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 AOYAMA VIEW

NEW MINISTERS, NEW TRADE DEALS, OLD POLITICAL PLAY
With couple of last columns focusing on tragic events and political play in Middle-East and Europe, it's time to update views on Japan economy and politics. It seems clear now that China's slowdown is starting to show out in real economy, not just in equity markets, but let's start with what improvements politicians are promising. More details coming out of the TPP trade deal also warrant another look. Meanwhile, Japan's rise to No.6 in world competiveness ranking and two more Nobel prizes in natural sciences show well Japan's underlying strength beneath all the surface ripple.

After securing new 3 year term as leader of the Liberal Democratic Party last month, Prime Minister Abe launched his new minister line-up on October 7. Customary target of such change, his second since he led LDP back to power soon four years ago, is to refresh the ministerial activity, to reward close supporters with a seat in the spotlights as well as to improve PM’s popularity. It seems the last target was realized immediately, at least initially, as polls last week showed those favoring Abe government rising several percent and, remarkably, above those against it for the first time since the defense law debate got heated.

A look at the new line up, however, does not raise high expectations of fresh winds. Firstly, 9 old ministers continue occupy half of the 19 seats, some of them solid performers like Foreign Minister Kishida, Economy Minister Amari and Chief Spokesman Suga, but others old LDP hacks who keep their seats only to maintain the party support for Abe. Secondly, among the new faces there's too few colorful characters like the highly opinionated, US educated Taro Kono, now responsible for Public Safety, or Okinawan native Aiko Shimajiri, put in charge of the island's bitter US base feud - unless you think naming a pro-wrestler-turned-to-politician in charge of Education and Culture is a beacon of light and color. Age and gender data does not promise much vigor either: half of the ministers are in 60-70 age bracket and just one below 50, while only 3 out of 19 are women despite Prime Minister's own demand that 30% of all top positions in the country should go to women.

Reflecting the necessity to create extra seats to maximize the number of rewards, it looks like the responsibility areas cross each other in many places. For instance, if there is Minister for Economic Revitalization, why there needs to be another one for Regional Revitalization or why you need a special "Olympics Minister" if Education Minister is also in charge of sports (and he even has experience as wrestler). And wasn't it actually the 600 strong Olympic Organizing Committee headed by ex-PM Mori, who was supposed to take care of all that? To add further to the confusion, we have a new Sports Agency headed by an ex-Olympic gold medal winner "to co-ordinate Olympic administration" while also "looking after general health of the population and improving the nation's sporting success". Formidable tasks for an old swimmer, whose smiling face is probably put on the pedestal only to lift the gloom now surrounding the messy preparations. In my opinion, all would be much better now if all arrangements were left to the energetic Mayor of Tokyo City, who was awarded the games for 2020 after all and National Government would focus on its own job to build the new National Stadium, a project that is still stuck at its starting line.

The most intriguing new position is "State Minister for Building A Society In Which All 100 Million People Can Play Active Role" to fit in Katsunobu Kato, Abe's loyal assistant for past four years. He is supposed to "exercise bird's-eye view to break down ministerial barriers", lift the falling birth rate and promote greater role for women. Quite a job for a 60 year old ex-Finance Minister bureaucrat whose only qualification for the task is he has four children in his family, a rarity in Japan today. Moreover, the very name of his position indicates a mood of premature surrender in the task - that Japan's population will undeniably keep shrinking from current 126 million as the political leaders remain determined that no significant immigration will be allowed to patch up the numbers.

The new "Abenomics No.2" economic policy declaration does not convince me either. It looks too much of the same old that we have already been through and more like another try for political popularity. Target to lift the GDP to JPY 600 trillion yen in some undefined future is unrealistic unless the population decline can be stopped by increasing immigration and the potential economic growth rate can be stepped up by reforms that so far have been missing. Promises to "spread the rich life to every nook and cranny in the nation", to maintain good social welfare and to improve women's position, seem all like appeals to voters and sharing more equally what Japan already has. This is not a bad thing, of course, yet does not seem to target real growth in total.

Behind all talk, there's the cold political reality: the real target is to lift LDP popularity back in time for the next year's Upper House election so that the party - together with likeminded allies - could reach 2/3 majority also there, the necessary threshold needed to fulfill Abe's dream of making changes to the 1946 Constitution written by foreigners. Unfortunately for him and luckily for those of us who think this is unnecessary folly, that target seems today more elusive than before. Firstly, Abe's "ace in the sleeve" exchanging the current peace loving Buddhist partner Komeito to agrressive Isshin no To (Japan Reconstruction Party) - in Finnish terms we could call them "True Japanese" - is lost with the party splitting up and majority moving closer to opposition Democrats and only a few MP's left to support the original firebrand leader Hashimoto. Secondly, even within LDP the mood is rising against any more talk of new interpretations, even less for outright changes into the Constitution, as running against strong public opinion resisting such moves, will only hurt the party in the elections.

