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 AOYAMA VIEW

Tokyo overcoming winter, business changes, political battle and Trump threats
When you are struck down with a persistent virus, it's comforting to know you are not alone. Last week over 2 million people visited 5000 clinics to seek help for the severe influenza virus that has rapidly spread around Japan. Over 7000 schools were closed and uncountable working days were lost. The rapid spread-out is no surprise in this tightly packed country despite all the masks people wear and disinfection bottles at office entrances. Yet, it's somehow disappointing it happens every year this time of the year. Almost like first snow that "surprises" drivers in Finland still with their summer tires.

Happily, Japan winter is not that tough and long on the Pacific side of the islands. It's been snowing for weeks in row on the Japan Sea side of the island with daily downfall some days more than you get whole year in Finland, yet Tokyo weather has been at its most beautiful, sunny and mild almost every day. "Ume" plum flowers, the first sign of spring, already show up in sunny spots and from here on it's just 6 weeks to "sakura" season in Tokyo. St. Valentine day, that stands for half of Japan's USD 0,5 billion annual chocolate sales, will be next week and, on sports side, the annual big Tokyo Marathon event is just another week away. Started just 10 years ago, this mass event is now one of the World Big 6. Soccer and baseball players are also at their pre-season practice camps in Kyushu, Okinawa, California and Arizona preparing for their league start. Plenty of news coverage of baseball as always: can you think of anything more boring to watch than sweating baseball players hitting and catching balls or running around the field for 15 minutes every evening news?

Unfortunately, my prediction for Japan winning the international championship tournament that will be played before the national league start, is off to poor start. All million dollar ace players in U.S. major league teams have declined to participate in the national team as they focus on their own league starts and last week young Otani, the multitalented young pitcher and super hitter, who was tipped to become star of the whole tournament and attract lucrative offers from top US teams, said his ankle injury hasn't recovered enough to allow play yet.

In business news, the big conglomerates have all come out with their Oct-Dec results and final adjustments to projections for full FY2016 ending next month. As always, there are some unexpected surprises. Among the former electronic giants, Sony, who finally last year cut off its four year streak of losses with successful transformation of its main business from consumer gadgets to advanced electronic parts and materials, announced sudden USD 1 billion write down of its US movie business that had helped to carry it over the lean years in its main business. This will bring the annual profit down to half of earlier projection. Finnish cartoon movie Angry Birds was blamed as one big loss maker.

In contrast, Panasonic who has also shifted off consumer products to energy, batteries and navigation systems upped its profit forecast a bit. Sharp, now under Taiwanese management, said it has managed to turn its main LDC back to profits and the expected annual loss will be 40% less. It will still have to turn around its other loss maker, solar panels, as well to make whole company profitable. Even if still convalescing, Sharp's owners announced the will use Sharp's name for their US "Apple plant" promised to President Trump. This was expected as Sharp already has a small presence in USA and because this makes it "Japanese", part of the political "aid package" that PM Abe will offer to Trump this week.

Toshiba, Japan's No.1 problem child recently, will announce calculations for its US nuclear subsidiary's loss next week together with a new turnaround plan, its second in 2 years. It is expected to ask its main banks again for USD 2 billion financial support as well as sell out 20% of its highly profitable random chip business. After Canon balked out of the race saying it has turnaround investments enough within its ongoing business, it looks to go to a US fund, a Korean competitor, another Japanese chip maker – or Taiwanfs Hon Hai, who suddenly threw its hat in the ring, too, yesterday. Wildest rumors say Toshiba might even sell the US trouble maker Westinghouse in full or partly, in order to survive.

In car industries, Toyota told this week its operating profit fell 27% during Oct-Dec due to FX rate, but will recover Jan-March thanks to same helping it to keep its full year projection intact. As well known, it still has almost half of its global sales manufactured in Japan and that makes it more vulnerable than others for sudden changes in FX rates or import tariffs now planned by the new US president. In contrast, Honda who makes most of its US sold cars in USA, announced 36% increase in quarter profits and raised its full year forecast.

Big banks, who complained that BOJ's new negative rates will ruin their profits, have recovered remarkably thanks to surging global yields and playing the market volatility brought about by Trump. They are on their way to achieve their profit targets and eg. Mitsubishi's shares have surged 43% since Nov 8.

