Wednesday, June 06, 2018

Trump Tariffs and the Fallout on the Abe Administration


1) The G-7 finance ministers' meeting ended in rare acrimony, with the U.S. looking increasingly isolated over the steel and aluminum tariffs. Japan seems to be less angry compared to the EU and Canada, but do you think they'll take a harder stance during the summit? What's your view on the U.S. state of isolation?

Japan will be prepared to act jointly or in parallel with the EU and Canada but will refrain from the kind of forceful rhetoric that other members of the G7 are willing to direct towards the United States. Unlike Canada or EU member states, Japan must get by in a hostile security environment with the United States as its only dependable ally. (Growing relationships with Australia, India, the United Kingdom, France et al are nice, but they are ineffective in the Northeast Asia neighborhood.) The United States is big enough and strong enough that it will suffer least from the consequences of its isolation from erstwhile likeminded allies. It will, of course, be hurt in the short-run by the “loss-loss,” unilateral actions it is taking on the trade front, whatever gains it secures by coercion or consent (some of the outcome from the NAFTA renegotiations could be improvements). But the real loss will come from the longer-term development of byways in the international financial system that is currently highly vulnerable to unilateral U.S. actions, a dispute settlement alternative to the WHO mechanism that the Trump administration is stealthily undermining,  and so on. “TPP-minus 1” will be the default mode for the future development of the international economic architecture unless the United States decides to  change course.

2) Japan hasn't managed to secure exemptions from the U.S. over the steel and aluminum tariffs as yet - how useful do you think the summit will be for Japan in making progress on this front?

I doubt that it will have any effect. The Trump administration is determined to squeeze something out of Japan on the bilateral front, but from all appearances lacks the bandwidth to tackle it seriously, given all the other items on its agenda. Thus, the matter remains on virtual hold, and the Abe administration seems in no hurry either, given the minimal effect that the tariffs have on Japanese exports and, of course, the negative fallout on the yet-to-be-ratified CPTPP that any action towards a Japan-U.S. bilateral agreement would have. That said, I will be surprised if Abe does not take with him some kind of proposal for side talk on bilateral issues along with a renewed appeal to rejoin the TPP. Surprise me, Prime Minister, and prove me wrong!

3) How much does Japan's failure to secure exemptions hurt the Abe administration domestically?

Minimally. There has been media talk of toadying up to Trump to no avail, but the economic impact is too small. In addition, the rest of the G7 (and Mexico) now falling under the sword goes some ways to vicariously assuage the pain. The U.S. sanctions toward Russia and now China should also be enough to remind the part of the public actually paying attention—the steel and aluminum tariffs are not a major economic concern—that the effects of bonhomie with the Donald of Orange have their limits for everyone.

The fallout is lost as mere noise in the uproar over the ongoing domestic scandals around the prime minister.

Monday, June 04, 2018

So Aso Gives Up a Year’s Pay...


Voluntarily giving up all or part of one’s pay for a given duration is a common form for members of organizations to assume moral responsibility while escaping legal responsibility and thus avoiding formal sanctions, which in turn would amplify calls for resignation or dismissal. Twelve months’ pay is the heftiest that I’ve ever seen, though. It indicates the seriousness with which Aso and by extension the Abe administration is making a show of taking the MOF transgressions. However, this will surely raise doubts in the progressive media over the appropriateness of shielding Aso from formal sanctions, which would have inflamed demands for Aso to resign, which in turn would have pushed the Abe administration out into deep waters.
With the sanctions and Aso’s voluntary penitence locked in, the Abe administration and the LDP-Komeito coalition will push forward with less patience through the rest of the Diet session to pass as much of their legislative agenda as possible, and Abe will be duly reelected as LDP president and, barring another unforeseen political disaster, continue on as prime minister until the 2019 upper house election.
The one risk on the horizon for the market concerns the possible criminal prosecution of MOF officials. Crucial to the Abe administration’s attempt to bring administrative and therefore political closure to the Moritomo affair was the Prosecutor’s Office ‘s decision not to prosecute. However, concerned citizens have recourse to a Committee for the Inquest of Prosecution, which could force prosecution by a supermajority of 8 of its 11 members. (A simple majority recommendation for prosecution can be overruled, if unlikely in my view in a case of this import.) I am sure that a petition will be filed, if it has not been already.  The Committees, apparently highly independent, meet in March, June, September, and December. A June session should be too soon for a decision, but what about September? The LDP presidential election happens to be on the schedule for September. Bet on an early election and, if there is to be prosecution, subsequent turbulence in what has become routine in recent years, an autumn/early winter, extraordinary Diet session.

******

Q: Nikkei just reported that Aso will be returning 1 year's worth of salary over the Moritomo issue. Is this kind of gesture common for Japanese ministers? I haven't heard of it happening, but I've only been covering Japanese politics for a couple of years... How sufficient is this in taking responsibility for the scandal?
A. Given how common this practice is, I’m sure ministers have done it before. (Ask your research team.) But 12 months? That’s a level one only sees from heads of firms facing catastrophic scandals. At this level, a minister of less importance to the survival of the prime minister would hve resigned by now. Is it sufficient? I’ll decline to answer it since only a person with authority to enforce judgement is competent to do so.

