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 AOYAMA VIEW

North Korea, USA both worry Japan - Koike worry Abe and LDP even more
Let me start with a question: which one of the world leaders you think is more unpredictable and dangerous, North Korea's Kim Il Un or Donald Trump of USA? And which one is more unreliable and dishonest: Vladimir Putin or Donald Trump? It's a sad state of affairs that such provocative questions of US president can be posed at all, even less that they are quite realistic and relevant today. We have been used to look up to US president as the ultimate world leader but that view has changed a lot since the self-loving NY billionaire took over the reins in Washington. The world is now more unpredictable and unreliable in many ways and not just in security and peace. And this is just the beginning of The Donald Dynasty.

Last week we were, many assumed, close to a nuclear war or at least a bloody military clash that might have expanded from Korea to engulf Japan and involve China. While North Korea certainly is the original culprit in creating the situation, it was brought to boiling point by the US president, who just learned he can improve his popularity and "look presidential" to his critics by bombing other countries without warning. The crucial question was whether he understands that while Syria could not shoot back, North Korea very viciously can. And whether it mattered to him that, as Kim still cannot reach to USA, South Korea and Japan would have been at receiving end instead.

Both sides were exchanging poisonous threats to each other wowing to be ready for action and US Navy brought forward to Japan Sea a strike group, an aircraft carrier with 70 attack planes, a missile cruiser and two destroyers all equipped with cruise missiles. Or so we thought. As it was, nothing happened because 1) North's missile launch failed and 2) the Navy strike group was actually still 4000 km away south of Philippines on its way! It was all bluff from Trump – or maybe he was "misinformed" again - yet if the other side did not know that, they could have pulled the trigger like Trump did on Syria "for all those children".

The situation with North remains alive – the next ominous date is April 25 – and we remain unsure whether US president can keep his finger off the trigger. If all goes well, such strong reminder of US power will get North change its tack, slow down its arms race and negotiate some kind of compromise. But it's hard to believe this would happen. Developing missiles that can reach to US mainland, not just Korea and Japan, is the game equalizer that Kim and his father have been working on for years and now the target seems temptingly near. Their dynasty's survival depends on this and the country's citizens are all fully indoctrinated to give it 100% support. Kim's got much more to lose than Trump, who can comfortably return back to his NY real estate and tv-show biz once his time is over.

The only way to stop the North is government change and unification of North and South, but that's not what China wants as it cannot accept to have US Army at its land border. It's healthy to recall what hardball USA played not to have Russian missiles close to its own border in Cuba back in 1962. The difference is that back then, the world respected US policy and trusted the young president John Kennedy.

As for South, the actual opponent of North, its views traditionally change with each president and right now it hasn't got any, so it seems to have little to say to what's going on. The Korean prosecutors are seeking life time (!) prison sentence for the old prez for what was rather trivial, if not childish mistake – she did not pocket any money herself and she was used rather than being the perpetrator herself. Meanwhile, the two leading candidates fighting for the seat in next month's election, seem to agree only on two surefire popular things: reform of the corrupted "chaebol" system and cancellation of the pact with Japan to bury old grievances "forever".

Team Trump has been assuring Japan and Korea that the alliance is "iron hard", but doubts linger because of President's unreliability. To confuse us further, Team's tune in trade relations with all partners has been aggressive and elusive. Again this week, Vice President Pence in Korea assured Koreans of security pledge peering over the DMZ line to North with pilot jacket and stern look for cameras, yet back in the city demanded that the 5 year old Korea-US free trade pact must be renegotiated to suit America better. It was much the same day later in Tokyo: "We are with you 100%" against North Korea's threats, yet "seek more balanced bilateral trade relation". At the end, Pence agreed with his counterpart Aso to continue discuss "bilateral framework" for trade, "perspectives on investment initiatives" and "global trading environment" later this year in Washington. Nobody here is fooled by the words: they mean demands for more imports of agricultural products and cars, yet Aso-san was grinning widely that the currency issue was not brought up this time. Just wait for next time, Taro-kun!

As said before, I'm all for more imported food at reasonable prices and against super high tariff and artificial limits. There's no better example of government's ludicrous attitude to put farmers' privilege ahead of consumer needs than acute lack of butter in shops last two years because of too little milk and today's announcement that there is not enough potatoes for chips anymore because typhoon destructed the Hokkaido crops last summer. How easy it would be to step up imports of both, even temporarily. Yet, politicians from farm areas are as firm against any imports as those in US country side are to demand theirs to open up sales to Japan.

