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 AOYAMA VIEW

Three struck out, three more in doubt - Abe's ministers under attack again
Still snowing heavily in Hokkaido and warm days remain scarce in Tokyo, but debates in the Diet are getting hotter. So are big companies' investments - to overseas, of course. In USA, Japanese cars ruled again the annual quality review and in Europe, Greece was given more time to get its house in order. The cease fire agreed for Ukraine seems to take hold a bit better, but, in turn, we got a new shock from Moscow with a cold-blooded murder of a leading opponent against Putin on public street, not far away from Kremlin. It seems there in no so low point that today's Russia could not descend to.

Three struck out and another three under opposition assault for breaking political funding laws, that is the score today for Abe's new minister line up from last autumn. The opposition is having a hay day attacking Prime Minister's choices and any talks on the annual budget and important reforms are out of daily order. It is now clear that the FY2015 budget will not pass before March 31 and government must resort to pass an emergency budget to overcome the delay. This time the cases are so clear that, once again, observers are wondering how it is possible that ministers are appointed in Japan seemingly without any check on their funding records. Once again as well, the sums are not big and they were not pocketed for private gain like the billions disappearing in our Big Neighbor, yet law is law and breaking it gives the otherwise weak opposition an opportunity to bash the strong ruling parties, especially Prime Minister, who is ultimately responsible for the selection. In the process, the normal working order in the parliament and progress with important legislation is off the rails.

During Abe's first government 8 years ago four ministers were forced to resign whereafter Prime Minister himself caved in blaming bad health, but it seems clear that this is not at risk this time. PM's popularity soars high, he has a strong grip on his party and new medicine technology keeps his stomach well in control. What we are left is just party politics playing for the media and a parade of poor friends Prime Minister is keeping. Finally time to choose ministers based on their ability and not as reward for their support? The return of Yoshimasa Hayashi is certainly a step into that direction.

If anything positive from this feud, hopefully it helps to rein in the inner rightist in Abe and push him in line with the majority opinion in the party and all Japan to stick to old phrases of apology to neighbors in his August 15 anniversary speech. While it is completely fine to emphasize more than before Japan's good track record in maintaining peace and international contributions in the 70 post-war years, PM has to swallow his private thoughts to also utter the classic phrases from his predecessors about war time "aggression" and "colonial rule". These are important words for the neighbors and building good relations with them is as important to Japan as the economy recovery now in target. Yet from time to time Abe has signaled his determination to change the words to "more modern" frustrating even his closest colleagues. He has also been pushing for "more positive" view of other war time events, even asking a well-known US publisher change its history book text on "comfort women", moves that risk the real positive views about Japan that he has himself worked so hard for recently. The concerns about his direction have reached so wide that even Crown Prince opinioned last week in his birthday interview that "history should be handled correctly" and "we should look back on the past humbly". Now the matter has been buried in a big expert committee, that has been formed to "advise" PM for his speech.

In Finland, we remember too well the classic phrase about "friendship, co-operation and mutual help" that every Finnish leader had to say to our Big Neighbor, while same time making sure that we did not need any "help" they were offering us from time to time. What we did get in return was independence and peace to develop our own economy as we liked and a big chunk of highly profitable business over four decades with products that would not have all cut it on the open global markets those days. Along the way, we managed develop products and industries that were ready and successful once the Soviet system collapsed. Like a certain company making rubber boots, car tires and electric cables, who became world leader in mobile phones for a period that lasted 20 years. After discarding that business, the same company is now reborn as world leader in mobile network systems.

What Japan offers to global markets is all high quality and competitive. One example of this is recent U.S. consumer report on cars with best performance and reliability, where Japanese brands took again majority of top positions including four of five overall top brands and six of the ten individual model categories. Lexus was the top brand followed by Toyota, Mazda, Audi and Subaru - no Ford, GM, MB, VW or BMW there. In the model categories, Audi, Buick, Chevrolet and Tesla scored one each, Honda one, Toyota two and little Subaru three. Especially happy personally to read my Forester is the best small SUV in the world.

Not all has gone well for cars though. It is said that it takes 20,000 parts to make a car and even one default will spoil the result. Over last year, accidents with air bags made in Mexico factory of Takata, a family company unknown outside of car industry, led to unforeseen wide recall of 20 million cars made by 10 different car makers, both Japanese, American and European. Honda, the biggest user of Takata bags, was exposed most and took further damage by neglecting to follow US safety information rules. As result, Japan's No.3 maker was compelled to make reservations for at least USD 200 million losses for its March 31 result filing and its CEO announced his resignation last week to take responsibility. In its most important market, Consumer Reports first time ever singled out one factory and one country in its annual review and recommended not to buy cars made in Honda's new factory in Mexico.

In big business, it's not only the quality of your products that count, sufficient money to invest is needed as well. Recent Japanese corporate moves show well there is money and determination to use it - for overseas expansion. In just two months this year, Japanese companies have spent USD 27 billion, half of last year's total USD 56 billion, to shop for bigger future in overseas with home market with declining population unlikely to grow ever any more. Whether the sums are appropriate to the value of what has been targeted is anybody's judgment, but at least the targets make all logical business sense. Buying out landmark buildings and icon hotels like Japan did in its 80's bubble time has now been left to Chinese investors living their own financial bubble today.