Q: MOF will be announcing its punishments for the scandal later today. Where do things go from here? It seems like all official lines of inquiry have ended, but is this issue still a political liability for Abe and Aso?
A. The polls have stabilized and the experts’ consensus is that Abe will be reelected as LDP president in September, allowing him to continue as prime minister. Abe will do his best to keep Aso in the cabinet, since his support is crucial to the stability of the Abe administration.

Q: What is the likelihood that Aso has to step down as finance minister? Surely the opposition will keep pushing for that, but they haven't been successful thus far...
A. His acceptance of 12 months without pay—not that he needs the money—actually indicates that he will stay on. A September judgment for prosecution, enforceable or not—the Prosecutor’s Office has three months to reply, but it should come to a head before that—could push Aso even further, so there’s the possibility that he will step down preemptively at the post-LDP election cabinet reshuffle or forced to do so as the result of public outcry. I’d bet against it though.

Q: What kind of impact will Moritomo exert on the Abe administration from here? Its legislative agenda has been thrown into disorder already. Will that continue, or will Abe finally be able to put this issue to rest?
A. As already mentioned. Beyond that, even without a September redux, Abe’s public support has been diminished permanently, though, making it more difficult for him to push items on his agenda that do not have broad appeal. Think, constitutional amendment, and deep labor reform.

Thursday, May 31, 2018

Memo on the U.S.-China Trade talks and the Japanese Experience

Q(journalist)&A(me)


1. The Trump model is the U.S.-Japan trade negotiations of the 1980s and early 1990s, what model will work better in your judgement?

They are difficult to compare because they are two different approaches for two different relationships, under two different historical circumstances. I would argue that the US-Japan negotiations probably will wind up as having worked “better.” Let me explain.

The United States faced then, as now, a major economy in ascendance. However, the US economy was widely seen to be in relative decline vis-à-vis Japan, an economy led by a private sector over which the government had limited control. By comparison, it is confidently riding the crest of a near-decade recovery from a global financial crisis and is seen at the forefront of a new industrial revolution—with China, a state capitalist economy if ever there was one, as its main competitor. In addition, the United States had a robust security alliance with Japan that remained unshaken throughout the trade friction years. The security relationship with China, by contrast, is at bottom one of antagonism between two hegemons. The latter point is particularly significant because the Trump administration is explicitly linking one of its most important its security goals—denuclearizing DPRK—to the bilateral trade relationship. At a minimum, this complicates any deal because  the economic and security issues move on different timelines and trajectories. At worst, resolution on both fronts become impossible because of the complications. It certainly doesn’t help that Trump’s negotiating team is hopelessly divided, while Trump himself does not have the expertise, knowledge, or temperament to resolve the contradictions in a coherent manner. Also complicating the calculations is the fact that the Chinese authorities, with some justification, appear to believe that Trump’s business interests can be leveraged to bring about a favorable resolution (for China). That, again, could backfire.

2. The White House convinced Japan to accept export quotas in the 1980s when President Ronald Reagan carried out a strategy of “managed trade.” It didn’t happen this time with China. What is your take on this?

First of all, it’s still early in the game regarding China. They’ve only had one round of high-level talks. The relationship is set to worsen before it stabilizes, hopefully in a way that is beneficial to the Japanese economy.

Second, the Trump administration has a cluster of demands, some that are connected to the trade deficit, some that are connected to security, and still others that are connected to investment in China, which arguably would worsen the trade deficit. But it does not appear to have a coherent strategy. At worst (from the global perspective), China could end up buying more commodities (agricultural products, natural gas, etc.) from the US at the expense of China’s other trading partners who would then seek to make up the difference by increasing exports to other markets, while the more important microeconomic issues, mostly technology- and IP-related go largely unaddressed. It would be ironic if the only outcome was a rearrangement of trade patterns while trade and investment balances remain virtually unchanged.

3. Many Japanese elites tell Chinese policy makers, they “should learn lessons from Japan,” especially over the Plaza Accord. if you give suggestions to Chinese policy makers, what lessons you believe China should learn from Japan?

I wasn’t aware that “many Japanese elites” were in the business of advising the Chinese government and, frankly, the Chinese government surely has enough expertise and experience to weigh the Japanese experience to determine its course of action without outside help.

4. How do you compare the trade tension then to the current US-China one?

The trade tension felt stronger then, but that’s surely because we were the other party to the conflict and I had a role, albeit quite minor, in it. The current tension is more worrisome because it is  part of a geopolitical conflict that should long outlive the end of President Trump’s current term.

5. If any suggestions to Chinese, what would you say on how to deal with America?

Well, obviously, I want China to yield on investment and IP issues while standing firm on quantitative targets. It’s an economic win (US)-win (China)-win (WTO) outcome. But the decisionmakers surely do not see it that way. Beyond that, if someone is willing to pay me to help devise a negotiating strategy, I’ll be happy to oblige as long as I don’t find the objectives and the means morally unacceptable.

