TT-858 -- Abenomics Part II -- What Really Needs to be Done

* * * * * * * * 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.
(http://www.terrielloyd.com)

General Edition Sunday, July 17, 2016, Issue No. 858

- What's New -- Abenomics Part II -- What Really Needs to be Done
- News -- New ship orders plunge 80%
- Upcoming Events
- Corrections/Feedback -- Feedback on the Cheapest Forms of Transportation
- Travel Picks -- Tamagawa Onsen in Akita, Western Bistro in Azabu Juban
- News Credits

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+++ WHAT'S NEW

Now that PM Abe and his LDP coalition are firmly back in power and have
the ability to change anything they like, including the constitution,
all investors' attention is on just what the government's upcoming
stimulus package will look like. We know that in the first year it will
be around JPY100trn, and that some of the measures kicked off will cost
a lot more than that over succeeding years. The Nikkei is saying that
the new package will have four pillars -- infrastructure development,
financial support for small businesses, mobilization of underutilized
human resources, and disaster prevention measures.

We're not sure that Japan needs more infrastructure or even disaster
prevention, but the small business support and HR improvement are
certainly key areas needing attention. The problem is whether the
government will be implementing bandaids, or put real money where its
mouth is. For example, for Small- to Medium Enterprises (SMEs), offering
tax concessions would be meaningless because most SMEs are not making
profits anyway. And for "underutilized human resources", which can only
mean in today's full-employment scenario moms who are not working, the
problem is that even if they want to work they STILL can't find
kindergartens to put their kids in. Our company has two working moms,
living in totally different parts of greater Tokyo, and both of them
have been trying for months to find day care...

So what should Abe be directing government funds to?

Firstly, Abe needs needs some quick returns, so exporting the country's
way out of immediate trouble is certainly one way to go at things. The
problem is that anything Japan can do these days the Chinese can do as
well, quicker, and cheaper. The Nikkei has recently said that the Abe
government is going to start supporting infrastructure exporters with
funding - meaning that the Japanese will focus on building more roads,
bridges, power plants, water plants, and rail projects. They plan to
supply up to US$200bn over the next five years to facilitate these types
of projects. Unfortunately for them, the Chinese can do all of these
things, and they have much more flexibility managerially and financially
to win them.

As the Japanese government learned in their embarrassing debacle in the
Jakarta-Bandung bullet train project in Indonesia, to succeed against
the Chinese you need not only the skills, technology, and workforce, you
also need soft, almost throw-away, funding and quick-thinking
salespeople. The Indonesia deal was turned over by the fast-moving
Chinese when they offered untied loans for the infrastructure project.
The Japanese on the other hand, were bound by the inflexibility of their
own regulations - and required massive deposits and other significant
financial commitments. Simply put, the Japanese were outmaneuvered.

We think that competing on the basis of throw-away infrastructure loans
to foreign countries is a fool's game anyway, because even if you match
the funding conditions, all other things being equal the Chinese will
still win due to their lower labor, materials, and project management
costs. Probably the only way to really combat the Chinese is to make
them the regional bogeyman (not hard to do), by building up a
Japan-friendly defense/trading bloc with countries affected by China's
nine-dash territorial claims. But even if the Japanese do use this
playing card, the infrastructure-hungry, trader-savvy client countries
will still be tempted to simply play the two off against each other.
Further, even if the Japanese win these projects, what benefit will the
massive possibly-never-to-be-repaid loans bring to the Japanese public?
Not much - unless more Japanese old folks want to emigrate to Malaysia
or the Philippines.

[Article continues below...]

