Terrie's Take 975 (New Year's Edition) - Terrie's Predictions for 2019
terrie at mailman.japaninc.com
Mon Jan 14 23:57:02 JST 2019
* * * * * * * * * TERRIE'S TAKE - BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term
technology and media entrepreneur living in Japan.
New Year's Edition Monday, Jan 14, 2019, Issue No. 975
- What's New -- Predictions for 2019
- News Credits
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+++ Terrie's Predictions for 2019
Once again, it's time to make jackasses of ourselves by making some
predictions for 2019 on events that will influence how we do business in
Japan. For 2018 our scorecard was an impressively bad zero-for-five guesses
- probably worse than throwing darts blindfolded!
In case you forgot, here are our 5 predictions for last year (2018).
Our 2019 predictions are:
1. Ghosn fundamentally gets off
The arrest of Carlos Ghosn, previously the Chairman of Nissan, has focused
world attention on two key issues. The first is whether Ghosn in fact did
anything illegal, or even intended to do so, and the second is the
inquisitional nature of prosecutions in Japan. It appears that the police
and prosecution are pinning a successful campaign on some grey zone
allegations, and which if successful, will mean that political will rather
than pure evidence is all you need to convict someone in Japan. Especially
laughable is the prosecutor's attempt to reinterpret the law about the
statute of limitations (over a 2008 FX swap). They posit that the clock for
the five years (or seven years, depending on who you ask) time limit was
suspended each time Ghosn was traveling on business overseas - and thus
what is 5 years for a normal person living in Japan would take Ghosn
several lifetimes to enjoy the same protection. We also find it curious
that the prosecution feels the need to leak random "outrageous" acts by
Ghosn as an attempt to sway public opinion, when, if they already had
written incontrovertible evidence, why not simple use that instead?
Certainly this does not seem to be as straight forward a case as the
prosecutors had hoped, and the courts themselves are sensitive to public
opinion. The domestic and international outcry over Ghosn's rough treatment
in Tokyo has exposed the Japanese legal system for its medieval methods,
where you get to hold on to a prisoner for as long as it takes to break
them down. Usually they need this time to break someone psychologically
when there is an absence of concrete evidence and they need a confession
instead. Unfortunately for them, Ghosn is mentally a much tougher customer
than the average Taro, and it's conceivable that he could force the
prosecutors into an embarrassing back down. The Japanese justice minister,
Takashi Yamashita, snapped back at international critics at one point that
the criticism was unwarranted and Japan has the right to run it's own legal
system. However, while Japan does indeed have the right to be as medieval
as it likes, the country still has to trade with the rest of the world to
survive, and this is why it has been forced into various
internationally-normalized treaties and agreements that privately it would
rather not have signed. The Hague Convention on the kidnapping of
Japanese-foreign kids by (mostly) their moms is a good example.
This case is going to have some significant repercussions that the Abe
government doesn't seem to understand. Firstly, far fewer foreign senior
executives will now be willing to take on the top job in a Japanese company
for fear that they will be deposed in a similar fashion in the future.
Christophe Weber of Takeda, who is taking that company on a historic and
potentially disastrous M&A of Irish drug maker Shire, must surely be
wondering if he should relocate out of Japan, and live/work somewhere with
more predictable legal procedures and rules. There will be others thinking
the same thing. For example, would any foreigner want to become the next
CEO of Nissan, even though the company is still controlled by foreigners?
The recent resignation of Jose Munoz suggests "no".
As to our headline about Ghosn getting off. We think there is a high chance
that he will be found guilty of some grey zone charge, probably showing
intent to defraud the company without actually committing that fraud (so,
breach of fiduciary duty), and will be given a suspended sentence so that
he can leave the country. The main objective of his attackers, both in
Nissan and in the political theater, will have been achieved - namely the
ruining of his reputation and sending him packing, and a return of control
of Nissan into Japanese hands. "They" do still of course need to replace
him, and we expect that a Japanese CEO will be brought in to substitute for
Saikawa. Purely a guess, but we imagine there will be negotiations going on
even now between the French and Japanese governments, revolving around the
Japanese substitute CEO as a concession (by Renault) in return for letting
Ghosn go as a concession by the Japanese side.
