Japan in 2017

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Japan in 2017

Post by gaijinfarmer » Mon Jan 16, 2017 6:55 am

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Five Predictions for Japan for 2017

Well, after a good break and a trip out of Japan, we're back with our predictions of 2017. Going overseas reminded us just how slowly Japan changes unless forced by circumstances to do so. It's a risk-averse and conservative society where generally the only domestic sources of change are scandals and deaths. Externally-induced changes are far more prevalent, especially when they involve the U.S. For example: think of the Plaza Accord in 1985 that stoked the yen to historic highs at the time, the 1990's dotcom bubble and resulting bust, 9/11 attack, "Open Skies" that ended JAL/ANA's local duopoly, and now of course the Trump Shock.

Why is Japan so conservative? Our take is that decades of mind control at school then through the media, coupled with 50 years of relative prosperity - at least offering an ability to live and eat decently - has taken the nation away from the mentality of a glass half full, to that of a glass half empty. Its rapidly aging society accentuates this aversion to risk and change, and this trend will only continue.

The result is that Japan is creating a society of young people who desire to work in safe jobs, lead safe but entertaining lives, and avoid the burden of families and risk of (entrepreneurial) failure. It's sad to see, but at the same time, this systemic atrophy of ambition and competitiveness does mean that predicting where changes will come from becomes easier - they'll either be in entertainment, longevity, food supply, or containment caused by external shocks (natural and political).

1. Year of Trump and Japanese Economy

...Donald Trump is just such a shock. Nicknamed the "Human Hand Grenade" by U.S. film maker Michael Moore, Trump's populist message and thought processes pretty much ensure that Japan will be lumped in with those other Asian countries that are flooding the U.S. with cheap products, apparently to the detriment of U.S. workers. He has already said that he wants to levy an import tax on Japan and China, and although we think that cooler heads will prevail and tell him to back off from that course of action, his bullying will nonetheless elicit a concerted reaction from both targeted countries.

Japan, ever the loyal puppy wagged by the U.S. defense/economic tail, will do its best to ingratiate itself with the Trump administration. This process has already started. In fact, the Japanese understand how to deal with bullying quite well, since it's embedded in the culture - starting with bullying in the schools. Kids are expected to internalize it, which is one reason they don't like risk and confrontation. And given that the bullied (and bullying) kids of the last 50 years are now the leaders of the country, they will placate the U.S. bully as best they can. They may actually be pretty good at it - as Masayoshi Son and Abe have both demonstrated so far.

Japan's economy in 2017 will follow the rest of the world. Trump is going to kick off a huge spending and tax-cutting splurge in the U.S., worrying about the side effects later. Thus the global mood is one of skittish expectation, but certainly a desire to believe in a global economic recovery. As a populist leader, Trump will do his best to encourage America's "animal spirits" and in our opinion he will initially be good for the U.S. and indeed the rest of the world. However, we don't think this euphoria will continue much past the beginning of 2018 (see more below).

Although only about 15% of Japan's economy is export related, record profits by those exporters will mean recovering tax revenue, more government spending, and thus a general easing of conditions here. Simultaneously, the BOJ's re-inflationary efforts will gain traction later in 2017, and so interest rates are likely to move up. If you have a variable home mortgage, now would be a good time to ask the bank about changing over to fixed rates.

2. Number of inbound tourists drops

Trump's attacks on China, conversely, are likely to worsen the relationship between the U.S. and China, and we foresee a series of tit-for-tat trade disputes that could escalate quickly. This has as much to do with Trump's bullying personality and quick temper as it does for his need as a populist politician to have a convenient scapegoat. And while the Japanese learn at school to accept bullying and repress their feelings, the Chinese education system is much less evenly applied, so a culture of fighting back is alive and well. Not to mention that half the population still has to struggle to survive. As a result, China's reaction to bullying will be to hit back, both at the U.S., and because the Chinese government is smart enough to steer public outrage, to hit their favorite whipping boy - the Japanese.

So Trump causes direct financial hardship in China, and the authorities there create a territorial incident with the Japanese to divert the attention of their citizens. If this process is allowed to escalate too much, regardless of whether there will be any border clashes, the Chinese economy will come under pressure and this may cause another run on the shadow banking system. This would of course have a huge dampening effect on Japan inbound tourism, not to mention the global economy at large.