If we are to believe what orthodox economists tell us, imposing no quotas, freely investing in each other’s economies, and protecting IP under commonly-acceptable standards—basically national treatment under market economy rules—would maximize economic welfare for all the economies, and equity concerns could be taken care of by national laws and regulations. And I also want a pony. But I’m aware that sovereign states have different, politically-informed goals, China dramatically, but the United States as well, particularly under the Trump administration. So the pony should be the easiest part.

Monday, April 02, 2018

Womenomics and Stagnant Wages Pushing Japanese Women into the Workforce? Think Again.


I don’t have the time to do justice to opinion pieces but from what I gather from the headlines, Noah Smith appears to have given up on critiquing Japan’s political and social scene and mostly focused on being an advocate for the Japanese economy. Probably a wise career move. But his latest eye-catching headline “Abenomics Looks a Lot Like Reaganomics”caught my attention, and I have this to say.

Dr. Smith attributes the rise in the participation of women in the workforce to Prime Minister Abe’s “Womenomics” and stagnant wages. But Dr. Smith’s graph shows that Japan’s female labor force participation rate on the rise in 2013, effectively the first year of the Abe administration. What were the “Womenomics” policies in place off the bat that made this happen? As for stagnant wages, that’s a decades-old problem. What has made it so relevant during the Abe administration years?

There is something missing from this narrative: the recovery from the 2008-2009 financial crisis and the 2011 Great East Japan Earthquake Disaster playing out against the background of a declining working-age population and the current, synchronized well-being of the global economy. In short, it is far more sensible to see the rise in the labor force participation rate of Japanese women as a reflection of the rise in the demand for flexible, non-regular (temp, part-time, etc.) labor in a virtually full-employment environment. In other words, good old-fashioned, supply-and-demand at work rather than any policy initiatives whose specifics Dr. Smith would have a hard time identifying.

But then, what do I know? I’m not an economist.

Saturday, March 31, 2018

Do You Think the Moritomo Affair Has Driven a Wedge between Abe and Aso? Think Again


Aso criticized the media for prioritizing Moritomo over TPP, got criticized himself, and the lefty media is playing it up and the righty media is playing it down. I don’t think Aso will step down over this, but this does give me a hook to address the speculation that the whole affair has driven a wedge between Abe and Aso, who is supposed to be pissed off at Abe for causing this issue in his bailiwick and mishandling it, according to this story line. Maybe. But most people familiar with the political process would be surprised if he were.

Politicians and their underlings call in on the bureaucracy about individual projects all the time. Sometimes, they just have questions. Other times, they exert pressure. And no one should be surprised. It’s what politicians do. Every inhabited spot on this planet. Every time in human history. And the bureaucracy copes. Do the political appointees in the Japanese Government mind? I don’t think so. After all, they and their underlings are doing the same with the bureaucracy outside of their jurisdiction as appointees, just as they did before and will be doing long after their administrative tenures become distant memories. And you can be sure that they never bother to notify their political colleagues about the stuff they do under the latter’s jurisdiction unless they’re desperate for an extra push—which will come at considerable political cost. And even if they care, it would usually be futile for the political appointees to try to keep up with the interventions anyway because (a) there are simply too many of them and (b) the bureaucracy will be desperate to hide it all from the transitory political appointees because they don’t need the complication.

And even if I were completely wrong, it would be odd for Aso to turn on some who has stood behind him through multiple gaffes of his own through the years. In any case, Aso appeared to be retaining his anger at the media even as he apologized.

I rest my case.

Tuesday, March 13, 2018

What Will Happen to Aso, Abe as the Result of the Latest Twists in the Morimoto Case?

Memo, whacked out early evening on March 11 (Sun) in response to query from journalist. I wonder how much of this will hold up.

So, this Moritomo scandal. Where is it going. Aso likely to be toppled? What would that mean for the administration and Abe’s re-election hopes? Could this spell the end for the Teflon PM?

