Trump leaves Asia guessing on North Korea

Most politics in Japan is influenced by its two most important relationships; those with China and the United States.

Last week, President Xi Jinping of China visited President Donald Trump in Florida. The Japanese were not invited.

Both China and the US claim the summit meeting was a success. Mr Trump said there was “tremendous progress” in the US-China relationship during the talks.

By contrast, Japan’s current diplomatic relationship with China is in a poor state, with no recent top-level contact between Prime Minister Shinzo Abe and President Xi.

Mr Abe has attempted to build a rapport with Donald Trump over rounds of golf. And for reasons of both trade and security, Japan would like to see a peaceful, friendly relationship between the US and China.

That is also China’s goal, according to a statement on China’s foreign ministry website. Mr Xi apparently told Mr Trump: “We have a thousand reasons to get China-US relations right and not one reason to spoil the relationship.”

During his trip to Florida for the summit, Mr Trump took the decision to order a missile attack on Syria. He said it was in response to the use of chemical weapons.

Prime minister Abe sent a signal of support but China said it opposed foreign military action in Syria.

The US and Chinese presidents also discussed North Korea.

Mr Trump told the Financial Times before the meeting that “If China is not going to sort out North Korea, we will.”

So what signal did the missile strike on Syria send to North Korea and the rest of Asia?

Did it suggest that the US would consider a missile strike on North Korea to stop its nuclear weapons programme?

The Financial Times’ editorial said that unilateral armed intervention by the US in North Korea would be “calamitously risky.”

“If North Korea’s nuclear capacities were taken out with bunker-busting missile strikes, Pyongyang could destroy Seoul with its artillery almost immediately. Its missiles could reach Japan. Millions of lives would be at stake,” said the FT.

Should the government rescue Toshiba?

Toshiba must reveal the full scale of its financial problems within one month or face being de-listed from the Tokyo Stock Exchange.

The company has twice failed to submit audited accounts which show how much money it has lost on its investment in nuclear power in the United States.

Toshiba has said the problems will cost at least six billion dollars but the full cost could be higher. Toshiba has debts relating to the Westinghouse nuclear power business America. Its auditors say it is difficult to assess the full scale of the problems.

There is now a debate about whether the Japanese government should rescue Toshiba, which employs nearly two hundred thousand people worldwide.

The Financial Times correspondent in Tokyo, Leo Lewis, says that a rescue deal would not fit well with Prime Minister Shinzo Abe’s business policy. He is pressing Japanese corporations to be more accountable to shareholders.

The government is reluctant to bail out companies which lose money through strategic mistakes. Shareholder activist groups complain this often happens in Japan and therefore corporate misdeeds go unpunished.

However, the powerful business group the Keidanren has suggested a rescue is required. The Keidanren’s chairman Sadayuki Sakakibara said “we must find a solution” to Toshiba’s problems because it is such an important company.

Toshiba wants to sell parts of its business to cover its losses. However, there are not many potential buyers for the Westinghouse nuclear power operation in America. There are contradictory reports in the media about whether the Koreans are bidding of if they have ruled themselves out.

Toshiba’s best asset is its memory chip business, known as Nand. The FT suggests that it is worth $20 billion.

The Japanese usually avoid selling companies to foreigners. Therefore, a rescue by other Japanese companies is likely, provided Toshiba can produce a credible, audited set of accounts and avoid the disgrace of having its shares taken off the Tokyo Stock Exchange, where they have been traded since 1949.

Japan’s dynamic global trade

This week, I gained valuable insights into the way Japanese companies work around the world to help countries to build power stations, ports and airports.

The deals are often complex but they illustrate the smooth way in which Japan’s big institutions work together with its government to help people, especially in developing countries.

Take, for example, a geothermal power project in Indonesia which will bring electricity to 120,000 homes.

The energy will be emissions free, which means almost no pollution. Japan already produces geothermal power near its volcanos and hot springs. Some parts of Indonesia have similar geological conditions to Japan and are suited to this kind of technology.

The work on the new project will be undertaken by Sumitomo, one of the giant Japanese trading companies. Sumitomo will work in partnership with a French company, Engie, which has a subsidiary in Indonesia.

Now let us consider the funding.

