Terrie's Take: Problem with the "Japan Revival Vision," Cow Protest, Visas, and Summer in Japan!

Terrie's Take - AkihabaraNews.com

Terrie’s Take is a selection of Japan-centric news collected and collated by long-time resident and media business professional Terrie Lloyd. AkihabaraNews is pleased to present Terrie’s learned perspective; we all could use another take on the news - here’s Terrie’s:

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Terrie’s Take on June 23, 2014

Feature:

  • What's Wrong with the LDP's New "Japan Revival Vision" Manifesto?

Briefs:

  • Farmer protest with live cow in Kasumigaseki
  • More visa loosening
  • Exports worryingly low
  • Wetter summer may hit electricals sales

What's Wrong with the LDP's New "Japan Revival Vision" Manifesto?
We're not economists. We know little of what is going on statistically in the markets. But being business people, we realize that to stay competitive we have to be able to read the tea leaves (i.e., the news and talking to fellow business people) and thus forecast when to invest and expand and when to batten down the hatches. If you read the media, you would think that Japan is turning the corner, and now two months after the consumption tax increase, things are looking sufficiently good that we can all assume the economy will be back to normal by October. But when you talk to other business people in the street about business here and now, the story is not so bright. Indeed, a recent business confidence survey by the Ministry of Finance found that the sentiment of corporate leaders fell by its greatest margin since Q1 2011.

The Abe team is doing a great job of feeding the belief that the economy is in good hands, by pushing out selective feel-good stats that the media dutifully repeat, and blue sky visions of the future. Reading these, you really do get the impression that things might at last be changing for the better -- and isn't Abe such a great guy for making that happen? The latest LDP manifesto, the Japan Revival Vision, which was translated under the direction of one of Abe's right-hand men, Yasuhisa Shiozaki, and which we heard about from Nick Benes (someone, btw, who is really in the know), came out last month. You can find the translation here:

https://www.y-shiozaki.or.jp/pdf/upload/20140620104142_aUVp.pdf

Yes, it's long, and what you will find is that most of the media-reported headline items are in there: special zones, empowerment of women, financing support for new entrepreneurs, reduced corporate taxes, continued pump-priming of the stock market, regional reinvigoration, and others. It reads pretty well -- almost well enough to make one hopeful for the future.

But then you put on your critical thinking hat and realize what is not in the report. For example, there is nothing notable about core reform of the vested interests that infest the government and their ability to suck on public taxes. In particular, there is little mention of changes in "difficult" sectors such as law, medicine, energy, and agriculture. At least there was some detail about changing the academic sector, a previously difficult one. Our guess is that Abe knows he won't survive politically if he tries to tackle real change at this stage, and for this reason the report was very short on specifics.

Unfortunately this means that we as business people have no idea of knowing just when these initiatives will take place or how well they will be supported... so it is unlikely to move us (we're including the hundreds of thousands of other company owners around the country), into making major new investments or hiring more full-time staff. Part-timers to cover temporary needs, maybe -- which is why the unemployment rate is low right now.

With no policy statements to tackle the country's hard-core problems, we are thus inclined to believe that Abenomics itself is not about fundamental change. Instead, it's about short-term crisis management and in reality is a vast scheme to avoid having to change. How else do you explain transferring government spending to ordinary citizens through tax redistribution and inflation, rather than cutting wasteful government spending and self-discipline? Or the consolidation of national assets under the control of a trusted and compliant group of chosen winners -- all of whom are Old Boys in one way or another? We don't see much of substance here to make us think the government supports a genuinely innovative, vigorous, fair and free, market.

OK, the crowdfunding legislation, if it is allowed, could be good -- so long as the average Mrs Watanabe can be convinced to take a risk investing in a start-up they never heard of before... (may be a tough one). Legislation without popular acceptance won't increase the number of start-ups. Instead, if they added a Japanese twist such as government yen-for-yen matching, sort of like making the government the "lead investor", that would increase the credibility of the funding recipients and might work.

A dimension of Abenomics that hasn't hit the radar yet is that Japan is not just dealing with a domestic audience. Instead it has to compete with nearby countries who are willing to fight back, thus potentially triggering a beggar-thy-neighbor round of devaluations. Already the South Korean industrial sector is sounding alarm about the strengthening Won. If Japan is to compete with its neighbors long term, it is going to have to do a lot more than just polishing up an old hoe. Rather, it needs to do a deep restructuring that can break it out of its post-industrial blues and into some strong new lines of business.

Instead, Japan appears to be trying to stay in the industrialization club by creating an underclass of even cheaper labor. We can see hints of what is coming: 5-year "trainee" visas for foreigners, relaxed hiring/firing rules without any upside for expendable employees, and the idea that women will now both have to work AND have more kids. Let's remember that in spite of the so-called labor shortage Japan is facing, there are still 20m+ (almost 1/3) of workers who can't get steady jobs. Something doesn't add up here does it?