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[...Article continues]

For the Abe government to really move Japan beyond China, he needs to be
thinking about improving the nation's intellectual property and its
ability to innovate. As such, the real imperatives for Abenomics should be:

* Deregulating protected industries
As we made clear in TT-856 two weeks ago, the biggest factor holding
back the Japanese economy is the lack of will by the Abe government to
tackle and dismantle the many vested interest groups who have locked up
complete sectors of the economy. From health to gambling to recruiting,
some serious deregulation in each sector would create a flood of new
investment that would stimulate new companies and innovation. Just
witness what happened when NTT's monopoly was challenged in the early
1990's and telephony was deregulated. There was a flood of new entrants
and a share-buying public supporting them, and from this the Venture
Capital and internet sectors were both born.

* Focusing on SME companies and helping them export
The bulk of working Japanese (85%), about 53m people, are employed by
SMEs. The reason that Abenomics isn't having an effect is that these
hundreds of thousands of companies are under severe pressure just to
survive, and are certainly in no position to be able to increase wages.
Without their situation improving, no amount of tongue lashing is going
to get them to pay more. What these companies need is not just more dumb
money - instead they need funding with a purpose - and SME exports would
be a good target.

Abe is right to think that the nation needs to focus on exports, at
least in the short term so as to provide real income to plow back into
the economy. But the problem so far is that the initiatives are
targeting major existing exporters, who employ far less people and who
don't really need the help anyway. Instead, the Abe government needs to
embark on a far-reaching program of innovation funding and export
assistance that has never been tried before. EVERY SINGLE SME company
should be approached and assisted to embark on some kind of export
initiative. This consulting work could be done by recently retired
trading company managers, who know how to do business abroad and who are
often multilingual. Keep it simple: no export plan, no funding.

* Changing the bankruptcy laws
The Japanese are a conservative people, something they learn at school.
For a young person to want to change the world by starting their own
company, they need to have the reassurance that their lives and those of
their families are not blighted forever if their new venture fails.
Japan's corporate laws supposedly divorce directors from company
failure, providing the directors have acted appropriately, but in
reality these laws don't work. The fact is that it is almost impossible
for a CEO to get resources without having to put his/her name to a
guarantee agreement.

Rental spaces, copier and PC leases, business licenses, and of course
company bank loans -- all require the founder to take responsibility and
to fall on their sword if things don't work out. Instead, the government
needs to create an extension of the Guarantee Corporations that it has
established for company loans, and start providing 100% guarantees that
after sufficient review, would result in new CEOs not going bankrupt
personally and being allowed to have a life after failure. Homes and
personal property, so long as they were not acquired with money wrongly
received from the failed venture, should not be confiscated, and people
going through this catharsis should not be publicly reviled. (More on
this a bit later.)

* Re-training the adult population
One thing that puzzles a lot of foreigners is why, if the unemployment
is so low, there is not upwards pressure on wages? Actually there is
upwards pressure, but only in a few key sectors, such as high-tech and
the professions. In most other sectors, such as general services,
manufacturing, and agriculture - which in sheer numbers drown out the
few positive sectors - companies are not investing in automation and are
stuck doing things the same way they have for the last 50 years. The
high employment levels are a function of reduced availability of general
low-skilled staff following the 8m+ baby boomer "dankai no sedai"
retirements over the last five years, and the need to keep doing the
same tired old processes going the same old way. The net result is low
unemployment, but also no improvement in the financial situation of most
domestic companies, either.

For Japan to break out of this SME sector stagnation, the government has
to apply deregulation, funds, and a far-reaching adult education program
that is mandated to companies by law (otherwise everyone will be so
bound/tired by their existing jobs, no one will attend classes) to
produce higher-skilled people who actually THINK about what they are
doing - rather than repeating what their seniors taught them. This
re-education needs to focus on IP-rich material, such as business
practices innovation, software, planning, foreign languages, export and
financial tools/procedures, basic R&D, personnel development, management
theory, marketing theory, etc. All of these are "soft" skills that
Japanese small companies so badly lack and so badly need to be
competitive internationally. With these newfound skills, Japan's
productivity would soar, countering its falling population and fostering
a better environment for part-time working mothers to have more kids as
well.

