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 AOYAMA VIEW

Kims'allah, Japan is OK and doing well
Did I say there's no dull moment here? The boys in the North sure take care of that. Not a week passed since their ICBM swished over Hokkaido when they detonated a 100-150 kiloton nuclear bomb – 10 times bigger than Hiroshima. They claimed it was a hydrogen bomb, small enough to fit in their missiles that can now reach to US mainland. I'm inclined to believe them this time: the ground was shaking so hard the crystal chandeliers were tinkling all the way in China where Xi was just about to make a speech to Putin and other BRIC leaders. What an embarrassment! Talk about timing and intent.

Will Beijing now cut its oil and food supplies to Kim and his cohorts? I doubt it. IT seems Mr. Xi's skin is thicker and blood relation to the naughty little brother stronger than the rest of us understand; it seems anything goes. Instead, China and Russia declared that „all parties should restrain themselves", which sounds as poor as Trump's comments about the ugly scenes in Virginia. There is something special that unites these 3 leaders. And the cold gambler Mr. Kim. Russia and China even added that they were more worried about Japan's plan to upgrade its missile defense. "Japan exaggerates the small risk from North Korea", said the Russian spokesman.

It will be interesting to see if Putin offers same stories to Abe when they meet today in Vladivostok. The old town at the end of the Siberian railway has been nicely rebuilt by thousands of North Korean "slave workers" to use a neighborly expression. Unfortunately the UN sanctions deny Russia from hiring more of them from Mr. Kim.

The bomb so soon after the missile was a double shock in Japan. The National Security Council, established only two years ago, had another emergency meeting and Abe implored the whole world to join now seriously in efforts to contain North Korea. He also implored for unity between the three allies, USA, Korea and Japan. Six months after the friendly golf play in Florida, it has dawned on Japan that this US president is completely unpredictable and "close personal relation" between the two leaders doesn't mean much. Instead, Japan should focus its contacts to those of his assistants that are deemed reasonable and reliable.

This time Trump came out with a Tweets like "talking is no answer" and that US might cut trade with all nations, who deal with North Korea. This is, of course, complete hogwash. At the end, US must accept to talk with Kim and just think what would happen in USA if it cut off its USD 40 billion per month imports from China? Consumers would be facing pretty empty shelves at their local Wal-Mart and big brand names like Apple would disappear altogether. Add to that massive retaliation to US companies in China. Maybe Trump is talking about smaller nations that are easier to bully around. Watch out, Finland! Are those paper machines from the 50's already paid for?

There was plenty babble in the air already in aftermath of the missile. North media told us it was timed on the 106th anniversary of the humiliating day Japan annexed Korea: the humiliator was humiliated. So should have been USA, UK, France and other Big Powers, who gave their full consent to the move back then in 1911, but I doubt they recall that. Other sources said the day was selected to coincide with the US-Japan missile defense exercise: for the very first time SDF deployed its Patriot missiles at US bases to defend Americans – something illegal just a year ago - and the powerful US radar station in Hokkaido fed in data for Japan. That probably added extra excitement for Mr. Kim and his cohorts when they followed their missile's path.

The computerized radar and satellite surveillance and the national J-Alert system worked all well: the alarm that a missile was on way was given in 4 minutes from take-off to 70 municipalities in North Japan with public loudspeakers and mobile phones. Another 4 minutes later the same system informed people there that calculations show it will pass over Japan. About 4 minutes later the vehicle splashed into Pacific over 1100 km away.

OK, the alarm system worked, but then what? You've got 4 minutes to run for cover - where? Government advises us to try any place underground. It will quite a panic if all pedestrians on Tokyo street will try to rush down the stairs of the closest Metro entrance. In my home building, families in 170 apartments on 28 floors are all supposed to rush down to B2 floor on our 3 elevators in 4 minutes. Give me a break. Moreover, most Japanese live in individual houses that don't have any cellar. Where would they go?