Obviously this last point is pure speculation by us, but the scenario would
fit the Japanese historical mindset: i) sudden strike to disable the enemy,
ii) secure public opinion and thus legitimacy, iii) negotiate with the
enemy while holding a hostage, iv) placement of a loyal vassal, and v)
business as usual.
2. Trump reverberations for Japan
Trump's reality TV style of governing is having a very real impact on the
Japanese economy - with fear being the main factor, rather than actual
trade retaliation. The fear at the top of every large Japanese
manufacturer's mind is just how hard Trump's administration will go after
the Chinese. Japan's shift in recent years to tools and high-tech trade to
China is very lucrative for the companies involved, and the last thing they
need is for the Chinese economy to go into free fall after being hit with
punitive tariffs from the USA. The Tankan survey (index of big
manufacturers' sentiment about the business environment) dropped month
after month in 2018 over such fears, although it has leveled out in the
last two months. We predict that if Trump can extricate himself from the
Wall and Russia accusations and get back to running the country his way,
business confidence will take another turn for the worse.
The second point of impact by the Trump administration is that after China,
the USA is likely to turn its sights on Japan. Big American auto companies
are regular complainers about non-tariff trade barriers, and they have the
ear of Pence, whom Trump relies on in part for his own ideas. Whether the
auto makers have a real basis for complaint is a somewhat of a moot point,
because the Japanese public is losing interest in even buying their own
country's cars, but certainly there are many sectors besides autos which
are subject to unreasonable red tape and which need to be named and shamed.
But of course to do this kind of work, the US government needs more, not
less, public sector staff in the international trade department, and with
the circus going on in Washington, it's hard to see these hires happening.
A third point of impact, which is actually beneficial to the Japanese, is
that the increasing isolationist stance of the US is changing international
trade and labor flows. For example, in the TPP (now called CPTPP, without
the USA) trade alliance, US withdrawal has meant that the partners have
dropped many of the more aggressive IP and legal requirements that the
Obama government had been pushing for. Likewise, the throttling of H-1B
visas for tech companies in California is causing a build up of graduating
engineers in India, Bangladesh, and Vietnam, and causing them to be
diverted to places like Japan instead. In turn, this has created a boom in
Japanese language learning for those engineers, which we cover in #4 below.
[Article continues below...]
--------- Deal-making Network Kicks Off In Japan ----------
Dean Lindal and Bill Trimble are two of the original founders of the
Entrepreneur's Organization (EO), a group of entrepreneurs that has since
grown to about 13,000 members worldwide. After involvement in many deals
where they have been the primary investors, they realized that there is a
need for deal network that helps entrepreneurs and investors meet each
other directly. What they came up with is www.dealgateway.com, a trusted,
introduction-only, digital marketplace for entrepreneurs and deal makers,
and which is based on a secure blockchain platform. For want of a better
comparison, it's like an eBay for private financial deals, ranging from
capital raisings for venture firms, through to M&A and partnering
opportunities across the globe.
The kick-off event will be a business breakfast next week. Seats are
limited to 35 people.
Place: Hotel New Otani, Aries Seminar Room (5th floor, New Otani Garden
Date: Monday, January 21st, 2019,
Time: 07:30am ~ 09:00am
For more information or to book a seat, contact: yolande at dealgateway.com
3. Consumption tax increase passes, and is non-event
The old analogy of increasing the water temperature to boil a frog (a 19th
Century experiment since proven false), the Japanese working population
seems destined to take small hits of taxation increase, without protest.
There have been three tax increases (1989 - 0%->3%, 1997 - 3%->5%, 2014 -
5%->8%) so far, and people have had a generation to get used to the idea
that more taxes are necessary if social spending is to continue at the
present rate. The 2014 tax increase was dramatic because it was highly
publicized and created a pre-tax spending bump that accentuated the
downturn in the following year. This scared politicians and of course is
one reason why the Abe government put off a planned increase to 10% in
2017. This time around, however, we think the increase will have rather
less impact on consumer spending. Firstly because for the first time in
years, real wages are ever so slowly starting to go up, and secondly
because the demographic slide in Japan has been relentlessly hammered home
by the media, and so there would be few people left who would argue against
the logic of more funding.
