An Insider's comments on Japan's high tech business world

* * * * * * * * * TERRIE’S TAKE – BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term
technology and media entrepreneur living in Japan.

New Year’s Edition Monday, Jan 14, 2019, Issue No. 975

– What’s New — Predictions for 2019
– News Credits


+++ Terrie’s Predictions for 2019

Once again, it’s time to make jackasses of ourselves by making some
predictions for 2019 on events that will influence how we do business
in Japan. For 2018 our scorecard was an impressively bad zero-for-five
guesses – probably worse than throwing darts blindfolded!

In case you forgot, here are our 5 predictions for last year (2018).

Our 2019 predictions are:

1. Ghosn fundamentally gets off

The arrest of Carlos Ghosn, previously the Chairman of Nissan, has
focused world attention on two key issues. The first is whether Ghosn
in fact did anything illegal, or even intended to do so, and the
second is the inquisitional nature of prosecutions in Japan. It
appears that the police and prosecution are pinning a successful
campaign on some grey zone allegations, and which if successful, will
mean that political will rather than pure evidence is all you need to
convict someone in Japan. Especially laughable is the prosecutor’s
attempt to reinterpret the law about the statute of limitations (over
a 2008 FX swap). They posit that the clock for the five years (or
seven years, depending on who you ask) time limit was suspended each
time Ghosn was traveling on business overseas – and thus what is 5
years for a normal person living in Japan would take Ghosn several
lifetimes to enjoy the same protection. We also find it curious that
the prosecution feels the need to leak random “outrageous” acts by
Ghosn as an attempt to sway public opinion, when, if they already had
written incontrovertible evidence, why not simple use that instead?

Certainly this does not seem to be as straight forward a case as the
prosecutors had hoped, and the courts themselves are sensitive to
public opinion. The domestic and international outcry over Ghosn’s
rough treatment in Tokyo has exposed the Japanese legal system for its
medieval methods, where you get to hold on to a prisoner for as long
as it takes to break them down. Usually they need this time to break
someone psychologically when there is an absence of concrete evidence
and they need a confession instead. Unfortunately for them, Ghosn is
mentally a much tougher customer than the average Taro, and it’s
conceivable that he could force the prosecutors into an embarrassing
back down. The Japanese justice minister, Takashi Yamashita, snapped
back at international critics at one point that the criticism was
unwarranted and Japan has the right to run it’s own legal system.
However, while Japan does indeed have the right to be as medieval as
it likes, the country still has to trade with the rest of the world to
survive, and this is why it has been forced into various
internationally-normalized treaties and agreements that privately it
would rather not have signed. The Hague Convention on the kidnapping
of Japanese-foreign kids by (mostly) their moms is a good example.

This case is going to have some significant repercussions that the Abe
government doesn’t seem to understand. Firstly, far fewer foreign
senior executives will now be willing to take on the top job in a
Japanese company for fear that they will be deposed in a similar
fashion in the future. Christophe Weber of Takeda, who is taking that
company on a historic and potentially disastrous M&A of Irish drug
maker Shire, must surely be wondering if he should relocate out of
Japan, and live/work somewhere with more predictable legal procedures
and rules. There will be others thinking the same thing. For example,
would any foreigner want to become the next CEO of Nissan, even though
the company is still controlled by foreigners? The recent resignation
of Jose Munoz suggests “no”.

As to our headline about Ghosn getting off. We think there is a high
chance that he will be found guilty of some grey zone charge, probably
showing intent to defraud the company without actually committing that
fraud (so, breach of fiduciary duty), and will be given a suspended
sentence so that he can leave the country. The main objective of his
attackers, both in Nissan and in the political theater, will have been
achieved – namely the ruining of his reputation and sending him
packing, and a return of control of Nissan into Japanese hands. “They”
do still of course need to replace him, and we expect that a Japanese
CEO will be brought in to substitute for Saikawa. Purely a guess, but
we imagine there will be negotiations going on even now between the
French and Japanese governments, revolving around the Japanese
substitute CEO as a concession (by Renault) in return for letting
Ghosn go as a concession by the Japanese side.

