Japan experts scrutinise Shinzo Abe at Chatham House Conference

This week I attended a lively conference about Japan at Chatham House in London. The speakers included experts on Japan from universities and institutions from the UK, the United States and Japan. Most of the discussion was about politics, economics and international relations. I heard a number of comments about Japan which surprised me and in this week’s blog, I am going to share what I heard. I do not agree with all the viewpoints. However, all the points below were made by people who study Japan carefully.

Here are some of the comments about Japan’s economic situation. I have summarised them into soundbites which contain very few numbers:

Abenomics has been a big experiment.

Abenomics is an intense, short-term policy. It is not designed to be long-lasting.

Abenomics is like the emergency treatment of a patient in intensive care. The aim is to stop the patient collapsing and dying.

Abenomics was a response to the economic crisis which followed the earthquake and tsunami of March 2011.

More than 200,000 Japanese are still displaced from their homes because of the earthquake and Fukushima nuclear disaster.

Mr Abe promised to fire three arrows: monetary easing, fiscal stimulus and reform. However, the second arrow has not been fired because there has not been an increase in public spending.

There is not much evidence the third arrow of reform has been fired. So far, the only visible reforms have been in the electricity sector.

Abenomics is a response to an ageing population. When people are old they do not spend so much so Mr Abe’s goal is to stimulate domestic demand by convincing people to spend.

Abenomics is based on a false promise. It promises that Japan’s economy can grow but that growth cannot be achieved with an ageing population.

Abenomics has widened the gap between rich and poor. In the financial crisis, assets such as bonds and shares lost value. Action by the Bank of Japan has caused those assets to rise in value. This has benefitted those who held the assets in the first place – mainly rich people, who are now even wealthier.

Changes to employment law have led to companies to hire less full-time staff with a view to employing them for their whole lives. Instead, they hire more part-time and temporary workers. Their pay and benefits are worth less than those of their peers who are doing the same job. This has contributed to an income gap and inequality.

Inequality in Japan is not caused by rich people becoming richer but by the poorest people in society becoming poorer.

Perceived inequality has a social and political affect. People are more like to support extreme political parties or feel disassociated from the political process.

A quarter of Japan’s spending each year goes towards servicing its national debt. This money could go to social programmes, such as helping the elderly.

In Japan, the social safety net which provides for people in time of need has traditionally been provided by family and by companies. Gradually this is changing so that the government takes more responsibility.

Japan has a large population of people who have not married and do not have children so the government’s duty to care for these people when they become old will be expensive.

Here are some of the comments the delegates made about Mr Abe:

Mr Abe is likely to remain prime minister until 2018 so he will become Japan’s longest serving prime minister since the Second World War.

Mr Abe’s political popularity will probably increase provided he focusses on the economy. He is less popular with voters when he is discussing security and reform of the constitution.

Other prime ministers have tried to implement reform but have had less public support than Mr Abe. His strong political position puts him in a good position to push through change.

And here are some other comments speakers made about Japan which could be used as soundbites, not using numbers.

The percentage of people getting married in Japan is falling. The age at which people marry is getting older.

There are more opportunities for women at work than in previous generations. This encourages women to develop their careers before choosing to marry and start a family.

A very tiny number of children in Japan are born to parents who are not married.

Child care provision for working women has improved significantly in the recent years.

Japan is the largest user of fax machines in the world.

Japan has a population half the size of the United States all squeezed into a geographical area the size of the state of Montana.

Japan has for many years been the biggest investor in China.

Japan’s relationship with the US is like that of an adolescent child. Sometimes it gets resentful and tries to rebel against the adult but afterwards it apologises and asks for guidance and protection.

On the whole, the quality of the debate was very high and there was a good rapport between the speakers and the audience. The event was well organised. However, as I want people to improve their communication skills, I made a note when I heard phrases by speakers which I feel should not be used when giving presentations.