Things look grim for Finance Minister Aso. More likely than not, he will resign, in which case some time will be gained to push the Abe administration’s legislative agenda (though the key work-rule amendment will be pushed back anyway). Beyond this Diet session, the most important political consequences will be that first, Shinzo Abe will be unlikely to win a third term as LDP president and remain prime minister. Second, the headwind against Abe’s bid for constitutional amendment becomes stronger. Perceived as a lame duck prime minister, I doubt that he will be able to bring it to a national referendum. Let’s fill in some details.
Mr. Aso’s comments on Friday were crafted to deny responsibility for the promotion of Mr. Sagawa, who had been the head of the bureau in charge of the initial lease and sale of the land in question, to the Director-General post at the National Tax Agency. This was necessary because anything less would have immediately created irresistible pressure to resign himself. Aso had almost certainly been unaware of the doctoring of the document—in fact, I suspect that he was only casually aware of the case until it surfaced in the media—but a Japanese leader is expected to fall on his/her sword if the occasion warrants. And I think that it does in this case, where there is a very good chance that someone in the bureaucracy will be subject to criminal charges for an action that will be hard to explain away as being nothing other than politically motivated.
But Aso’s resistance goes beyond his personal interests. For if he resigns, the Abe cabinet itself will be in danger, together with much of the momentum for its policy agenda. Unlike the other ministers that resigned from the second Abe administration, Aso is a political whale, the head of a major faction, a former prime minister! given the extralegal title of deputy prime mister, and holding down the still most-important Finance Ministry portfolio  since the beginning of Abe’s return to power. Political whales are no longer what they used to be, but his resignation would be a much greater damage than that of the relatively junior cabinet ministers that we have seen.
Moreover, Abe and his wife were personally involved in the project that created that entire controversy that wound up spawning the doctored document. The degree of their involvement is open to question, but the other cases merely cast doubt on his judgment of character and capability. This case had already implied the abuse of political power, of favoritism and kowtowing. Now, the stench of fraud and criminality is threatening the corridors of power. Pretty tame by current Brazilian or even White House standards, but with a suicide adding spice to the story, the buck is unlikely to stop at MOF and the MOF minister.
I do not believe that Abe will resign. He is a stubborn man. He has a way of standing firmly behind causes that appear to most disinterested observers as hopeless let alone his own political fate. And I do not think that the rest of the LDP is sufficiently independent to make an overt move to push him out. He should be able to serve out his second term.
But he no longer looks like someone that current LDP Diet members, particularly those in their first or second terms and those who squeak through by the regional proportional safety-net as well as prospective candidates will be inclined to fight elections under, even if the opposition remains divided. Thus, I do not think that he will have the votes to prevail in a 2020 LDP leadership election, and I think that this will become more obvious as the event draws near. As a virtual lame-duck prime minister, he will lose so much of his political capital that he will have extreme difficulty in bring constitutional amendment to a vote in the Diet, let alone the national plebiscite. If he even enters into that state of mind, the end of the Abe administration should come more quickly, possibly even before the next Upper House election in 2019.

Saturday, January 27, 2018

The Nintendo Photo: When It All Began



The following is the bare-bones background for an installment column I will be launching on the website of a thinktank in April.



Omake Books website, at https://omakebooks.com/fr/?fc=module&module=prestablog&controller=blog&id=142, has a photo of the original home office of the playing card manufacturer that became the gaming giant Nintendo, taken, it is widely believed, around its establishment in 1889, when it began manufacturing traditional Japanese playing cards, the 花札(hanafuda) and most likely other forms of the かるた(caruta), derived from the Portuguese word carta. I argue that it is more likely to have been taken around 1902, when the firm began manufacturing paying cards.



Evidence:

1) Five signboards, from left to right.

A) Upper left: The hiragana , obviously the last character in かるた, and other indiscernible writing are visible.

B) Lower left: A small signboard depicting the Nintendo playing card hallmark –Napoleon Buonaparte.

C) Middle left: A weather-beaten, traditional signboard with illegible inscription in small letters (vertical) and かるた(caruta) in large letters (horizontal, from right to left).

D) Middle right: A small, triangular, weather-beaten signboard with the Marufuku ( in a circle) logo, かるた製造元 (playing card manufacturer; vertical), and 任天堂 (right to left) on it.

E) Right: An outsized, white signboard with MARUFUKU NINTENDO CARD CO. (left to right) and?印欧米輸出向 (for exports to ?, India(?), Europe and America; right to left) on top; Marufuku ( in a circle) logo, かるた製造元 (playing card manufacturer; right to left), and Marufuku ( in a circle) logo; and 山内任天堂 (Yamauchi Nintendo; right to left).

2. The Bicycle

The bicycle is an old make, with what appears to be a primitive stand.

3. The Building

A traditional Kyoto building to which Western-style cast-iron grilling has apparently been added.



1E) is the giveaway. Nintendo started manufacturing the four-suit playing cards in 1902; an early example from 1903 survives in the United States. It is unthinkable that the English name and the announcement of its overseas business could have long, if at all, predated this turn of events. 1)E) and likely A) and B) must have been added to the visibly older, traditional B) and C), more appropriate for the initial domestic hanafuda business.



The stand is not conclusive. I thought it was a kickstand, a feature that early bicycles did not have. However, I realized on second thought that it could be an independent stand, which surely must have been available from the very early days of the bicycle. The building is even more inconclusive. Mr. Yamauchi purchased an existing house and adapted it to his purpose.



Could the photo be of a much later provenance? Possibly, but it is likely to have been taken at some milestone moment. The street has been cleared, the camera (and the bicycle) has been carefully positioned; a quiet pride permeates the scene. Launching its export operations would have been the perfect moment to take a photo to include in its sales brochure, or whatever Nintendo printed up to project its corporate image and pitch its products.












Tuesday, November 07, 2017

My Thoughts on a Japan Times Poll Cited by a Journalist


I believed that it was highly likely that The Japan Times’s survey was skewed against Abe because its readership, from which the sample was drawn, was skewed against. I thought that point was obvious when I used the Boston sports bar simile. After all, it’s the bar’s patrons that you interview, not the (inanimate) bar itself; The stand-in for The Japan Times was the location, the city of Boston. (A Boston sports bar could, of course, have plenty of Red Sox memorabilia and the like and the bartender would likely be a Bill Simmons type, which would sure have an effect on the tendencies of its tendencies—but I digress.)   And I think that disinterested parties will agree that David McNeill conceded as much as far as the past was concerned when he tweeted, “The JT is under new management, doncha know?”