The Indonesians will need to pay for the plant. They are being offered loans to $440m by Japan. Around half of that money will come from the Japan Bank for International Co-operation (JBIC), a state-owned operation which specialises in this type of loan. The rest of the money comes from a group of Japanese commercial banks including the Bank of Tokyo Mitsubishi UFJ, Mizuho and Sumitomo Mitsubishi Banking Corporation. The loan is part of a syndicate handled by the Asian Development Bank.

These are in effect high-risk loans but there is insurance to mitigate the risk. It is provided by another Japanese government agency, known as Nippon Export and Investment Insurance (Nexi).

This complex deal is a part of a huge network of trade and export finance operations which enable countries to help each other with projects which improve people’s lives. Japan and China are the biggest players. In fact, Chinese banks did $24 billion worth of trade deals in 2015. Japanese banks came a close second with $21 billion.

This thriving trade activity reveals a side to corporate Japan which is extremely international and quite dynamic. I look forward to learning more about it when I moderate the panel of Japanese experts at the TFX Conference in Nairobi, Kenya at the end of this month.

Cost of North Korean threat increases

Japan is to spend a record sum on defence in the face of missile launches by North Korea and a rise in China’s military power.

Prime Minister Shinzo Abe told parliament that defence spending will not fall below one percent of GDP, despite Japan’s continuing economic problems.

The Japanese parliament, or Diet, agreed a record defence budget last year.

The greatest nightmare for Japan is an attack by North Korea. This week, Mr Abe said the threat had entered a new phase after four ballistic missiles were fired into the Sea of Japan.

One of the four missiles landed about 200 km north of the Noto Peninsula in Ishikawa Prefecture, the closest ever such touchdown to Japan’s mainland.

There has been a debate in the Diet, or parliament, about the best way to counter the threat. A former defence minister, Itsunori Onodera, suggested that Japan should develop the capacity to strike directly at North Korea’s missile launch sites.

As the website Japan Today points out, Japan has so far avoided taking the controversial and costly step of acquiring bombers or weapons such as cruise missiles with enough range to strike at other countries, relying instead on its US ally.

Mr Abe and President Donald Trump spoke on the telephone following the North Korean missile launch this week. Meanwhile, Japan’s Chief Cabinet Secretary Yoshihide Suga has welcomed Mr Trump’s plans to increase spending on the US armed forces, claiming this would strengthen the US-Japan alliance and contribute to global stability.

President Trump has asked Congress to raise the US defence budget by about 10%, paid for partly by cuts to the civil service and to foreign aid. Following Mr Trump’s announcement, China said it will increase its military spending by about 7% this year.

Yet the rate of growth in China’s economy is slowing down. Premier Li Keqiang told the National People’s Congress this week that China has lowered its annual economic growth target to around 6.5%.

China is also attempting to calm the tension on the Korean peninsula. It has called on North Korea to stop its missile launches and for South Korea and the United States to stop military drills. Chinese Foreign Minister Wang Yi said the rising tension is like two “accelerating trains coming toward each other.”

Dark deflation era “may end soon”

“There’s a good chance that Japan will soon be exiting its long dark era of deflation.”

That was the optimistic view expressed by Peter Berezin, who runs global investment strategy on behalf of BCA Research when he spoke to Market Watch this week. “This will be a huge surprise to investors,” he added.

It would also be a surprise to most media commentators who tend to define Japan’s economy as “ailing” or “moribund”. From their point of view, deflation is a symptom of national malaise.

Prime Minister Shinzo Abe and the Bank of Japan have a target of two percent inflation, which seems a long way off. The latest inflation numbers will be announced on Friday but the consensus among economists is that the rate will be less than zero, in other words in deflation territory, despite an experiment with ultralow rates.

Broken promises regarding the inflation target have eroded trust in the central bank and have affected the credibility of Mr Abe. Mr Berezin’s optimistic opinion is that the situation could change soon. His view is based on one of the great strengths of Japan’s economy: its very low unemployment rate, which stood at 3.1% in December.

Mr Berezin believes that this low unemployment and a very high ratio of job openings to applicants will encourage employers to offer pay rises to new recruits and to existing staff. Should this happen, the theory is that the newly enriched employees will go out shopping and this will stimulate the economy and push up prices.

