AOYAMA VIEW 18.09.2019

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18.09.2019
Japan getting old - still doing its best

It finally starts to look like autumn. Tokyo mornings are getting cooler and there‘s no 30C day in sight any more. In my Nagano highland, Tuesday morning was already below 10C. Yet, there’s surely more typhoons to come before the season ends.

The damage from No.15 that passed across Tokyo Bay previous weekend turned out more serious, long lasting and expensive than expected and poses many questions. I’m not talking about the widely reported inconvenience to Narita travellers, but the big damage to housing and electricity all over Chiba prefecture. Tepco’s delay to restore the lines to almost a million households is still not yet fully completed at the writing moment more than one week from the storm. Frustrated residents have complained of tough living conditions so long without lights, water, toilet, fridge, phones, TV and AC – the usual conveniences that all depend on electricity here. Yes, we still expect perfect service here!

REALITY BEHIND TYPHOON DAMAGE

True, the lines took big damage: two huge steel towers holding up the main power line through the forests and hundreds of electric poles on streets cracked and fell in the wind, so it takes time to fix them all. But how come they could not last the winds in the first place?

Well, it turns out that the structural requirements for power line poles were set to stand just 140 km/h winds while the typhoon reached over 200 km/h. Moreover, all equipment was old and poorly maintained by the power monopoly, who’s in financial distress due to its Fukushima disaster. The company’s financial data tells it spent only JPY 200 billion on grid work in 2015 in comparison to JPY 900 billion in 1991. The motivation for the cost cut was to show some profit to shareholders even if state owns half of the shares.

For same reason, Tepco has steadfastly refused to comply with repeated requests – latest by Tokyo mayor Koike for Olympics – to bury its power lines in the ground like elsewhere in the civilized world instead of hanging ugly on poles anywhere outside the City Center. Company has always claimed it’s as much for security as economy: underground cables may break in earthquake and it costs 10 times more to restore them than overhead wires. So far, it seems, nobody has pointed out that typhoons – that are getting more powerful year by year – are surely more than 10 times more common and widespread than earthquakes. Moreover, heavy transformers falling down from high up in poles and cut-off electric wires live on the ground are known to be biggest safety risks for people after quakes.

OLD INFRASTRUCTURE

It isn’t just Tepco, it’s same all over: it took almost 3 weeks to restore electricity in Osaka area, too, after the big typhoon there last year. In fact, Nikkei data shows that big part of Japan’s infrastructure – not just power lines – was built in 1970’s. In Tepco’s service area average age of electricity poles is 42 years. Similarily, a quarter of 730,000 road bridges in Japan are over 50 years, same for fifth of 10,000 tunnels and 5000 harbor piers. To rebuild them all is estimated to cost about JPY 200 trillion (USD 1,8 trillion), something that surely does not fit into next year’s budget, neither central government’s nor respective utilities who run the roads and power lines.

To give two other examples: Tokyo’s elevated highways and the Tokyo-Osaka shinkansen line were built for 1964 Olympics. Shuto bridges are now under constant repair to prevent parts falling down and JR Central’s motivation to start building world’s first major maglev line was not just to show technological prowess, but also to shift traffic there so the private company can start rebuilding the old Tokai line without stopping it all together and losing all its income.

We just have to face it that Japan has got old in this area. Tourists, who come here thrilled about the unique, contrasting combination of old and new, hardly think that electricity, roads and rails, bridges and tunnels, are leaning towards the old category together with temples and castles, old tea houses and village festivals, not the modern part.

AGING JAPAN, DECLINING WORKERS

Chiba damage was not only electricity cut-off, but thousands of damaged houses with roofs ripped off. Aerial pictures show even now one week later the wide-spread damage well: in many towns majority of the roofs are covered by ubiquitous blue tarpolins – the only color in shops – and close-up reports show continued damage inside homes from Sunday night’s heavy rain leaking through. So how come house owners could not get their roofs fixed in one week?

Probably simply because there’s no workers to do the job: construction industry tops the statistics what comes to lack of workers together with farming, fishing and nursing homes. Especially good carpenters to fix wooden houses are today the most sought after professionals today: it’s easy to have your Finnish log house made to measure at the factory and shipped here in 2-3 months, but much more difficult to find skillful carpenters to set it up at site.

Fresh government data this week shows the big picture. 36 million seniors over 65 year old make now 28% of the population, a figure that is expected to grow to 30% by 2025 and 35% by 2040. One in four of them is still working filling 13% of all jobs in the country, especially in retail and wholesale, farming, fishing and forestry. Probably it’s more old ladies in shops and old men plowing the fields and manning the trawlers.

In total, 30 million women are now in work force, half a million more than year before and record high level in comparison to any other country. The work participation rate of all 15-64 year olds stands now at 78% consisting of 84% for men and 71% for women, very high figures in comparison to any other country. You can say that whole society has now been mobilized, yet it is not enough to keep the business going. By 2030, it is expected the country will face a shortage of 6,4 million workers. It remains to be seen if the recent change in immigration law will prove enough to fill that gap. I have my doubts.

At the upper end of the age scale, the fresh report says we now have already 70,000 over 100 year olds and 2,3 million over 90 year olds. Looking after them is another dilemma for the government: it’s not just that more immigrant work force is rapidly needed for that, too, but how to finance the costs for the generous benefits? It is said, trimming the social welfare and pension system is more important task for the government than it is to maintain positive economic growth. In practice, they go hand in hand, of course.

ECONOMY AND BUSINESS

So people are not happy and remain worried about future while the long waited restructuring of economy’s weak points remains undone despite already 6 years of good economic run. And now the expected negative impact from the global confusion outside Japan is starting show here more day by day. Plus there’s the dreaded negative impact from sales tax rise next month. It’s not a typhoon yet, but black clouds are surely darkening the sky.