Obviously this last point is pure speculation by us, but the scenario
would fit the Japanese historical mindset: i) sudden strike to disable
the enemy, ii) secure public opinion and thus legitimacy, iii)
negotiate with the enemy while holding a hostage, iv) placement of a
loyal vassal, and v) business as usual.

2. Trump reverberations for Japan

Trump’s reality TV style of governing is having a very real impact on
the Japanese economy – with fear being the main factor, rather than
actual trade retaliation. The fear at the top of every large Japanese
manufacturer’s mind is just how hard Trump’s administration will go
after the Chinese. Japan’s shift in recent years to tools and
high-tech trade to China is very lucrative for the companies involved,
and the last thing they need is for the Chinese economy to go into
free fall after being hit with punitive tariffs from the USA. The
Tankan survey (index of big manufacturers’ sentiment about the
business environment) dropped month after month in 2018 over such
fears, although it has leveled out in the last two months. We predict
that if Trump can extricate himself from the Wall and Russia
accusations and get back to running the country his way, business
confidence will take another turn for the worse.

The second point of impact by the Trump administration is that after
China, the USA is likely to turn its sights on Japan. Big American
auto companies are regular complainers about non-tariff trade
barriers, and they have the ear of Pence, whom Trump relies on in part
for his own ideas. Whether the auto makers have a real basis for
complaint is a somewhat of a moot point, because the Japanese public
is losing interest in even buying their own country’s cars, but
certainly there are many sectors besides autos which are subject to
unreasonable red tape and which need to be named and shamed. But of
course to do this kind of work, the US government needs more, not
less, public sector staff in the international trade department, and
with the circus going on in Washington, it’s hard to see these hires

A third point of impact, which is actually beneficial to the Japanese,
is that the increasing isolationist stance of the US is changing
international trade and labor flows. For example, in the TPP (now
called CPTPP, without the USA) trade alliance, US withdrawal has meant
that the partners have dropped many of the more aggressive IP and
legal requirements that the Obama government had been pushing for.
Likewise, the throttling of H-1B visas for tech companies in
California is causing a build up of graduating engineers in India,
Bangladesh, and Vietnam, and causing them to be diverted to places
like Japan instead. In turn, this has created a boom in Japanese
language learning for those engineers, which we cover in #4 below.

[Article continues below…]

——— Deal-making Network Kicks Off In Japan ———-

Dean Lindal and Bill Trimble are two of the original founders of the
Entrepreneur’s Organization (EO), a group of entrepreneurs that has
since grown to about 13,000 members worldwide. After involvement in
many deals where they have been the primary investors, they realized
that there is a need for deal network that helps entrepreneurs and
investors meet each other directly. What they came up with is, a trusted, introduction-only, digital marketplace
for entrepreneurs and deal makers, and which is based on a secure
blockchain platform. For want of a better comparison, it’s like an
eBay for private financial deals, ranging from capital raisings for
venture firms, through to M&A and partnering opportunities across the

The kick-off event will be a business breakfast next week. Seats are
limited to 35 people.
Place: Hotel New Otani, Aries Seminar Room (5th floor, New Otani
Garden Court building)
Date: Monday, January 21st, 2019,
Time: 07:30am ~ 09:00am
Charge: Free

For more information or to book a seat, contact:

[…Article continues]

3. Consumption tax increase passes, and is non-event

The old analogy of increasing the water temperature to boil a frog (a
19th Century experiment since proven false), the Japanese working
population seems destined to take small hits of taxation increase,
without protest. There have been three tax increases (1989 – 0%->3%,
1997 – 3%->5%, 2014 – 5%->8%) so far, and people have had a generation
to get used to the idea that more taxes are necessary if social
spending is to continue at the present rate. The 2014 tax increase was
dramatic because it was highly publicized and created a pre-tax
spending bump that accentuated the downturn in the following year.
This scared politicians and of course is one reason why the Abe
government put off a planned increase to 10% in 2017. This time
around, however, we think the increase will have rather less impact on
consumer spending. Firstly because for the first time in years, real
wages are ever so slowly starting to go up, and secondly because the
demographic slide in Japan has been relentlessly hammered home by the
media, and so there would be few people left who would argue against
the logic of more funding.

