Friday, March 14, 2014

Off-the-Cuff: A Couple of Notes on the “Shunto” Wage Hikes

Is Abenomics working with regard to wages? Um, not so much when it comes to “core” wages. The following are a couple of memos that I whipped up for a friend/journalist.

“First of all, most of the reported base-rate hikes (other than the whopping, across-the-board 10,000 yen hike at Gyoza no Ohsho being the one exception—in the non-manufacturing sector to boot--that I’ve noticed) do not match the 2% inflation target that the Kuroda BOJ is shooting for. Since BOJ only needs to hit the 2% figure y-on-y after two years, let’s say that the base rate hikes should only have to match up to mid-year inflation rate of 1% (which is actually a reasonable concession since the Japanese “core” CPI is not really “core” by international standards.). Even then, only a small fraction of the companies being mentioned appear to be measuring up to that more modest if reasonable yardstick. And we haven’t even talked about the 3% VAT rate hike yet.

“So here’s the deal: If you’re a regular employee at a large, publicly-listed corporation that is not on the skids, your living standards have been protected by the deflationary environment. But here comes sustainable core inflation (hopes Abe) and the extra 3% and only some of all that is compensated at the salary base-rate level, the remainder being accounted for by the annual bonuses, which can be reeled back whenever the corporate balance sheets so demand. And of course, there’s always the annual scale-based raise, which has masked at the individual level the lack of base-rate hikes at the collective.

“But what about services? Construction (which in Japan counts as services)? Okay, construction employees are likely to get their dues, regular or irregular. But the others? Small businesses? Irregular workers?
“Looks uncertain at this point to me. But let’s say consumption is on the rise, employment is on the rise, although the bulk of the new employment will be in the form of irregular workers (analogous to bonuses with regard to compensation), creating the appearance of growing income disparities—hello, minimum wage is better than no wage if you need the money—so hopefully, consumption follows the May, post-VAT hike, dead-cat’s-bounce with a steady rise, on a lower trajectory but with a similar vector. Unless you absolutely hate Abe’s values agenda and want the economy to tank.

“But what do I know, I’m an arithmetist, not an economist. Thank you for the interruption; now, back to work.”


“I've always believed that the unions are in cahoots with management. Corporate union leaders typically serves a few years, then goes back to work, having garnered invaluable experience and relationships with regard to labor relations. Or so it used to be at any big businesses when I was young. Please confirm with real experts, but there are inferences to be made about the numbers from this point.

Tuesday, February 25, 2014

Which Comes First, TPA or TPP?

The assumption always has been that the Obama administration needs the fast-track Trade Promotion Authority (TPA) in order to secure conclusive concessions from the other parties in the Trans-Pacific Strategic Economic Partnership Agreement (TPP) negotiations. Senator Baucus did table a TPA bill but promptly packed his bag for Beijing to take up the US ambassador’s office there, leaving no one of significance to push an already unpopular initiative back in Washington. Richard Katz reports as the latest round of ministerial negotiations get under way that the White House is now pushing the line that an acceptable TPP package is necessary to secure TPA—which was supposed to be the prerequisite to a conclusive TPP package. So what gives?

In fact, the alleged new White House line is not as absurd as it seems at first glance. There will surely be some senators, largely but not limited to Democrats, that will find themselves willing to let the negotiated TPA pass but unable to afford not to push an amendment or two on behalf of their respective favored lobbies and key constituencies. They could vote in favor of TPA, then cast a “principled” vote against the TPP in a losing cause. Yielding on a procedural supermajority so that the simple majority on the substance can come into play is a common feature of legislative action in the Senate, no? We most recently saw it with regard to Ted Cruz’s filibuster on lifting the debt ceiling. But try explaining all that to the other negotiating parties and their own sets of lobbies and constituencies and convincing them that it’ll actually work.

Monday, February 17, 2014

What If the Japanese Public Had Reacted Differently to the Koizumi Overtures to North Korea?

One of the great what-ifs of contemporary East Asian history is this: What if the Japanese public had reacted differently to the Koizumi overtures to North Korea? More specifically, what if the Japanese public’s response had been measured enough that the prime minister could negotiate for normalization of bilateral relations? He put a lot of political capital on that bet and managed to salvage some political dignity when he extracted the families of the surviving (according to North Korean claims) abductees with a tiny fraction of the cash that would have been forthcoming in the process of normalization.

Trolls in a forum that will go unnamed will argue that right-wingers killed any chances of following up on the North Korean admission when it insisted on keeping the families of the abductees in Japan. They will put the blame on Shinzo Abe, who as Deputy Chief Cabinet Secretary argued against returning them to North Korea. I wonder if these are the same right wingers who, after more than a decade of steadily worsening relations with China and South Korea managed to raise 12.4% of the vote for their candidate of choice Toshio Tamogami in a Tokyo gubernatorial race with a historically low turnout. In any case, the Japanese public drove the media response, not the other way around, though the calloused brains of those trolls will never allow them to admit. It is also to be remembered that the Socialist Party (JSP) and Asahi Shimbun, who would normally have been expected to be sympathetic to North Korea, could not speak up on this matter because of their earlier dismissive attitude towards the existence of abductees (and the possible implication of the JSP in the liquidation in one of them). If nothing else, there was an extremely high price to be paid politically if Koizumi had decided to send them back.

The most significant effect of all this was that it hobbled Japan in the Six Party Talks, where it became more of a nuisance to the other four, who were trying to negotiate a deal on the nuclear weapons—not that in hindsight it had been a realistic goal in the first place. But when and where hasn’t domestic politics dictated diplomacy? Was it Yogi Berra who said that that diplomacy is domestic politics by other means?

