Big Business in record results again, but consumer are not convinced - North Korea spectacle continues under Kim direction
It looks like summer is with us already. Thermometers hit many places well over 30C, trees are all green even in my highlands and you can feel moisture in the air predicting early arrival of the rainy season, one month before normal. In Kyushu, it's already officially started while Okinawa has seen its first typhoons passing by. Summer plans are being finalized and Finnair started its second daily flight from Narita to Helsinki in anticipation of the coming season.
Last week we had a good presentation of the new EU-Japan Economic Partnership Agreement at Embassy. It's quite an achievement: world's biggest free trade deal encompassing 30% of global GDP and 37% of trade, result of many years of intense negotiations and expected to release EUR 2 billion worth annual trade benefits and cost cuts for the partners. It's not only tariff cuts but harmonizing technical and food related standards and removing wide range of non-tariff barriers that especially Japan has been notorious for. The signing ceremony is set to Brussels in July, a political show that will blow fresh air to today's threats of trade wars and unexpected unilateral tariffs thrown around undiscriminately by you-know-who.
It was an additional pleasure for us Finns that the presentators were two Finnish ladies, Marjut Hannonen and Mervi Kahlos, both high ranking trade officials in EU Delegation here and deeply involved in bringing the talks into final conclusion. In fact, Ms. Hannonen is the Minister Counsellor and Head of the Trade and Economic Section. For this writer, who attended Japan-EU Business Round Table between European and Japanese companies trying to get the talks going more than 10 years ago when government officials and politicians were not interested and many industries outright objected to the idea, this is like a longtime dream-come-true.
Japan's political leaders understand today that the country needs more trade, investment and co-operation with other countries in addition to domestic reform and deregulation to keep the aging economy going. Five years of Abenomics have helped to fire up the sleeping embers, but more fuel is needed to keep the flames going. No better reminder of that than this week's news that past two years of continuous growth from quarter to quarter, the second longest in post-war history, was cut by slight GDP decline in January-March. This was expected based on earlier reports that total income and household spending had declined a bit in February-March – most likely from less overwork hours and bad winter weather. Both factors might have already changed in April with annual raise in basic wages and better weather, but business investment and exports also slowed down and need to turn up, too, to get the GDP back to growth track. Some analysts already wound down their expectation for this year's GDP growth from 1.7 pct to 1.2 pct yet the initial figure for 1Q is an early estimate that can still change up or down in closer check due out next month.
For the corporate sector FY2017 that ended March 31 was another good year with Big Business reporting record profits again. Leading the pack as usual, Toyota said net profit reached to JPY 2.5 trillion (USD 23 billion), 36% more than year before thanks to bigger sales, lower JPY and cost cuts. Its global black spot was USA where demand declined after several boom yers, sales declined and profits fell to half. It does not look much better this year with Trump threats and whims in the air. Interestingly, competitor Honda said USA and especially Trump's tax cuts were the main reason for its 70% profit surge to JPY 1.06 trillion (USD 9.5 billion). It could have been much more if Honda was not the main user and main payer for consumer compensations for Takata's defected airbags.
Looking forward, Toyota CEO Akio Toyoda says all carmakers are now entering "life-or-death battle" with totally new rivals - Google etc - who are developing self-drive and other connected technologies. We'll see how that goes: next few years will be interesting to follow.
Big Five trading companies were last year back in big profits, too, after taking year before billion dollar writedowns for their oversized investments into oil, gas and mining business. Net profit for No.1 trader Mitsubishi Corporation reached JPY 560 billion (USD 5,1 billion) beating its previous record from FY2007. Coal prices from its Australian mines to Asian customers rose last year 40% and were backed up by LNG and strong auto sales in Asia. Flush with money, the giant company said it will strengthen subsidiary Mitsubishi Aircraft with a USD 1 billion capital input to help it over its financial woes from 5 year development delay for its Regional Jet.
As most readers know, today's trading companies are more like venture capital companies than traders, yet the world's biggest venture capital fund, especially for technology start-up's,
is today Softbank's Vision Fund now fully capitalized at USD 100 billion. So far it has invested USD 30 billion in 25 tech firms ranging widely from dog-walking application to construction planning. With as much debt and even bigger investments of its own, Softbank's financial health has been a question mark, so investors were surely relieved when the company reported JPY 1.3 trillion (USD 12 billion) record profit for last year. If there was a partial setback in Mr. Son's worldwide onmarch, it was that he had to give up majority control to get the long planned merger pland of his US No.4 mobile carrier Sprint with Deutsche Telekom-owned No.3 T-Mobile realized. He evened out that disappointment within weeks by announcing his British semiconductor specialist ARM now has a joint venture with a Chinese state-owned fund that can circumnavigate any US rule to ban sales of such valuable technologies to China.