Japan’s low export business dependency in comparison to say China, Korea, Germany or even Finland has been said to safeguard against economic decline creeping in from outside. Yet, that’s a fallacy as it’s only been substituted by big investments in overseas business to make money there instead of shipping from Japan. In a recent article Jesper Koll claimed that the big business listed in TSE get 2/3 of their profits from overseas – domestic market, as big as it is, contributes just one third for them.

It’s same for the acclaimed decline in dependency to US market with the increased focus on China and other Asia. The US market’s share of profits has been halved only to be substituted by business growth in China and other Asia: the three regions’ combined share remains over 55%. It might not be any more “when America sneezes, Japan catches cold”, but now it looks like the whole world is heading for bed with heavy flu and Japan will bear the impact.

BIGGEST AND BRIGHTEST: TOYOTA

So far, good companies have managed to stay on positive track. Two biggest car markets, China and USA, have both turned into decline bringing profits down for all global car makers – except one: Toyota. Despite its usual warnings of downturn, its April-June quarter result was again 9% up from year before and it could head for another record year. It’s investing USD 10 billion a year into R&D; self driving technologies with Silicon Valley partners, ride-hailing business together with Softbank, electric cars with Chinese partners and spreading its FC technology into Chinese trucks while making sure its old hybrid technology will be included in the tax cuts Beijing is giving out for “environmental friendly” cars. Media attentive sidelines include self-driving buses for Olympic Village and field robots that carry hammers and javelins back after throws at the stadium, even a six-wheel self-drive robot to transport astronauts in moon one day. When you get USD 6,3 billion profit in three months, you can afford to do many kind of things.

In long term, Akio-shacho says, “my true mission is to completely redesign Toyota into a mobility company, which provides all kinds of services related to mobility.” In medium term, worried about US business risk from president’s daily shifting policies, Toyota has shifted its focus into China targeting to catch up with VW’s dominant position there. Yet, it did not pass the opportunity to pay almost USD 1 billion for increased share in Suzuki, who happens to be the No.1 brand in India, another market with big growth potential.

For us Finns, icing on the cake is to see Toyota’s Finnish-led world rally team finally getting its performance on winning track.

BOTTOM OF THE BATCH: NISSAN

At the other end of the global car makers we have Nissan and its CEO Saikawa – or ex-CEO now.

Finally given power to decide, Saikawa wanted to make 180 degree change from his former French boss’s overflowing ambition to make Nissan World No.1 in sales volume and focus on quality and technology, features that, in his belief, would lead to strong, independent company in long term. So out went cheap sales to US car rental firms and geographical peripheries followed up by closing freed capacity here and there paying redundancies to 12,000 workers, while stepping up investment for new line-up and new technologies. The mathematics did not work and Saikawa fell flat on his face with 90 pct profit decline as result. Yet, he insisted to continue down the path he had chosen.

From the start, he had not impressed investors with black painting his former boss and claiming being innocent himself despite working years close to him. It was clear he was tainted and consequently opposed by many shareholders in June shareholder meeting, yet allowed to continue for one more year by Renault’s 43% vote – probably to minimize the ongoing commotion. Once it became clear that he had also benefited from company secretary Kelly’s generous hand, it was no surprise to anybody he was asked to go by the board, which now consist of mainly outside directors with expertise, not just Ghosn, Kelly, Saikawa, couple of their subordinates and three amateurs for “outsiders”.

Naturally, this will make another bump on the road to targeted recovery, but the board deemed it’s better make a fresh start already now from clean table and not wait until next year. It will be interesting to see what kind of choice the board will come up for new CEO by the deadline end this month: it is rumored that there’s many nationalities, “even women” among the final 10 candidates. Will it be skills for Japanese or French language that win the day – or is good ole’ American English good enough?

RUGBY WORLD CUP

Whole Japan is being rowdily internationalized with Rugby World Cup that starts this Friday. According to organizers, 500,000 foreign visitors are expected to stay average 21 days and spend JPY 107 billion (USD 1 billion) around the country before the final on November 2. It’s not only beer: travel companies and luxury hotels sell hospitality packs that cost upto JPY 2 million and Airbnb hope to sell up to 300,000 accommodation nights to those who look for more economical prices. The teams have all done great PR work during their stay so far visiting schools and sights and local audiences are excited: 15,000 spectators followed Wales team practice in Kitakyushu the other day!

Rugby Federation targets not only to expand popularity of the game in Japan – the only Asian country were it is played professionally today – but raise the interest – and business – across whole Asia, same as European football and FIBA basketball have been doing. The target is to earn 30% of the games’ global revenue in Asia. Hence, the usually expensive TV broadcast rights have been given free to NHK in Japan, CCTV in China etc. The raid on Asian market will continue next year with Rugby Sevens now in Olympic program.

For Japanese – and some polite visitors – the big question is how will Japan team, The Brave Blossoms, do? Until now Japan has lived in the memory of its unexpected win over South Africa, one of the Big Names, in last World Cup 2015. Now it has to show that was not just a fluke. The team’s Kiwi coach says they can do it and, like other teams following rugby’s strange rules, the team is loaded with experienced international players, experienced veterans as well as young talent. Even captain Michael Leitch is from NZ despite coming to Japan already at 15 year age and speaking the language fluently.

Maybe the best result that Brave Blossoms can achieve is to help make Japan understand that representing Japan – being Japanese – is not limited to those who “look Japanese”. We’ve seen this already in other sports – sprinters, tennis players, football players, basket ball players, even Miss Japan competitions. Now it’s rugby players’ time.

Timo Varhama

Tokyo, September 18, 2019