The Obama “State Visit” Revisited

Just to wrap up a thread that I’d opened here, it looks like President Obama will stay only one night in Tokyo but the two sides will work together to cram the trappings of a full state visit—audience with the emperor and a state banquet hosted by the prime minister—into the time available. That means that there will be no side trip to Hiroshima and/or Nagasaki, the scene of America’s crime against humanity—or does the end justify the means?—which would be awkward, except the Japanese side, including the people of Hiroshima and Nagasaki, has always been a good sport about it.

Foreign Minister Fumio Kishida telegraphed some such an outcome during his Feb. 7 talks with Secretary of State John Kerry when he stated: “And concerning President Obama’s upcoming visit to Japan, we are inviting the President as state guest. But when the United States makes its decision, the Japanese side will cooperate so that we will be able to make sure that President Obama’s visit to Japan is a great success.” Which is when I lost interest in this small matter except to note that a) in diplomacy, there will usually be a way as long as you obey the law of physics, and b) Japan does not get as worked up about these rivalry issues as much as South Korea or even China does. That is beginning to change on history issues with the Abe administration in charge. But not on matters like this.

The video of the February 7 remarks—no questions from the media—after the meeting between Japan’s Minister of Foreign Affairs Fumio Kushida’s and US Secretary of State John Kerry got top billing on the State Department website. (The transcript can be found here.)

Now back to work.

Monday, February 10, 2014

The Might-Have-Been of the Tokyo Gubernatorial

…some doodling for which I find no immediate practical use…

The pro-nuclear media is taking Yoichi Masuzoe’s landslide victory over antinuclear candidates Kenji Utsunomiya and Morihiro Hosokawa as an endorsement of nuclear power by Tokyo voters. Not necessarily. In fact, the election appears to have had the potential of being even more of a toss-up than I had guessed. A few things turning out differently for Hosokawa, and he could have been another example of a governor of a key prefecture using his bully pulpit to affect an issue on the national agenda*.

First, the voting outcome.

Yoichi Masuzoe:       2,112,979 votes
Kenji Utsunomiya:    982,594.767** votes
Morihiro Hosokawa: 956,063 votes
Toshio Tamogami:    610,865 votes
(The most any of the other 12 candidates received was 88,936 votes.)

(982,594.767 + 956,063) ÷ 2,112,979 = 0.91749977969

Is an eight-percentage point difference—a four-point swing—that unlikely in a Japanese election? Remember that most pundits believed that the 2003 “postal reform” election would end in a decisive defeat for the LDP at the time that Prime Minister Koizumi called it. And gubernatorial and mayoral elections in metropolitan areas are even more volatile***. And look at the negatives that Hosokawa carried (in descending order of importance): the disastrous non-launch of his campaign, the moment of truth when the media and voters define the candidate and his candidacy; the failure to dispel the lingering clouds of the circumstances around the 100 million yen loan and his 1994 decision to resign as prime minister instead of fully accounting for it; and his opposition to the highly popular 2020 Tokyo Olympics.

Yes. Change a few conditions, and the outcome of the election could have been very different even if the public’s support or lack thereof for nuclear power had been the same. A single-issue candidate can prevail even in an election where that issue is seen as secondary, especially when there is little perception of distinction on other issues between candidates.

What would have been the effect on the national debate on nuclear power? More to the point, how would that have affected the return of nuclear power units to the regional grids, commissioning of the units under construction, and the construction of others planned and yet-to-be planned? There would be even less practical use to any answers to that question. For now, I’m satisfied to have reached the conclusion that Hosokawa’s campaign would have had realistic hopes of winning with a better candidate and a better-prepared campaign.

A few caveats and/or unknowns.

First, we do not know enough to confidently say that Utsunomiya would have abandoned his campaign under strong public pressure. I believe that if the Communist and Social Democratic Parties had threatened to abandon him for Hosokawa, he would have gone along instead of hanging on as a true fringe candidate. I’m assuming that his idealism is leavened by a strong streak of pragmatism nurtured through a successful career as a leading member of the bar. But you never know.

Second, some of the Utsunomiya votes would have gone to candidates other than Hosokawa. Some of the progressives would have voted to the fifth-place candidate, a youthful internet entrepreneur/social activist, some would go for Masuzoe, and some with a maverick mindset would cast their votes for the hard-right (and only firmly pro-nuclear) candidate Tamogami. With the same voters, the real swing required was probably larger than four percentage points.

Second, we do not know what the effect on voter turnout, at 46.15% the third lowest in Tokyo history, a more competitive two-man race would have been. I suspect that interest and therefore turnout would have been higher. Moreover, obviously less committed, abstainers are more likely to be the “floaters,” who produce wild swings, particularly in urban districts. They would at least have injected a significant measure of uncertainty to the outcome.

Third, the Hosokawa camp puts part of the blame on the Sochi Olympics and the record snowstorm on the day before the election for the low turnout. Too busy watching the Olympics to vote? Perhaps. But I am of two minds about the Hosokawa camp’s spin on the weather. The sky had cleared up well before the voting stations opened, but any snow remaining—enough snow remained on some side streets to pose an obstacle to pedestrians—would have deterred some people from every voting bloc except Sokagakkai, which went overwhelmingly for the Komeito’s candidate of choice Masuzoe. Another point of note is that the elderly, presumably more inclined to support the conservative candidate, particularly someone like Masuzoe, who has a reputation as a social welfare expert and on a more personal level someone who cared for his aging mother, are more likely to be cautious in venturing out in the face of unfavorable weather or its aftereffects. All things considered, there is no way of gauging the impact of the voters who stayed home because of the effects of the weather the day before without detailed statistics.