Ironically, I’m the one who’s not so sure now. I had assumed that the responders to the online survey would reflect years of getting their news on Abe and other Japanese conservatives from the pages of JT. But nothing should have been further from the truth. After all, the poll was supposed to reflect the views of Japanese voters. If my casual observation on trains is any indication, Japanese readers of JT are usually students or salaryhumans intent on improving their English, not necessarily the most politically-motivated segment of the Japanese public.

But that’s where my doubts about the sampling process comes in. I did not write “300-plus” casually. I remembered the number from the unusually hard to find JT article as being in the high 300s. This is not insignificant. Reputable polls typically use samples of 300, 500, and, what, 2000? 3000? Anyway, a sample in the high 300s was anomalous, and statistically irrelevant—this layman’s understanding is that the gain from a randomized sample of 500 compared to 300 is fairly small. Thus, I suspected—still do—that the sampling process was self-selective, which suggested a sample skewed towards the highly-motivated with a cosmopolitan outlook.

Of course, there’s no way of knowing that unless we know how the survey was conducted. Heck, we don’t even know if the sample consisted largely of Japanese nationals. So, I went and looked, but to my consternation could not find the JT article. No, I could not find it again, but decided to tweet anyway, working from memory. Note, though, that raising the number to the 600s does not alleviate my doubts at all. If anything, it exacerbates it.

And here’s where the responsibility of the journalist comes in. When a journalist uses a poll number to illustrate a point, he/she’d better be sure of its provenance, particularly when it is conducted by a media outlet whose resources/capability to conduct a robust survey may be doubtful. It would dangerous to cite such a poll without confirming how it was conducted and preparing to answer questions about its veracity.

That is why I find the fact that the comment “Feel free to cite your own survey on high support for Abe-Trump bromance” is coming from a journalist rather disturbing. As people who know my thinking knows well, I believe that one difference between scientists and journalists (and pundits, if you insist) is that the former uses evidence to test hypotheses and the latter uses it to illustrate narratives. This is not a knock against journalists, investigative journalists included. It’s an acknowledgement of the multitude of constraints that journalists face when filing reports for the public. And it’s not as if there isn’t a huge gray area in between that is inhabited by practitioners of the soft sciences. But it does highlight the need for conscientious journalists to be meticulous in weighing their evidence from all feasible angles. An invitation to pick a survey of choice is an invitation of adopting standards befitting more of a, say, Fox and Friends or, if that example is not to your liking, SNL (I know, I know).

Finally, for what it’s worth, my interest is not in whether a given poll is to my liking—though it feels good when it does—but in questions like, “Why does the LDP and its administration do better on Yomiuri polls than on Asahi polls—except when it doesn’t?” The real money, by the way, is in the second part of the question. Now, let’s see if McNeill really meant it when he wrote, “Always pleasantly surprised by intelligent Twitter exchanges.”


Sidebar: I’ve noticed that people rarely acknowledge their mistakes on Twitter. Instead, they usually just go away, at which point I’ve decided I’ll just declare victory and move on. Even a “not necessarily” without commentary is better than par for the course, doncha think?

(Typos corrected, same day.)

Wednesday, April 19, 2017

Unedited Crib Notes for 2017/4/17 FCCJ Event on Japan-US Bilateral Economic Dialogue

Jun Okumura went straight from school to what is now the Ministry of Economy, Trade and Industry. After thirty years in its ecosystem, though, it dawned on him that he had no aptitude whatsoever for administration and/or management. Armed with this epiphany, he went to the authorities and arranged an amicable separation. He currently holds the titles of “visiting researcher” at the Meiji Institute for Global Affairs (MIGA). He spends way too much time saying mean things about everything under the sun. He does not mean to, which probably makes it worse.

Minimal attention in Japan to Vice President Vice Pence’s visit.
Anecdote: Friday conversation with former CEO, First Section of the Tokyo Stock Exchange, retired but follows news fairly closely as private investor. “No, I wasn’t aware.”

1. Chances of any substantive agreement even lower than usual first meetings because of Pence’s policy background (largely domestic) and lack of support team.
Wilbur Ross, Secretary of Commerce
Steven Mnuchin, Secretary of the Treasury
But no US Trade Representative (Robert Lighthizer), and second, third-tier political appointments slow in coming. (Economy, probably less problematical, but…)
2. Also overshadowed by North Korea’s big day (and failed missile launch). Which Pence is totally unequipped to handle on his own.
3. Also overshadowed on Nikkei by 11-nation TPP (Nikkei, April 15)

Also keep in mind that on the economic front, it’s China, NAFTA (= Mexico), and Japan, in that order.

On the Japanese side, Deputy Prime Minister Taro Aso has historically been a front man for Ministry of Finance orthodoxy, no more, no less.

