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 AOYAMA VIEW

Good news week: Finland business grows, EU trade deal gets cleared, Nikkei hits new heights and Trump visit goes smoothly
Great party with great news last week at the Embassy celebrating Finland's 100 year anniversary! Good to see that the long drawn renovation of the Minami-Azabu property is winding towards end and the old place can be used again for business functions and great to hear that business between Finland and Japan is rising rapidly. Exports from Finland are 25% up this year, new Finnish companies and new type of businesses are entering the market and Japanese interest into Finland continue strong with several new investments again recently. They focus now more and more to hi-tech, so the scope of trade and investment between the two countries is expanding from both sides.

The co-operation between the two sides seem to working well on official level, too. Japan's JETRO is joining Finpro in organizing a "Japan Day" in Helsinki this month and various ministries are active in creating new contacts with Finland. Finland's much touted business model "circular economy" - to have all business based on sustainable natural resources and recycling – is receiving much interest in Japan. Not surprising, it's pretty close to Japanese "mottainai" thinking.

EU-JAPAN EPA CLEARED UP
To back Finland-Japan business further up, the EU-Japan Economic Partnership Agreement that was signed this summer on "political level" is making good progress towards implementation. The final text is getting legal clearance on both sides and being translated to all 27 EU member languages. If member countries accept in Brussels that individual ratification by each member country parliaments is not needed, this swill speed up things further. Ratification by Japan Diet is expected early next year, so the agreement should take effect at latest by FY2019.

It's much more than free trade deal and hence called EPA, not FTA, yet the tariff reductions are remarkable for many business. All industrial products including chemicals, plastics, cosmetics, textiles and clothes will become duty free immediately. So will many food and wood products. The latter two are of special interest for us as Japan is today No.4 market for European farmers and food producers and it has been for long time No.1 market for Finnish saw mills (unless China will catch Japan up this year).

My wish for duty free cheese will be fulfilled: hard cheese like Edam, Gouda and Cheddar immediately all together, soft cheese like Mozzarella and Chevre with a duty-free quota. Same for butter, good for Finnish dairies who were cut off from their traditional Russian market by the ongoing sanctions. Wine, EU's second biggest agricultural export item to Japan, will become duty free immediately, too, another personal wish. Pork and beef will see greatly reduced tariffs, good for Denmark and the popular Iberico ham, while processed food like pasta, chocolate, candy and confectionary will hit zero with a transitional schedule. Hope all this will encourage Finnish food companies to get finally more active here. Now is the time to start in a big way as time is needed to win over customers and get your product on shop shelves by 2019. That is the hardest part in any business, whatever tariffs are.

As for my old forest industry, all tariffs on wood products, Finland's biggest export item to Japan, will be abolished. Paper and board, the other traditional Finnish forest products here, have been tariff-free already more than 30 years. All together, tariffs on more than 90% of EU exports to Japan will be eliminated. As importantly, the EPA agreement will facilitate many non-tariff trade barriers that have made life difficult for importers, such as technical standards, certification procedures, clearance processes, company personnel transfers and discrimation in procurement of public entities and state-owned companies. That Japan and EU agree on shared commitment to combat imports of illegal timber from third countries is equally important for Finnish saw mills that trade on legally and sustainably harvested timber. It hasn't always been so clear here.

BUSINESS AND ECONOMY
Good news keep coming also on Japanese business and economy. The Nikkei index is at 24 year high and IMF upgraded its forecast for Japan to 1.7% growth in line with "accelerating global recovery and cyclical upswing in Europe, China, Japan and USA". Strengthening global demand helped Japan's exports grow at their fastest pace since 2010 in FY2017 first half, yet imports grew even more - 13% up and 15% up respectively. The trade with China, Middle East and EU (!) continued at deficit, yet the surplus with USA grew bigger than before, embarassingly just before Trump visit. Americans just love Japanese cars whether they're made locally or in Japan.

In contrast to diminished trade surplus, the current account surplus remains on growth track for fourth year and reached its highest ever monthly record USD 21 billion in August. The primary income account that reflects Japan's earnings from overseas investments was JPY 10 trillion (USD 90 billion) for six months April-September or about 1/3 of the goods export income. Inbound travelers brought in abt USD 8 billion more than Japanese tourists spent going overseas.

Big companies are announcing strong April-September results, many upgrading their full-year estimates. Steelmakers are having their best time in 3 years with the ongoing construction boom: Nippon Steel's first half net profit 7-doubled from last year and it projects that full-year profit will at least double. Sony says it's expecting all time record profit, better than in 1997, after 6 month profit jumped 8-fold thanks to brisk business in music and semiconductors. Even the highly conservative Toyota "admitted" its sales and profits were nicely up in first half and it upgraded its FY2017 profit forecast to almost JPY 2 trillion (USD 17 billion) or 6% up from last year. It's planning to build a new plant in USA that will make also Mazda cars and its faithful parts supplier Denso will chime in with another new factory of its own. Hopefully this will keep them tweets civilized.

