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 AOYAMA VIEW

  JAPAN: THE ONLY SAFE PLACE FROM GLOBAL TURMOIL?

It's only a week to Christmas, a non-traditional fest in Japan that is increasingly associated with Finland here. It is not just that the "real" Santa Claus always arrives on Finnair: now he is followed by many compatriots "gigging" around the country through the season. Department stores are decked out with reindeers, elves and Moomin, Nordic articraft, design and food is on offer and many spectacular light shows around downtown feature this year "Aurora blue" color reminding of Lapland. A big billboard above Shibuya "scramble" crossing - by Netflix - warns Santa not to fly too low to hit high-rise buildings in (almost) Finnish: "Pilvenpiirtaja haadata!"

No doubt, Japan is geared to enjoy Christmas today – it's not just "Kurisumasu keikki" and KFC chicken like before. Yet, Xmas is still just another working day here and the Big Fest remains New Year which gives more than one week's holiday this year.

JAPAN: THE ONLY G7 COUNTRY IMMUNE TO GLOBAL TURMOIL

Looking around the world, unfortunately, it does not look like anything resembling peace and harmony we expect from the festive season. To quote a fellow gaijin observer here: "Paris is literally on fire, the US stock market has given up all its gains, United Kingdom is in its worst constitutional crisis - "Brexit" has turned into "Mayhem" - and Italy is again thought to be bankrupt. Germany is grappling with new political leadership and China is threatening now Canada with severe consequences."

"United States is about to nominate a TV celebrity as its new ambassador to the United Nations and the unlikely duopoly of Saudi Arabia and Russia are high-fiving each other to dictate global oil prices."

"Only Japan of all G7 countries seems to be immune to all this global turmoil."

So true. Japan has some problems of its own, sure, but nothing of the kind as those.

The stock market gave up its gains here, too, and the GDP took an expected dip in July-September from the serious natural disasters around the country. Consumers stayed home from rain, floods and quakes and the JOT supply chain of electronic parts to China was cut off for weeks with much business lost. There was so much destruction and misery over the year that the national ballot organized every year by Japan Kanji Association – and ceremonially painted with big brush by monks at Kyoto's Kiyomizu Dera - selected "SAI" or Disaster as the Kanji of The Year.

Still, the basic economic expansion has lasted ever since December 2012 when Abe was elected PM. At 1-2% per rate it's nothing overwhelming, but at 58 months it's now the second longest in the post war era. It just surpassed 57 month of Izanagi boom that started from 1964 Olympics, yet Japan's longest continuous expansion ran for 73 months from 2002 to 2008. That's from "Asian crisis" to global financial crisis, both developments that occurred outside Japan. Many people outside Japan think even that period was part of this country's "the lost decades".

As for recent Nikkei decline, it is good to remember that the active part of corporate shareholders here are foreigners. In contrast, SoftBank had no problem to have its USD 20 billion IPO this month sold 80% to Japanese private (!) investors. According BOJ's fresh Tankan survey, big manufacturers' business sentiment remains unchanged positive 69/31 while that of non-manufacturers – retail, travel, restaurants, hotels etc. - even increased to 74/26.

CHALLLENGES FOR JAPAN AHEAD 2019

Looking forward, worries abound of US president's trade aggressions. Will they cause serious problems for China, Japan's No.2 customer for trade and investment, as well as directly to Japan in the forthcoming bilateral trade talks scheduled to take place early next year? Fittingly, it will be the year of Wild Pig - I guess anything might happen.

Japan's own challenge No.1 is the VAT tax rise from 8% to 10% that is scheduled to take place in October. To overcome a complete collapse in consumer demand after the hike takes effect like happened in 2013, government has gone out of its way to come up with a wide range of measures to alleviate the impact. The imagination of bureaucrats and politicians in giving away money to please voters and their belief that they can manipulate business should never be underestimated. From October you will get tax cuts for buying new house or new car as well for buying your groceries from a small family owned shop – if you use credit card so that the transaction will same time contribute to help boost transfer to cashless society. No problem for the planners in their ivory towers that it is exactly those shops who usually don't have credit card facilities! Nor that the price cut must be covered by tax payers as the shops, banks and credit card companies will certainly not pay for it.