Fourth, Masuzoe was lucky that this was Japan, not the United States. Masuzoe has some serious issues from his personal history—charges of domestic violence from his first wife, who now happens to be an LDP Diet member, and allegations of insufficient financial support for one of two children of his sired out of wedlock—that would have doomed him under American media rules, which consider such matters fair game as revelation of the candidate’s character. The tabloids are willing to venture into such territory, but the mainstream media ignores those stories unless they are relevant to policy issues or involve misuse of public office****.

Fifth, an argument could be made that Tamogami could have been convinced to give up his candidacy in favor of Masuzoe if Utsunomiya had thrown his support to Hosokawa. Possible, but unlikely. Masuzoe hedged his bets by saying that he wanted to minimize reliance on nuclear power. That surely did not go down well with Tamogami. More importantly, Tamogami would have been loath to support a pragmatist who, as drafter of the LDP proposal for a new constitution, eschewed most of the nationalist trappings that are so dear to nationalist conservatives. Tamogami may voice thoughts that many LDP politicians hold dear but are afraid to articulate, but Masuzoe does not appear to be one of them. Tamogami would have put the support from his constituency in jeopardy if he had held his nose and supported Masuzoe. A movement figure who is not angling for a political appointment cannot afford that.

*Case in point: Toru Hashimoto, whose domination over the Osaka electorate as Osaka governor and later as mayor of the city of Osaka, took the city to the brinks of dismemberment in line with his vision for an Osaka renaissance. Prospects for that outcome turned south, though, when he tried to take his local movement to center ring. Progressives also had some success in the 1960s and 70s in leveraging their prefectural and municipal footholds to influence the national agenda.
** The fraction .767 is the sum of Utsunomiya’s prorated share of the votes cast simply for “Kenji,” the given name he shared with another candidate.
*** Case in point: Yukio Aoshima, who entered the Tokyo governor’s race in 1995 with the promise to cancel the World City Expo Tokyo ’96 less than a year before it was scheduled to be held, and left Japan during the campaign period, only to return to realize that he had won. Ironically, his lackluster regime was seen as generally under the control of the bureaucracy.

**** For example, a governor can sleep around all he (or she) likes when off-duty, but must not use public property in doing so. Do not use the official car in tending to an assignation. And the governor’s mansion is off-limits for sex with anyone other than one’s spouse. 

Sunday, February 09, 2014

So Which Is It Going to Be, The Kaiserreich, or the Third Reich?

While attending the annual Davos meeting, Prime Minister Abe caught some flak when he responded to a question about the possibility of military conflict between Japan and China when he raised the example of Great Britain and Germany as two nations that went to war with each other despite strong economic ties. He talked about it as an outcome that must be avoided, not to suggest that a similar outcome was possible*, but it was nevertheless, as most reasonable people would agree, an inappropriate example to raise as the sitting prime minister of one of the parties to the greater dispute. But the Philippines’ President Aquino more recently made a more specific reference to Nazi Germany and Hitler in an interview with the NYT.

Now really? Not really. But they do reflect the fact that the Chinese navy and maritime authorities are increasingly better-armed, increasingly aggressive, and have not pulled back on any of the moves that it has made in the disputed areas or on the undisputed open seas, and has refused the Philippines’ offer to settle their dispute in the UN tribunal.

* One journalist did use the incident to suggest more nefarious intentions. Specifically:

Title: “Abe Finds Jarring Parallel for China-Japan”
Lead: “Japanese Prime Minister Shinzo Abe offered an ominous history lesson to crowds at the World Economic Forum in Davos Thursday.
End: “Mr. Abe said last year that historical interpretation should be left up to academics when he found himself in hot water after questioning the definition of the term “invasion” pertaining to Japan’s wartime aggression on the Asian continent. It seems the history buff prime minister is having a hard time taking his own advice.”
From this account, it’s hard to escape the impression that Prime Minister Abe is issuing a veiled threat, a threat of war. But this narrative omits the reason why he made the analogy(in my opinion inappropriately, though surely for different reasons than the journalist wants to suggest), according to FT (A more complete version of the exchanges can be found here):
Naturally enough, Mr. Abe also made it clear that he would regard any “inadvertent” conflict as a disaster – and he repeated his call for the opening of a military-to-military communication channel between China and Japan.

In other words, Abe raised the matter as something that he wanted to avoid, a point that the journalist’s article conspicuously ignores.

Tokyo Gubernatorial Election: A Pre-Postmortem

Between Yoichi Masuzoe’s victory as the foregone conclusion and the treacherous roads from yesterday’s snow, I am not going to cast a vote in today’s election for the governor’s office in Tokyo. Instead, I am offering a brief explanation of where I got wrong-footed with my idea that Morihiro Hosokawa, the former prime minister, had a fighting chance.