* High-tech farming for food security
TPP is like the European Union, a grand idea, but one whose final
implementation will leave a lot to be desired. Anyway, it looks like the
initiative is dead for now, so Japan needs to fix itself rather than use
foreign "pressure" to get the job done. The nation is certainly at a
huge disadvantage being so dependent on other nations for its food
supply, but only has itself to blame - because it has made imports
easier to do than trying to fix the agricultural lobby here at home.

We have already seen the private sector avoid the whole agricultural
lobby minefield by moving farming to indoor micro-controlled factories
with few people in attendance. There are several hundred such factories
producing fresh greens already operating, and with some intensive
financial input by the government (this could be their "infrastructure"
component, instead of unneeded maglev trains) the effort could be
extended to include fruit and protein (fish, cereals, beans, etc.).
Japan's greens factories are 20-50 times more land efficient than
regular cropping, rely on technology and robots to replace manual labor,
and are season-free, so this is a promising area to adopt as a national
strategy. Furthermore, safe food is the ONE thing that the Japanese do
much better than the Chinese, and so would create a massive competitive
opportunity for reverse exports.

* Immigration and anti-discrimination laws
We have nothing much to add about immigration that hasn't already been
said, other than it's inevitable if Japan sticks with its man-power
intensive way of doing things. One key issue, though, is that if
foreigners are brought into the country by stealth (as is happening at
the moment, where most foreign immigrants are initially "students" or
"trainees") is to change the laws to recognize and outlaw racial
discrimination. The Japanese government claims to the UN that such laws
are unnecessary because their is no discrimination problem here. Yeah,
try telling that to the foreigners who live here and have to deal with
landlords.

* Changing the education system
The real source of stagnation in Japan, isn't risk aversion, money flow,
or politics, or even vested interests, it's in how young Japanese learn
to value these things as they grow into adults. It's how Japan educates
its kids in the first 13 years and how that influences what they think
and do for the remaining 60. The current system worked well when the
nation needed a supply of obedient factory workers, but now that the
world is a much smaller place, and Japan's low labor cost advantage and
disciplined workforce have been largely supplanted by the Chinese, Japan
needs its youth to be more competitive, more outgoing, and better
problem solvers. This is of course an extremely thorny area for reform,
as education represents the core values of a society. But if kids are
not taught to take more risks, to embrace failure as a learning
experience, and to see adventure as desirable and not a threat, then
Japanese society will continue to breed inward-looking herbivores who
are pleasant to be with but who are also exceedingly easy to take
advantage of.

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***********************************************************

+++ NEWS

- New ship orders plunge 80%
- Armpit dryer device perfect for summer
- Rakuten to take over Bitnet assets
- Japan Inc. to get US$200bn insider loans
- LINE shares rocket 50% up on IPO

=> New ship orders plunge 80%

New ship orders to Japanese shipbuilding yards have plunged 80%, the
lowest level since the Lehman Shock of 2008, and shipyards are worried.
Currently shipbuilders are still handling a glut of orders that arose
after the USA changed its laws about NOX emissions, coupled with a
weaker yen, and so docks are busy. However, looking out over the next
2-3 years, there have been almost no new orders since the start of 2016.
Analysts say this is because of weaker demand for shipping in China and
other manufacturing countries, as export demand worldwide is falling.
***Ed: Maybe Abe could order up some new nuclear warships to go with his
newly acquired Constitution-changing government?** (Source: TT
commentary from nikkei.com, Jul 14, 2016)

http://s.nikkei.com/29LXEhf

=> Armpit dryer device perfect for summer

Summer as a salesperson in Japan is torture. Long hot sweaty days
trudging the streets to visit your co-sweating clients. You can't say
you've tested your endurance until you've had this experience. Now
salarymen all over the country can rejoice, because the Thanko company
have released battery-powered armpit fans that clip right on to your
short "cool biz" shirt sleeves. Hard to say if the Thanko units actually
work, but at least for JPY3,800 you can buy a pair of these puppies and
try them out. They run for 5-9 hours on a pair of triple-A batteries.
(Source: TT commentary from mashable.com, Jul 15, 2016)

http://on.mash.to/2a7SJg3 (Mashable website)
http://bit.ly/29YZE9N (Thanko website)