What Round 1 (April 18-19) of the Japan-U.S. Economic Dialogue (Pence-Aso talks) will produce:
Three WGs to tackle:
1) Economic cooperation:  (infrastructure (high-speed rail), energy (unconventional gas and oil))
“…exploring cooperation across sectors that promote mutual economic benefits to the United States and Japan.”
Dressing up public procurement and commercial transactions to have something to point to as successful results.

2) Macroeconomic collaboration
“…using the three-pronged approach of mutually-reinforcing fiscal, monetary, and structural policies to strengthen domestic and global economic demand.”
US goal: Keep Japan from driving down yen.
Japanese goal: Keeping a free hand on monetary policy (and the direct intervention option).

3) Bilateral framework on trade and investment
“…discussions between the United States and Japan on a bilateral framework as well as Japan continuing to advance regional progress on the basis of existing initiatives”
“…deepening their trade and investment relations and of their continued efforts in promoting trade, economic growth, and high standards throughout the Asia-Pacific region.”
Japanese goal: Rope the United States back into TPP. (Used to think Abe was nuts, and that he should go for a TPP-11. But maybe they are compatible.)
US goal: Get a better bilateral deal than it got in TPP.

The easy ones first. 1) Economic cooperation: and 2) Macroeconomic collaboration.
1) Economic cooperation:
The Japanese Government wants to help Japanese businesses sell “high-quality infrastructure” overseas. Essentially, high-speed railway systems. JBIC and NEXI can provide long-term financing, but they don’t need the Talks for that. The US doesn’t either. It could actually be harmful if it stood in the way of international consortiums, which it won’t. The outcome will be the result of international competition with the groups coming up with the most attractive package of performance, financing and operation conditions, and local production, not necessarily in that order.

2) Macroeconomic collaboration:
Japan last intervened in November 2011 when it was around 78JPY=1USD, where it remained for most of 2012. Barring another global financial crisis, it’s hard to see Japan intervening again.
On the other hand, Prime Minister Abe caused a stir by talking about the salutary effect of quantitative easing on the exchange rate. Abe went on to deny the linkage, but people remember, partly because it’s actually true. But for now, the macroeconomic circumstances are such that this is something you can keep at the back of your minds.

And now:

3)  Bilateral framework on trade and investment

Why does Abe want TPP? (Many angles, but boils down to)
a. Key element of Abenomics: 2.7 percentage-point boost to Japanese GDP by 2030 (WB).
b. Depoliticize international trade and investment relations. (Another way of saying Keep China in check. Case in point: rare metals scare. More recently, retaliation against THAAD.)
c. Keep the United States engaged in Asia (as a foil for the regional hegemon China). It’s not just about the economy.

Why does Trump want a bilateral deal?
To prove that he can cut a better deal than Obama.

Key US actors:                  
Anti-deal:
1. US automakers (Chrysler? Really?)
Want: inconvenience competitors’ global sourcing, manufacturing and marketing strategies.  Reduce their flexibility. Platforms are going global!
Not want: Open up Japanese market.
GM: Gave up on Isuzu. Ford: Gave up on Mazda.
Better deal:
2. Pharmaceuticals: Biologics data protection 12 years (TPP: 5, effectively 8, Japan and Canada, currently)
TPP deal:
1. US beef and pork industry. Lost market share to Australia, Canada and NZ due to mad cow disease. Has been making gradual but steady comeback, now overshadowing Australia in supermarkets. Will suffer as tariff rates on Australian meat go down over time. (So will Canada, NZ.)
2. Copyright owners: 70-year post-mortem works for them.


Likelihood?
Better deal? Linkage got a lot more difficult as Mike Flynn (LOL), Mad Dog Mattis and now H.R. McMaster have pulled Trump ever more deeply into center-right national security establishment against more general background of mainstreaming Trump as a GOP president. Japan is a clear, major military asset for the United States. (ROK is vastly more ambiguous.)
US meat industry gets antsy as time goes by.
Disney gets antsy as Japan (and TPP-11) refuse to adopt 70-year post-mortem copyright protection.
Long-term, US auto manufacturers will start worrying if Thailand et al decide to join TPP-11. Can India be far behind?

TPP-11 may be the lever that brings the United States back. And Abe knows it.


Thursday, February 09, 2017

On the Eve of the Abe-Trump Summit

- Key things to watch out for in Abe-Trump meeting

Anything out of kilter from the following. Because if there is, that will be the big headline that everyone will be talking about. One way to annoy Trump? Go on at length about the virtues of TPP. Are you trying to tell me Obama was right, and I’m wrong? One way to annoy China? Specifically mention East China Sea and South China Sea… and THAAD.

Expect:

Overall, warm and cordial. The entire visit is being stage-managed that way. And Prime Minister Abe brings that out from authoritarian willful strong leaders (Putin, Erdogan, Mugabe…). Besides, President Trump is actually a good host/guest. It’s usually the CNN coverage and twitter feed that get him worked up.