It became pretty clear only a couple of days, if that, after he threw his hat into the ring that Hosokawa was going to lose. His best, perhaps only, chance, lay in generating sympathetic and to the extent possible positive media coverage at the onset and sustaining it through the early stages of the campaign so that irresistible pressure would build up for the other substantive antinuclear candidate, Kanji Utsunomiya, to fold camp and throw his support behind him. Instead, he postponed his official announcement while he hastily cobbled together a platform that would go beyond his antinuclear message and backtrack on earlier comments reported in a book advocating the rejection of the vastly popular 2020 Tokyo Olympics. This made him come came across as indecisive and unprepared, an impression that was reinforced when he refused to take part in the customary debates featuring the main candidates. Yoichi Masuzoe, the favorite receiving the support of the LDP and Komeito, claiming that a debate without his purported main rival would be meaningless, also pulled out, causing the debates to be canceled, but Hosokawa deservedly took the blame for the turn of events that robbed the public of the opportunity to hear out the candidates and, most importantly to Hosokawa’s campaign, alienated the reporters covering the election. Hosokawa finally made it to the starting line five days behind schedule, but he’d lost most of his momentum by then. And the nuclear power industry and the Abe administration must have breathed a sigh of relief. And the DPJ, which had offered its support to Hosokawa, found that the pig in the poke that it had bought had for all practical purposes turned toes up.

Hosokawa was stunningly ill-prepared for his run, which in hindsight may have been more or less to be expected from a 76 year-old who had retired from politics when he turned 60 and largely spent his time since then making pottery with his own kiln. However, it is also instructive that it was also reminiscent of his 1994 announcement as prime minister that he would seek a consumption tax hike from 3% at the time to 7% with the proceeds to be spent for “national welfare” purposes. The problem was that he had essentially taken an idea from the Ministry of Finance and made it public with little concern over the possible response from the general public or the coalition parties supporting. Facing widespread opposition, he took his proposal off the table in a couple of days, but the damage was done.

This casual approach to policy issues reminds me of Yukio Hatoyama and to a lesser extent his brother Kunio Hatoyama, two other men born to privilege whose casual attitude towards the politician’s word and its consequences stands out. There is no reason to believe that a noble upbringing breeds irresponsibility. But it is difficult to imagine people with such obvious flaws having the kind of political careers that the three have enjoyed without their family backgrounds.

Wednesday, February 05, 2014

Off-the-Cuff: Some Thoughts around President Obama’s April Visit

The following are some of my thoughts around President Obama’s April visit to Japan, specifically regarding the new South Korean bid for its own Obama visit. I was quoted here, and I decided that I’d get my full views out there.

According to news reports, wedging the Blue House into the crowded presidential itinerary—Obama is visiting Malaysia and the Philippines—would like end up shortening the Tokyo leg with the result that the Japanese government will not be able to offer Obama the full state visit package, emperor, banquet and all. Stretching the itinerary is unlikely to be an option, given the intense domestic focus of the embattled White House.

You know what this reminds me of? South Korea swooping in with what seemed at the time like a hastily prepared bid and grabbing a half-share in the 1998 World Cup. And the bilateral relationship is much worse now.

I suspect that at the end of the day, Prime Minister Abe will have to just grin and bear it. It’s Obama’s decision to make and he does not want to disappoint either side, but President Park Geun-hye has significantly more to lose politically.

But that doesn’t mean that Abe has to like that. In fact, he and his advisors, and relevant cabinet and sub-cabinet members will resent it mightily. It will make him that much less fond of the Obama administration and more broadly the Democrats and inclined to long for what the LDP has traditionally seen as a more Japan-friendly Republican administration. It is likely to make him less inclined, if only slightly so, to be mindful of US desires when he is motivated to march to his own drum. 

Monday, January 27, 2014

Off-the-Cuff: Hosokawa, Abe…

A quickie, from a late-night, transpacific email exchange with a couple of people whom I deeply respect. (Yes, I’m the wiseguy.) Speaking of which, I’m going to catch this one if I can. Anyway…

# The Tokyo election? Hey, at least the Vasa sailed 1300 meters before it sank, much better than Hosokawa's candidacy.

# Abe making nice with Erdogan, Putin, and India's defacto lameduck prime minister? The real story here is that all this is taking that much time away from working on his third arrow.

# Abe's WW I analogy? Red herring. (See preceding bullet.)*

* I want to elaborate on what I mean by this.

Sunday, January 26, 2014

Japan Catches, China “Asks/Demands,” Japan Releases—So What’s the Story Here?

A friend cites this Japan Times article (translated Kyodo wire) and finds it “very encouraging.” The story is that “Beijing asked Tokyo not to arrest a Chinese man who attempted to land on the Senkaku Islands in a hot air balloon on New Year’s Day and had to be rescued by the Japan Coast Guard in nearby waters” and the “(Japanese) he coast guard did not pursue criminal charges against the man for intruding into Japan’s territorial waters, saying the exact point of his attempted landing on the islets could not be determined.”

I would be careful in trying to read something into this report. First, it’s a Kyodo dispatch, and from Beijing to boot. Second, another Kyodo wire (for those of you who read Japanese) reminds us that in 2012, two years after the infamous 2010 collision, 14 Chinese activists were arrested in flagrante delicto upon landing on one of the Senkaku Islands but were eventually sent back to China without being charged. It appears to be established practice not to call ticktack fouls; there was no reason to believe that the Abe administration would depart from customary procedures. So far, the Chinese side appears to have been careful not to escalate the war of nerves beyond mere words despite Abe’s visit to Yasukuni, which he chose to depict as a visit of tribute and remorse. As for the “arrest” part of the procedures, there was a convenient cover story: it was unclear whether the air balloon actually alit in territorial waters.

The question, of course, is what will happen if and when there is no cover story available. Your guess is as good as mine, but is it my imagination, or have Chinese fishing boats been avoiding the territorial waters since the 2010 incident, leaving the incursions to their maritime authorities?

