British PM May reassures Japan on Brexit & Security

When the British prime minister Theresa May stepped off the plane in Osaka at the start of her first official visit to Japan, she wore a red and white outfit to match the colours of the country’s national flag.

It was a gesture of goodwill to the UK’s largest Asian investor at a time when the relationship between Britain and Japan has been strained by Brexit. Mrs May set out her agenda before taking tea with her Japanese counterpart Shinzo Abe in Kyoto.

“I’m going to talk to Mr Abe about the future relationship between the United Kingdom and Japan and about how we can build upon what is already a good strong relationship in the areas of security, defence and trade,” she told journalists.

Will she stay as PM?

Her agenda was upset by British reporters’ questions about how long she would remain as prime minister and if she would lead her party, the Conservatives, to fight the next general election.

However, the business community in Japan has limited interest in Britain’s domestic politics. It is much more interested in how Mrs May will lead Britain out of the EU and what the deal with Europe will look like at the end of the process. Under current plans, Britain is set to leave both the single market and the customs union, putting future trade with the EU in jeopardy.

“Anxious and bewildered”

This has left Japanese companies “bewildered and anxious,” according to Professor Seijiro Takeshita from Shizuoka University.

More than a thousand Japanese companies have offices registered in Britain, employing around 150,000 people. Many of them chose the UK as a base from which to reach the market of the European Union.

Professor Takeshita says that the Japanese companies are frustrated by the slow progress in the Brexit negotiations. “The longer those talks take, the more the Japanese companies in the UK will look to relocate parts of their business to the continent,” he says.

The head of Nissan, Carlos Ghosn, has also said that long-term investment by Japanese companies in Britain will be affected by its relations with the EU. Nissan has a large factory in the North East of England, a region which was strongly in favour of the Brexit.

Reassurance

The British government has tried to reassure Japanese businesses that Britain will be open to trade with other parts of the world after it leaves the EU and it that stands ready to agree a free trade deal with Japan.

However, this promise has often been met with scepticism. Stephen Porter, an art dealer with links to Japan, says: “The Japanese are terrified of losing access to the world’s biggest free trade area. Many Japanese companies based themselves in Britain specifically because they, quite reasonably, thought that doing so would give permanent access to the EU.”

Mr Porter, a founding partner of Arthistorical in London, warns that: “Mrs May could well be publicly humiliated if Shinzo Abe openly expresses – as well he might – the widely-held view in Japan that Britain has unfairly reneged on its commercial commitments by allowing the Brexit to happen.”

Banks on the move

Another concern is the possible departure of banks and financial institutions from London to continental Europe. Hideki Kishida, a Senior Economist at Nomura Securities, observes that “some financial institutions have already announced that they are prepared to move a certain number of jobs from London to the European continent to retain the single passport system which enables them to operate within the EU. That is not good for the UK.”

The goal for Mrs May is to secure an agreement from Japan for a free trade deal, like the one Japan has recently agreed in principle with the EU. Yet Britain is constrained from entering such negotiations with Japan until the Brexit process is completed. Likewise, Japan wishes to settle its arrangements with the Europeans before it starts talk with the British.

Common Ground 

Professor Takeshita from Shizuoka University hopes that when the UK-Japan talks eventually start, the two sides will quickly find common ground. “There is a lot of similarity in terms of values and ideology of trade and business between the Britain and Japan and that should help the FTA talks,” he says.

Furthermore, Japanese companies are keen to invest abroad, provided the political and economic risks do not appear too severe. Since the start of 2017, profits at Japanese companies have been rising in Japan alongside a rise in value for the yen and this motivates many cash-rich Japanese firms to expand overseas. Provided Britain avoids a deep recession and the Brexit negotiations remain track, it should remain a relatively attractive investment destination for Japanese companies.

Defence pledge

Aside from trade, Prime Minister May also declared the UK’s support for Japan’s defence objectives, including its bid for a permanent position on the United Nations Security Council. She visited an aircraft carrier in Tokyo and announced that UK troops would soon take part in joint military exercises in Japan, the second country to do so after the US.

The tense situation in East Asia was emphasised when North Korea fired another missile near Japan just before Mrs May arrived in Osaka. The Prime Minister condemned the action but the UK is a relatively minor player in the region and has little ability to influence affairs on the Korean peninsula.