Not everyone agrees with such optimism. Bank of Japan board member Takahide Kiuichi argues that the bank’s 2% inflation target is “unfeasible” due to demographic trends, such as a decline in the population of people of working age.

“Price conditions will remain consistent with the economy’s growth potential,” he says.

Deflation is only part of the picture. A country’s economic success is often measured by overall GDP growth. Japan’s growth has averaged less than one percent annually since the 1990s.

A writer called Kevin Drum has written an intriguing article on Mother Jones which claims that the overall GDP numbers tell a limited story. Mr Drum says: “The key metric to judge whether an economy is in good shape is GDP per working-age adult, since that tells you how productive your workers are.”

He claims that GDP per worker in Japan has risen to a higher rate than the United States. This surprising claim counters the view that Japanese workers are not particularly productive. Hard working, productive staff and a low unemployment rate would justify a rise in wages.

Potentially, women could benefit more than men. Mr Abe’s policy of “womenomics” to encourage more women into the workforce seems to be working. The female labour force participation rate was 50.4% in December 2016, compared to 47.8% when Mr Abe took office in December 2012.

Both women and men would be pleased to take a pay rise, especially if it indicates a greater optimism about Japan’s economic future.

Less work could be a lifesaver

Tired businessman sleeping at desk in office

The CEOs of Japan’s biggest companies are encouraging their staff to leave the office early to help ease the pressure of working life.

Once a month, employees will be invited to pack up work at three pm on Friday afternoon, leaving them free to travel, shop or spend time with their families.

The initiative, backed by the powerful Japanese business lobby the Keidanren, follows concern over the intense pressure to work long hours in Japan. This has been associated with death by overwork, or karoshi.

Last year, the head of one of Japan’s largest advertising companies, Dentsu, resigned following the suicide of a 24-year-old employee, which was blamed on overwork.

It is difficult to classify the exact cause of death by stressed employers, particularly if the fatality is linked to a stroke or a heart attack and suicides, such as that of the young Dentsu employee, rarely have one single cause.

Nevertheless, government figures show that 189 deaths were classified as karoshi last year. The media in Japan frequently estimate the actual number is much higher.

Japan has a culture where many people feel they should spend long hours in the office. Men are reluctant to leave before their superiors because they do not wish to appear lazy. In addition, socialising with colleagues after work is the common.

The hard-working, long hours culture started in the 1970s, when wages were relatively low and employees wanted to earn extra money. It continued through the boom years of the 1980s, when Japan’s economy was growing rapidly. Nowadays, people whose companies are affected by the economic slump hope long hours will lift their profits.

Foreigners who spend time inside Japanese offices are often struck by the relatively low productivity which seems to go along with these long hours.

“In a Japanese workplace, overtime work is always there. It’s almost as if it is part of scheduled working hours,” said Koji Morioka, an emeritus professor at Kansai University who is on a committee of experts advising the government on ways to combat karoshi. “It’s not forced by anyone, but workers feel it like it’s compulsory,” he told the Washington Post.

So, what of the initiative to convince workers to leave early once a month on Friday? It is not compulsory, so people are entitled to ignore the guidance. And there’s nothing to stop people trying to make up the hours by doing unpaid overtime on other days or at the weekend.

The criticism of the government’s plans on reducing overtime is that they are also guidelines and not strict laws. That is understandable, given the huge number of small businesses in Japan where it would be almost impossible to monitor people’s working hours. But the involvement of the Keidanren, which represents the big employers, suggests that managers realise that to get the best out of their staff, they need to offer them a rewarding work-life balance.

Interview with China expert Professor Rana Mitter

For China and Japan, the battles they fought in the 1930s and 1940s continue to scar their relationship. On a diplomatic level, there has been no meeting between their leaders since President Xi Jinping exchanged a frosty handshake with Prime Minister Abe in late 2014.

President Xi has worked in recent years to enhance the image of the Chinese Communist party and its achievements in the wartime period, even though many historians believe it was the Chinese Nationalists, not the Communists, who did most of the fighting against the Japanese army. The struggle with Japan therefore continues to be used as a way of providing legitimacy for the current Chinese leadership.

