Finally full spring in Tokyo. Sakura is blooming and people are partying in parks. There was some rain on Sunday, but from here on the good weather seems to hold out, so if you missed last weekend you still have time to enjoy the annual spectacle. Usually, rains will wipe out the flowers before their blooming is over and that's exactly where the beauty of sakura lies, according to the tradition. Their time is short and sweet, like human life. Let's enjoy it as long as it lasts.
Even small steps can be positive. Further to the previous column about the slow progress in the Tohoku rebuilding and the continued bad situation for many people there, one of the bright news last week was that railroad connection from Sendai to Ishinomaki and further on to Onagawa was finally started. This is a familiar area to me from past business years and the temporary homes that my old company helped to build there after "3-11". The tsunami, some 14 meters high in Onagawa, wiped out almost all of the small town lying at end of a beautiful fjord-like long bay, so post 2011 visits have been heartbreaking.
The makeshift homes built of old shipping containers on a baseball field of their school, the only surviving building together with the hospital, were planned by Shigeru Ban, who won the world top architecture prize last year for his environmentally-friendly designs using recyclable materials. His Onagawa houses still stand out against the hard weather better than most of the other temp barracks. Following the 2013 earthquake in Christchurch, Ban built there a new cathedral of corrugated board as temporary replacement for the old stone one. The new Onagawa station is also designed by Ban and features an onsen bath - only the second such arrangement in Japan, I believe.
Bigger bright news for whole Japan come from the salary front with the annual "base-up" in big companies finally fixed high as expected. While JPY 4000 or 1,1% monthly increase at Toyota does not sound much, it's 50% more than last year, the first any increase the company paid out in 7 years. Combined with the automatic seniority increase it makes for total rise of JPY 11,000 or 3,2%. Even more positive news for Toyota staff was the bi-annual bonus payment, that was fixed at 6,4 months' salary. All this promise for increased spending this year in Nagoya area.
At some other car makers the base salaries will go up even more and bonus will be even bigger than at Toyota while at big electronic firms like Toshiba and Hitachi the official base-up was slightly less. It is estimated that workers at major companies will get JPY 7500 more per month in their hands in average plus much bigger bonuses, yet profits are expected to go further up this yeary from the 2014 record. This success is reflected also in share prices and dividends paid to shareholders. Apart from the obvious FX rate the big companies are also expected to make sizeable cost savings from new efficient ways of working. For instance at Toyota new cost saving platforms are said to reduce development costs by 20% and investment costs for new production lines by 50%.
All this comes just in time for BOJ chief Kuroda, who has now publicly admitted that his JPY 80 trillion "bazooka" has "failed to break the deflationary mind set" and will not achieve the 2% inflation target in FY2015 as planned. In fact, the inflation has been falling down month by month ever since the 3,4% peak achieved in May 2014 soon after the VAT hike. Last week it was reported that February CPI fell to flat 0% when the tax rise impact is calculated off. In line, the interest rates have been keeping low with the 10 year JGB yielding today just 0,2% p.a. Yet even this is enough to draw in private investors, even from Europe where the bond prices have turned already negative. Their problem is that BOJ and other public entities horde most of what comes available. Calculations show that if the current policies stay unchanged, BOJ and the other government institutions will own 60% of Japan's giant public debt by 2018. It used to be said that Japan's big public debt is not a problem as it is only "a loan" from its own citizens. Now it seems it's becoming just an inter-governmental affair, money from one pocket to another. "Looks like a giant Ponzi scheme", a banker friend pointed out.
The comfortable outlook for the time being for both big companies and the government is unfortunately reducing the latter's sense of urgency for the necessary reforms. It is no secret that Kuroda has long been disappointed for Prime Minister's slow progress during the "borrowed time" that his unforeseen monetary easing has been providing. Kuroda was especially upset last autumn when he muscled up his money game to soften the expected impact from the second tax rise only to see Abe decide to postpone it. In fact, ever since the BOJ governor has not met with Prime Minister in person, something rather exceptional. Meanwhile, the consumer spending, that has remained below the pre-tax rise levels through all this, is likely to show growth finally in April, even if only for pure statistical comparison change.
Outside Japan - but with sensitive political touch here - the big story last week was the mad rush of major Western allies to join in China's new USD 50 billion Asian Infrastructure Investment Bank project flaunting US urgings not to do that. It was started by Britain, who despite its old claims of having "special relation" with USA and obligation to coordinate its economic moves with EU partners, once again proved the old Napoleon saying that, in essence, England is "a nation of shop keepers", who always focus on its own business interests. That UK now wants to have "special relation" rather with China has come clear for some time already with its standing aside from the recent turmoil for democracy in Hong Kong, its old colony in 50 year mutual transition period to become part of China, as well as from its back hand dealings with China in UK industrial projects including nuclear power. London made its AIIB move suddenly without warning to get hold on the rich purse before other European shop keepers and bankers, but in no time Germany, France and Italy rushed to join in, too, to great delight in Beijing. With major European G-7 powers in, the main Asian US allies, Korea and Australia, decided to bite the bullet, too, leaving the slow, stubborn and overtly loyal Japan standing alone holding hand with the insistent Washington.