What's most important for politicians is to get re-elected and that is also the paramount focus of Prime Minister Abe today. Not satisfied that he is practically guaranteed to lead Japan until end 2018, he is now planning extra election this summer so his rule would last until end 2020. After playing a key role in getting the Olympics here, he feels entitled to sit in the honorary box at the opening party hosting all world dignitaries. Maybe he will even reappear as Super Mario as he did at Rio closing ceremonies – or a Pokemon.

There's a few things still standing on the way against Abe's plan. For one, his super high popularity declined with the Osaka school scandal, so that must be fixed. Glorified meetings with Putin and Xi followed by a Trump visit to Japan should help in that. For second, the national election should be before Tokyo City election on July 2 as that's going to be a jubilee for Governor Koike's new "school", which will then likely to launch itself as a national party and challenge old LDP drawing support from Komeito, LDP's longtime parliament ally, as she already got in Tokyo Assembly. In Abe's worst nightmare young Koizumi, the most popular politician nationwide, would join Koike together with his ex-PM father taking a good bunch of LDP MP's with them.

The timing, however, depends on how quickly the government can pull through its long promoted new laws in the ongoing Diet session: the work reform bill, the conspiracy bill, the Emperor's abdication bill and new amendment to electoral law that balances number of seats better in relation to voting population around the country. Only after these are cleared, Prime Minister can dissolve the Parliament for snap election. Especially the last one is crucial: the unbalance in votes that goes beyond 2-1 is widely considered unconstitutional and has been challenged earlier in court, yet unsuccessfully so far. Small changes have been made, but the continued desolation of country side has made each small step insufficient soon afterwards.

Abe-san would certainly not like to be challenged in court after his final (?) election win, so an expert committee gave yesterday its proposal where to cut seats and where to add them to fix today's unbalance enough for 2-1 again. As always, the MP's and voters from losing areas will raise a cry for "bad treatment" by Tokyo, so how to placate them and keep harmony and discipline in the party is another challenge to PM. Follow up on this story and, if all goes well, count the days to another unnecessary election to please our leader.

There's no lack of elections coming months in Europe either. First off is the crucial French president election, where Mme Le Pen, the longtime rightwing anti-EU leader, stands out this time No.1 in advance polls. If the Socialists and Conservatives cannot ally behind one candidate in second round as they have so far every time managed to do, France could be on its way out of Euro currency, maybe even whole EU. Worried about this, Japanese institutional investors sold off USD 15 billion worth French government bonds last month. Most of us still believe Le Pen will be repelled again, but Japanese investors are in no mood to stomach any risk.

Later in autumn we have German parliament election where long time Chancellor Merkel is challenged harder than ever before during her long reign. Happily, the Social Democrat challenger is equally strong supporter of EU system, so no threat to EU here. Italy, who is hosting this year's G-7 Summit meet in the beautiful ancient town of Taormina in Sicily next month, could be heading for polls as well this year and UK added its own snap election in the long line this week with PM May seeking proper credentials to guide the country's path out of EU. Even Finland had its own local community elections last month. They don't really count on national scale, but confirmed the 3 old main parties remain all strong. What shook Finland more was the terror truck strike on a popular shopping street in central Stockholm. That really brought the terror threat home: now most Finns finally believe such things could happen in Helsinki, too. To comfort them, a global survey same week found that Finland is actually the safest country in the world – another accolade to add to our many No.1's.

Like elsewhere, Japan government, too, is worrying about foreign terror in Tokyo with the increasing tourism and, especially, with the 2020 Olympic crowds. Yet, all records of terror in Japan have come from domestic sources starting with the radical "Red Army" movement in 70's and culminating with Aum Shinrikyo religious sect's sarin attack in Tokyo subway in 1995. Sure enough, there was an incident last month where, it seems, two Chinese female tourists desecrated well-known temples in Kyoto and Tokyo with oil stains. The suspects had left the country before analysis of security camera films identified them, so nobody knows their motives – anti-Japanese or devoted Christians? The stains did not look that bad either, but might be difficult to polish off from the beautiful old bare wood surfaces. Most of all, however, having somebody willfully desecrating country's holy places is a hurtful insult. Just imagine it was St. Peter's Cathedral or Notre Dame and you would easily understand what I mean.