Chinese commentators also often claim that Japan has not properly apologised for its invasion of Manchuria in 1931 and for the Sino-Japanese war, which took place between 1937 to 1945.

Professor Rana Mitter is an expert on the period and the way it influences current political thinking in China. He is Professor of the History and Politics of Modern China at Oxford University in the United Kingdom. Professor Mitter believes it is time for China to stop demanding more apologies, so that the relationship between China and Japan can move forward to the mutual benefit of both nations. He also wants Japan’s leadership to speak out against revisionist views of history.

I interviewed him London at the Sino-British Summit in London in February 2017. I started by asking him about the perception among some Chinese people that Japan still owes China an apology.

I spent he best part of ten years doing research for my book China’s War with Japan 1937-45 entitled “The Struggle for Survival”. I particularly looked at that war from the Chinese side. You cannot study the history of the period without realising that the present-day resonance of the war is still very much a current issue.

And one of the things that you hear repeatedly, often from very well informed people, is the idea that Japan has never fully apologised for its war crimes. You also hear that Japan’s text books are full of misleading accounts or they ignore issues such as Rape of Nanking in 1937. I point out that a succession of Japanese prime ministers has made very comprehensive expressions of remorse and sorrow and horror at the crimes which were committed by Japan in the 1930s and 1940s. Anyone who knows about what the Japanese did in China and Korea and other parts of East Asia will know that these included appalling acts of brutality, there is no question about that.

But we also know that there has been a series of Japanese leaders who have apologised publicly and profusely.

China is talking about taking up the role of global economic leadership. This was something President Xi alluded to in his speech at Davos in January. He suggested that this role suits China because America is taking a more inward- looking and protectionist position under Donald Trump. Where does that leave China’s relationship with Japan?

If China is about taking a leadership role, particularly within the Asian region, then I think it should recalibrate its relationship with Japan. China is seeking leadership so it is pushing hard on economic integration in the region. However, China is aware than no infrastructure can be developed in the region without Japan being included. So, if there is a pivot to Asia by China I think it’s going to have engage seriously with the other countries including Japan. That would be a serious change of direction.

In that scenario, China warms to Japan. But what would China have to do to create a warmer diplomatic relationship with Japan? It seems very cold now.

Yes, I think the relationship is cool, at least on the diplomatic level. There have been no direct talks between President Xi and Mr Abe since they met on the fringes of an ASEAN meeting at the end 2014. Also, there is continuing friction on both sides about the islands in the South China Sea. However, it is important to look at the whole picture. There is a very high level of mutual trade between China and Japan and many Japanese companies are investing in China, so from an economic point of view, China is very aware that it cannot afford to alienate Japan completely. Japan also aspires to increase its profile and leadership capacity in Asia. It cannot do that simply by presenting itself as the country which is in opposition to China. Japan needs to build a new relationship with China. There could be a great deal of mutual benefits for both sides, if they are willing to seize them.

What about Japan’s relationship with the United States? Does Mr Abe need to be careful in terms of the way he deals with Mr Trump? If he tells Mr Trump he wants a bilateral trade deal and that he wants to collaborate with the US on security and defence, what signal does that send to China?

China’s leaders have said more than once which is that the Pacific Ocean is wide enough for two big powers to co-exist there. China is prepared to share influence in the region with Japan. All the countries in the Asia Pacific region will need to work out what it means to have a balanced relationship with the US and with China but I think it is misleading to think of these as mutually incompatible goals. There are a lot of areas where Japan has common interests with China and with the US so there is a lot to be gained from economic co-operation. The fact is that Japan and China will always be next to each other geographically, so this provides economic opportunities.

Some people say that Mr Abe is an extreme nationalist. What do you make of that claim and how does it affect the Japanese-Chinese relationship?

I think one should not take too seriously accusations that Mr Abe is on the wilder fringes of nationalism. He is quite mainstream and he leads a mainstream party.

