WORLD IN TURMOIL, JAPAN WORRY TAX RISE, NUCLEAR SCANDALS, CHEER RUGBY
It’s October and finally cooler in Tokyo. To start the month, neighbor China celebrated the communist power’s 70th anniversary with a huge military parade and vows of “unstoppable march to greatness” while demonstrators in Hong Kong are doing there best to show they don‘t want to be part of that. Japan was rattled with new missiles from North Korea – this time even from submarines – and government stuck to pushing sales tax up by 2 percent despite growing worry about economic slowdown. National team‘s early success in Rugby World Cup has brought cheer to the nation and raised newborn fever for the sport with limited follow here so far. Japanese fans have competed in funny costumes with the half a million colorful fans from all over the world – a prelude to Olympics next year.
Unfortunately, another typhoon, No.19 this year and looking exceptionally powerful, is about to hit straight to Tokyo and spoil the fun this weekend. And a new corruption scandal involving Kansai Power’s top management has made all citizens upset on Japan’s “nuclear village” and its inbuilt corruption.
If some of this sounds negative, look what’s happening around the world: after China, we have Hong Kong, Koreas, Trump, Iran, Saudi, Syria, Turkey, Brexit – the list of mayhem and worry looks endless looking from here. Things seem to be just getting worse day by day and new crisis keep cropping up.
Some sports are no delight either: we all witnessed the extreme weather, poor arrangements and lack of interest and culture in Qatar. The heat and humidity was actually a healthy reminder for what is waiting in Tokyo 2020, but, in contrast, the arrangements and audience support will be top class here. Almost half of the 8 million tickets have been already sold to Japanese sport fans in two batches on internet and millions more fans were left out of the domestic allocation. Same for the less well known rugby: all 1,8 million tickets were sold out for the 48 match, 12 stadium tournament that lasts until next month.
SALES TAX RISE: FOR A GOOD REASON BUT...
So much has been speculated of the negative economic impact of the small tax rise and government’s countermeasures that the main reason for it has been largely forgotten: to pay for the rapidly growing costs of social welfare. No better example of this misfocus than a pensioner’s interview statement that “it’s wrong against us who have to live on our small pensions”.
In fact, of the JPY 4,8 trillion estimated tax income from the hike less than half will go to pay for free public day care for 0-2 year olds and free elementary school that government introduced this year to help more women to work, while the majority will go to maintain even those small pensions for the old people together with their generous social welfare. Prime Minister‘s promise that no further VAT rise would be needed for another 10 years is about as believable as US president‘s promise that he will not introduce any new tariffs for Japanese car exports after getting what he wanted for US farm exports to boost up his country vote. We all know Japan has to hike up VAT to 20% level, same as in Europe, if it wants to maintain welfare on level close to Europe.
Politicians‘ demands for tax exceptions and bureaucrats‘ complicated systems to counter its impact in combination to push consumers to shift to cashless payments have brought further confusion to the issue. Food stays at 8% but restaurants go up to 10%, so now the Seven-Eleven cashier is expected to ask you whether you will take your bento home or eat it at the table provided in the shop and charge either 8% or 10% tax depending on your reply. Same for Macdonald‘s, KFC, Yoshinoya, Starbucks etc. For further complication, you will get 5% off the price in many places if you pay with your credit card or mobile phone.
Not unexpectedly, takeaway sales and cashless payments are up. Even normal restaurants have joined in to offer take-away service and countless small shops and eateries have finally installed cashless payment systems. Japanese consumers count closely every penny they spend, but ironically now you can do it better with card or phone, so the “new” trend seem to spread quickly. My admiration goes to the cash register suppliers, who made all this work, and to the staff, often old ladies, who operate the complicated systems.
Old saying goes: if there is an easy and economical alternative and a complicated, expensive system to choose from, Japanese always choose the latter one. The huge media attention to the change and emphasizing tax separately in price only add up to the apprehension against the tax among the public. No doubt, it‘s all going to cause downtrend in consumer spending. But how much?
Fresh data shows that household spending still continued up in August even if total amount of paid salaries has kept falling as manufacturers keep cutting back overtime work due to falling sales to China. Part of the spending was caused by sales of big ticket items like home electronics and white goods, even expensive fashion and jewelry, that rose 30-40% before the tax rise. In the last days of September savings rush hit housewives even for lower priced consumables that would go up 2% like beer, wine and toilet tissue: supermarket shelves were emptied in many places. Shopping panic got so high that even food was stocked up despite not being taxed up: fresh data from the first week show food sales are 10% down now! Just wait for the data on more expensive items to emerge.
Yet, against economists, Aoyama View remain that, after already two postponements, the hike had to be done. There won‘t be any “better” moment later on for this unavoidable step – and probably not for others that will inevitably follow.
ECONOMY OUTLOOK, BUSINESS PHILOSOPHY
The long held expectation that six year economic growth would one day slow down into negative territory could come true this quarter. Even Cabinet Office used the word “worsening” first time in its report on economy this week. Manufacturers’ gloom kept growing in new Tankan report even if service sector remains positive. On other hand, companies are sitting on an incredible amount of money in their cashboxes – latest estimate is it’s now more than the entire GDP! If only they would use small part of it to pay 2% more salaries the consumers would keep running to shops like never before.
As well, if they would invest even small part of their money pile into something useful, that would benefit the economy as much as their own business in long term. Sadly, the old scrooges in big company C-suites obviously prefer to swim in their money as their counterpart in Donald Duck cartoon. “Safety buffer is needed for the bad times”, they say oblivious to that it’s exactly what they are causing with their outdated management.