But there’s a meta- kind of angle to these reports in terms of the glimpse it gives you into the mindset of the Japan Times editors and, more importantly, the key reason why the Japan Times version appeared “very encouraging.” Specifically, the original Japanese version uses the word “要求,” meaning “demand,” which is much more assertive than “asked” and “request” used in the English one. In fact, the title of the truncated Kyodo website version—each paper is free to impose its own title but this is quite representative—is “中国、気球男の不逮捕要求 日中緊迫下、立件見送り,” or “China Demands Air Balloon Man Not Be Arrested; No Criminal Case Brought amid Japan-China Tensions.” By contrast, the Japan Times version is entitled “China secretly asked Japan not to snatch Senkakus hot air balloonist.” Go figure.

Wednesday, January 22, 2014

Week-old Building Blocks for an Abe Profile

A week ago, I whacked out answers to four questions put to me and likely a few other talking heads by a journalist writing an Abe profile. For what it’s worth, here’s the Q&A. (I don’t know the name or date of the publication—it could one of a handful, from what I know of him—but a week should be more than enough for putting a hold on any lines that he might be using. If he used it just for background, that’s okay. I’m usually cooperative with journalists, academics and students who inquire by email or phone. I also extend professional courtesy to analysts.)

1.      Are there any episodes from PM Abe's childhood, university years, his relationships with his father or grandfather, or events in postwar Japan that you would say have influenced his world view?

Abe provides little information about the events that formed his world view and how they affected him. It is as if he sprang from his grandfather Nobusuke Kishi’s forehead a full-blown conservative. Kishi’s influence as a patriarchal figure is obvious; Abe constantly refers to him constantly with reverence while he rarely mentions his low-key, easy-going father in public. I believe that there is much more to this than a media-created illusion. If my memory serves me correctly, the sole mention of family in his book “Ustsukushii Kuni e (Toward a Beautiful Country)” is an episode from his kindergarten days when he was whisked into the prime minister’s residence during the demonstrations against the Japan-US security treaty.** The next time we see Abe the person in his book is in high school, where he claims to have refuted the anti-treaty views of his social studies teacher, an episode that is telling, I believe, of the visceral strength of his convictions and their relative lack of intellectual depth.***

* I had a close-up view of the father and his entourage in Brasilia, which he visited as foreign minister.
** The child Abe innocently recites an anti-treaty chant “Anpo hantai (Treaty no)”, whereupon he is gently chided by his grandfather, who tells him to say “Anpo sansei (Treaty yes).”
*** According to his rendition, the teacher took the position that the treaty, up for revision after ten years, should be rejected, but made a face and changed the subject when Abe reminded him that the treaty also mentioned “economic cooperation” between the two nations. This is remarkable in that Abe believes even to this day, let alone then as a callow high school student, that the force of this question was enough to take down his social studies teacher.

2.      The commonly held view of Abe is that he is a nationalist ideologue. I've always thought this was a little simplistic. What do you think are the ideological ties that bind his thoughts together? Is it, as some say, a desire to break with the "masochism" of the postwar years and turn Japan into a "normal" nation; is it to appease the people to whom he feels he owes something politically - conservatives in the LDP, the Japan War Bereaved Families Association? Is there more to it than that?

Let’s see what Abe’s doing on the security front. He is clearly in favor of a strong Japan-US alliance. He is pushing for Japan to play a more prominent role in UN peacekeeping operations. He is reaching out to a wide range of states (Russia, India, France…) to enhance bilateral security relationships while keeping his hand extended to China and South Korea with “no preconditions”. Abe is not seeking nuclear weapons (unlike, say, Shintaro Ishihara, who, like many “nationalists”, made common cause with the left in opposing the 1960 security treaty), ballistic missiles, aircraft carriers, strategic bombers, and other trappings of a normal (super-)state. A 2% annual increase (real terms) in the defense budget for the next five years after decades of rising costs have eaten into the weapons acquisition budget? And what part of his constitutional and sub-constitutional agenda (SDF as a “military”, collective defense, arms exports) would look out of place in any country outside of Costa Rica? It is a measure of how abnormal “normal” was in the post-WW II regime that a search for specific motives must be sought.

As I implied in my response to Q1, I find it difficult to pinpoint how he arrived at his views. However, remember that his worldview appears to be shared to varying degrees by many, perhaps a healthy (or unhealthy, depending on where you are coming from) majority of LDP politicians and a good number of opposition Diet members. And they did not have the benefit of having a politically towering grandfather to look to for guidance on such matters. So where are they coming from?

I don’t have a full-fledged answer, but I wish to make the following point: We Japanese, looking back on modern history in East Asia, regard the coming of the Black Ships as the starting point. The Chinese, by contrast, see events through the prism of the Opium War. The Americans? That part of their history began with a bang, at Pearl Harbor. I intuit that this is a highly useful perspective from which to view current events and how they are interpreted. One of these days, I’m going to devote much of my time to elaborate on this point. But not now. There are only 24 hours in a day, and I have work to do.

3.      To what extent do you think he will he allow political realities to temper his policy goals on, for example, constitutional reform, patriotic education, nuclear power, a bigger role for the SDF? Is he pragmatist at heart?