What I do regard as problematic is that there is a part of Japanese society which takes a very inward-looking and only partial view of Japan and the Second World War. I recently visited the Yasakuni Shrine in Tokyo, where the descriptions on the exhibits blamed the reasons for the outbreak of war almost entirely onto China and other Asian nations and said nothing about Japan’s fault. This kind of rhetoric makes it harder for Japan to put itself forward as a regional leader. I do not think anyone who looks at Japan seriously sees anything other than a liberal, pluralist, democratic state but it is also the case that there as aspects of Japan’s engagement with the past which still make other countries uneasy. So, it would be helpful if someone like Mr Abe, who has the credentials of a patriot, speaks up much more openly to say that any displays of extreme revisionism in the public sphere are unacceptable. It would do wonders for Japan’s image in the region.

Toyota Warns on Hard Brexit

The chairman of Toyota has reacted cautiously to a speech by the British prime minister Theresa May in which she tried to reassure companies about the implications of the Brexit.

The speech included an offer of support for international auto makers, such as Nissan and Toyota, which use their British factories to export to Europe.

The prime minister said she would seek special terms for automotive companies during negotiations on Britain’s withdrawal from Europe’s Customs Union, which ensures that goods move freely between its member countries. For car makers like Toyota, whose components cross borders many times during the manufacturing process, the customs union is an attractive aspect of EU trade.

When questioned about Mrs May’s speech at the World Economic Forum in Davos, Toyota’s Chairman Takeshi Uchiyamada told the Financial Times that the Brexit is likely to impact his company’s UK operations.

He suggested that the Toyota factories in Burnaston and Deeside – which employ 3,000 workers – would need to raise their level of competitiveness.

“As a UK company, if the situation changes, it is important for that company to make efforts so that they can maintain their competitiveness and continue their business,” Mr Uchiyamada told the FT.

Around 75 percent of the Toyota cars made in Britain are exported to Europe.

Even though Mrs May promised to seek special terms for car-makers, she said membership of the customs union was incompatible with Britain’s goal of global trade.

She also committed to take Britain out of the single European market, which has previously benefitted Japanese companies which use the UK as the base for their European operations.

Nearly all Japanese business leaders surveyed by the Japanese Chamber of Commerce and Industry (JCCI) last year said that they were against Britain’s exit from the European Union. Japan’s Prime Minister Shinzo Abe also indicated he was in favour of Britain remaining in the EU.

After the initial shock of the referendum, the British economy has grown faster than most economists expected and Japanese investment into Britain has risen.

Nissan, which has a large factory in the North of England, was among the Japanese companies which agreed to raise investment in the UK following the Brexit vote. Its decision followed talks between managers and senior British ministers.

Mrs May strongly advocates increased trade between Britain and nations outside the EU.

She said the Brexit presents an opportunity “to build a truly global Britain.”

Her speech included a commitment for Britain “to get out into the wider world and to do business around the globe.”

She said continued membership of the EU’s single market would restrict Britain from taking independent decisions about immigration.

EU rules state that countries which subscribe to the free movement of goods within the single market must also accept the free movement of labour, which allows people from any European country to move to another EU country for work.

Chinese anger simmers over Yasakuni

360x-1Japan’s defence minister has been criticised by China and South Korea for visiting the Yasakuni Shrine in Tokyo, where the Japanese honour their war dead.

Japan’s neighbours claim the shrine celebrates people who committed war crimes. Visits to the shrine by Japanese politicians often lead to complaints in the Chinese and Korean media, but the current defence minister Tonomi Inada is noted for her nationalism and noted as something of a hard-liner.

She even once suggested that Japan should develop its own nuclear weapons – although she has since sought to distance herself from that position.

Following her visit to the shrine she told reporters: “I offered prayers with the wish to firmly build peace for Japan and the world from a future-oriented perspective. I expressed my gratitude, respect and mourned for those who gave their lives for their country. I think people in any country can understand that.”

Many foreign writers and journalists have analysed the Yasakuni Shrine issue over the years so it has probably had more press attention than almost any other political issue. It was refreshing to hear some excellent analysis of the significance of the Yasakuni in a radio programme called “Axis of Power” on BBC Radio Four by the reporter Gideon Rachman.

He is one of Britain’s most respected newspaper commentators and regularly writes for the Financial Times.

During the programme, Gideon read out one of the signs below a Zero fighter plane which is displayed in the shrine. It was used in the Second World War to attack China. The sign claimed that the battle had been a “victory” for Japan and Gideon described the tone as “frankly celebratory.”