Efficient missile defense is a better answer and the government seem to have understood this. In the FY2018 budget proposals Defense Ministry is asking for a small 2.5% increase to buy new, better missiles for the Navy's Aegis destroyers that would expand their defense range remarkably and same for Army's Patriots that today reach only 30 km away. Next step is the installation of Aegis Ashore system – two well-placed batteries of this efficient system would be enough to cover the whole country! – but this seems too expensive to be included into next year's budget. In total, the defense budget proposal JPY 5.2 trillion (USD 47 billion) still pales in comparison to rapidly growing social security costs – now JPY 31 trillion (USD 270 billion) proposed - and even to public works where JPY 6.7 trillion (USD 60 billion) is requested.

All in all, the budget requests from various ministries go up to JPY 101 trillion (USD 900 billion), same as last year. As then, Finance Ministry will cut the total down somewhat; Japan tries to be frugal even if it isn't easy. Only 2/3 of the budget is traditionally covered by taxes, the rest by debt. The tax income has been better than expected last two years with companies paying more taxes from their excellent profits, yet it is not sure how long this will continue. The VAT increase from 8% to 10% is scheduled to take place soon, but it has been postponed already two times and that could happen again. Moreover, calculations show VAT should be raised to at least 20% before social security is covered.

In essence, Japanese people keep financing the government debt through their bank holdings and interest rates remain negligible so there is no pressing need to hurry reduce the deficit. Official target is to reach primary balance – no more new debt - in 2020, but nobody believes that any more: political play is still more important than financial responsibility. US and EU central banks might be starting to withdraw from years of easing policy, but not BOJ. The situation is totally different in Japan, Mr. Kuroda told his colleagues in Jackson Hole last week. It's true, yet reminds me of the old METI claim that Japanese snow is so different from other places that imports of European skis cannot be allowed. Now we have all Salomon's. One day our financial ski's must be changed as well.

It's always nice to see Japan do its real best with confidence and succeed. That does not happen always, but it certainly did on August 31 at Saitama Football Stadium. The Blue Samurais, who have let us down so often with haphazard, non-ganbare performance that betray their true skills, fought for once like real samurais and beat strong Australia 2-0. It was the first win ever over this strong competitor and secured Japan's place in the 2018 World Cup in Russia.

Instead the usual indecisiveness and boring endless passing Japan attacked relentlessly from the beginning and engaged the enemy deep in their own half to deny them space to start their attack. It was brave tactic and it succeeded thanks to every team member giving out their everything. It was also brave decision from the team manager to bench the Big Stars, often the culprits for below-form performance, and give opportunity for many not-so-famous players to show that they are as good. Well, they were even better. For once, I did not end up with bad feeling and sick stomach after watching Japan play. The Samurais had their back against wall: a loss would have meant they would have missed the Finals for the first time since 1992. Theoretically, there still was a second chance if they would beat Saudi in their very last match in the heat of Arabian desert, but few commentators thought that was possible. As expected, they lost there 1-0 this week.

Japan keeps doing well also in international tournaments of individual sports. Judo might be pretty traditional Japanese, but 7 gold medals, 4 silver and team win last week in World Championships is still an excellent achievement.

Something positive is happening in Japan economy, too. I don't mean the incredible 2Q GDP growth figure; that will surely settle down during the ongoing quarter. Even 2% growth this year would be double to theoretical „normal". It is that prices and salaries are finally starting to move up in tandem: more companies are obliged to raise wages to maintain their staff and the added cost must be transferred into prices. Japan Post followed big delivery companies Yamato and Sagawa in raising price for parcel delivery and Coco curry chain and Gusto family restaurants announced price up, too. The biggest news, however, was Torikizoku, a famous low price yakitori chain and favorite after-work hangout for salarymen with 570 shops and 8700 staff, who announced with profuse apologies that it was obliged to raise the price of its two-stick plate for the first time in 26 years from JPY 280. In street interviews, people were stupefied and heads were shaking in disbelief: what? even Torikizoku raise price? where can we go out now? Company representative explained it's all because they have to pay higher wages.

The job structure is finally turning around: for the first time in 7 years the full-time jobs have stopped declining and part-time jobs' share of total growing from current 37% as companies started to turn temporary jobs to permanent in order to retain their trained staff. Until now it was mainly part-time jobs that were available 1.52 for each 1 applicant, but now there's also more full-time jobs open than there are job seekers. Average full time pay is JPY 321,000 against JPY 211,000 for average temporary job, so it's a big jump in salary costs, but that did not stop Uniqlo from offering permanent contracts for its 16,000 part-timers, Japan Post to 3145 temps and JAL to 1100 cabin attendants.