1) On the economy:
From the US side, the imbalance in automobile trade; from the Japanese side, how Japan has eliminated tariffs and changed regulations to accommodate imports, and what wonderful things Japanese automakers and others are doing to create jobs in the United States.

From the US side, a bilateral FTA, under which currency manipulation should be addressed. From the Japanese side, Monetary Policy and FOREX Market Intervention 101, and an expression of willingness to  take up FTA as an issue in a high-level political dialogue.

2) On security
Expression of concern on regional security issues; and firm commitment to the bilateral alliance, relocation of US forces including the new helicopter base at Henoko, and a Japanese commitment to keep increasing defense speeding (this last merely a confirmation of  the 2%/year increase in real terms in FY 2014-2018 defense plan increases)

3) General
An Aso-Spence high-level dialogue going forward, where discussions on a future FTA are likely to end up among other things. “Deputy Prime Minister” is a description, not a legal title, but Aso is a former prime minister with only a one-year tenure, useful to trot out when a run-of-the-mill cabinet minister won’t do but the prime minister would be too much.

- Top hot button issues between Abe and Trump (eg trade, currency etc)

I don’t really see a hot button issue, if by hot button issue you mean something that has a serious chance of directly upsetting the bilateral relationship. There is no JAFTA that the United States could threaten to pull out of. Heck, the Trump administration hasn’t even shown any signs that it will designate China as a currency manipulator any time soon. I do expect that Japan will eventually enter negotiations on a bilateral FTA and that the FTA will ultimately include a currency clause, if such a clause is acceptable to the United Kingdom. The Trump administration needs something to point to as being better than TPP, and I don’t see much elsewhere, except perhaps up to a 12 years’ protection on biologicals data.

- Views on the future of Japan-US relations under Trump and Japan-US-China relations

The US-Japan bilateral relations will be fine. The Detroit Three (in terms of headquarters only; and is Chrysler really a “US” company?) will keep on carping, but only to inconvenience their competitors, not to engage in the Japanese market. They gave up controlling stakes in Japanese automakers years ago, and the Japanese market is in the very early stages of its senescence. And Japan as a military base on the cheap is a genuine military asset for the United States, unlike, say, South Korea.

It’s the Japan-US-China triangle that worries me. Japan has been passive towards China on economic issues. I suspect that the Trump administration will want the Abe administration to be more engaged on industrial espionage charges, IP issues more broadly, as well as other, less politically charged problems.  But Japan has little leverage against China. And more vulnerable to counter-pressure. Security is even more problematical, since the Abe administration see China as Japan’s most important security threat, followed by North Korea, which is also China’s Whitey Bulger if you will. Again, if and when the United States escalates and Japan follows, Japan will feel the heat. Remember, if the US forces suddenly disappeared from Japan, North Korea would stop caring about Japan. So would China (although it might decide that it was high time to seize the Senkaku Islands altogether, which is a good reason for making sure that the US forces remain). Japan is not exactly a mouse, but a mongoose, say, will also suffer mightily when elephants fight.

- Views on the future of Japan's investments in the US

There are likely to be cases where Japanese businesses already based in the United States decide to reinvest in the United States to be on the safe side, particularly until there’s more clarity on how NAFTA is likely to end up. We’ll never be sure, though, because it will be just one of the factors in the cost/benefit analysis.

Likewise, major greenfield investment decisions by new entries will also affected. They don’t want to find out later that the Trump Hotel that they checked into has turned into Hotel California. .The Trump administration will not be around forever, but it could be up to eight years, and who’s to say that the United States will return to normal post-Trump?

Certain mergers and acquisitions will be a little less attractive for truly global companies, since there is likely to be political pressure over cross-border consolidation. Hotel California.
The infrastructure investments that Mr. Abe will be talking about is what I call his no-regrets policy in investment. Something that he would be doing anyway. Support for exporting “high-quality” infrastructure is an important feature of Abenomics 2.0. Essentially, the Japanese Government will provide financial support to Japanese firms bidding for infrastructure projects. Local manufacturing will be an important factor in the tender process. And the eventual outcome, years from now, may be very different from the headline numbers of today. But that’s always the case in investment deals packaged for summit pageantry.

- Anything in particular you would like to discuss?

No.


Sunday, April 24, 2016

Abenomics and the Limpness of the Third Arrow

The fundamental problem with Abenomics is that Mr. Abe does not have a coherent perspective on economic reform to work from, whether from personal expertise (he is not a trained economist and has minimal business experience), conviction (the economy is far from his first love), or through an economic czar to delegate the task to (there is no Heizo Takenaka to Junichiro Koizumi, no Zhu Rongji to Jiang Zemin). This was not been a problem for releasing the first QE arrow, essentially following in the footsteps of US and European monetary orthodoxy. The only meaningful opposition came from the Keidanren leadership, reflecting the elderly businessmen’s natural suspicion of easy money. But the businesses themselves? Probably not as reluctant to embrace what should be good for their bottom line. Besides, Keidanren had progressively lost its political relevance since it gave up the role of super-bundler for financing the LDP. The second, fiscal arrow, meanwhile, was essentially an extension of what the LDP and politicians in general are inclined to do and have been doing through the ages: spend public money.