Why can’t China and Japan be friends?

As China prepares to decide who will lead the country for the next five years, the rhetoric against the Chinese Communist Party is growing louder in some sections of the international media.

This week, Japan’s right-wing nationalist newspaper the Sankei used its website Japan Forward to interview a political activist who claimed that: “Asia is now being steadily colonised again, not by the West but by the Chinese Communist Party.”

The Japan Times, which generally takes a more moderate approach towards China, ran a strong editorial condemning Communist attempts to censor academic articles about Chinese history.

And the Financial Times has drawn its readers’ attention to the close grip the Communist party has on Chinese businesses and its power over the foreign firms doing business in China, including Japanese companies.

Cool relationship

This autumn, the inner circle of the Chinese Communist Party will meet to decide if Xi Jinping will remain its general secretary for the next five years, or if another man will lead the nation.

Japan hopes that China’s leader will be friendly because China is Japan’s largest trading partner and their economic fortunes are closely linked. Diplomatically, though, the relationship between them remains extremely cool.

China often blames this problem on Japan’s prime minister, Shinzo Abe, who it regards as a provocative nationalist. However, in terms of foreign policy and business, Mr Abe generally takes a very internationalist approach, as illustrated by the recently brokered free trade deal with the EU.

Friendship and Alliance

The problem, as China sees it, is Japan’s close link to the United States. Mr Abe has maintained friendships with both Presidents Obama and Trump and last week, Japan’s Defence Minister Itsunori Onodera visited the US Defense Secretary Jim Mattis in Washington. They confirmed their commitment to the military alliance.

That sends a message that the US stands ready to defend Japan if it is attacked by North Korea. However, China loathes the idea of America playing a greater military role in East Asia.

“Crippling Sanctions”

That has been made clear to the politicians and business leaders of South Korea. In the wake of the growing belligerence from North Korea, the South Korean government has agreed to deploy an American anti-missile defense system known as THAAD.

China has responded by imposing sanctions on South Korea which could “cripple its economy” according the website, The London Economy.

Japan wishes to avoid any such problems with China, especially if they affect the many Japanese-owned factories on the mainland.

Yet Prime Minister Abe’s government takes the view that the alliance with the US is of more value to Japan’s long-term security than a friendly relationship with the powerful Chinese Communist Party.

Japan’s economy extends its winning streak

Japan’s leaders have been praised in press this week following an impressive turnaround in the economy.

Japan’s economic growth has reached four percent, extending a winning streak which looks set to continue.

It comes after a period of trouble for Prime Minister Shinzo Abe and his cabinet.

“I’m sure Mr Abe will be very happy, particularly because other statistics such as industrial production are also strong,” said Masaski Kuwabara, an economist at Nomura.

Happy Abe

Mr Abe should be pleased with the timing of the good economic numbers, because they come following a period of political trouble for him.

He recently made an apology on national television following a corruption scandal.

But now he can claim that his economics policy, known as Abenomics, is showing many measurable signs of success. One of its key goals was to achieve an annualised growth rate of two percent and the current rate is double that.

Three Arrows

Abenomics is based on the concept of three arrows.

The first two arrows involve increased government spending and the injection of money into the financial system through the Bank of Japan.

This appears to have created a cheerful situation in which many people, including pensioners, have been spending some of their savings on new cars and electronic goods. That is in line with Mr Abe’s plan to stimulate the domestic economy, as well as to create benign conditions for Japanese companies to expand their overseas trade.

The third arrow of Abenomics is based on the concept of reform, which is more difficult to measure than economic growth. It is rather like watching lots of little arrows fired at a wide variety of targets, so it is hard to see which ones are on target. However, some reforms are tangible, such as increased support for new parents who want to take time off work to care for children. This is part of the government’s initiative to encourage more people to raise families and reduce the falling birth rate.

FT Praise

One of the most controversial parts of the economic growth plan has been the purchase by the Bank of Japan of government bonds, known in the jargon as a programme of quantitive easing, or QE.

It is often criticised for running up debt. But this week an editorial in the Financial Times supported the policy, suggesting it has been endorsed by strong economic growth.