Abenomics and the stock market bubble currently forming is benefitting just a small segment of the population, and is creating a wealth divide that will cause major problems in the future. Instead of the stock market, we think the PM should be focusing more on the market segment that actually hires 70% of the nation's workers, SMEs. Abe needs to tackle through incentives and law the culture of distain and even outright bullying/abuse that smaller companies suffer at the hands of the big guys and the bureaucrats. If he can do this, as well as lift the productivity of those SMEs, then he will be helping the two thirds of Japanese workers currently missing out on the stock market boom to become better off. And without that 70% consuming the nation's output, who else will?

That fact is that Japan's SMEs have been battered by a sea change of technology and foreign competition and are in a world of hurt. They need tons of help and a short list of areas that Abe could focus on include:

1. Helping introduce a level playing field for the little guys. For example, allowing them to bid for government projects without having to be forced into profit-robbing sub-contractor relationships with major firms holding the necessary relationships and vendor accounts. More specifically, rules like not having enough capital precluding a company from bidding for government projects need to be abolished. Better still, be like the USA and have affirmative action rules which guarantee SMEs and women-owned businesses 25% of government work.

2. Providing subsidized adult education and professional consulting to help struggling companies re-skill and produce competitive products and services that can be exported. Right now formal adult education is virtually unknown in Japan, and we think lack of outside education is a major reason why the business world is so stuck in its ways. Attitudes are unlikely to change from the inside.

3. Giving SME companies access to modern tools, particularly IT tools, to become more efficient and effective. The Japanese employees of SMEs work hard, so imagine if they could afford to work smart as well? Currently it is almost impossible for an SME to get a bank loan for a multi-year R&D loan. How can companies expect to become global best-of-class competitors if they can't invest in their core technology?

4. Creating access to quality human resources, and if they can't get them here, then allowing them (and providing funding and recruiting support) to recruit from abroad instead.

5. And most of all, SMEs need sufficient capital to make the above happen. OK, the new manifesto does cover this to some extent, but given that Japan almost always follows the USA in its legislative changes, that means that crowdfunding could be several years off yet. In the meantime we have at least 300,000 zombie companies that either need killing off or to be forgiven their debts so that they can start over. That is a decision that is not in the manifesto, but it needs to be made or these zombie firms will continue to swallow up capital just to cover old debts, rather than investing for the future. Sure, US$200m is a lot to forgive, but considering the amounts being spent by the BoJ to buy essentially worthless government bonds every month, it seems a small price to pay for the subsequent reinvigoration of the economy.

Farmer protest with live cow in Kasumigaseki
The bureaucrats in Kasumigaseki upset enough ordinary citizens every year that practically every day there is a protest of some type at the foot of some ministry's tower or other. Last week it was the turn of the Ministry of Agriculture, when farmers operating an abandoned farm inside the 20km exclusion zone at Fukushima showed up with one of their cows. The farmers are trying to get the government to launch a probe into why the animals have been developing "white dots" on their skins. The cow being paraded was from Kibo no Bokujo (Farm of Hope), just 14km from the Fukushima Daiichi power plant, and is from a herd of 350 animals abandoned there. (Source: TT commentary from Japantimes.co.jp, Jun 20, 2014)

More visa loosening
Encouraged by the success of the visa-free 15-day travel offered to Thais and Malays last year, the Ministry of Foreign Affairs has posted a note on its website saying that a Ministerial Council is now weighing up whether to recommend visa relaxations for travelers from Indonesia, Vietnam, and the Philippines. Currently Japan receives about 330,000 travelers from these countries every year, and this is expected to at least double if the current travel restrictions are eased -- meaning another 7 million tourists a year, and putting the government well on its way to hitting 20m tourists by 2020. One of the concerns has been overstayers from these three countries, but police statistics show that less than 1,000 people overstay currently. ***Ed: Our guess is that the visa easing will happen in Q1 of the next financial year, much the same as the Thai/Malay easing last year.** (Source: TT commentary from ttrweekly.com, Jun 20, 2014)

Exports worryingly low
Due to lower demand in China, elsewhere in Asia, and the USA, Japan's May exports fell 2.7% over the same month 2013. This is not supposed to be happening, since the yen's fall in 2012 was supposed to make exports cheaper and help the country drive an earnings recovery. This was the first fall in exports in the last 15 months and highlights again the nation's dependence not just on domestic financial engineering but also the health of economies elsewhere as well. Most of the hit consisted of weak imports demand by the USA, and affected not just Japan, but other exporters in the region as well. (Source: TT commentary from reuters.com, Jun 18, 2014)

Wetter summer may hit electricals sales
Although most electrical discount store chains are reporting a surprising bounceback from the hit suffered after the rise of the consumption tax, they will have another test in the near future, in the form of an El Nino weather pattern forecast for August. El Nino will probably bring rain and cooler weather to Japan and thus reduce the sale of high cost products such as air conditioners and larger refrigerators. The problem for retail chains is that about 50% of national sales happen in the June-August period, and thus weather during early summer can hugely influence their fortunes. (Source: TT commentary from asia.nikkei.com, Jun 21, 2014)

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That was Terrie's Take.

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