"Historians may record March 2015 as the moment when China's check book diplomacy took over global economic governance from USA and the international financial institutions it has dominated since WW2", waxed one analyst lyrical. And, yes, it is an embarrassment for Washington that most of its allies follow the new Pied Piper,
whose new Asian bank scheme combines with two earlier mega money political projects, namely the USD 40 billion Silk Road project and the USD 100 billion BRIC Development Bank. Yet, you can hardly blame China for going its own way to look for where to unload its huge FX holdings after it was blocked by US Congress to get a bigger seat in World Bank and Asian Development Bank, that all others accepted it deserves. Already by now, China's own state banks have provided more loans to Asia, Africa and Latin America than the old multinational institutions, so maybe channeling the money now through AIIB with over 30 countries including major Western powers in participation is not such a bad idea as it will help to make the governance clear, so that money will be not used for purely politically motivated projects or only to benefit Chinese state-owned behemots.
Chinese money rolls straight into Europe, too. Vineyards in Bordeaux, prime real estate in Berlin and icon brands like Volvo, Peugeot, Pizza Express, Aquascutum and Sonia Rykel have shifted into Chinese hands. The Greek port of Piraeus is partly owned by China's government shipping company, now waiting to buy the rest in the ongoing turmoil there. Last week Pirelli, the Italian tire maker, joined in the crowd after being bought by the gigantic China National Tire & Rubber Company.
What Chinese companies are looking for in many of these cases is global brand name recognition, something that its volume wise big and moneywise rich companies lack. Yet, there's a remarkable difference between US or Japanese private companies buying into Europe to China's state owned companies doing that. At the end, the latter are extensions of Beijing government and the communist party apparatus, so any brand shift is not just business but extension of China's political influence. Even private companies in China have close connections with government with their super rich owners CCP members sitting in China's mock up parliament. With US putting brakes on Chinese acquisitions and China itself making life of all foreign companies on its own ground increasingly difficult these days, Europe's readiness to accept China with open arms is striking. As one analyst put it, it's no better than throwing European markets open to Russia's state owned companies like Rosneft and Gazprom, something hardly imaginable today. In Finland, people are getting worried now even for Russian summer houses and small hotels if they are located too close to border or military installations.
Recent Japan visit by Angela Merkel was another example of Europe's innocent views Or was it just bad manners? The German leader, who has shown incredible skill, energy and patience leading her own and other EU nations in endless talks to clear the economic recession and to solve the political crisis with Greece and Russia, mysteriously lost the plot here and managed to turn her valuable first visit in seven years into PR catastrophe with lectures on how Japan should follow Germany in rejecting the nuclear power and atoning for the war crimes. Ripping into the most sensitive policy issues in the host nation today is not just against diplomatic protocol, but simply stupid and rude behavior even in social terms. The Japanese hosts must have been surprised and upset even if there was no official comment. For them it was like a gaijin walking on your precious tatami mat with muddy boots on. You hiss inside of the outrage, but must bite your tongue for the courtesy's sake. Hope Frau Merkel's footprints will not leave any permanent stain into the EU-Japan relations including the ongoing free trade talks.
Ironically, upon return home the German leader was serenaded with Greek bouzoukis the same music Japan has to constantly listen from its neighbors. After all, it turned out, there were a high number of issues from its Nazi past that Germany had not cleared and compensated to the Greeks. Germany had destroyed culture and economy, never paid back "loans" it forced Greeks to dish out and even requested Jews to pay for their own tickets to concentration camps on German trains, claimed the young Greek PM. No, these matters were all cleared up long ago, said German Foreign Minister. How familiar that sounded. Yes, it was just a political maneuver to shift subject in the ongoing feud, but so it is most of the time even in this part of the world.
The incident made me pick up an old book from my book shelf to refresh my memories of the post-war experience in Germany and Japan. "The Wages of Guilt - Memories of War in Germany and Japan" was written by Ian Buruma in 1995, but it still is the best I have read on the subject. As a Dutchman, the writer has a thing or two to say about the Germans, more so his Polish interviewees on Auschwitz etc, but the richness in details of the topic and Japan's culture as wells as personal meetings with a wide array of the society here is what still impress you. The Japanese views expressed then have not changed much, but remain valid still today, in the extreme right as well as with those demanding absolute atonement with no ifs and buts.
With such disharmonic background, it is no wonder the play around the Prime Minister's 70th anniversary speech on August 15 keeps rising the pitch. The special expert committee appointed to advice PM what to say exactly is said to be split in opinions while the volume of music from the outside keeps growing. As Abe is invited during his Golden Week US visit to give speech for the joint chambers of US Congress, something no Japan PM has done ever, US Korean residents and WW2 veterans have requested that Japan PM should in advance submit his speech for their screening. If it does not meet their requirements in its tone, his invitation should be cancelled, they say. Talk about manners. And reason.
The finding of the wreck of the mighty Musashi, the world's biggest battleship in its time, now the resting place of half of its 2400 strong crew 1000 meters deep in the Pacific Ocean, comes into this noisy debate almost like the mythical big black mass from outer space, soundless, creepy and impending. Its perfectly timed appearance on the stage has a special meaning, its impact bigger than finding of the Titanic at the time. Just looking at the pictures that the private US submersible relayed, makes you go quiet and think deeply about the drama and suffering that the WW2 was and what every war is.
There is every reason to repent and swear not to do it again on all sides.
Tokyo March 30, 2015