Whether it's territorial or financial, we don't expect this period to last beyond 2019, for the reason that if Trump does destabilize major U.S. political relationships in 2017, the Republican party itself may take action sooner or later. There is an interesting piece in the Independent this week about the probability of Trump being impeached within his first term.


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3. Immigration increases, along with racist incidents

So long as aged voters are more important to politicians than families with non-voting kids, the graying of Japan will continue apace and those legions of elderly will need more home and hospice care. Although there probably are enough nurses in Japan to support the nation's elderly for some years to come, the jobs offered are so poorly paid and the conditions so trying, that nurses in their 30's and older are willingly leaving the profession as they have families and are not returning later. Like so many sectors in Japan, health sector employers have little sympathy or financing to improve conditions - and so the system declines and if nothing is done it will collapse.

We will also say at this point that employers who have the cash (many) but who won't pay employees more are likely doing so because they fear the future. In a way, they are engaging in the same bullying behavior they learned at school sports teams - that of pushing your charges (employees, team members) to the limit. It's hard to break the habit and the government hasn't yet gotten to the stage where it will force wage increases through law. But we do think that this stage will come in the next 5-10 years if things get desperate enough. The problem at the moment is that things are NOT desperate, just difficult. And the Japanese are good at "gaman" (stoic acceptance).

Anyway back to immigration. We can already see a strong under-the-table pro-immigration policy by the Abe government. For now they just want cheap bodies to man dilapidated factories and under-utilized farms. This means that although the official stance is on of attracting well-educated, high-value engineers and professionals, in fact the need currently is for the desperately poor (and usually under-educated) people from developing countries. This will inevitably lead to abuse, anger, disillusion, and desperation by some, and crime. We've already seen foreign workers beat and kill local Japanese. Our prediction this year is that there will be one or more similar incidents, and this will incite more anti-foreigner hate speech.

4. New foods

One of our favorite activities in 2016 was going to the supermarket to see what new foods are appearing on the shelves. While the beverage industry has always been competitive and innovative, regular food products have been more about price - with the exception of the gradual introduction of more western delicacies (cheeses, olives, crackers, candies, cookies, etc.). But recently there has been a marked change in Japanese staples. We noticed the trend start back in 2014 when the media started commenting that in order to psychologically deal with tighter personal budgets (as wages and the yen's buying power continued to fall) people were splurging on "small luxuries". This was especially so with western food items. Then in 2015 and 2016 we started seeing Japanese makers following suit, making more luxurious versions of staple foods that previously they'd been under pressure to keep at the same cost for 20 years.

A good example of this is tofu, probably one of the cheapest and safest sources of protein around. Until recently, no one ever paid more than JPY100 for a block, and if you wanted to spice it up, you could top it some kind of flavored miso or an exotic fish sauce from some remote part of Japan. But last year, specialty versions of tofu appeared and they have been a huge hit. Nowadays you can buy tofu that mimics mozzarella cheese ("Burrata" tofu), and various other textures and flavors (but uniquely tofu flavored variants). The Burrata is delicious! We have no doubt that as inflation starts to gain traction this year, a sure thing as the USA re-prices bank interest rates, Japanese food makers will accelerate their food offerings.

We are particularly expecting the appearance of functional foods that are cheap and healthy, and which people on student-like budgets can live on and thrive. JPY38 packs of vegetable sprouts have been a good example in the past. So maybe we can expect small packs of pre-mixed vegetable powders and nutritive gels that can be added as ramen toppings - thus making a ramen meal not only cheap and fast, but healthy as well. Then of course there are product improvements on supplement bars such as Soyjoy. Really hoping to see some Japan-made "raw" bars that are so common recently in the U.S., but without the sugar load.

5. Toyota electric cars to compete with Tesla?

Finally, it's not every day that a manufacturing behemoth like Toyota puts its president, grandson of the firm's founder, in charge of a new division. But that's what happened on November 30th last year. It looks like the company is finally going to get serious about electric cars, and particularly battery plug-ins (BEVs). The firm has mostly been announcing products relating to its fuel cell technology, which it believes provides yet another bridge between pumped fuels and electric. But now that Tesla is building a huge battery factory with Matsushita and has its low-cost Model 3 due out late this year, and even other U.S. and German car makers are introducing full-range electrics, obviously Toyota has decided it had better get moving with its own vehicles.