At more mundane level, new taxi fares in Tokyo took effect last week. The starting price is now only JPY 410 instead of JPY 720 before, but chances are you won't get away any cheaper than before as meters will start adding on the fee every 100 meters after only 1 km instead of earlier 200 meters after 2 km. In other words, the fare will be cheaper for distances below 2 km, but will start picking up pretty dramatically after that. This "drastic reform" was planned over long time in multiple business committees and motivated by idea that the new scheme will make it cheaper for old people to take taxi home from their station. So don't try to use it for bar hopping from Ginza to Roppongi and Shinjuku to Shibuya!

Talking about bars, Health Minister Shiozaki has proposed to make Tokyo restaurants and other public places smoke free by 2020 – not for the health of you and me and other every day customers and workers in there as elsewhere, but for the foreign tourists who are expected to double in numbers for the Olympics from just over 20 million now and increasingly complain about the smoke that does not exist anywhere else any more. In other words, old "gaiatsu" or foreign pressure is being used again to push through something normal and healthy that is already commonplace in most places around the world. Expect the restaurant business owners to resist claiming this will ruin their business, no matter if such catastrophe never happened when the rules were changed in other countries. In Japan, you can even smoke in most of the hospitals, albeit in just dedicated places. Why not? Even doctors and nurses do.

The long awaited Ginza Six shopping complex completed its construction works January 31, but the interior works will take until April before we get to review the big building with 241 retail shops, restaurants, Noh theater and bus station. It was a very rare opportunity for Mori Buildings and J-Front Retailing, that comprises Matsuzakaya and Daimaru department stores, to get hold of two big blocks of such central city land covering totally 1,4 hectares and expect they have made most out of it. Bet the project's originator, J-Front ex-chairman Okuda, who served a long time as Finland's Honorary Consul in Osaka, will be also very happy to see his big plan finally realized.

At the other end of Ginza, similar new complex Tokyu Plaza that opened a year ago in place of the old Toshiba HQ, has become a popular shopping spot. Opposite side of the street, another old landmark Sony Building will be demolished from April to make way for "Sony Park" whatever that will be. Two stations away from Ginza in Toranomon, Mori has started building three (!) new huge business towers next to its prolific Toronamon Hills that opened just 2 years ago. Like the first one, they will all contain plenty space for retail and restaurants in addition to offices and residences. Two stations away to opposite direction in Nihonbashi, Japan's oldest department store Mitsukoshi is putting last touches into the big renovation of its flagship store. Interestingly, the multiyear rebuilding was commissioned from Kengo Kuma, probably Japan's most sought-for modern architect today since his winning plan for the new National Olympic Stadium. That he would take on such traditional minor assignment on side of big monumental creations shows his respect for the old and traditional, too.

All these luxury retail complexes show that classic department stores still command an important place in Japanese consumers' palate despite prolific on-line sales. This stands in contrast to USA, where famous old department stores like Macy's and Nordstrom are closing shops, or Finland, where even Stockman's main store in Helsinki is struggling.

One old retail area that is struggling in Japan in line with other countries is book shops: there is simply too many of them. Even if Japanese people keep reading books as much as before – there's probably more books published here than any other country, overall and per capita – the online sales have taken major bite from old book shops thanks to low prices and smooth delivery system. With good stock keeping and excellent "takyubin" delivery system, the goods that you order through internet can arrive to your home door already following day. Still, must say I was surprised to find that my favorite big book shop, Kinokuniya next to Takashimaya Shinjuku comprising 6 floors, had changed into Nitori furniture store in December. Guess the company conclusion was that it was more profitable to rent its building to another retailer than continue selling books. In fact, Kinokuniya did basically same to its old food store on Aoyama Dori already 10 years ago: instead of old cramped food store, there's a ten floor tower of boutiques, restaurants and offices. Unfortunately, not all declining retailers are real estate owners as well.

Nitori, which hails from Hokkaido, is another success story in Japan's retail scene. Taking a page out of Ikea play book – selling well-designed, good quality furniture and other interior products produced in low-cost locations at reasonable price – it has outplayed the Swedish giant in its own game by polishing it a few crucial steps forward.
While Ikea remains limited to a few big stores located on outskirts of selected big cities, Nitori shops seem almost as ubiquitous as Seven-Eleven or Uniqlo, easily accessible in big city centers, countless small towns and shopping malls. Its products look every bit as well designed as Ikea's and easy to pick up from shop shelves without going to look for them in a sprawling warehouse. And most of all, if you don't want to carry them home yourself, Nitori will deliver them to your home – readily installed, of course. Needless to say, all Nitori products are also available through internet.