He already has accommodated political realities, hasn’t he? For instance, he has held back on collective defense in order to secure more time to swing Komeito around to the LDP consensus. And there is no way that he will move forward with a Diet vote and a national referendum on a constitutional amendment—something that has been on the LDP agenda for ages, by the way—without support, or at least acquiescence, from Komeito. The injection of more patriotism into public education is a more achievable goal in my view, but do not expect to see any jingoism in what eventually emerges. Nuclear power is an issue that is obviously subordinated to reality. A large number of nuclear power plants in perfectly good working condition will never be re-commissioned under the new regulatory rules and procedures. Orders for new nuclear power plants will only come if and when local communities consent (a prospect which will become more likely as old nuclear power plants are decommissioned, but not one to put your money on). These are realities that Abe and every other Japanese in favor of at least some nuclear power face and accept. The expansion of the UN PKO role of the SDF has been carefully managed for at least the last couple of decades; I see no changes to this under the second Abe administration.
So I guess my question is, is the question “Is he pragmatist at heart” operative?

4.      Finally, how would you rate his first year in office in terms of the economy, structural reforms and foreign-defence policy? Do you think he will stick around for the duration (unlike in 2006-7)?

I am not an economist so I try to leave my personal sentiments aside when it comes to evaluating economic outcomes and making economic predictions. I will say the following, though:

As far as the first arrow is concerned, he placed a bet on sustained quantitative easing, added a few words about its effect on exchange rates that he almost immediately replaced with a wink-wink, and scored some immediate economic gains that have maintained his cabinet’s popularity at remarkably high levels over year after his return to power.

The report card on his second, fiscal arrow remains inconclusive. He will use a supplemental budget to ease the negative macro-impact of the consumption tax hike, a measure that a majority of analysts appear to support, if with some misgivings. But he has yet to show how he intends to achieve primary balance, a goal that he has inherited from previous administrations. (There are economists who argue against its necessity, a discussion that I leave to others to hash out.)

His actions on the third arrow so far has disappointed most people, including me. They come across as incremental rather than revolutionary, intended to minimize opposition rather than to maximize support. I see his personal imprint on the efforts to enhance prospects for women in the workplace, but labor reform more broadly, coupled with significant changes in the composition of the social safety net, is gaining little traction. Agricultural reform likewise looks to be more cosmetic than game-changing. These are the two most prominent examples, but the status quo in healthcare and childcare also calls for changes that will not come easily. And I am personally skeptical about the usefulness of special economic zones in heralding change, though I will be more than happy to be proven wrong, which the Abe administration can do in the coming months as it rolls out the next installment of third-arrow policy initiatives.

Defense/foreign policy? I give him very high marks, domestically on the Okinawa base issues, and internationally on enhancement of bilateral relationships (see Okinawa base issues, plus outreach to allies and non-allies) as well as continuation of the gradual upgrading of Japan’s role in UN operations—up to but certainly not including his Yasukuni visit, which was an unmitigated disaster for his international agenda. I believe that his accompanying statement was largely sincere (I do believe that he would have preferred a more explicitly “revisionist” statement, but still) and designed to minimize the fallout, but he appears to have underestimated the negative fallout in the United States. The practical, on-the-ground effects are unclear to me and perhaps rather minimal, but Japan clearly slipped in the propaganda war with China (and South Korea), while putting a damper on working-level efforts to improve the bilateral relationship with South Korea (and China). That can’t be good at all.

His chances of sticking around for the next two-and-a-half years until the next most-likely double general election are excellent. Barring an act of God or a horrible domestic economy in which his administration is seen to be badly bungling the response to severe international adversities, no challenger will emerge that could unseat him in the 2015, when his current three-year term as the LDP president ends. As for 2016, the elements of regime change are a bad economy, a largely united opposition, and Komeito defection.  The first could be enough to unseat Abe. The first two could be enough to dislodge the LDP as well. The three combined will ensure defeat for Abe and the LDP. The first is possible, the second is unlikely, and the third is, if Abe does not completely alienate Komeito and its Sokagakkai support base, improbable.

Saturday, January 18, 2014

Addendum to My Commentary on the Sasae Op-Ed

The following was an afterthought to the memo that became my preceding post, just in case it might come in handy. Since I’m not getting paid for this specific piece of advice (or the previous memo), I free to share them here with you here.

If there's a piece of advice to offer Japanese leaders and their entourage, it's that the modern history of East Asia is seen differently in the public minds of Japan, China, and the United States. Specifically, for us Japanese, it began with the Black Ships, but the Chinese reach back to the Opium War. And Americans? Pearl Harbor, for all practical purposes. These differing perspectives color their respective views on history issues and sometimes affect actual outcomes, of which the treatment of the Senkaku Islands and related disputes is a prime example.

Now Japanese leaders and their entourages may be aware of this and certainly won't like it if they do, but they do have to face reality. For starters, they must be mindful of how "it plays in Peoria." I think that Ambassador Sasae's piece, with its unusually punchy style and emphasis on Japanese contriteness, was an effective rebuttal to the Chinese ambassador's op-ed. On the other hand, the kind of talk coming from special assistant to LDP president (Abe) and right-wing Diet member Koichi Hagiuda blaming the US government's negative response on the Democrats must be avoided. It may be true for all I know (although the last-minute notice to the Americans, eerily reminiscent of North Korea's last-minute notice to China about its most recent nuclear test, would have tested the patience of a President McCain as well), but it doesn't help Japan's cause any, especially when the Democrats are better situated over the long-run in presidential elections for demographic reasons.

The Empire of the Rising Sun Strikes Back (with Its Mighty Pen)

I have been harsh on MOFA at times. This time, I had some nice things to say in response to a link that I received today. (I don’t follow the foreign media on Japan as assiduously as I used to, though I probably should.) I’m posting them here, with minor edits including links.