No wonder PM has stopped all talk of his pet subject and declared all focus should be now on the economy. Or on his statesmanship: Abe is set to go on busy overseas travel schedule meeting other world leaders through the autumn from Mongolia to Malaysia (ASEAN), Turkey (G-20) to Paris (COP22) so we will hardly see him in Tokyo. The high point will be the summit meeting between the leaders of China, Japan and Korea in Seoul Nov 4, the first during Abe's four year rule. Building back "Ni-Chu-Ka" relations, an abbreviation of the three countries' names in Japanese (Nippon, Chugoku, Kankoku), is already a daily theme in the local media. Abe flying in to Ulan Bator with a suitcase full of money just when Putin and Xi are measuring up how to divide the Central Asian lands was another funny cartoon featured this morning.

Prime Minister's busy travel serves also another purpose: with the extended 189th session finally finished in September, the start of the next session of Diet will be postponed to January. In practice, there's not much new on government agenda either until the FY2016 budget effective April has been finalized for debate. As added bonus, Abe the astute tactician, this way also denies opposition the opportunity to grill new ministers of any misgivings in their past political financing. The private donations that cover most of the high costs running a local MP office are strictly registered, but there's always a chance you find something fishy if you dig up the records, which you can then trump up with loud voice in the Parliament to humiliate the poor minister in public. In fact, it didn't take long for the media to find out that one new minister's office had registered receipt of funds from some local building companies that were outlawed for bid rigging public projects and that another had provided a wall calendar with her photo to the supporters, something that could be claimed to be "buying votes". Now opposition cannot trump up on those stories in live television debate. We all remember that two ministers in the previous line-up were forced to resign for such "serious crimes", one for giving out to her listeners small fans to cool your neck down listening to her speech, another for arranging theater trips to Tokyo. Incidentally, the latter, Ms. Obuchi was just this week found innocent, after all, by an investigative panel of experts, a small consolation now. Yet, bet you we will be hearing of Ms. Obuchi now sooner than expected.

As last hurrah for his national defense theme, Prime Minister climbed aboard the US Navy air carrier in its home port Yokosuka. This is the only home base for US carriers outside mainland America and the new one that was just sent here is named USS Ronald Reagan, suitably as that US president was one with a close relation with Japan that time PM Nakasone. Famously they were "Ronnie and Yasu", something not repeated since then. Learning that this was the first time Japan Prime Minister visited its ally's major asset sent to defend the country ever since 1965, helps us to understand how important it is that the two partners tighten up their relation. In fact, Abe and his closest cohorts standing there on the carrier deck in formal coat tails and top hat made me think that there had been no similar visit ever since September 1945 when that time Japan top civilian leader, dressed same, signed up military Japan's surrender deal on deck of USS Missouri.

There was also plenty hurrah when the TPP deal was finally signed between the 12 Pacific nations in Atlanta, Georgia, yet the details emerging out do not look that impressive from consumers' point of view. Beef import tariffs will be reduced to just 9% but this will take 16 years so I wonder if I have teeth left to chew the stuff then. Meanwhile there will be no change to pork, rice, cereals or milk products. Tariff free quota for rice imports stays below 1% of the market, beyond that the notorious 778 percent duty will continue to kick in. Vegetable and fish imports will be all free but in practice there is very little of them as consumers prefer buy them fresh, something only local sources can provide for. Frozen salmon from Chile will benefit, but Japanese consumers prefer Norwegian that comes in fresh thanks to Finnair.

In return, Japan got almost all it was looking for. Industrial products will become tariff free, something Japan does not import much except from its own factories in Malaysia or Vietnam, but instead export plenty to all TPP member countries. As importantly, cars and auto parts to USA will become free of tariff and Japan even managed to squeeze in terms that those made at Japanese factories in Thailand, a non-TPP member, will be partially included in this.

Despite such favorable terms, it seems the government is fearful for a backlash from the farmers and has already announced it sets up a new agency to spread out generous aid to them immediately even if the small tariff changes won't kick in for years. Once again, it all looks intricate political play. Especially as it is not at all clear whether the deal ever takes effect as its parliamentary acceptance in many countries will take time. For instance in Japan, as mentioned, Parliament won't be in session until next year and in USA, the deal is already such a hot potato in the rising presidential election fever that the vote might go all the way to 2017. With powerful Mrs. Clinton suddenly turning her coat against it and the leading Republican candidate Mr. Trump vowing he will renegotiate all US deals including security, it could well be TPP never takes effect at all.

At European embassies, hopes are up that completion of TPP will help to finalize the ongoing negotiation for the EU-Japan trade deal as Japan now knows what it has promised to the Big Brother and other Pacific partners so it is easier to assess the total impact of the two deals. In fact, as the TPP concessions look pretty small, there should be more space for EU to push more for itself.

Let's leave this Japan review here and come back to real economic outlook in next column. Some corporate scandals like Volkswagen, Toshiba and Asahi Kasei also provide more details for serious comments.

Timo Varhama  
Tokyo, 22 October, 2015   


Previous Columns

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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