It seems to me Ikea Japan is turning more and more into "Swedish experience", a family trip which consumers take as much for eating its signature meatballs as really looking for something to buy. While that was part of its planned package when it was set up here 11 years ago, don't think anybody expected food could become its main content for some customers.

Tokyo City under Governor Koike is pushing on her own fight to make Tokyo a better place. Old Tsukiji fish market move to new premises in Toyosu has been postponed again by new findings of toxic materials in the buildings' basements and Koike has promised the fish companies will be generously compensated for the delay. As well, for the first time, the City Council decided this week to request ex-governor Ishihara and his next man to come publicly "interviewed" as to how all the blunder actually happened. In any other place this would have happened long time ago, but here LDP managed to block it until now with its majority.

On Olympic front, building of the new National Stadium started without any big fanfare in December and by now all qualms of other new venues, including who will pay for them, have been settled. The only remaining obstacle now is the venerable Kasumigaseki Golf Course that was selected for Olympic golfing, but refused to accept change its rules to allow for women member despite weeks of vacillating under pressure from Koike and IOC. A private club has some rights to set up its own rules, I guess, but itfs amazing again how this kind of simple aspect was neglected when making the original choice from 500 or so golf clubs around Tokyo! You can probably draw conclusions why Kasumigaseki was selected from the very name of the club. In fact, I would not be surprised if it was ex-PM Mori's own member club. So it's back to the drawing board for his Organizing Committee.

Stepping further forward, the Committee announced that the Olympic medals will be made of old smartphones that will be collected from consumers by placing collection boxes into 2400 NTT Docomo shops around Japan. Millions of old phones are targeted to make 8 tons of material needed to mint 5000 medals. In what looks almost the final touch, the Committee also opened up competition to design the obligatory Olympic mascot this week. To raise positive public awareness, anybody, even children, can participate. For the second round of Olympic logo, 14,000 proposals were received, so guess we can expect 10 times more. Take a pity on those judges! Especially if their final selection again proves to be a copy.

On political front, last Sunday's election of Chiyoda Ward mayor, just one of 23 in Tokyo City area, might look small, but it was taken like an earthquake on national level.
LDP wanted to change the 75 year old incumbent, elected already 4 times, to young nephew of an old party bigwig, but the persistent old man did not want to give up and lined himself with Governor Koike's new "school". The local voters backed this up whole heartedly and under Koike's green colors Mayor Ishikawa received more than 3 times more voted than the ruling party's new candidate.

It was big embarrassment for LDP and forced the local party bigwig and Koike No.1 nemesis in the City Council to give up his long held position. Things got even worse when triumphant Koike announced that she will put up 60 own candidates instead of earlier planned 40 for the July Council election confident that her Tomin First no Kai (gTokyoites Firsth) group can wrest the majority even without help from Komeito or other allies. Losing majority in the capital city would be very embarrassing for the ruling party, so alarm bells must be ringing and campaign strategists sharpening up their pencils in the party HQ from now on.

The party chief himself PM Abe is off to Washington to meet "so-called" President Trump, if I may use the expression Trump himself used of another elected US official. Jokes aside, this is serious encounter for Japan and will make or break the near-future relations. As per last column, Abe travels well equipped with data of how big contributions Japanese companies and financiers have already made for USA added with new plans for more. Inclined to do whatever it takes to please the unpredictable Trump, he will offer to buy more shale gas from US if it's trade balance that's irking his host and if Trump says more investments are needed, Abe is prepared to guide some of Government Pension Funds' USD 1,9 trillion assets to Trump's planned infrastructure works. All this based on his claim that when all is going well with USA, it's also beneficial for Japan. Yet, some senior LDP leaders already muttered it is difficult to explain to voters that their pension savings are invested to boost infrastructure in another country. Guess this is historical first in the world and Abe always wanted to go down as a pathfinder for drastic changes.

Setting up a golf day in Trump's own resort in Florida for the day after the meeting in Washington – as predicted in Aoyama View – combined to positive assurances already received from Mattis and Tillerson - all Trump ministers now finally installed as also predicted! - indicate that all has been agreed well in advance as usual. Yet, with Trump there is always a chance he will bring up some new, unexpected idea just when his guest is lining up for a crucial put on the 18th hole. "Hey Shin, how about paying a few billions more?"

Hope Abe will get his put in better than Hideki Matsuyama, whose last winning put at PGA tour event in Arizona's 18th hole miraculously stopped at the lip. Japan's rising star, now ranked World No.5, had to endure through 4 extra holes of sudden death play-off before finally clinching the title. Guess the ever industrious Abe would do the same, if forced to.

