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It's Heisei 27, a year of Sheep, after the longest New Year holidays in memory. We don't know exactly what 2015 holds for us, but many of the things that happened last year, how Japan changed and even more so how the world changed, seem now more clear. Maybe I have been living too long here, but it seems to me that, despite much hand wringing about the sales tax rise impact, new state secret laws etc, Japan came out of 2014 better off than most others. Some of the recent developments in other parts of the world, especially Europe, look seriously bad.

To start with, the statistics show there's 268,000 less Japanese again, less crime recorded, less road accidents taken place. 14 million less traditional "nengajo" New Year cards were mailed making Japan Post's unbelievable delivery performance on Jan 1 a little bit easier. Still, we are talking about 1,8 billion cards carried to boxes around the country on the very first day of the year when most people are sleeping long!

Less old people also choked on their traditional "mochi' rice cakes – 9 to be exact - and less people watched the traditional all evening "Red and White Song Competition" tv-program. OK, 42 percent of all households watching the same program on New Year's Eve is still a high number and not much less than the 52 percent that bothered to vote in Parliament election two weeks before. Makes you ask whether national idols are more important to many people than political leaders? Pondering this, it's a good starting point to appreciate that Japanese people have the privilege of choice. You sell only as good as you perform.

The "Red&White" program is usually all domestic and so are Japan's movie and music markets in whole increasingly. This is just one sign of "nation turning inside", a wide reaching phenomena and here it means that there are only a few big international icons that can sell big here anymore. "Frozen", the musical movie from Disney studios was an exceptional No.1 seller last year, otherwise music charts and tv-programs are filled with AKB's and other massive groups of adolescent girls and boys prancing around stage in colorful costumes, while movies are dominated by anime and local idols in violent SF dramas. Due to this, almost missed out on the third and last Hobbit movie, a global success that did not last long in Tokyo theaters. On the day, there were big crowds to see another movie: the new Yokai anime. Another lovable character created by the manga writers at my old publisher customer Shogakukkan, Yokai is said to become as big and long lasting as Pokemon. Get ready for it Finland! Young people there are the most devoted lovers of Japan's popular culture in Europe after the French.

"Cool Japan" continues to be popular around neighboring Asia, too. According news, over 100,000 young people convened the other day in Singapore for their annual "cosplay" event. Reports of Japanese idols visiting Shanghai are not much less overwhelming. This must be tough to swallow for President Xi, who has urged his party officials, regulators and cultural creators to step up efforts come up with Chinese "soft power" to balance out Beijing's cold hard military expansion and fight the foreign cultural invasion with better local movies and music that will win the hearts of young people in China, even elsewhere. The reports tell that 5400 new movie theaters were added last year to make China total now 23,000 and ticket sales reached 830 million (+34%). 600 new domestic films were produced to compete against only 34 foreign films allowed in, yet the latter took almost half of the ticket sales. You cannot have better proof of the old saying that "you can take the horse to water, but you cannot force it to drink".

It does not help the Big Man's propaganda push that his own troops let him down time and again. For instance, soon after declaring Nanjing massacre a national holiday - a move coming 77 years late so you might call it a late correction to a long lasting lapse of memory - first Nanjing mayor, then Nanjing party secretary were arrested for "severe violations of discipline", communist talk for Big Corruption. Seems the government funds for building museum and monuments were too good. In total, it is estimated that USD 1 trillion disappears into corruption around the world and China is the leader in this.

Setting up China's own Confucius Peace Prize to compete with Nobel Prize, whose first Chinese recipient remains jailed, was not a very good move either. The planned benefit was, of course, that you can nominate your own candidates who you think have contributed to world peace better than the Nobel winner, but when the list included Edward Snowden and Bashar Assad, there was a clear issue of credibility and sincerity for the rest of us. Adding Korean president Park Gen-Hye and Japan's ex-PM Yukio Hatayama, both proved pro-China friends, did not add any touch of neutrality either. Somehow, the nomination of the final winner failed to make headlines around the world.

To add insult to injury, the numerous Confucius Institutes set up around the world to spread Chinese culture have run into difficulties when it has turned out that subjects that can be taught or discussed there are ruled to exclude anything negative about China's politics and society like Tiananmen, Tibet or Uighurs. Top US universities are showing exit to their institutes and it remains to be seen if others including Helsinki will follow. That all bills are paid by China government is certainly an attraction for many universities in these tough times, but it's good to remember that "there is no free lunch".