The third arrow, which is (was?) structural reform, is a different animal. Reform requires whacking away at vested interests, but when you’ve been in charge for the better part of 60 years of a highly homogeneous society like the LDP, most of those vested interests will also be your bedrock constituencies. A difficult task indeed, and made more difficult by the lack of leadership. The uneasy coalition-secretariat of ministry bureaucrats do appear to have a core of consisting largely of the usually reform-minded METI, but without political vision and leadership, there is no way to take measures that run the risk of the dissatisfaction of vested interests and their ministerial representatives boiling over.

Here, the one notable exception to Abe’s unwillingness to seriously challenge powerful vested interests is instructive: his decisions around the Trans-Pacific Partnership negotiations. I believe that here, his main concern was the perceived need to reinforce the Japan-US alliance and cement the US pivot/rebalancing towards Asia—basically keeping the US onside. Barring such non-economic concerns, only incremental, largely tactical advances as far as the third arrow/structural reform is concerned are likely to emerge.

Monday, January 25, 2016

Political Dying Wishes? Not in Japan or (Mostly) in America

A close friend of mine who read “The dead people of America really don’t want Hillary Clinton to be president” and asked if we “Japanese make such requests in obituaries?  I doubt Europeans do.  I guess one other example of American exceptionalism.” I responded:

Few Americans make such death wishes; these are examples of "exceptional" Americans, not American "exceptionalism." More generally, they are examples of the tradition of the dying wish—last meal of the condemned, "No grass shall grow on the grave of this innocent man..." "Bury me where this arrow falls" etc. etc.—that has a long Anglo-Saxon and I suspect European tradition.

We do not have that tradition in Japan. The increasingly rare newspaper obituaries are almost always prosaic, formulaic even, affairs. We did have the tradition of the poem as one leaves this world (辞世の句) in the 5-7-5/7-7 tanka form (with the 5-7-5 haiku form becoming acceptable far more recently). If people of any substance (or people close to them) were not skilled enough to compose one, they could pay for-hire poets to do it for them. In fact, some wealthy nobles would hire them full time, much like illiterate European nobles hired scribes to do their writing for them, at a time when composing such poetry for any and all occasions public or private was de rigeur.

Those last poems, though, were typically meant to be words of wisdom, an intangible epitaph that exemplified the life of the dying, usually not a wish. The most famous by far are the words of the near-mythical robber Ishikawa Goemon, who is reputed to have said as he was about to be boiled in oil (yes, we did that too around the rough and tumble warlord years), "Ishikawa and the sands of the shores may come to an end, but the seeds of robbers will not (my translation)."

(Edited for clarity.)

Footnote: Apparently, it was a Trump tweet that touched off all the commotion. Will the US media never tire of him?

Saturday, December 26, 2015

Helping William Sposato Make the Japanese Labor Force Story Sausage

I am quoted here. Here are the salient parts of the two exchanges behind it.

"…there has been less attention on the decline in the male participation rate, especially among young males (it has fallen from 97% in 1997 to under 94% today). Getting that back to its previous level would add 1% to the workforce overall."

Some, perhaps much, of that should be accounted for by a rise in young males seeking higher education. A Wikipedia entry shows that there has been a 10.3 percentage point rise between 1997 and 2013 (using 5% for junior colleges for 2013.) No, this does not distinguish between males and females (it is likely that the rise has been steeper for females), and yes, many students are likely to be counted as part of the workforce, busking tables and the like. Still, you cannot make a robust point about raising the male participation rate without looking into this. And for that, you need to look at the original data, which should be available through the MEXT website.

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1.       With PM Abe apparently ruling out immigration, do you see any way to bring back the size of the labor force amid an overall declining population?

The first thing to keep in mind is that anything that the Japanese government can do to raise the birth rate will have very little effect on the labor force for at least 18 years (19 years to be precise.) A major expansion of the “training” system? But Abe will be gone in three years; I suspect that future leaders will be more amenable to a gastarbeiter program with prospects for permanent resident status leading to citizenship drawing from China, Indonesian, and (why not?) North Koreans.

2.       Do you think that labor participation is an important goal or should the focus be elsewhere, such as in pushing up productivity?

Governments can provide a better institutional framework for labor participation, that’s for sure, and the Abe administration is oriented in the right direction on that. But pushing productivity? I don’t know enough to understand what the government can do about that.

3.       What steps do you think the government should be taking?


Dunno. But I can list a few things that do not require fiscal appropriation but are not being done.

(The following was missing from the original post.)
1)      Set an example. Make a pledge that every make cabinet member and subcabinet political appointee will undertake 25% of the housework when he leaves office and 50% when he retires from politics.

2)      Make changing surnames on marriage optional.

3)      Cut 10% of non-need-based welfare payments to the elderly and use it for childcare.

4)      Eliminate all fiscal incentives for marriage and use the savings for childcare.

4.       Do you think Womenomics has been more PR than substance?

There’s plenty of both, but not enough of the latter. Now if I were Abe, I would focus on the birth rate, with Womenomics the corollary.