Last week's acquisition of Australia's biggest logistic company by Japan Post stands out. The hefty price valuing the target USD 5 billion, a whopping 49% over its share price, raised heckles, but this should be put in context with JP's forthcoming privatization later this year and a need to present evidence of a clear business strategy to investors. The IPO is expected to value 50% of JP Holdings around USD 60 billion, a welcome input into the government purse. Like others, the new independent Japan Post sees its future in overseas and Toll Holdings of Australia has a global network spanning road, air, sea and rail routes in place across Asia, a perfect start. Together the two make world's fifth biggest logistics company. I am sure JP takes example from its colleagues in Germany, Deutsche Post, who own DHL, the world's second biggest parcel delivery company.

Japan Post itself is neither just a mail delivery company at home, as excellent as it is with its 24,000 offices, super good service, USD 120 billion in assets and USD 23 billion in profit last year. It is also country's biggest bank with JPY 180 trillion (USD 1500 billion) in deposits as well as an insurance company. All three business units are under a holding company that is now finally being put on the market following Koizumi government dramatic campaign and decision ten years ago. If you wonder why such delay, just go back to the beginning of this article about the political party fight and recall that Japan was ruled by six different prime ministers in as many years after Koizumi. And if you think this delay is long, then how about the Yamba dam project in Gunma prefecture? The work there started finally last month 63 years (!) after the original decision. It took 33 years just to persuade the local town to agree on compensations for homes that will be submerged when the dam is completed in 2019 unless some later government again stops the project. The town people surely got a good deal: their new houses look simply luxurious in countryside standards. See yourself if you go ski'ing or onsen bathing in Kusatsu.

In other moves last week, Kintetsu World Express, a logistics company from Osaka, bought Singapore's APL Logictics for USD 1,2 billion and Hitachi paid USD 900 million for Italian Finmecanica's rail business. Until now Hitachi's European rail business has concentrated in UK, where it has a factory and deals for high speed train including one for "Chunnel". Finmecanica has special technology for driverless metro trains as well as high speed trains running even in Finland if my memory serves me right. Overall, Hitachi rail business is still only half size of what global leaders Bombardier, Alstom and GE each have and, behind it, China government's newly regrouped CNR has started its own global business expansion, so you can expect tight competition. However, at home there is limited demand to add to the already well developed network with modern equipment and the local rail operators probably running a tight shop on their purchase terms.

The rail business itself is doing well. Tickets for all departures of the new Shinkansen line to Kanazawa on its opening day March 14, were sold out in two minutes. It took only little bit more for nostalgia lovers to buy out tickets for the last all-night sleeper train to Sapporo. It will be substituted next year by another Shinkansen line extension, this time from Aomori through the undersea tunnel to Hokkaido.

As for the general economy, it is said that the combination of low oil price and growing inbound tourism compensates perfectly the 1,2-1,5% decline in GDP caused by the VAT rise in April. The half a million Chinese tourists that were here over their last week's New Year holiday spent alone almost USD 1 billion on Japanese products and services. Their hunger for genuine quality products from Japan was so bitter for the CCP that it used its mouth piece to condemn it as "unpatriotic". That the two most popular products were rice cookers and high-tech toilet systems was especially embarrassing according China Daily, who emphasized that respectable Chinese companies would not resort to try develop such low level common products, but focus on "higher technology". Reminds me of another communist country, who could put people in space but also had a hole in the floor for toilet in many places. More recent memory from the big city of Shanghai is that in any place trying to look respectable the toilets were Toto brand. It is said that China's Foreign Ministry itself has them, too.

Another recent visitor from China is the "yellow sand" high with PM 2,5 particles that always start flying in with spring winds. Last week West Japan had its first taste this year with visibility blurred and local health officials worriedly looking at their air quality meters. In reality, Japan is far off from what the Chinese people have to put through: while alarm level here is 70, Beijing constantly puts up with 500-700 and Shanghai from time to time 200-300.

Hina Matsuri or Girls' Day tomorrow with its beautiful presentations of classic dolls on display in many places leads us to more sinister anniversary of Tokyo fire bombings 70 years ago when in just three days March 10-12 more than 100,000 people, mainly women and children, were burned to death. This is in same class with the two atomic bombings 5 months later and four times more than in the worst WW2 bombings in Europe, the London blitz and Dresden. As Curtis Le May, the US Air Force general who organized the Tokyo raid, said later himself: "Guess, I would have been sentenced to death as war criminal, if we had lost the war." Instead, he was awarded a medal from the Emperor for helping to start Japan Self Defense Air Force 10 years later.

In Finland, February 28 was Kalevala Day marking 180 years from the first publication of ancient folk poetry collected by young Elias Lonnrot. It is interesting to note today that such important step for Finnish language in writing took place only 16 years after the country had changed from living 700 years under Swedish rule. After six weeks' time is Finland Parliament election, that is likely to usher in change in the government from Conservative Party led to Center Party led coalition. The focal point will be which party Center will take in as its main partner. In polls, Center leads now at 25% with the current ruling parties Conservatives and Labor both at 16% closely followed by True Finns at 15%.
Who will be the Center's bride?

Timo Varhama  
March 2, 2015  


Previous Columns

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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