Happily, the relation between Japan and China has been on the mending path recently as China has turned its focus on South China Sea. The Xi-Abe hand shake in Beijing, despite one guy's evident nonchalance, was a visible starting shot much publicized in Japan, but behind it, other politicians, bureaucrats and businessmen had been working long and results seem to be materializing now. The sensitive stand-off with over 200 Chinese boats poaching for rare red coral around Ogasawara island last year was handled with restraint from both sides and there has been also much less intrusions by Chinese government boats and planes to Senkaku area. The long delayed talks to establish a "hot line" between the two navies to avoid any "accident" have been finally started and Toyotas are selling again well in China, not being smashed. Toshiba, who lost a nuclear plant project in Finland to Russians, got its first deal in China, an important opening. While there should be one more new NPP project in Finland to be contested, China is planning to build hundreds of them and could be looking for the latest international technologies to augment its own. According one expert calculation, China needs to build 1000 NPP's, 50,000 solar parks and 500,000 wind turbines to meet its recent promise to stop pollution growth and have 20% share of its energy needs covered by renewables in 2030. Part reason magnifying the numbers is that China's energy needs are expected to double by then. Woe to the world and Chinese people's health if all that would be covered by more coal firing plants!

Instead of China, Russia has become Japan's new "lost" business opportunity and military menace causing over 400 "scrambles" by JSDF jet fighters last year, many more than Chinese. In fact, the situation with this big neighbor is much the same here on its eastern border as it is on its western border to Finland, the Baltics, Poland etc. Russian pilots have suddenly plenty money for fuel and they are happy to be up in air to burn it. There is no doubt that Japan's government and big companies as much as Europeans hope that the Ukraine crisis passes over or at least "freezes" and Moscow "cools down" so that relations can be again normalized and trade resumed, investments into gas fields and pipelines in the Far East re-started. Question is how President Putin can afford to change his story line at home that Ukraine situation was caused by an American instigated coupe d'etat and all economic demise in Russia, sudden collapse of global oil prices and Russian currency is the work of same malevolent forces that have circled the Motherland, who needs all citizens to work together to repel the attack. The paranoid propaganda in Russia's state controlled media has shown signs that we are familiar hearing from North Korea and, every once in a while, from China. For Finland with big numbers of new Russian immigrants, Moscow's selected battle cry is "protection of Russian children from monstrous Finnish social bureaucrats" who use any excuse to rip them from their Russian mothers, according to Russian state media.

Let us hope reason will win as Europe is beset with worries in economy and security even without Russia and Ukraine. The recent drama in Paris only added more concerns and I am sure many Japanese tourists think now twice about travelling there. Two big EU issues, which are expected to come to solution one way or other this month, are the Greek elections and ECB's monetary policy. In the first case, expectations are that a left wing party will win control of the government and start a new fight with its global financiers that could lead to Greek exit from Euro. "Grexit" was avoided the last time around, but now it is said that Germany is already preparing for it, the very first resignation of its kind. The earlier worries that such move will create financial confusion around Europe are now considered small as experts are confident that all member countries are today financially strong enough and that the EU solidarity is now high.

Still, economically, Europe looks worse than before and much of that has been blamed on ECB's lack of action to invigorate the markets in line with US and Japan central banks. Such abstinence has been blamed on Germany, the No.1 power, who just wish all to stick to shrinking their debts like it has done and keeping any risk of inflation away. Now, with negative growth and deflation already recorded across Europe, many pundits expect that ECB is finally allowed to declare its own "quantitative easing" start in next board meeting January 22. Hope it will brighten up the gloomy outlooks even in Finland. In expectation, the value of EUR has already started to come down and this should help the export industries.

In Japan, the recent economic predictions say the GDP probably resumed growth during Oct-Dec quarter and will continue at 1,5-2,0% through 2015. The new stimulus budget for the rest of the 2014 financial year was finalized at JPY 3,1 trillion targeting regional economies with "something for everybody" there from child care to shopping coupons, fuel subsidies for farmers and fishermen as well as incentives for "eco" houses, all in country side, even support for young people to move back there. This all smells more politics in waiting for the local elections in April than stoking the consumer demand as it was claimed to be. The best thing about this spending is that it does not require any new debt as there is so much old budget money sloshing around unused due to stiff bureaucracy and from bigger than expected tax revenue.