I believe that this WaPo op-ed by the Japanese ambassador in Washington, a response to this op-ed by his Chinese counterpart, is an effective departure from the typical unmemorable response in the war of words (and sometimes more) that has made the Japanese look, at best, conciliatory and, at worst, appeasing. The conventional wisdom among China hands in Japan outside of the old MOFA China school is that you have to push back against the Chinese before finding the middle ground. This the Japanese ambassador does here to good effect, leavening his charges by playing up Prime Minister Abe’s acts and words on the occasion of his Yasukuni visit to the full.

Two things made this response possible. One is the obvious resolve and conviction of the prime minister. But the other is one that will likely go unmentioned; the assumption that China will not hit back where it will most hurt the Abe administration, namely Japanese exports to and investments in China. The brittleness of the legitimacy of the authoritarian regime ensures that the CCP for now is resolved to do its best to keep the initiative firmly in official hands. I have no idea how long this state of affairs within China will last, but the Japanese authorities are well advised to take advantage of it in the meantime.

BTW I love the resurrection of the word “propaganda,” whose deliberate—“anachronistic” propaganda, indeed!—overtones of charges laid against the Soviets during the Cold War should resonate in Washington. I see the hand of the Japan hands, whose key members surely must have been consulted by MOFA and/or the prime minister’s office, behind it. All the better for Japanese diplomacy, though, if MOFA came up with it on its own.

Friday, January 17, 2014

Whoever Wins, a Senior Citizen Will Be Tokyo Governor (But He Won’t Be an Heirloom Turkey)

Yoichi Masuzoe is the frontrunner for now. Morihiro Hosokawa, his main rival, has stumbled badly before reaching the gate by postponing the announcement of his policy platform initially scheduled for today (Jan. 17) to “Monday or later next week” in order to figure out a way to stop his nuclear power referendum campaign from turning into a two-issue one because of his earlier comments urging the Abe administration to give up hosting the highly popular 2020 Tokyo Olympics.* He probably still has a fighting chance of winning over a plurality of the Tokyo vote if Masuzoe makes a major gaffe or two and a third, hardline anti-nuclear candidate, Kenji Utsunomiya, opts out.** There is a fourth, perennial fringe candidate that the media always mention along with the other three because of his clown/celebrity status as the self-proclaimed inventor of the floppy disk and other gadgets useful or fanciful.

What do they have in common? Well, first, they are old…like the two governors that came before the eventual winner. Masuzoe is 65, the age at which people become eligible to collect under the Japanese public pension system. He also happens to be the youngest of the four. His immediate predecessor, Naoki Inose, was 67 when he resigned under disgrace after bare a year in office. Inose in turn had succeeded Shintaro Ishihara, who was 66 when he assumed office and 80 when he resigned to return to national politics.

But second, on what most people will consider a more positive note, none of the four or the two previous governors (or any other predecessors that come to mind) inherited Tokyo fiefdoms to launch their political careers. They areself-made men, at least in the political world.

These two points are related and, in my view, reflect Japanese politics and more broadly society. I’ll try to remember to come back to this later.

* He also appears to be buying time to search for a way to avoid disclosing details about the money scandal that brought his administration down after less than nine months. This is looking increasing like the most ill-prepared political campaign by a candidate of substance in recent memory.

** Increasingly unlikely, given Hosokawa’s missteps.

Thursday, January 16, 2014

Politics Unusual: Four-Nation Study around the “Mongolian” Invasion?

Minister of Education, Culture, Sports, Science and Technology Hakubun Shimomura gave a talk at the Japan National Press Club yesterday (Jan. 15), where an alert Yomiuri reporter found the following little nugget of a story (my translation).

Four-Nation Joint Study by Japan, China, South Korea [and Mongolia] on Sunken Ships from the Mongolian Invasion
 MEXT Minister Shimomura stated in a press conference at the Japan Press Club on the 15th that “we would like to jointly undertake research with Mongolia, China and South Korea” on the sunken ships from the Yuan military that sank during the 13th Century Mongolian Invasion, proposing a joint study by the four nations.*

Fun facts:
1.      The “Mongolian” Invasion was conducted at the strong urging of the king of the Goryeo Dynasty, which ruled the Korean Peninsula at the time though it had been reduced to tributary state by China’s Yuan Dynasty, which in turn had been set up by Mongolians. The “Mongolian” Invasion later came to be known in Japan as the “Yuan” Invasion.
2.      President Park Geun-hye said early in her regime, “The historical perspective of aggressor and victim cannot be changed, even though a thousand years pass by.” 734 years have gone by since the last Yuan/Mongolian Invasion.

Message (I think):
Hey, it’s history. Let’s get over it…

Will it work? Of course not. No way China and South Korea bite. But there’s entertainment value. Shimomura deserves high marks for finding a clever way to clothes that sentiment in a way that complicates the task of Chinese and South Korean officials to express their indignation in the usual manner. In fact, it has the feel of an anecdote from China’s classic history annals.

* (Original online text)


Wednesday, January 15, 2014

Post-Mortem: My Koizumi Call on Hosokawa’s Gubernatorial Bid Goes South

Yesterday (Jan. 14), Junichiro Koizumi offered his full support for Morihiro Hosokawa in his bid for the Tokyo governor’s office after a widely anticipated meeting between the two, even giving indications that he would be willing to actively campaign. So where did I go wrong? More specifically, was there anything that I overlooked that might have affected my judgment materially?