I am really sorry but I have got five minutes and that leaves only one and a half minutes for each of my points. I will try to squeeze them all in.

I could say so much more but I need to move on.

I am sorry, there is not time for my next point, so I will skip that one.

On the aeroplane on my way to this conference, I was thinking about what to say.

(Introducing himself) I am sorry I do not know much about the subject this panel is discussing.

I did not understand the meaning of the title of this session so I looked it up on the internet.

I am not an economist (said by a Professor of Economics.)

I am sorry I am using a lot of numbers (speaker used 60 numbers in a short presentation.)

(Chairman, when asked to sum up) I am unable to sum up what has been said in this session.

So, that is my summary of the event. I enjoyed listening and learning and I am very grateful to Chatham House for inviting me to attend. I hope I can join the conference next year in Tokyo and I would love to chair one of the panels.

Abenomics floods the economy with yet more borrowed cash

20141117_abeWhat can be done by Japan’s Central bank to shake off the threat of recession and get the economy growing again?

The media were asking this question before the central bank in the US, the Federal Reserve, left interest rates unchanged.

The Bank of Japan was waiting for that news before deciding what it should do. It is also waiting to see how economic events unfold in China. Japan has benefitted greatly from the rapid rise of China, its largest trading partner, but the rate of growth there is slowing.

The Bank of Japan’s governor Haruhiko Kuroda said that if China’s economy maintains stable growth, Japan’s  exports should too. He is probably also expecting some investors to move their money from China to Japan, just as they did in August when a Chinese stock market crash boosted the yen.

The decision by the Fed to leave rates unchanged makes it unlikely that the Bank of Japan will raise its rates, which remain close to zero. The other tool which central banks use to try to stimulate economies is expensive and difficult to grasp. Since the global financial crisis, they have been buying government bonds and other assets in what the economist David Stockman calls money printing madness. The more polite definition is a “stimulus programme”.

For Japan the annual cost is almost incomprehensibly large: 80 trillion yen, $663 billion. In overall terms that is not quite as much in dollar terms as the European Central Bank spends buying assets each year; 1.1 trillion Euros, or $1.3 trillion.

Challenged on this, the Vice President of the ECB Vitor Constancio suggested the European figure was prudent compared with Japan because the Eurozone’s economy is larger than that of Japan’s.

“The total amount that we (the ECB) have purchased represents 5.3% of the GDP of the Euro area,” said Mr Constancio. “Whereas what the [US] Fed has done represents almost 25% of the US GDP, what the Bank of Japan has done represents 64% of Japanese GDP.”

Hearing this strange defence, economists concluded that the ECB has the scope to spend more if needed and “potentially much more“.

The message from the Bank of Japan seems similar to that of the ECB. Although it has decided not to increase speeding on its stimulus programme yet, it may well do so soon. Its mood is described as bullish by the Financial Times.

As well as the Fed’s decision, the Bank of Japan will be influenced by government spending decisions. As the FT pointed out recently, there will probably be a supplementary budget based on more public works spending, perhaps in November.

The Bank of Japan and the Japanese government share the same goals: a revival of economic growth and modest inflation. Their credibility rests on achieving them and their hope is that once that happens the money printing can stop and monetary policy can get back to normal.

Toshiba’s image tarnished further

ABEThere was a further blow to the reputation of Toshiba. The Tokyo stock market soared. And Shinzo Abe is set to become Japan’s longest serving prime minister since the 1970s.

Toshiba revealed in April it has exaggerated its profits, leading to the resignation of its chief executive Hisao Tanaka. This week Toshiba admitted the scale of the problem: it overstated profits by nearly two billion dollars over the past seven years. The media made comparisons to the recent accounting scandal at Olympus.

Seijiro Takeshita of Shizuoka University told BBC radio that companies such as Toshiba should not hold onto “the old methodology of business conduct without trying to change, or recognising that the world has changed.” Yuuichiro Nakajima of Crimson Phoenix said: “Toshiba will change – they will have to. They will probably sell non-core businesses. This will probably scare other, similarly unwieldy conglomerates to do the same.”

