AOYAMA VIEW 26.11.2019
26.11.2019
ABE NOW LONGEST SERVING PM, STILL MUCH TO BE DONE
So Abe-san is now the longest serving Prime Minister in history – he passed last week the pre-war record holder at 2887 days when counting in his first stint in 2006-07 that ended with health problems. As he boasts, he has won 9 elections in his six years: 3 for Lower House, 3 for Upper House and 3 for LDP leader – no mean achievement in a democracy.
What’s more, he has two more years to go – and some in LDP are already talking that if Trump is re-elected next year for 4 more years, it would be best for Japan if party would give Abe another extension as its leader which means almost automatically as Prime Minister. So well he has handled the tempestuous US president.
ABE'S TRACK RECORD
When LDP and Abe took reigns back in 2012 after Tohoku triple catastrophe and three years of messy DPJ rule, he promised to stop deflationary spiral in economy, tackle social challenge from declining and graying population and “resolve postwar foreign policy problems”, ie. renew the constitution and patch up relation with Russia as well as with China. Looking at it now, you can’t really say that he has achieved any of these goals except China, but you sure can’t blame him for lack of trying.
If anything, Abe has provided Japan with social stability that has escaped many other countries – even those that we traditionally think are stalwarts in it have succumbed into turmoil today. With aggressive monetary easing and export promotion – “Japan is back!” – economic growth took off and big business reaped big profits while unforeseen job growth versus working population decline created feeling of job safety and confidence among consumers. On political map, Abe shifted the power from the constantly quarreling LDP factions to Prime Minister’s office, an unforeseen move that has helped him drive through his policy initiatives against old vested interests that have held back developments for decades. Another result is that Abe stands high above any potential contender in public popularity. Yet, despite such strong position, for many critics, he has been too careful and many more reforms should have been achieved.
Trade liberalization is one Abe achievement that stands out: pushing through the TPP among the Pacific nations after USA dropped out and completing the long sought free trade and economic partnership agreement with European Union – quite a change from the old insular mentality even if both deals will actually take years to reach their finally targeted low tariffs. Meanwhile, the trade aggression from the US president has helped China see the benefit of counterbalancing it with getting closer to Japan and in new warmed up atmosphere several steps in trade and finance have been taken between the neighbors. They will be crowned politically by Xi Jinping’s official state visit to Japan next year.
Before that, hopefully, China, Japan and 14 other Asia Pacific countries manage to conclude their long discussed RCEP trade agreement. Loose as it is, it’s still another big step forward in global multilateralism. It was a letdown for Japan that India decided to pull out at last moment as that will make the alliance China-dominated, but it seems Abe&Co have now swallowed that as cost for the benefits the deal provides.
Ironically, the target closest to Abe’s heart and one that he inherited from his grandfather – amending the American written 1947 constitution to at least officially recognize that Japan has its own defense forces – has not proceeded anywhere during his rule. Once again, during Diet’s autumn session that is scheduled to end December 9, the opposition parties managed to delay the proposal from getting even debated. As always, their tactics were the same: harping on corruption claims of cabinet ministers: too expensive fruits for New Year presents and too many flowers for funerals at voters’ families as well as Prime Minister himself selecting some of the guests, even the catering company and sake brand, for his annual garden party paid by tax money. Such small demeanors would hardly count anywhere but here they are taken seriously enough to give MP’s something to shine on in live TV – their target is only to obfuscate and block those government proposals that opposition dislikes from proceeding forward.
As for the actual issue in this case – Constitution change – it is well known that many in opposition would like to make changes, too, but they refuse to debate it as long as Abe is prime minister just to deny him the legacy as the one who first changed it.
ECONOMIC OUTLOOK
The economic growth stalled in July-September to just 0,2% annual from 1,8% in April-June, well below expectations. The impact came mainly from continued decline on external demand, especially in China from US trade war impact, as well as from lost production from powerful typhoons. Capital spending was a bright spot accelerating from previous quarter. Private consumption grew 0,4% even if more was expected before the tax hike that took effect October 1. That consumers did not rush to stock up before price rise probably means the drop in consumption in October-December will not be as bad as the 7% contraction last time in 2014.
Yet, experts think contraction in overall GDP is what we should expect from the ongoing quarter. Exports declined 9% y-o-y in October for already 11th month in row, but imports declined even more, so ironically Japan recorded a trade surplus last month, something not seen for long time. Once again China trade was instrumental for both changes.
Decline in inbound tourists is showing, too, “thanks” to Moon government organized boycott: with Korean numbers down some 60%, the total number declined 5% in October. Koreans’ absence hit badly some onsen resorts in their nearby Kyushu, yet the biggest business hits have been taken by Korean tour operators and airlines, who have cancelled countless routes for lack of customers.
Japanese retail brands have also suffered from consumer boycotts in Korea, but it seems the worst is over already: for instance Uniqlo reported sales recovered 70% last month. As for widely reported boycott on Asahi Super Dry and other beer brands, their sales in Korea were less than 1% of total. It’s the long term decline in domestic beer demand for more than 10 years that bites beer makers. In short term, they got 10-20% boost from Rugby World Cup in September, but sales declined again 6-13% in October depending on brand. No wonder the Japanese drink makers continue to buy brands overseas: after well-known brands in Europe, Australia and NZ, budging US craft beer brands have followed on the list of their takeovers.