The FT said the Bank of Japan is “following an appropriate campaign of stimulus which has brought one of the world’s more troubled advanced economies out of a serious funk and back to economic growth. It should continue to do so.”

America’s Federal Reserve and the European Central Bank are also involved in expensive QE programmes, although there are signs that they could soon start to taper them off. However, Japan is likely to continue with its extraordinary stimulus measures until it is sure Mr Abe’s arrows are on target.

Sony’s girlfriend finally gets her reward

I once had a Japanese friend who was so crazy about Sony that she drew the company’s logo multiple times onto pieces of paper, then cut the designs out and turned them into labels which she affixed to all the machines in her flat, in order to make them look like Sony products. She had a toaster with a Sony label on it. She rebranded her laptop as a Sony. Even her fridge was Sony.

From the 1960s to the 1980s, Sony was the symbol of Japan’s technological innovation and its rising global influence. Yet in recent years, it’s been under enormous competitive pressure. It lost a huge share of the TV market to South Korean companies such as LG and its phones and computers were up against those made by Apple. Even its successful camera business was hit hard by people choosing to take pictures on their phones.

Nevertheless, things are now looking up for Sony. The FT reports it’s on track to make ¥500bn in profits this year and analysts describe this as “a target waiting to be exceeded”. That could put Sony on track to beat the record profit it made in 1998.

The optimism has helped Sony’s share price. It’s risen more than 30 percent since the start of 2017 and has comfortably outperformed the main share index in Tokyo.

Sony’s most profitable division is computer gaming, built around the games console Play Station 4, which is much more popular globally than Microsoft’s Xbox One.

Another source of pride is its film division. Last weekend, the Sony adventure film The Dark Tower was the number one film in America, with other Sony titles, The Emoji Movie and Spider Man, also in the top ten. Films are hugely expensive to make, though, and even a number one hit doesn’t guarantee a return on the investment.

Sony’s president, Kazuo Hirai, who takes much of the credit for the turnaround, has also been asking staff to come up with new ideas. Fortune magazine reports that among the proposals are a self-flying drone and a machine which dispenses fragrances to enhance a person’s mood, enabling them to be calmer and more focused at work. Of course, it has a Sony label on it. It sounds just like an idea which would have appealed to my Japanese friend.

Who will be Japan’s next leader?


There is much gossip in Tokyo about who will be the next prime minister.

The current leader, Shinzo Abe, recently made an apology on national television, bowing deeply before the cameras in a sign of remorse following a series of scandals.
However, he continues to cling to power, despite dwindling support among the members of his party.
Mr Abe’s government has been beset by corruption allegations and he has been accused of cronyism towards his friends. His response – along with the television apology – was to reshuffle his cabinet. That will not prevent his rivals from plotting against him.

The two greatest promises he made – to return Japan to a normal rate of economic growth and to end the cycle of deflation – have not yet been demonstrably achieved.

A vociferous media holds the politicians to account and conducts regular opinion polls to check their popularity.

These suggest that Mr Abe’s popularity sunk very low before his apology. He might have resigned, were it not for the fact that the leader of the main opposition party, known as Renho, was also unpopular, according to the polls.

Renho, who generally goes by only one name, became the first woman in two decades to lead a major political party in Japan when she took the helm of the Democratic Party last September.

But she didn’t communicate well through the media, which kept running stories about her status as a Japanese citizen and her links to Taiwan.

As leader of the Democratic Party, her chances of beating the LDP in a general election were always slim. The LDP has been in power almost without interruption since 1955. Yet it is split into many factions and anyone who plans to lead it must keep them satisfied, which is why Japanese politics can seem very murky and remote to the average voter. Some experts believe that the Deputy Prime Minister Taro Aso has enough support to topple Mr Abe.

Jake Adelstein wrote on the Daily Beast that Mr Aso is similar to Donald Trump because he’s wealthy and prone to making outrageous comments, such as a suggestion that Japan could learn constitutional reform from Nazi Germany.

Another possibility is that a defector from the LDP, Yuriko Koike, becomes a candidate to become Japan’s first female prime minister.

She did well in recent elections in Tokyo but she said she does not want to return to national politics. If she does so, she’ll be up against many of her former colleagues and allies, who put the perseveration of the LDP’s long reign of power at the top of their political agenda.