Laws to enforce reliable accounting and honest financial reporting are included in Abenomics and form part of the so-called “third arrow”, which is actually many different arrows. The Financial Times printed an excellent guide to which arrows are on target.

So is Abenomics working? There are encouraging signs. Economic figures were better than expected, so it seems Japan is not about to re-enter recession. The Nikkei recovered all the losses it incurred last month during a panic over China. And there was yet another  takeover, when Mitsui Sumitomo bought the London-based insurer Amlin for three and a half billion pounds. Peter Gray of Cavendish Financial told City AM: “Cash-rich Japanese companies have clearly opted for mergers and acquisitions as a response to a slow domestic market.”

The slow domestic market is the most serious problem for Abenomics. Fund Manager Hideo Shiozumi wants Japan to break the cycle of recession and believes Japan must target real GDP growth of two percent. Mr Abe said: “We will change Japan into a country that is able to keep growing. Placing the economy as my highest priority, I will move forward steadily, step by step, on the roadmap for achieving this goal.”

Mr Abe’s re-election uncontested as leader of the LDP gives him time to work towards that goal. He is now set to become Japan’s longest serving prime minister in more than four decades.

Japan’s defence spending to rise as Chinese troops parade in Beijing

china-mainAn enormous military parade marking the anniversary of Japan’s defeat took place in China. Japan’s defence ministry has requested its largest ever budget. And the Yakuza crime gang Yamaguchi-gumi has broken up.

China marked the 70th anniversary of Japan’s surrender in WWII with a vast parade of soldiers and weapons in Beijing, including intercontinental ballistic missiles and advanced bombers. The event was attended by both Vladimir Putin of Russia and the South Korean president Park Geun-hye. In a speech, the Chinese President Xi Jinping said China does not seek regional hegemony or expansion and that it will never inflict its past suffering on any other nation. He insisted that China was “loyally committed to the sacred duty of safeguarding world peace.” He also made the surprise announcement that Beijing would cut its two million-strong military personnel by 300,000 and described this as a gesture of peace.

Japan’s defence ministry ignored the announcement and requested a budget of five trillion yen (£27bn) next year, citing concern over China’s construction of artificial bases in the South China Sea and its claims to the disputed Senkaku/Diaoyu island chain in the East China Sea. If passed by the Diet, this will be Japan’s biggest ever defence budget and would match prime minister Shinzo Abe’s plan to expand the scope of his country’s military.

This week, Chinese television showed many drama programmes of Chinese solders resisting the Japanese in WWII. The Singaporean newspaper Today said this form of intense Chinese patriotism fuels antipathy to Japan.

Japan’s image was not helped by media coverage of the Yakuza, an organised crime group. The BBC website said the Yakuza mainly make money from gambling, prostitution and violence. It claimed that the name Yakuza is derived from the numbers eight, nine and three; a losing hand in a Japanese card game. This week the Kobe-based Yamaguchi-gumi Yakuza gang said it has broken up. Apparently, the Japanese police force is bracing itself for gang warfare as small groups of Yakuza attack others groups in battles for territory.

The Yakuza often make profit by selling drinks at extortionate prices to the customers of hostess bars. Yet those drinks appear cheap in comparison to the Japanese whisky sold this week. Bonhams auction house said a single buyer from Southeast Asia spent $118,540 on a bottle of 1960 Karuizawa, a world record. The same buyer also picked up a separate 54-bottle collection of Japanese whisky for another $489,968.

Because the whisky was sold in Hong Kong and not in Japan, the astonishing prices did nothing for Japanese inflation, which has now slipped back to zero. Still, that means a refreshing cup of green tea costs no more than it did a year ago, offering a cheap opportunity to reflect calmly on Japan’s more sober and peaceful qualities.