In "economic terror" section, updates on two corporate catastrophes.

Toshiba managed to announce its missing 9-month financial result on the deadline day to avoid being delisted. It came without auditor's confirmation as PWC is still doubting the figures submitted by Westinghouse, yet that was OK for intermediate result according to TSE rules. With the whole financial year 2016 in the bag now, there's 3 months to clear the full year accounts with the auditor's acceptance – the estimated loss is now put at JPY 1 trillion (USD 9 billion). In USA, the government has now woke up worried that the prime candidate to buy the bankrupted Westinghouse is a Chinese state-owned power company. That seems bigger problem than Westinghouse's billion dollar liabilities for delayed nuclear plant buildings.

Toshiba has now selected four buy-out candidates for its spinned-out memory chip unit. They are Hon Hai of Taiwan, Hynix of Korea and Broadcom and Western Digital from USA. Offers run round USD 2 billion from all except USD 3 billion from Hon Hai. No Japanese company showed any interest, yet government is suggesting they should get together to make a joint bid that would be backed up by Industrial Investment Fund to prevent a key technology slipping to foreigners. That sounds completely unrealistic. Toshiba's primary target is to get the highest price, but there's worry that buyers from Taiwan and Korea could face more scrutiny from the officials and hence delay the process. The company also fears Terry Gou's hard negotiation tactics after following close by how he handled them with Sharp. In his turn, Mr. Gou is recruiting Apple, the biggest customer for both Hon Hai and Toshiba chips, to bring in its voice and possibly money. He has also asked his pal Masayoshi Son to persuade the officials and help getting finance from big banks. Hon Hai also has opportunity to use its newly acquired Sharp as the takaover entity, so the chip unit would officially remain in Japanese hands removing the legal base from security based government objection. We'll see what comes out of this.

The buy-out process of airbag maker Takata, the other problem child, has been delayed, too, with family owners fighting against bankrupting the company, something all buyer candidates insist on. Seems automakers, who are all owned millions for fixing the defective Takata air bags at their own cost, accept bankruptcy process, too. The leading buyer candidate is US Key Safety System, which is backed up by Bain Capital. Yet, behind the US name, there's again a Chinese company named Ningbo Joysen. Yes, Chinese money is now all over and anxiously seeks for more buy-out objects.

Overall economic outlook remain positive. Current account surplus rose in February to highest level since 1985 at JPY 2.8 trillion. This was 32th consecutive month of surplus and this time even concrete goods trade was positive - the first time in 6 years. This was thanks to exports growing nicely 12% for the third straight month, however it seems clear the timing of Chinese New Year impacted Japan's data as much as it always does for the country's own. This year it started already in January cutting down activity in that month to make February's month-to-month comparison more positive than it would be otherwise. March data should confirm the trend better.

Well-to-do companies, who declined big wage hikes and showed little appetite for investing into new machines etc, have focused on share buy-backs instead. According preliminary info, 753 listed companies spent JPY 4.8 trillion (USD 44 billion) on buying their own shares, close to same as in 2015. They also paid back their bank loans and took out little new debt. On the contrary, companies and consumers continued to pile up their money into banks. As result, bank deposits exceeded JPY 700 trillion (USD 6.3 trillion), a record level. In contrast, outstanding balance of lending remained low at JPY 480 trillion (USD 4,4 trillion). What to do with all the money that just stays there? No doubt, we will hear the banks' financial result last year was not any good.

It's one year from big M 7.3 quake in Kumamoto, Kyushu island. This time the human toll was 211 people and the economic damage was huge as reported at the time. Over 10,000 people live still in temporary housing and another 30,000 in other permanent dwellings provided by the municipalities. Yet, at the time, the most important news for many was to have Kumamon, the prefecture's popular mascot, back in appearance. Today many local people think that their prime duty is to fix the damage in the old impressive castle that just 4 years earlier was rebuilt to excellent condition for its 400th anniversary. It will be a long lasting, highly demanding job to put back in place the hundreds of 2-3 ton stone boulders that came tumbling down from the outer wall and lie now neatly lined up and numbered in the castle park. And that's just the beginning.

While everybody is proud of their historical heritages, I'm incline to think that only Japanese people would have the devotion, determination and patience for such big rebuilding task when so many of them are still without their own home.

Timo Varhama  
Tokyo, April 20, 2017   


Previous Columns

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!"

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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