Timo Varhama  
Tokyo, February 9, 2017   


Previous Columns

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

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

2016

17 December 2016
"AOYAMA AWARDS: THE BEST AND THE WORST IN JAPAN 2016"

9 December 2016
"Finland independent with free word, good education - Japan and USA: Abe to Pearl, Son in Trump Tower"

4 December 2016
"Statistics, politics and plain bad management - difficulties to plough through it all "

24 November 2016
"TPP is dead – or is it? What comes next?"

14 November 2016
"US uproar shakes up the old world order, Korea in turmoil"

2 November 2016
"Showdown in U.S., Japan battles on"

25 October 2016
"Nobels, Narita and Niigata - Olympics and popularity politics"

26 September 2016
"In autumn downpours, Japan's wheels are slipping"

16 September 2016
"Moomins, Metsä, Mitsubishi and missiles - business, politics and sports"

6 September 2016
"Uunivited Guest Crashes the G20 Party"

31 August 2016
"It's not Super Mario, It's Super Abe! -- And Super Japan! "

8 August 2016
"Summer holidays, heat, rush and relax, while the world keeps turning"

12 July 2016
"Fog of uncertainties ahead: Japan, Britain, China and USA, each in their own way"

24 June 2016
"UK Splits, shakes EU, even Japan"

13 June 2016
"Rainy season: it's pouring on Prime Minister "

30 May 2016
"Obama is a Class Act, G7 Meeting Was for Japanese Audience "

8 May 2016
"With More Headaches at Home, Abe Takes Golden Week Europe Tour "

23 April 2016
"Dramatic Giant Quake, Business Slowdown, Election Mode in Politics"

7 April 2016
"Tokyo Great City, Japan hmmm...Colorful People "

22 March 2016
"Spring energy, child care and train travel "

11 March 2016
"Five Years from Japan "3-11" - Making Best Out of Gigantic Recovery Task "

28 February 2016
"A Dig Deeper into Politics: Ignorance, Camouflage, Chicanery "

15 February 2016
"Markets in turmoil, economy in decline, challenges grow for Abe"

5 February 2016
"Minister scandal distract, economy slow down, Kuroda rides for rescue "

28 January 2016
ABE: THE REALITY BEHIND ALL THAT TALK "

20 January 2016
"Bear Outlook for Monkey Year Grows, Taiwan Votes to Keep Distance from China, but Pop Group is More Important for Many "

12 January 2016
"NEW YEAR VIEWS - AND A LOOK BACK AT 2015"

2015

17 December 2015
"Global Environment, Food Tax, National Stadium: Historical Decisions or Political Parading? "

8 December 2015
"Challenges in Paris Conference, Challenges Back Home in Japan "

27 November 2015
"Refugees, bombs, business and global warming - can we control them all? "

3 November 2015
"Japan, USA, UK or Germany - China Impacts Us All Today "

22 October 2015
"New Ministers, New Trade Deals, All Political Play"

7 October 2015
"Power games, ball games, trade deals and refugee misery"

25 September 2015
"Big Problems, Big Talk and Big Figures - Each in Their Own Way".

9 September 2015
"Challenges in Japan, Tougher in USA and Europe ".

1 September 2015
"Looking at Neighbors, Japan Seems Stable and Safe ".

19 August 2015
"End Summer, Ceremonies and Holidays Over, Back to Work for All".

6 August 2015
"Hot Weather, Hot Air in Politics - From War Anniversary to Whisky in Space".

23 July 2015
Greece, China, EU, Japan: looking for the lost reality

23 June 2015
World No.1 City? The Difficulty of Passing New Laws, the Easiness of Spending a Lot

16 June 2015
"Only in Japan?" - Somethings, Yes, But Others Are Same All Over

4 June 2015
Security and Finances: Pensions, Companies, Banks, Olympics, FIFA

21 May 2015
Economy Back on Track, Record Profits at Big Companies

11 May 2015
Spring Events: Odaiba Rock, Shibuya Sex, Capitol Hill, White Hall and Red Square

22 April 2015
Elections, Elections - Finland, Japan, Around the World

30 March 2015
Sakura: beautiful, but just for a short, fleeting moment

16 March 2015
Better late than never - Japan moves slowly

2 March 2015
Three struck out, three more in doubt - Abe's ministers under attack again

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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