The reality, though, is that the increase to 10% will not completely
offset the impact of aged nursing and other social costs, and so our
prediction is that a special study group, to be enjoined shortly after
by the politicians, will start to point to sales tax levels overseas
and call for additional increases here at home. While this logic may
or may not be accepted, the government will first have to reduce
corporate tax rates significantly, or otherwise risk putting an
increasing number of corporations out of business. We think within
this year, the government will also start floating trial balloons to
increase the retirement age, perhaps by offering people who defer
their pensions some special tax incentives so as to stay on the job.

4. Immigration policy loosens further

The legislation covering Japan’s new blue collar work visas was passed
in the Diet last year and now the relevant ministries are adding the
language and rules that they want to see the visas operate under. 14
industries are considered to be under threat from lack of manpower,
ranging from farming to hospitality, and sources say that around
40,000 people will be accepted by the end of this year, with around
500,000 by 2025. On the face of it these new visas seem like a big
departure from the past (i.e., allowing blue collar workers to get
work visas and not just pseudo-slave-like trainee visas), and you’d be
forgiven for thinking that we’re seeing the very start of a reluctant
opening of Japan’s immigration doors.

However, our take is that the immigration doors have been open for
quite a while, and these blue collar visas are in fact just a natural
progression of the “Immigration by stealth” program that the Abe
government has been practicing for the last 8 years through its
issuance of hundreds of thousands of student and language-learning
visas. In this light, the blue collar visas are in fact part of a
longer-term loosening trend, and we only see this continuing and
gathering momentum as the general populace gets used to having foreign
young people serve them in convenience stores, drive cabs, and pull
weeds. As Yoshio Kimura, the chairman of the LDP’s own committee on
foreign workers, said, the actual number of foreign laborers needed is
actually about double the current number approved.

We think that 2019 represents the first year of a public multi-year
program by the LDP to change voter attitudes to immigration, and
slowly increase the numbers into the millions.

As mentioned above, one of the interesting side benefits of
immigration loosening up is the sudden increase in interest for people
to learn Japanese. We are seeing this trend take place in all the
target recruiting countries, where those doing the worker recruiting
are also running schools, providing life support (phones, rental
deposit loans, etc.) and other services, to take advantage of the new
gold rush.

5. Resurgence in bankruptcies

In November last year 718 companies went bankrupt, a slight drop on
the 730 companies in October, but still above the average 690
companies going under monthly last year. Of course each of these 8,300
companies annually represents just the tip of an iceberg of about
350,000 zombie companies nationwide (our estimate). The last peak for
bankruptcies in Japan was the bust in 2000~2001, when roughly
1,800 companies a month were imploding, followed by the Lehman Shock,
when about 1,500 a month were going under. BTW, a zombie company is a
business that can only just (or in Japan, often not at all) service
its loans but not repay the principal.

While the current economic conditions are certainly not as severe as
the Lehman Shock, we find it strange that Japan’s bankruptcy levels
are at a 10-year low, when we know from real-life business
interactions that there are plenty of companies out there who are
struggling to survive – some because of technology changes (such as
the printing industry), some because of international competition
(smaller manufacturers), and some because of changing demographics
(such as English teaching). How are they surviving? We believe it’s
mostly the soft stance that banks and their servicers are taking due
to ongoing government pressure to protect such firms. This “sweep them
under the rug” debt-hiding strategy started with the loan repayment
moratorium in 2009 by the then-banking minister Shizuka Kamei. The
government has since continued the protection of this massive garbage
dump of companies by threatening special FSA “attention” for banks who
don’t cooperate.

And why are the zombie companies are being spared? Probably because no
one at senior levels (in government) wants to spoil the Abe recovery
message, and thus the fiction of corporate sector health continues on
for 2019.

…The information janitors/



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