I forgot to take into account the fact that these one-of-a-kind events are more likely than not to be carefully stage-managed, and that is particularly true in Japan. Or look at it this way: Would a former prime minister decide to come out of retirement after two decades to run for a high-profile office and allow the future of his campaign to turn on a single meeting whose outcome he could only guess at? Even if he had been willing to take that risk, his handlers still would have worked with their counterparts on the Koizumi side to stage-manage the event. Once the scheduled event became public, the odds that Koizumi would make it a most favorable occasion for Hosokawa increased dramatically. Or so I should have determined.
This Huffington Post report link looks very robust, and quite informative too.

As for eventual outcome, it’s really anyone’s guess. Koizumi is a great campaigner. But will his participation be enough to make this a one-issue race? Besides, does Hosokawa want to come across as a one-issue candidate? He has two successful terms as governor of Kumamoto Prefecture under his belt in addition to his brief tenure as prime minister. Then there’s the matter of the other antinuclear candidate, activist lawyer and former head of the Japan Federation of Bar Associations Kenji Utsunomiya, who has the support of the Communist Party. Will he step aside to allow Hosokawa to dominate the hardcore antinuclear vote and possibly rake in more left-wing voters? (The Social Democrats are already switching their support from Utsunomiya to Hosokawa.)

There are other unknowns, such as how well will Yoichi Masuzoe, the preferred candidate of the LDP, fare as a campaigner? Masuzoe is articulate and highly intelligent, plus he is regarded as an expert on the social welfare system. But he only placed third the last time he ran for Tokyo governor, in 1999, and never made his way out of the less powerful House of Councillors, which essentially negated any ambitions he may have had for the prime minister’s office. Plus, if the Hosokawa campaign decides to get down and dirty, there are a good number of skeletons rattling around in his closet. And so on.

Far more uncertainties than I can handle, but what is shaping up to be Koizumi’s active involvement in the campaign improves Hosokawa’s prospects dramatically.

Monday, January 13, 2014

Why Waste Prospective Comments on MOF, Businesses, and the Consumption Tax?

I wrote the following memos this morning to prepare for a conversation with a client. It turned out that the client had a very specific prospective investment in mind, with some pointed questions about it, while much of my thoughts here went untapped—cagey investor—so I’ll post them here. Mind you, they were not meant to be comprehensive.


1.      What does the Ministry of Finance want to achieve with the consumption tax hike? What does it think about companies increasing prices to keep in-line with consumption tax increases?

MOF has two problems: 1. Ever rising social insurance costs, partly funded by legally mandated premiums but increasingly reliant on transfers from the general budget, and 2) and ever-rising public debt that it sees as a looming threat to public finance and more broadly the financial market and the overall economy. Since there’s no way that the Japanese public will give way on the universal healthcare and pension systems, MOF has long decided that the Japanese government will go the European way and fund them by raising the consumption tax. Don’t imagine that the rate will stop at 10%.

Politics aside, MOF would be perfectly happy to let the market set post-hike prices. And given enough time, that will happen. But in the meantime, there’s griping from small businesses, who fear with good reason that they will be forced to swallow losses from all or most of the tax hike. And small businesses and their owners are the mainstay of the LDP’s electoral machine. Coalition partner Komeito has a similar electoral base. So special price cartels and FTC advisories encouraging pass-throughs are the order of the day for the Abe administration. Remember, MOF has significant influence over the FTC. MOF also is securing the cooperation of the other ministries in providing administrative guidance within their respective jurisdictions. It’s a jump—how high political reaction.

2.      Why are businesses going along with a tax hike, one that will be repeated in future years to boot, instead of insisting on more belt-tightening?

There are a couple of reasons. First, efficiency gains to be harvested notwithstanding, social insurance expenditures are set to rise. Better consumption tax than the already-high corporate income tax. Second, beyond fiscal transfers, the government has tended to lean on the better-funded corporate employee health insurance systems to make up the premium gap. This in turn falls disproportionately on the shoulders of the better-to-do big business insurance organizations. The consumption tax hike helps cap this drain on corporate (and corporate employee) expenditures. The second reason is given little attention, but is as important as the first.

Secretary/Minister of Defense/Defence

And a little something that I’d typed up last night, extensively reedited in the morning light sans (mostly) the influence of alcohol.


Did you know that cabinet members responsible for “defense” was a relatively new invention? Take a look at the current permanent members of the UN Security Council for example.

1.      USSR: People's Commissar for Defence (1934–1946)
2.      UK: Minister for Coordination of Defence (1936-1940)
3.      France: Minister of National Defence (1944–1974)
4.      Republic of China: Minister of National Defence (1946-)
People’s Republic of China: Minister of National Defense of the People's Republic of China (1954-)
5.      United States: Secretary of Defense (1949-)

(Germany, with its ReichsWEHRministerium (1919-1935) preceded all of them. Note the years of origin—and end.)

Before this, cabinet ministers were typically responsible for “war” and/or individual branches “army” or “navy.” But war becoming increasingly less acceptable as the continuation of diplomacy by other means. That said, it’s hard to stop at pure defense…or in Manchuria…or in Poland…or in Afghanistan…

And while we’re on this subject, note that in most if not all competitive sports, substitution of war by other means, you play both offense and defense. Even in track and field, ski and snowboarding, figure skating and gymnastics, and others where you do not directly engage your opponents but instead play against the clock or geometric measurements, or stage what are essentially beauty contests, there are elements of offense and defense with an eye on opponents at play.

Okay, now back to work.