can buy as many new planes you want to, but you need pilots to fly them and projected lack of them looks huge: it is said that the exponentially growing business in Asia alone makes for an estimated need for 200,000 new pilots in next 10 years. It seems impossible China, India and other growth countries can train such big number of good pilots in such short time on their own.

Back to politics, we were delighted that Yuriko Koike won the Tokyo Governor election overwhelmingly despite all resistance, oppression and bad mouthing from her own party elders. In fact, she managed to turn it to her benefit creating a practical people's movement with easily identifiable green color that brought unforeseen masses to voting booths despite the hot weather and gave her almost as many votes as her two main opponents got together. The LDP Tokyo chapter threatened to fire all members and their families who would vote for her, yet more than half of them did. So did 4 in 10 of the opposition DPJ supporters. It was a political show worth of her mentor Koizumi, who 10 years ago got public to "vote for me to smash LDP" even if he was himself leader of the party.

The question is now how Koike-san will manage to get the City Assembly dominated by her LDP "ojisan" opponents and City's 120,000 strong staff, who fear for their jobs, to follow her to follow her promises she made to change the way things are run. Apart from raining in unnecessary costs, organizing day care for all kids and elderly care for old people was the main issue for 42% of the voters. In contrast, despite all media concerns about Olympic arrangements, this was an important issue for only 11% according to surveys. Koike's recent position as "Friend of Finland" in the Diet gives an excellent starting point for us Finns to now develop co-operation with Tokyo City based on Japan's strong interest to Finnish know how in the social care issues. These days "Neuvola" seems as well-known Finnish word here as "Onkalo" has been ever since Koizumi's visit there 10 years ago. As for the Olympics, Japan's central government needs to co-operate closely with the leader of the Olympic City, so all the losers in LDP's internal power struggle must swallow their bitter words quickly. Koike-san will start her involvement in that process by traveling to Rio closing ceremony to accept the Olympic flag from the Cariocas. Not unexpectedly, PM Abe wants to get in the global limelights there, too.

PM Abe cleverly stayed away from taking sides in the Tokyo election as he has worries enough without it. A big new one is Emperor's wish to retire because of his declining health that surfaced up again last month. You would think that would be a natural thing to accept anywhere in the world if His/Her Majesty wish so, but not in Japan. It turns out Constitution does not recognize any such possibility, but only recognizes death as the path for succession. Such a change was introduced in the Meiji Constitution 150 years ago to prevent confusion of retired "shadow" emperors being used in political power games time and again in the past history. Worse, Emperor is not even allowed to publicly express his wish as that would be "political action", something prohibited. In fact, his every move is closely planned by the Imperial Household Agency in reflection of the old image of "bird in the golden cage".

In his speech that was aired today he stated again his concern that it was increasingly difficult for him to take care of his duties satisfactorily due to his age and that it would be better to have a new Emperor than have a stand-in for them. It is now up to the Government and Parliament how to respond to his wish.

Abe's other new worries include the newly elected Kagoshima governor, an anti-nuclearist who has pledged to somehow stop the only two nuclear reactors running today in whole Japan and located there. As per earlier columns, many others have been determined safe to run by the nuclear safety agency, but stopped by court injunctions started by local anti-nuclear campaigners.

Then there is always North Korea's missiles, which now first time landed in Japan's regional waters, and China, who now after International Tribunal's stern verdict on its claim on South China Sea is upping its aggressive behaviour. Apart from reacting just to show its indignation on international rules, it's clear this is also done to shift attention at home from the economic problems. While stepping up pure military muscle in South China Sea, it's adopting Russia's hybrid war with "little blue men" to "little white boats" it has now sent in hundreds to Japan waters.

The new list of ministers, Abe's third in as many years, did not bring any surprises. His three key allies - Aso, Suga and Kishida - all kept their portfolios and so did surprisingly Nobuteru Ishihara, who led the badly ended party fight against Yuriko Koike in the Tokyo governor election.

Among the new names the most notable is one more super right-wing woman added as new Defense Minister. Renowned for her defense of war crime denials as lawyer, Tomomi Inada has little real military or international experience and she has been banned from entering Korea, so she hardly is a good choice for trying to intensify the ever more important relations with USA and ROK, Japan's two main partners, much sought after right now. It is neither helpful or encouraging that she managed to give new ammunition for China's propaganda on almost first working day with wishy-washy comments on Nanjing massacre.

Another poor choice was the new Olympic Minister who is supposed to work hand in hand with the Tokyo governor after Tamayo Marukawa was used as LDP's top speaker putting down Koike-san in most derogatory terms during the campaign just the week before. She was needed to keep the number of women at least 3 out total 19 (15 pct), hardly convincing example for all talk of "women empowerment" and demands that they should make 30 pct of top level management in the private sector.

Looking at the other appointments, most unknown old men rewarded for their long service for the party, some already quipped this line-up has as many "ojisan" with name Yamamoto as women all together. For those like me who cannot tell the three Yamamotos apart, NHK offered practical advice to just call them No.1, No.2 and No.3 because the kanji writing of their first names include such numbers!

On trade front, it was good to hear from the EU-Asia top meeting that both EU and Japan are keen to finish the long-awaited FTA deal despite all recent global turmoil. As importantly, EU finally managed to decide on long-awaited dumping duties against Chinese steel, whose big volumes of domestic oversupply has ruined the European producers at unforeseen prices there. Not unexpectedly, Beijing blasted EU for such unforeseen uppity and counter attacked with its own tariff for special high-quality steel that foreign car makers import from Europe, Japan and Korea as the local producers simply cannot make it. Without it, they cannot claim any more superiority in quality that has helped them in their competition against the local car brands there.

Let's hope things cool down despite the hot weather, so we can focus to enjoy Olympic sports. There should be more medals coming from swimming, judo, gymnastics, table tennis, women's wrestling etc. The men's football team seems a bit of write off this time so the news that baseball returns in Olympic program in Tokyo 2020 was received with much enthusiasm. In fact, for true baseball lovers, yesterday's news that veteran Ichiro score his 3000th hit in US Major League was probably as big as all Olympics put together!

See you at FCCJ Yakatabune Cruise August 26!

Timo Varhama  
Tokyo, 8 August, 2016   


Previous Columns

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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