Beating out Softbank, Japan's biggest overseas investment now is Takeda Pharmaceutical's takeover of larger rival Shire headquartered in Ireland. The JPY 6,8 trillion (USD 62 billion) deal will create an international giant that ranks World No. 9 in size and should provide sufficient resources for the painstaking development work of new drugs that takes time and money. Takeda's hunt for bigger things abroad was led by its French CEO – wonder if a Japanese CEO would have been able to push through such ambitious, risky deal.
In politics outside Japan, the global tv-spectacle "North Korea" proceeds relentlessly under direction of Mr. Kim, a great plot writer playing the main role, too. In the last episode reported in this column, the star was about to meet with South Korean president Moon. With that act smoothly behind
The Hero travelled to Dalian, a nice seaside background for a cup of tea with Big Brother Xi, then sent his "omiage" present of three prisoners to Bad Guy Trump in advance to meeting him for the Grand Finale. The move went down like a bomb for Trump audience even if the arrival show was at 4 am. The meeting itself is now set to Singapore where Trump's friend and finacial supporter owns the casino stage: nice income for him and nice kick back to Trump. This week, when the US player went a bit overboard with his role, The Director brought him into line with quick reminder of his rules: "If you don't follow the manuscript, I will cancel the show."
It's been clear for weeks that US side has totally different ideas what the meeting is all about than Kim. For the Director it's not North onesidedly surrendering to all US demands, but start of long winding talks for "denuclearization of (whole) Korean peninsula" where both sides give up this and that. For North, the main target is ending or reducing sanctions, for its backer China it's about getting US forces out of Korea and reducing US nuclear threat to defend its allies South Korea and Japan.
We'll see how the meeting will go when US see that it's not white flag of surrender and weakness but proud Red Star of a nuclear weapon "equal" power that North is flying in its flagpole. The worry is that an embarrased and angered US president will then come up with even more unpredictable reactions than what we are used to receive from him by now.
In Japan politics, Abe-san does not seem to manage shake off his school scandals no matter how many "lambs" he sacrifices to the opposition demands. With his Cabinet Office Manager finally having testified, the opposition has accepted to continue the normal proceedings in the Diet and important new laws will be hopefully passed during the ongoing session scheduled to last until June 20. Labor reform and TPP deal are tooted as Abe's "statesman" achievements and together with foreign policy acts like last week's Tokyo Summit with China and Korea, Golden Week's Middle East trip and another useless meeting with Putin later this month should raise his profile enough to retain a chance to be re-elected to continue lead the party – and consequently remain Prime Minister. As things stand today, insiders say re-election is highly unlikely, so unpopular he has become while LDP itself remains strongly supported.
There's one more chance for Abe to look even better, say the insiders: arrange another snap election in July-August! With continued strong support to LDP and opposition parties remaining disunited ensuring another win again, Abe will look like a great leader and could be re-elected. I hear you scream in horror: "Not even LDP can be that brazen! People will surely not accept another useless election less than one year from the another similar!"
I withold my personal opinion. Just repeat the gossip that Abe and Aso recently had a rare one-on-one dinner and surely did not talk about the spring weather, Kim or Trump. Let's follow what comes out.
Tokyo, May 17, 2018
26 April 2018
"Political spectacle approaches grand finale
- people's trust sinking ever lower"
17 April 2018
"Cruise missiles and cronyism, business boom, old people and sumo"
6 April 2018
"Mystery train and other unpredictable moves in geopolitics around Japan"
26 March 2018
"Trump Unchained and Abelympics – Can PM Make the Party?"
16 March 2018
"Anniversaries, updates, fallacies and deception"
5 March 2018
"WHILE WE WERE WATCHING OLYMPICS..."
26 February 2018
"Korean Olympics: sports shine, politics stink"
14 February 2018
"Korea: Murky Politics and Big Business Behind the Sport Spectacle"
4 February 2018
"It's "smile time" in politics, Olympics, economics and business"
23 January 2018
"Moomin crisis, panda frenzy and Olympics turned into political farce"
12 January 2018
"Heisei 30 looks good: share prices soar, PM rides high "
20 December 2017
"Look back at 2017: commotion around Japan, but steady and safe here"
11 December 2017
"Missiles, footballers and fishermen from North - Big spending on child care to get more mothers working"
28 November 2017
"Foolish things sell in retail,
but sports are to be serious"
20 November 2017
"Making China Great - with Gaffes, Platitudes and Bullying"
10 November 2017
"Good news week: Finland business grows, EU trade deal gets cleared, Nikkei hits new heights and Trump visit goes smoothly"
20 November 2017
"Making China Great - with Gaffes, Platitudes and Bullying"
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!"
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.