Gideon then interviewed the Chinese political analyst Eric Li, who is often used by the foreign press to explain the thinking of the Chinese government. Mr Li said that China’s anger towards Japan is justified because of the Japanese invasion of China which took place around 75 years ago. When Gideon put it to him that the long passage of time since then should have reduced the angry feeling, Mr Li said that to say the anger should cease is like saying the Jews should no longer feel angry toward the Nazis for the Holocaust. But he also asserted that no one in their right mind believes that the anger will lead to a war in which China invades Japan.

The other excellent commentator that Gideon spoke with was Carole Gluck, a professor in history at Columbia University who specialises in Japan.

She explained that after the Tiananmen Square protests in Beijing in 1989, the Chinese stepped up patriotic education for their youth and began to demonise the Japanese. “They revved up young Chinese people with an anti- Japanese patriotic sentiment. There’s an awful lot of very intense emotional polemic, mostly on the internet and mostly in the native Chinese languages. The Japanese youth have responded in kind, so there is a hostility among young people towards the other countries which is not fact based nor experienced based,” said Professor Gluck.

The Chinese propaganda and the nationalist rhetoric of Japan are both reasons why diplomatic relations between China and Japan remain tense. However, on an individual level, the Japanese and Chinese nearly always enjoy good cordial relations, especially when it comes to business.

Furthermore, 2016 saw a record number of Chinese tourists visit Japan, drawn especially for the shopping experiences in Tokyo and Osaka.

Japan extends the same warm hospitality to the  Chinese as it does to all foreign visitors. This open approach does much to  the help to offset the unhappy memories of the past.

Abe Hails “Alliance of Hope” with US

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Japan’s Prime Minister Shinzo Abe has made a historic visit to Pearl Harbor in Hawaii, the site of a notorious attack on a US Naval base, which drew America into the Second World War.

Standing next to President Obama, Mr Abe offered his “sincere and everlasting condolences” to the victims.

“We must never repeat the horrors of war again, this is the solemn vow the people of Japan have taken,” he said.

The media have been analyzing Mr Abe’s motivation and contemplating the significance of the visit at the very end of President Obama’s time in office.

The role of explaining the Japanese government to the foreign press often falls to Tomohiko Tanaguchi, a special advisor to the Japanese cabinet. In fact, it was Mr Tanaguchi who read the English translation of Mr Abe’s speech at Pearl Harbor on international television. This important role suggests that Mr Tanaguchi took a hand in writing the speech and was determined to ensure it would resonate with an English-speaking audience.

In an interview with the BBC, Mr Tanaguchi explained that the prime minister had been contemplating the visit to Pearl Harbor since he addressed politicians in Washington in 2015. During that speech, Mr Abe stressed the theme of reconciliation between Japan and the United States and that was reinforced by the visit of President Barack Obama to Hiroshima in the summer of 2016.

Mr Tanguchi said that Mr Abe regards the alliance with the United States as “an alliance of hope.”

Donald Trump may see it differently. He has called into question many of America’s existing security deals, including its arrangements with NATO and with Asian allies such as Japan and South Korea.

According to the Wall Street Journal, Donald Trump ’s election in November triggered a wave of anxiety after he characterized Japan as a trade adversary which unfairly benefits from U.S. military protection.

The WSJ notes that the US is bound by a bilateral treaty to defend Japan from attack and is also Japan’s second-largest trading partner after China.

The chairman of the Japan Society and former British Ambassador to Japan Sir David Warren said that the Japanese would be deeply worried if the US weakens its commitment.

He stressed that East Asia is a volatile part of the world because of the threat posed by North Korea and he noted the strained diplomatic relationship between Japan and China.

Not surprisingly, the Chinese reaction to Mr Abe’s Pearl Harbor visit was very cool. The Foreign Ministry spokeswoman Hua Chunying said: “To completely make a clean break by simply visiting Pearl Harbor is just wishful thinking. Don’t forget that China is the main battlefield of World War II.”

The Japan Times praised Mr Abe’s Pearl Harbor visit but said there is  unfinished business for Japan with its former wartime enemies in Asia, in particular China and South Korea.

It also stressed that reconciliation must be part of a mutual process and cannot be achieved by one side acting alone.