=> Rakuten to take over Bitnet assets

After investing in the Series A round of Bitcoin payments processing
firm, Bitnet, in 2014, and subsequently that firm hitting the wall due
to slow adoption of Bitcoin as a payment mechanism by consumers, Rakuten
is now apparently in discussions to buy Bitnet's technology from the
other investors. No one related to the deal is commenting on it, but it
looks like Rakuten is discounting the pause in Bitcoin popularity by
mainstream retailers, and is planning to forge ahead with the
technology. ***Ed: Time will tell if Rakuten is being unrealistic or
visionary - although certainly the underlying blockchain technology is
of high interest to financial firms everywhere.** (Source: TT commentary
from wsj.com, Jul 15, 2016)

http://on.wsj.com/29Mwkl0

=> Japan Inc. to get US$200bn insider loans

The Nikkei has been leaked details of the upcoming Abe stimulus budget,
which apparently is going to focus on "infrastructure exports" -
meaning, mostly, loans and government support for any exporters focusing
on infrastructure projects overseas. This means money for the likes of
Toshiba, Hitachi, and other majors, but not for those exporting consumer
goods and services. The upcoming stimulus will also cover a bunch of
other sectors, and we will find out more in the next two weeks. ***Ed:
As our main editorial points out, if Abe really wants to improve the
economy in the long term, he needs to spread the exporter base much
wider than just a few hundred of the biggest exporters. Most of the
economy and certainly the parts that employ people and give pay raises,
are domestic. He needs to focus on these firms.** (Source: TT commentary
from nikkei.com, Jul 15, 2016)

http://s.nikkei.com/29Mratm

=> LINE shares rocket 50% up on IPO

Japan's largest tech IPO of 2016 so far has seen the shares of LINE, the
messaging app, soar 50% in the first day of trading. Apparently demand
was so strong that at opening the shares went untraded because no one
was willing to sell what they had. Eventually some volume did occur and
shares hit JPY5,000, well up from the JPY3,300/share launch. The company
is now valued at US$10bn. ***Ed: But is the company worth that? Probably
not. Our sense is that LINE is untested in foreign markets other than
Japan, Taiwan, and Indonesia. The company will need a lot more clout
that it currently has to compete with Facebook Messenger, WeChat,
WhatsApp, and others. Indeed, we think it will be a good takeover
target, despite the price.** (Source: TT commentary from
japantimes.co.jp, Jul 15, 2016)

http://bit.ly/2a7SxNR

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.

***------------------------****-------------------------***

+++ UPCOMING EVENTS

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Time: 6:30pm Doors open, Buffet Dinner included and Cash Bar
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RSVP: By 5pm on Friday 15th July 2016. Venue is The Foreign
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---------------------------------------------------------

***------------------------****-------------------------***

+++ FEEDBACK

In TT-857 (Jul 11, 2016) we wrote about some of the cheapest ways to
transport yourself as a tourist around Japan. We got lots of great
feedback, including a correction and several comments on Campervans and
other preferable low-cost ways to get around.

=> The Correction

*** Reader says: Your calculations seem wrong to me. For example, you
write that you are calculating for two people for two weeks, but then
your misc. is 1,000 yen x 2 = 14,000 yen. 1,000 yen / day x 2 weeks is
14,000 for one person, not two people...

** We respond: Yup, you're right, the actual cost is JPY28,000 for two
people. Fortunately this cost appears for all options, so relatively
speaking the bicycle option still wins out.