Same happy starting point applies to the FY 2015 general budget plan that was unveiled this week for debate in Parliament when it resumes again. It's record big at JPY 96 trillion, yet new debt issuance is cut to JPY 36 trillion, down by JPY 4,4 trillion in expectation of another JPY 4,5 trillion increase in tax revenue to JPY 54 trillion. This is positive development as in the past, Japan government budgets relied more on debt than taxes for their finance. Abe brought the debt share down to 43% in 2014 and it will be 38% in 2015 according the government draft. This means that the budget deficit in comparison to GDP will be halved to 3% from earlier 6% as earlier pledged. Now that would be acceptable even in German run EU! Add to that super low interest rates for Japan government – the JGB costs now only 0,2% or one tenth of US bond – and BOJ buying 70% of the issue. Seems we are finally heading in right direction.

The VAT issue is an enlightening case. Apart from shocking consumers out of their wits last year, the new increase from 5% to 8% is expected to haul in JPY 8,2 trillion additional revenue during 2015 – that's almost 20% more tax income. This will allow government to grant the long time requested cut in Japan's internationally high corporate tax. The cut for 2015 will be only 2,5%, but more has been pledged for 2016 so the policy direction is clear and should give confidence for Japanese companies to stay registered at home, maybe even incentive for more foreigner to establish themselves here.

The biggest item in the budget by far is the social welfare spending, which is set to rise to JPY 31 trillion, almost 1/3 of the total budget. With aging population, it is set to increase automatically JPY 1 trillion each year until more new cuts will be made. Theoretically, the new VAT tax revenue covers the expected increase for 8 years ahead, so the road for the Japan tax regime is clearly mapped there. The trick is how to step up the indirect taxes without stopping the economic growth as happened in 2014.

Let's get back to Abe's political challenges and Japan's business outlooks in next column and just finish here reminding readers to follow sports next two weeks. Japan soccer team opened up its defense of its Asian Champion crown with an easy win in the Finals that just started in Australia. The challenges will grow step by step as the tournament goes on. The home team Australia together with Korea and Iran are traditionally the strongest opponents, but many other teams like Uzbekistan, Iraq and China have also improved their level remarkably. Also Down Under, tennis star Kei Nishikori, now ranked No.5 in the world, starts his 2015 Grand Slam hunt in the classic Australian Open.

At home in sumo ring, Mongolian Grand Champion Hakuho has started his quest for record 33th tournament win in the Tokyo winter "basho". In Europe, the veteran ski jumper Noriaki Kasai is showing again that his 43 years age is no obstacle to compete successfully with world top guys half his age. His young female colleague Sara Takanashi, who ruled the women's tour last year but failed to clinch gold in Olympics, managed her first two World Cup wins of the season last weekend in her Sapporo home hill.

It looks like an interesting year ahead in sports, too.

Timo Varhama  
January 15, 2015  

Previous Columns

18 December 2014
Snap Election Over, What's Ahead? Time for Xmas, New Year Holiday

Japan: too many elections, too many politicians - Finland: Moomin power!

12 November 2014
BOJ Ups Ante, Abe's Encounter in Beijing, Election in Tokyo?

28 October 2014
Money Scandals with Ministers, Economy and Reforms Bogged Down - Abenomics is Facing Demise, Internal Political Commotion Gains Again.

14 October 2014
Water as Fuel, LED Lamps and Nobels - Japan Tech Still at the Top of the World

25 September 2014
Scotland Challenges Britain - Finland Tries to Live with Russia

11 September 2014
Sport Stars, Ministers and Managers - More Women are Needed by Japan

2 September 2014
Bad News and Panic in the Park, Putin Planes over Moomin Island?

20 August 2014
Hot Summer, Heavy Rains, World on Fire, Economy Sputtering PM Looks Tired

25 July 2014
From World Cup Fun Back To Grim Reality

23 June 2014
Soccer shows New Japan, Olympics old men business

3 June 2014
Nationalism - Good for Economy, Soccer - Dangerous in Foreign Politics

21 May 2014
Energy for Summer? More Scarce Than Politicians' Will foe Endless Ddebates

12 May 2014
Economic Outlook: Consumers Still Genki, Companies Profitable

30 April 2014
Travels, Trade Deals and Security Concerns

3 April 2014
Colorful stories and scandals, serious tax challenge to consumers

20 March 2014
Putinisms, Abeisms, Obama, XI – Global Challenges Hit All At Home

21 February 2014
Snow and Smile for People, Serious Faces for Leaders

10 February 2014
Abenomics, Abeisms, Now Abefication – He ia All Over. For Some He Was Target Even in Tokyo Local Election

23 January 2014
Three Wise Men VS. One PM, Two Ex and a Colorful Crowd
  -  Business Doing Well, Politicians Think They Know Better

16 January 2014
New Year: Horse, Sports, Budgets, Polls and Moomin

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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