According calculations, the government tax relief plans will cost twice as much as the tax will bring in, something that elsewhere would be described "economic folly". As well, if you thought the tax increase was planned to cut the budget gap and reduce public debt, think again: already in advance Prime Minister said the expected USD 50 billion income will be used mainly to pay for better child care and old people care. As they say, the art of politics is to make necessary reforms – and get elected again.

POLITICAL CHALLENGES FOR PRIME MINISTER

Abe-san has definitely taken on some flak again and some of his PR ploys seem to have hit headwind as well. He needs to score points in order to regain and retain his popularity. He has now placed his big bet on winning the long coveted peace deal with Russia with recovery of just two of the four Hokkaido islands "illegally" occupied by Russia after the end of war. It looks like desperation: difficult to think of any other major country leader who would put his money on wily Putin. Why would he give away even a small stretch of holy Russian soil without asking something unexpected and unreasonable in return.

The two leaders found a long forgotten accord from 1956 promising "2 out 4" as the basis for their new talks when they met in Singapore in September and Abe promised Japan would not allow US military on the recovered islands. Yet, the Russian side has now pointed that there was also an addendum that said for the recovery Japan should "remove all foreign forces" from its soil. Sounds like another Ribbentrop deal and dead end for Japan, yet Foreign Minister Kono has been tasked to finalize the details with his colleague Lavrov by end next month so that Abe-san can travel to Moscow then to sign the deal with Gaspadin Putin. Moscow will be part of bigger foreign tour for Abe in January that will see our global diplomat also in Davos making keynote speech, in Brussels to sign the EU-Japan EPA deal - it was ratified by EU parliament last week - as well as in London to advise May - or her successor - how to deal with Brexit so that the business of over 1000 Japanese companies there won't be harmed. If all this sounds extensive, remember that PM has now received a new government plane - brand new Boeing 777 to substitute the old 747 - so there's one more reason to fly long ways. In order to accomodate sufficient time for such long European safari, the PM has requested his party not to start the new Parliament session until he is back home.

Once the session is on the way, the focus of domestic politics will shift to Upper House election that must be held before end July. LDP fears it is likely to lose the 2/3 supermajority it holds there today with its partner Komeito. If so, Abe-san can kiss goodbye to his long held project to amend the Constitution - even just adding one sentence that "we also have a Self Defense Force" as his latest proposal is. The famous Japanese change resistance is that well inbuilt in this case - before even thinking of popular poll where it would be turned down most likely anyway. No Brexit surprises here!

FINLAND TO HELP OUT?

One more global event for Abe-san to shine before the UH election is the G-20 meeting in Osaka June 28-29. My worry what topic Japan PM can come up with there that would not offend Mr. Trump but please the rest of the world, was pleasantly removed from what I heard through my Finnish grapevine. Abe's old war horses free trade, rule-based world, environment protection and climate control would all raise red flag from Washington, but they could be all hidden under the new phrase "Circular Economy" that Finland successfully introduced here in October. According to my contact, the Prime Minister's Office seem to be sold on this idea.

Little Finland setting the agenda of big G-20 countries? Now that would be quite something.

Let's see where we are with all this after the holiday season. Have a nice one!

Timo Varhama  
Tokyo, December 19, 2018  


Previous Columns

6 December 2018
"Political Theater at World Stage, Media Play in Nissan Case"

21 November 2018
"Different inroads into Japan: Finnish forest knowhow vs French corporate genius"

7 November 2018
"Moomin, Muji, Movies and Mobile Phone Fees"

29 October 2018
"Towards better world? Circular economy, collaboration with China"

15 October 2018
"Circular economy, fish market and construction boom"

2 October 2018
"Abe's "third reich": challenges abound"

17 September 2018
"From Osaka typhoon to Osaka fever - dark side and bright side of Japan"

6 September 2018
"Emperor: love, peace and reverence"

23 August 2018
"Summer heat, new scandals and export worries - but Tokyo is best"

8 August 2018
"Petty politicians, bungling bureaucrats and profitable business"

30 July 2018
"While we were on holiday"

17 June 2018
"From Singapore to soccer - wrapp up for summer"

11 June 2018
"Showdown in Singapore, commotion in Canada and cover-ups in Tokyo"

28 May 2018
"Morals and responsibility, blind loyalty and power harassment"

17 May 2018
"Big Business in record results again, but consumer are not convinced - North Korea spectacle continues under Kim direction"

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 "



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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