Tesla has done a great job of defining the future for electric vehicles - integrating them into homes and domestic power ecosystems. Unfortunately for them, oil fracking and the increased output of low-cost oil put off the precipitating factors to move the general population into electrics by at least 5-10 years, and so they have been ahead of their time. But with their focus on high-end vehicles, that hasn't been too much of a hurdle until now.

So our prediction is that this year Toyota will announce specifics about a hot new BEV. Not only that, but maybe they will get back into bed with Tesla and put out a vehicle with a Tesla power plant.

Why wouldn't Toyota do it on their own? Probably because with the remarkably lower complexity of connecting parts (although the parts themselves may be technically complex), Toyota is probably worried that there won't be enough differentiation for them to keep a healthy business and so doesn't want to speed up the natural evolution of automobiles. But, yep... that's exactly what Sony thought back when Apple introduced the smartphone. We think cars are next on the list and in ten years time customers will be buying autos for the software not the base hardware. So instead, Toyota will take a short-cut to keep a presence, and get the parts from someone else - as they did in 2012. For clues, watch for new investment in Tesla. Heck, with a cash pile of more than US$47bn and Tesla's market cap of US$38bn, maybe they can buy Tesla out...?

...The information janitors/


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+++ NEWS

- The real JP contribution to US economy
- Asthma herbal medicine a hit in China
- Emperor to get his wish to abdicate
- Uniqlo on a roller coaster ride
- Dolphins-1, Taiji-0

=> The real JP contribution to US economy

The Japanese government has quickly realized that they need to differentiate themselves from the Chinese, or risk being lumped into trade tariffs or worse, as U.S. President-elect Trump's new government starts to deliver on election promises. As a result, they have put out a statement that gives some facts about the real value of Japan to the U.S. economy - which Reuters has reported as being:
- 47,000 people are directly employed by Japanese companies in the U.S.
- More importantly, those companies have created more than 839,000 downstream jobs for Americans. Japan reckons this is about 30x more than Chinese firms.
- Cumulative investment into USA of US$411bn, about 30x that of China also.
- Japan trade surplus with the U.S. has shrunk substantially in the last few years - to about 9% - while China's surplus gap yawns wider.
- Toyota, the main target of Trump's vitriol so far, says it will invest US$10 billion in the U.S. through 2022. (Source: TT commentary from reuters.com, Jan 12, 2017)

http://www.reuters.com/article/us-usa-t ... SKBN14W0UL

=> Asthma herbal medicine a hit in China

Kobayashi Pharmaceutical's Dusmock product, a herbal remedy for alleviating chest infections, has become a hit in China. The product has gained a large following on the internet by users there after concern peaked about PM2.5 particulates in smog. It supposedly increases bronchial secretion and moves foreign particles out as phlegm (coughed back out). Chinese tourists visiting Japan are snapping up the product and Kobayashi says it will increase production by 30% to meet demand. ***Ed: Pollution medicine? For sure Kobayashi's competitors will be watching this with interest.** (Source: TT commentary from nikkei.com, Jan 12, 2017)

http://asia.nikkei.com/Markets/Tokyo-Ma ... inese-fans

=> Emperor to get his wish to abdicate

Finally an elderly couple will be allowed to retire in peace. The Emperor and Empress will shortly receive a one-off permission to retire, thanks to special legislation to be passed mid-this year by the government. The new legislation comes after a favorable finding by a select council to permit a change in rules. As a result, the Emperor will retire on December 31, 2018 - just after he turns 85. The new Emperor will be Crown Prince Naruhito, who will assume the throne on January 1st, 2019, a date chosen to allow the traditional Japanese calendar coincide with the Gregorian calendar used by most of the rest of the world. ***Ed: Nice piece of dramatic pantomime by the government and media after the Emperor expressed his wish to retire last year. Although it was a genuinely gutsy move, in the process he also earned the Imperial family sympathy and admiration from the people - surely Mr. Abe and other traditionalists must be happy.** (Source: TT commentary from asahi.com, Jan 11, 2017)