The reality, though, is that the increase to 10% will not completely offset
the impact of aged nursing and other social costs, and so our prediction is
that a special study group, to be enjoined shortly after by the
politicians, will start to point to sales tax levels overseas and call for
additional increases here at home. While this logic may or may not be
accepted, the government will first have to reduce corporate tax rates
significantly, or otherwise risk putting an increasing number of
corporations out of business. We think within this year, the government
will also start floating trial balloons to increase the retirement age,
perhaps by offering people who defer their pensions some special tax
incentives so as to stay on the job.
4. Immigration policy loosens further
The legislation covering Japan's new blue collar work visas was passed in
the Diet last year and now the relevant ministries are adding the language
and rules that they want to see the visas operate under. 14 industries are
considered to be under threat from lack of manpower, ranging from farming
to hospitality, and sources say that around 40,000 people will be accepted
by the end of this year, with around 500,000 by 2025. On the face of it
these new visas seem like a big departure from the past (i.e., allowing
blue collar workers to get work visas and not just pseudo-slave-like
trainee visas), and you'd be forgiven for thinking that we're seeing the
very start of a reluctant opening of Japan's immigration doors.
However, our take is that the immigration doors have been open for quite a
while, and these blue collar visas are in fact just a natural progression
of the "Immigration by stealth" program that the Abe government has been
practicing for the last 8 years through its issuance of hundreds of
thousands of student and language-learning visas. In this light, the blue
collar visas are in fact part of a longer-term loosening trend, and we only
see this continuing and gathering momentum as the general populace gets
used to having foreign young people serve them in convenience stores, drive
cabs, and pull weeds. As Yoshio Kimura, the chairman of the LDP's own
committee on foreign workers, said, the actual number of foreign laborers
needed is actually about double the current number approved.
We think that 2019 represents the first year of a public multi-year program
by the LDP to change voter attitudes to immigration, and slowly increase
the numbers into the millions.
As mentioned above, one of the interesting side benefits of immigration
loosening up is the sudden increase in interest for people to learn
Japanese. We are seeing this trend take place in all the target recruiting
countries, where those doing the worker recruiting are also running
schools, providing life support (phones, rental deposit loans, etc.) and
other services, to take advantage of the new gold rush.
5. Resurgence in bankruptcies
In November last year 718 companies went bankrupt, a slight drop on the 730
companies in October, but still above the average 690 companies going under
monthly last year. Of course each of these 8,300 companies annually
represents just the tip of an iceberg of about 350,000 zombie companies
nationwide (our estimate). The last peak for bankruptcies in Japan was the
dot.com bust in 2000~2001, when roughly 1,800 companies a month were
imploding, followed by the Lehman Shock, when about 1,500 a month were
going under. BTW, a zombie company is a business that can only just (or in
Japan, often not at all) service its loans but not repay the principal.
While the current economic conditions are certainly not as severe as the
Lehman Shock, we find it strange that Japan's bankruptcy levels are at a
10-year low, when we know from real-life business interactions that there
are plenty of companies out there who are struggling to survive - some
because of technology changes (such as the printing industry), some because
of international competition (smaller manufacturers), and some because of
changing demographics (such as English teaching). How are they surviving?
We believe it's mostly the soft stance that banks and their servicers are
taking due to ongoing government pressure to protect such firms. This
"sweep them under the rug" debt-hiding strategy started with the loan
repayment moratorium in 2009 by the then-banking minister Shizuka Kamei.
The government has since continued the protection of this massive garbage
dump of companies by threatening special FSA "attention" for banks who
And why are the zombie companies are being spared? Probably because no one
at senior levels (in government) wants to spoil the Abe recovery message,
and thus the fiction of corporate sector health continues on for 2019.
...The information janitors/
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+++ ABOUT US
Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)
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