According latest news, some LDP leaders would like to see the extra budget now under making to boost economy from typhoon damage and tax impact to go all the way to JPY 10 trillion (USD 90 billion), but analysts say half of that is plenty enough as it is practically impossible to spend so much money in public works before March fiscal year end, especially considering the acute lack of workers in the construction sector.
SOFTBANK STAYS IN NEWS
Softbank has stayed in the news after the whopping USD 6 billion loss it reported for the past quarter for its WeWork investment in USA. It announced its internet affiliate Yahoo Japan will buy 50% interest in Korean owned Line social networking service, No.1 in the nation with 70% penetration. With 50% of the people getting their internet news from Yahoo, this looks like a strong mutual platform if accepted by competition officials. Further synergies can be found in cashless payment systems where Line Pay and Softbank’s PayPay are the two leading vehicles.
For some time now Yahoo Japan, after losing its No.1 position in search engine business to Google, has been looking to develop itself as online sales site together with SoftBank’s own payment system to compete with Rakuten and Amazon. For product sales, it acquired the leading office supply site Askul some years ago and recently to have more own products to sell, it acquired the leading No.1 internet fashion dealer ZozoTown. For mobile payments, combining Line Pay and SoftBank’s Pay Pay, the two leading systems, looks like good timing as the method seems to really take off now following government’s rebate support to counter the tax rise October 1. So there’s an element of going forward and not just trying to defend the domestic market against American behemoths GAFA and incoming Chinese BAT, as it certainly looks at first sight. More, the 40 million plus users that Line has both in Thailand and Taiwan might become handy new client base for Yahoo internet sales.
Back to WeWork: SoftBank has now paid USD 10 billion for 80 pct shares in company that is worth maybe USD 8 billion and not bloated USD 47 billion plus loaned it USD 4 billion to help it survive. It knows more is needed to clean it up from its bad business and have asked Mizuho, Mitsubishi and Sumitomo Mitsui banks for USD 3 billion finance. In his grandiose style Son says SB has that much in company cashbox, but he would like to keep that ready if something else interesting comes along.
Be as it is, we have learned now that:
1) Financial wizard Son can also make mistakes – and when he does, the consequences count in billions. In this one, he really fell for a fraudster like an old “obasan” for “ore ore” call.
2) WeWork was publicity-pumped up hot air without any real benefit over many similar companies earlier on the market. Its spectacular failure casts a doubt on the real value of similar mega start-ups like Uber (where Son has also placed big bets).
3) WeWork founder was not only a fraudster but a deranged megalomaniac, who was throwing loan money trusted to him into crazy fantasy ventures. WeWork corporate governance was below worst imagination taking away from USA’s acclaimed leadership in this area. In fact, it appears all financial players in NY were well aware what was going on, but NY legal officials are taking action only now afterwards.
Nissan’s quarter result was just as bad as the one before. What else can you expect from a company whose top management has focused on stabbing each other in power game ever since they managed to dispose their legendary (but corrupted) French boss from power. The model line-up remains same old and tired one, so it must be difficult to change tack from cheapo sales in US market, its No.1 market while the No.2 China continues to decline for all participants (except Toyota).
Finally, the company selected to get rid of all old Ghosn-time sycophants and new top management will take over from December 1 – we’ll see what it can do to turn the tide next year. As interestingly, its French partner Renault under new chairman Senard decided to also get rid of Ghosn time top management. We’ll see how the two new teams will manage to work together to rebuild the burned bridges in the alliance.
OLYMPIC NEWS
The new Kengo Kuma designed National Stadium was completed two weeks ago to worldwide acclaim followed by the 15,000 seat new Aquatic Center and almost as big Ariake Arena that will house volleyball and handball. The open site at another reclaimed land island for rowing and paddling has been ready already for some time. So, this time, we will not see a frantic last moment effort to put seats and systems to the stadium in place the day before opening ceremony.
Meanwhile the haughty, egotistic IOC has distinguished itself again by its demands and arrangements without consultation with the hosts. First, it demanded that the “Tokyo” marathon in Sapporo must be on the last day following traditions where after the hosts must fly the 700 participants 2 hours to Tokyo for closing ceremonies same evening. The hosts had planned to have the run a few days earlier in order to ensure that all up there in Hokkaido can get back for the closing with normal flights. Secondly, it managed to insult also the 2024 host Paris by announcing new sponsorship and co-operation deal with US Airbnb, a long time nuisance for the French capital and many other cities, who have been fighting it with strict rules to limit turmoil to residents and to traditional hospitality industry. The IOC deal for more money won’t be disturbance only to city fathers: according announcement from Airbnb, its users will be “allowed to meet, visit and train” with Olympic athletes.
Team Finland and all others, get ready to entertain these IOC’s high paying customers! Your sports are just a side story in the IOC spectacle. You are not there to compete and represent your country, but to entertain IOC’s guests.
Timo Varhama
Tokyo, November 26, 2019