It's not Abe's urgings for "one job, one pay" but sheer business logic that's making companies change their employment policies. Earlier, it was all about cost cutting and to have flexible human resources in case of slowdown, now you want to keep your staff at any cost. If the higher wages turn into higher private consumption, the Abenomics model is finally working – without any real input from the inventor of the name.

In fact, the less Abe makes baseless promises and politicians mingle with the market, the better. Government's "labor reform" on the Diet's autumn agenda includes not only "one job, one pay" principle, but limitation of overwork to monthly 60 hours. It is a poll winner: we just had one year anniversary since the bright young Tokyo University graduate killed herself for overwork stress at Dentsu, the giant advertising company, so it sounds great that government is protecting its citizens from greedy companies. Yet, Rengo and Keidanren, the workers' union and the employer association, earlier this year agreed that the practical lowest limit is 100 hours extra as companies need flexibility and extra income from overwork is important for salary earners. Analysts calculate that if the government's 60 hour limit is enforced, JPY 8.5 trillion extra income will be lost from consumption and companies would face an impossible task of hiring 2,5 million new workers in today's tight employment situation.

Japan has been trying to deploy all possible women to work and the biggest obstacle has been lack of day care slots for the kids, something Abe promised to fix back in 2012. It's now 2017 and the numbers say that, in fact, waiting lists have only grown over the past 3 years. It's not that the number of day care places have not grown – another 90,000 was added again last year to record 2.6 million – but that women wanting to work has grown even more. Meanwhile, the cost for the government support has doubled to JPY 1.5 trillion.

At the other end of society's age structure "only" 360,000 elderly people are waiting for to be admitted to nursing homes, 30% less than in 2013. The reason for "improvement" is not what it looks like: it's because the rules were changed so that only those with most serious level of senility are now accepted for admission. In this case, Prime Minister has promised that the wait list will be cut to zero by 2020. Maybe another rule change is on the way?

My editor takes now a two week holiday so we will be off the air for some time. "Kims'allah" we'll be back after break to tell you again how things look like from Tokyo perspective.

Timo Varhama  
Tokyo, August 28, 2017   


Previous Columns

28 August 2017
"From North Korea's missiles to Turku Terror and US Navy Mishaps"

17 August 2017
"Raining cats and dogs, missiles and threats, but strong sunshine in economy"

27 July 2017
"Forests, floods, fish and consumer prices - stories too good and data too bad to be true"

21 July 2017
"From Cool Finland to Hot Tokyo: A Round-Up of Recent Happenings"

26 June 2017
"Anniversaries and Memories: Finland, Japan, USA."

19 June 2017
"Rainy Season in Japan, Political Storms in Europe"

8 June 2017
"Trump impact spreads - Japan struggles with workforce issues"

30 May 2017
"Taormina to Tokyo: Heavyweights and fashionable ladies"

"New Missiles, Diet Debates, Yet Big Business in Big Profits - Down on Ground Challenges Remain Basic and Simple"

9 May 2017
"Golden Week, Special Trains, Luxury Spending, Even North Worries Makes for Good Business"

20 April 2017
"North Korea, USA both worry Japan - Koike worry Abe and LDP even more"

5 April 2017
"Spring, Sakura and New Year Start in Japan - Commotion, Tensions Rise Around the World"

27 March 2017
"Questions Unanswered, Unasked – Lifestyle and Surveys Bring Light"

21 March 2017
"Finland in Focus: Friendship, Dictionary, Music, Food - Even Elevators?"

13 March 2017
"Uncertainty Increases Around Japan - At Home Rebuilding Uncompleted in 6 Years - Abe Popularity Takes a Hit."

3 March 2017
"Book Readers, Police Jokes, Nerdy Napoleon and Poison Scare"

24 February 2017
"Populism, Ignorance and Isolationism Leads to Mayhem and Mess"

16 February 2017
"Golf Diplomacy, Chocolate Festa and Hokkaido Deams-Come-True"

9 February 2017
"Tokyo overcoming winter, business changes, political battle and Trump threats "

2 February 2017
"Warm Feelings in Japan, Wild Winds from USA"

20 January 2017
"Ready for Rooster? It will be a wild ride!"



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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