There will be a rare new factory even in Japan: Shiseido will build its first new domestic factory in 36 years to meet growing demand from the foreign visitors – especially Chinese who just love Japanese cosmetics. If you have seen the tourist shopping fever at chemists shops and discount stores, you know what I mean. Who could believe this four years ago? Tourism to contribute anything remarkable or sustainable to economy? You must be joking, brother.

TRUMP VISIT
So he was here and gone. It was unforeseen two days of "bromance" and self-promotion of two PR focused politicians. Abe got exactly what he wanted: plenty photo-op's, hugs and handshakes, profuse praise and all talk focused on North Korea while the feared trade gap got just a non-chalant mention from Trump. If this theater does not boost Abe popularity at least 10 points, nothing ever will.

Trump managed to behave himself pretty well: he did not mention his "overwhelming election win" and other bravados any time, only boasted "best ever" US economy, military power and weapon technology that "my friend Shinzo just promised to buy plenty so he can shoot down the North Korean missiles". He met with North Korean abductees to hear their "sad stories", accepted to play the golf round at least partly walking without driving his cart to every ball landing and didn't slap Emperor on back until departure at the door. The suave host was all over the place servicing his buddy "omotenashi". The show reached its lowest point at the golf club when Abe produced white caps with text "Donald and Shinzo – Making the Alliance Even Stronger" which the two leaders then signed. This was our Salesman No.1 at his best low – and it looked like pleasing the Customer very much.

Or maybe the low point in mutual self-praise was reached two days before with daughter Ivanka at Abe's annual "Womenomics" event where Prime Minister lauded her for "her tremendous work in improving women's position in the world" and she gushed "Abenomics is Womenomics". That was plain embarrasing, yet the heavy media attention for her short state-sponsored visit served the cause well: Ivanka fashion line that had proved hard to sell in fashionable Tokyo was sold out overnight.

Now following with interest how US president will do during the rest of his long Asian tour. He missed the DMZ photo-op in Korea for bad weather but there were plenty more the next day in Beijing's Forbidden City with Mr. Xi. Never seen American president so interested in traditional Chinese ballet! With golf, not kabuki in Japan, it was a bit more genuine. Yet, Xi trumped Abe in "omiage" souvenirs – they call them business deliverables in America – by mobilizing his state companies and megarich moguls to sign massive line-up of business deals for US products. The headline figure USD 250 billion probably stretches to years and includes many kind of deals from Boeings to beef, pork and potatos, internet tech to China's big mobile brands – so they can better compete with Apple? – and Chinese investments into new US shale gas fields – same as what Japanese companies are doing. Nothing like a bit competition to get better terms.

It will be as much interesting to see what Abe-san, once free of "settai" duty, will do here with his newly strengthened power and extended rule time. Will he finally get serious about economic reforms or will he focus on his pet target Constitution change? Maybe he could do both for once. Stay tuned. One American president learned how to walk down stairs and chew gum same time, so Japan PM must be able to do better.

OLYMPIC COUNTDOWNS
Olympic fever seem to be rising in Finland for Pyongchang with just 91 days to go while here the focus is already on countdown to Tokyo 2020 (it's 987 days now). I guess the main interest back home for Winter Olympics is cross-country ski'ing and ice hockey - Finland should have good chances now that NHL players do not attend and best Russian and Norwegian skiers are banned for doping. If the medal tally does not lift Finland to top, the team will be anyway remembered for its hilarious fashion catastrophe of dress choice. I could not hold back laughing when I saw the pictures. And this is not the first time!

Japan, of course, will have its skaters, both speed and figure, as well as its ski jumpers, the old Finland "parade sport" now long gone. Both top ladies, Sara Takanashi and Yuki Ito, were superb in Japan "summer" championships last weekend in Sapporo, one winning the small hill, the other one big hill. On men's side, veteran Noriaki Kasai was even more convincing winning the big hill with an amazing 133 meter second jump. The 45 year old attending his seventh olympics has got himself in top form just in time for Pyongchang after rather mediocre last year. Another Olympic legend would be born if he managed to close his long career with a gold medal in Korea in February.

If you're planning to go to see the games, there's plenty tickets available as the locals show scant interest for these sports. Just check carefully that your tickets are to Pyongchang and not to Pyongyang!

Timo Varhama  
Tokyo, November 10, 2017   


Previous Columns

1 November 2017
"Japan: Endless Discovery"

21 October 2017
"Power play in Japan and elsewhere - some potentially serious, some not"

10 October 2017
"Abe's useless snap election sparks big changes he did not count on"

26 September 2017
"North Korea boost Abe popularity - opportunity to extend his rule"

7 September 2017
"Kims'allah, Japan is OK and doing well"

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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