=> Uniqlo on a roller coaster ride

Investors in Uniqlo are nervous as the company's fiscal results gyrate quarter to quarter. Even as the firm announced that Q1 net profit was up by 45% over the same period last year, the stock fell 6.7% on January 9th (Yanai's personal fortune fell by JPY160bn that day), before rebounding on buybacks later in the week - because of poor December sales. Behind the turmoil is Fast Retailing's struggle to recover from a disastrous 2015 (profits halved), due to a renewed surge in the US dollar coupled with an admission that a price increase introduced at the same time was ill-timed. Nonetheless, the company is still saying that the fiscal year prediction of JPY1.85trn in sales and JPY100bn in net profit is on track. ***Ed: Our take is that Uniqlo needs to rein in CEO Yanai's gigantic ego and force him to "listen" more proactively to the market, rather than chasing hell-for-leather an unrealistic goal of JPY5trn in sales by 2020. On the other hand, he could achieve that number if he buys out a major competitor or two...** (Source: TT commentary from japantimes.co.jp, Jan 12, 2017)

http://www.japantimes.co.jp/news/2017/0 ... HhrG30b8S8

=> Dolphins-1, Taiji-0

Someone or something apparently cut nets holding dolphins in an open water pen in Taiji harbor, allowing the dolphins to escape. Although the Telegraph article reporting the incident doesn't say whether it was the work of activists or not, given that the police are investigating, we can assume it was. A "classic" comment by the Taiji facility owner, that appeared in a blog post, read "We are enraged by the heinous act which can easily lead to the dolphins dying. They [ed: the activists] think that once out of their pen, dolphins will swim far away, but that is not true. Dolphins will not stray far and they will not leave their group." Taiji is of course the site of the annual and well-documented dolphin slaughter every year. Whether or not the escaped animals were born in captivity is unknown, but again, given the fact that only 3 animals returned after the unplanned release suggests they were wild-born and the facility owner is an ass. ***Ed: Ugly practice, ugly all round. Given that the government can subsidize rice farmers, why not pay the Taiji fishermen to do something else each year? More dolphin experiences for tourists perhaps?** (Source: TT commentary from telegraph.co.uk, Jan 05, 2017)

http://www.telegraph.co.uk/news/2017/01 ... ttraction/

NOTE: Broken links
Some online news sources remove their articles after just a few days of posting them, thus breaking our links -- we apologize for the inconvenience.



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=> No feedback this week.



=> Bizen Pottery in Okayama Prefecture
Traditional Japanese pottery in small-town Japan

On a cool Monday in early December, I made my way to Imbe in Okayama Prefecture. The small town, a 35-minute ride from Okayama Station, is home to Bizen-yaki (Bizen pottery), one of the six traditional kilns of Japan. My first stop was the Bizen Pottery School, a 20-minute walk from the station, where I got my first lesson in Bizen-yaki. Bizen is one of a number of types of traditional Japanese pottery. It developed and flourished in Imbe and traces its roots back about 800 years to the Hei-an period.

Thick, pliable clay is dug up and through a process of drying the clay, removing debris and adding water, the final clay used to make the pottery is created. There are two types of kilns used to fire the pottery: Noborigama ("climbing kiln") built on an incline with various chambers, and Anagama, a single, long chamber.

The friendly teacher at the center invited me to make something of my own. A word to the wise: keep your nails as short as possible! She explained that the center accepts students for one-month and six-month courses. Foreign students stay for the one-month course and they even have affordable housing for students in a traditional ryokan (a Japanese inn).

http://en.japantravel.com/okayama/bizen ... ture/34020

=> Daigo-ji Temple in Kyoto
An exquisitely beautiful temple, garden and museum

About twenty minutes east of central Kyoto on the subway, Daigo-ji doesn't get as many visitors as the more storied sights in the center, but for my money, it's as interesting and beautiful as anywhere else in the city. It's worth dedicating half a day to a visit here, more if Kami-Daigo is open, to fully appreciate every part of the complex.