NUCLEAR SCANDALS: TEPCO
That the three top executives of Tepco were found not guilty for the Fukushima nuclear catastrophe’s was as inevitable as it was regrettable. Already two times prosecutors had given up taking up the case in consideration they could not prove “guilty beyond doubt” verdict and legal experts said it would be same in this case insisted by a layman jury. Part of the reason was that the three were not accused for the huge economical damage and human misery caused by nuclear pollution and 6 year evacuations – company itself has been found guilty of that and paid over USD 80 billion to compensate plaintiffs. Instead, the top bosses were expressedly accused for causing death of 44 bed-ridden hospital patients, who died during their chaotic evacuation, through their personal negligence not to build higher wall around the plant.
Despite evidence from hundreds of documents and testimonies of tens of witnesses, the defense managed to convince the court that the three had received differing estimates of the estimated height of the possible tsunami and that patients died during the evacuation because of improper transport equipment – buses instead of ambulances – and unnecessarily long transport time looking for a receiving hospital. Courts run on proven facts, not on emotions.
It’s different with people: the “not guilty” verdict caused nationwide public furor and the prosecutors have appealed to renew their case in High Court. Hope they succeed there, especially based on one witness report that the construction of higher wall was already planned, but stopped by the chairman himself for fear that it would be taken as admittance that there, in fact, was a danger and then safety officials would order the plant closed until work was finished causing big financial loss for Tepco, who already had its bigger nuclear plant in Niigata closed then for quake damage repairs. (It remains closed even today through local residents’ resistance.)
NUCLEAR SCANDALS 2: KEPCO
Tepco reaped negative publicity again last month for its loathsome slow repair work from typhoon damage in Chiba, but this pales to the new scandal at its Kansai counterpart Kepco (Kansai Electric Power Co), whose top executives were exposed for receiving big money for years from a local politician and small construction company in Takahama, Fukui prefecture, where it has one of its nuclear plants. All in all, 20 Kepco executives had received JPY 318 million worth of cash and gifts over 20 years in return for granting over 80 contracts without open bidding to do repair works at the location. Worse, while profusely apologizing in TV, the culprits first refused to resign, proposing just small temporary paycuts for two persons and bury all further study in a committee to explain how such demeanour could happen. Their haughty obstinence was obviously too foul even for government politicians and METI minister promised action once all details have been cleared. Two top guys took the dive into retirement – hopefully without compensation. We‘ll hear more about this, I‘m sure.
For the public, following earlier Tepco scandals, this adds another nail in the coffin of nuclear power in Japan. For the management experts, it gives another example of how much there is still to do to extend the recent improvements in corporate governance to old “ivory towers” like the publicly owned utility monopolies. In Aoyama View, the case should make government to take further steps to remove their monopoly power and totally liberalize the energy market. The first step freeing the retail sales must be followed now with new steps to bring the move in conclusion.
NISSAN NEW CEO
Talking about poor corporate governance bring us to Nissan. Or did during Ghosn time when analysts said it was the worse specimen for that among all Tokyo listed companies. Now, its board consists of mainly outsiders (including Chairman) and only three company executives in contrast to the old one headed by Ghosn himself and manned by his subordinates with just three outsiders, all amateurs. The new board also has divided its duties into separate committees, one of which is nomination committee that has been combing through wide variety of candidates to quickly find a new CEO after rebellion leader Saikawa was fired.
The joke going around has been whether Japanese language or French would be the decisive factor – or whether a seasoned American from Detroit would balance things out – but for awhile it looked like the new CEO would be Indian. At the end, this week, the committee decided, after all, to nominate a Japanese. Makoto Uchida is just 53 yr old, but experienced in international duties including joint projects with Renault and early career in a trading company. Most importantly, he has successfully led the China operation where Nissan has derived 2/3 of its global profit. Interestingly, his major in university was theology: maybe that will help him to bring peace and harmony to company’s “tribal” power fights that have been raging ever since the Dictator was removed. The development eerily reminds you of what has happened in Iraq and Libya after the Top Cat was removed. Then again, Ghosn originally comes from that region.
Indian Ashwani Gupta, currently Mitsubishi Motors COO, will become Nissan COO to share power with Uchida to prevent any shift back to Ghosn-time one-man-rule. Old Ghosn hands, who have not yet left the company, look like being pushed out now including Malaysian lawyer Hari Nada, Ghosn‘s trusted lieutenant, who turned into “Judas” – to quote Carlos himself – and will be the main witness in the forthcoming trial. As well, at Renault side, CEO Thedore Bollore, another Ghosn appointee, will be heaved out by French government and its trusted Chairman Senard.
The table should be then cleared to start rebuilding Nissan and its alliance with Renault. We‘ll see how that will go.
The new Emperor will be celebrated Oct 22 with grand ceremonies including motorcade parade through town and gala dinner for 300 guests including foreign leaders. Emperor’s new open car is brand new purpose-made Toyota Century, black with white leather interior, the “most economical and environmental” choice of offering from five car makers, they say. No info on dinner menu and wines yet. Maybe not set on basis of “economical”.
Tokyo airports will face congestion with 140 extra planes bringing in guests, so you better not to plan leave or arrive any day around that date. One, who is unlikely to contribute that, is Finland: bet you our president and the new Foreign Minister will arrive on Finnair’s normal scheduled flight to Narita.
Good to see Finland represented by not only its top leader, but two. It shows Japan is esteemed and the relation is appreciated in our country. Same for most others: for instance Sweden will have its king here. In contrast, suggestively, Japan’s biggest and closest “friend” USA will not have its President, Vice President or even Foreign Minister here, but Transport Minister. In language of diplomacy, it‘s a gesture that tells it all.
Tokyo, October 12, 2019