=> A Camper van supplier
(Paul Cadogan of Elite Auto Export Japan)

*** Up here in Niseko our small Peak Niseko Car Rental operation now
offers camping kits with our large vans. Our summer pricing for our
large 8 seat vans is 8000 Yen per day. Add the 1000 Yen per day for the
"camping kit" and your are on your way and very self sufficient. (Plus
8% Tax)

We have also started create and update an English map that currently has
over 400 way points for camp grounds, auto campgrounds and interesting
spots around Hokkaido (also preloaded into the English Garmin navigators
in our vans). This is rudimentary at this stage, but with the help of
our customers we hope to use their experiences to improve this over
time. See here:

http://bit.ly/29Ox1eK

We are getting fantastic feedback on the vans and are working on
including a few more things to make them more user-friendly. Last week
we had a middle age couple from the Netherlands who had a van for around
12 days while their friends rented a competitor's van - they mentioned
that the other van, though twice the price came with no "gear" for
cooking, and no outdoor seating or table etc.

=> Easier Ways Than Cycling

*** When I used hostels in Japan they were awful - gestapo camps. These
days I'm paying JPY4,000 per night at Toyoko Inn on Ishigaki island, and
other hotels at JPY10,000 plus. Buses are convenient but I fly to most
destinations. The Japan Rain Rail Pass is OK, if you want to travel
every day - but who wants to do that? In any case, the Japan East Pass
is a better alternative as it is non-consecutive, as is the Kansai Pass.
Further, the Suica Pass is my favourite since you can use it in most
Japanese major cities except Naha, Okinawa.

Bikes are hard work...!

***------------------------****-------------------------***

+++ TRAVEL DESTINATIONS PICKS

=> Tamagawa Onsen, Akita
A special milieu in the heart of Honshu

Tamagawa Onsen is a hot springs town in the mountains of northern
Honshu. After cycling from the far north of Hokkaido in Abashiri, this
part of our journey was hilly again. Although early September, we went
through every shade of grey during the day, with the skies filled with
clouds. Soon after we left Lake Towada, we rode a few kilometres into
the mountains, back down to the Kusano plains, then rising to over 1000m
we found ourselves in a beautiful valley surrounded by flowers of all
kinds - it was a beautiful trip of just over 80km.

At the top of the last mountain pass, the weather suddenly warmed up,
with the smell of sulfur telling us that we have arrived at the Onsen.
We had all the trouble in the world the previous night trying to book a
room at the spa where we were staying near Lake Towada. Clearly, the
owner and the reservations team at the health resort wanted us to stay
here. However, we did not understand why he strongly insisted that we
got that triple room, in what looks like the "Mecca" of the Onsen...

http://bit.ly/2a31xRe

=> Bistro Chick in Azabu Juban
A cozy western style restaurant near Azabu Juban station

One of my friends recently invited me and a few other people to a
restaurant called Bistro Chick, which I did not know anything about
beforehand. As I am always up for new culinary experiences, I didn't
hesitate to try it out - and it's a good thing that I did.

The first thing you notice on entering is the rather small size of
Bistro Chick. This meant that my friend had called ahead to reserve the
seats for us, which is probably a good idea for a group exceeding three
people. Despite this, when we entered I was quickly intrigued by the
interior, which looked to be quite stylish. Seeing this, I expected the
food to be of a high priced, but was pleasantly surprised to find that I
could get a meal and drink set for 1200 yen. Part of this meal set
included a delicious salad starter, and bread.

When the main meal arrived, I was honestly quite surprised. I am usually
a heavy eater and I did not think that what I ordered would fill me up.
I ordered a beef meal, which was quite different from how I imagined it.
The menu said only that it was beef in red wine with honey sauce, so I
expected some kind of steak with sauce. What I got was more delicious
than I had imagined, as I got a pan filled with what was some of the
softest meat I have had in a long time. I could compare the texture to
that of pulled pork. It also turned out that the meal was more than
filling, and I found myself only just able to contain exactly what I had
ordered.

http://bit.ly/29MKS2U

***------------------------****-------------------------***

***********************************************************
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+++ ABOUT US

STAFF
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