In 874, a Buddhist monk named Shobo Rigen Daishi climbed sacred Mount Daigo, and met an old man with white hair. This old man was actually the mountain god Yokoo Myojin, who gave the mountain to Shobo, along with a richly flowing fountain. Shobo then carved two Kannon statues and dedicated them on top of the mountain; following that, subsequent emperors built and expanded the many halls of the temple.

Open only in spring and autumn, the Reihokan is where you can see exhibitions of the temple's treasures. These include documents, craft works and carved statues, but only a fraction can be exhibited at any time: I saw a selection of splendid large Buddhist statues, carved in meticulous detail, some of them fierce, some dynamic, some serene.

http://en.japantravel.com/kyoto/garden- ... o-ji/34687



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Re: Japan in 2017

Post by Funasshi » Mon Jan 16, 2017 2:26 pm

Very interesting topic, and I am most curious to learn more about it. Terrie's take is an entertaining one.

I reacted a bit to "decades of mind control at school then through the media" though....that can't be what sets Japan apart as it pretty much applies to any other country too, right?. :roll:

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Re: Japan in 2017

Post by Yamabiru » Tue Jan 17, 2017 3:18 pm

Very interesting, I will be following it.

I agree with the bit on mortgages, but don't think it will be a positive thing due to intentional policy.

And the bit about electric cars also good, Nissan supposedly has a 2 seater with 6 hr. charge cycle, 90kph top speed and good range coming out soon for 1.5 mil, I'd go for it if it had 4wd. But the snowplow hasn't come yet and we're still somewhat housebound :)

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Re: Japan in 2017

Post by Zasso Nouka » Wed Jan 18, 2017 6:35 am

Interesting post GaijinFarmer,

I do wonder whether living in a risk averse culture is a good or bad thing, after all many new business ventures will fail leaving the participants in a worse off situation than if they hadn't taken the risk. That must surely be a negative. To quote Terry if you "can lead a safe but entertaining life" that must be a good thing I would have thought.

I agree with Yamabiru that electric cars could be an exciting development but one thing I've always wondered is how they stack up against conventional engines in terms of cost per kilometre ? Does anyone know how they compare ? Also how often would you have to replace the batteries and what would that cost be ?

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Re: Japan in 2017

Post by gaijinfarmer » Fri Jan 20, 2017 6:52 am

My personal opinion on mind control is that it definitely does apply to every culture, but much more so to Japan. I think the stereottpical sapping the personality of junior high school and high school students tend to be fair stereotype, Japanese TV certainly has a trance inducing element about it. What's not fair about that statement, I think, is that Japan has never really been less risk averse except perhaps in the postwar boom. If you think about the various areas that preceded World War II, people were hardly financially or socially adventures!

Regarding electric cars, the batteries will probably lose 5 to 10% of their capacity over 5 to 7 years of ownership. At that point, given the pace of technology, I think it would make sense to recycle and buy new rather than go to the trouble of replacing the battery. But that's just a hunch.

ZN, I think you know that my concern in Japan relates more to life satisfaction then to entertainment, but you are right – – it's very possible to live a safe and entertaining life here. My worry is that the people around me would feel entertained, but my status as an outsider would prevent me from finding it entertaining. Or something like that!

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Re: Japan in 2017

Post by Zasso Nouka » Wed Jan 25, 2017 6:58 am

gaijinfarmer wrote:Regarding electric cars, the batteries will probably lose 5 to 10% of their capacity over 5 to 7 years of ownership. At that point, given the pace of technology, I think it would make sense to recycle and buy new rather than go to the trouble of replacing the battery. But that's just a hunch.
Haven't found any pricing information for within Japan yet but outside it seems the battery packs are not horrifically expensive but the biggest downside is that they can be affected badly by hot summers and as we've seen with Samsung phones recently no battery likes getting overly hot.
gaijinfarmer wrote:ZN, I think you know that my concern in Japan relates more to life satisfaction then to entertainment, but you are right – – it's very possible to live a safe and entertaining life here. My worry is that the people around me would feel entertained, but my status as an outsider would prevent me from finding it entertaining. Or something like that!
Retirement is possibly going to be a time of adjustment for us all I suspect. It is possible I suppose one could find themselves an outsider wherever you settle or if lucky could be quickly accepted into the community. How to predict what would happen where without first moving to a location is the tricky part.