AOYAMA VIEW 03.03.2020

List of previous columns

03.03.2020
GOVERNMENT'S SUDDEN ACTION AFTER LONG LULL SHOCKS
THE NATION, UPSETS PEOPLE - ABE LEADERSHIP IN DOUBT

Three weeks ago Aoyama question was whether Abe government had made the right choice in seemingly putting business with nation‘s doors open for tourists and politics with the planned Xi Japan visit ahead of citizens‘ health. We would know in 2-3 weeks, it was said. Well, now we know it was a wrong choice with epidemic spreading around the country, while the tourist wave withered when China itself banned group tours. Now we are told it will take another 2-3 weeks to know know how bad things will get here.

Government took belated action end last week asking people to just about give up their normal life. As always in Japan, everybody voluntarily joined in the effort to bring the spread down. All big public events have been now cancelled: concerts, congresses, exhibitions – including Tokyo Food Expo where Finland planned to feature heavily! – even LDP‘s own party meeting. Amusement parks are closed and popular sports have been postponed or played without audience including soccer, rugby and baseball leagues and sumo spring tournament. Tokyo Marathon, one of the World Big Six, was run on Sunday without its usual 38,000 amateur participants – they must have been mighty disappointed after winning lottery to get there. Even Emperor decided to skip his birthday greetings from the palace balcony – another big disappointment for many: last year audience was 80,000 strong. As final stroke, schools will close from next week. Teachers and parents are in dismay following sudden request from the Prime Minister. He has no legal power to order any of these things. Some towns and prefectures said they will not comply fully but find their own way: school is such a central thing in Japanese families‘ lives.

People are asked to stay away from unnecessary gatherings, even offices, if possible. Japanese people comply, of course: popular restaurants and pubs were suddenly empty in the night, famous department stores decided to close one day a week in lack of customers. Teleworking is suddenly on the rise even if 80% of companies said just two weeks ago that they had no plan to do that when requested to help alleviate fears of Olympic congestion in Tokyo metro network. To show example, the first big one to announce full change of heart was Hitachi, Keidanren chairman‘s own company.

After drugstores were hoarded empty of protective masks – first by Chinese tourists, then by worried locals – Japanese instinction that even tissue and household papers will run out led to empty shelves in supermarkets. (Some people still remember it did happen in 1975 global energy crisis.) Even food is hoarded “for safety‘s sake” in case it would become difficult to go out at all. (In Hokkaido, which has the biggest virus spread, the governor asked people to do excatly that.)

PANIC SPREADS, PEOPLE ANGRY

With such abrupt policy changes after weeks of assurances that Japan is safe, it‘s no wonder that the nation is in panic. Evidently, so is the Prime Minister, who can see his popularity collapsing, his much vaulted Abenomics going down in flames and his dreams of basking in glory of epochal political triumph with China vanishing. Even his other long planned glory moment, hosting the world with great Olympics, is now at risk.

People reacted angrily to lack of sincerity and concern from Prime Minister and his minions announcing such big impact into their daily lives. They say that with his patrician background and no kids he simply does not understand the hardships it all means to most families. With schools closed, many mothers – hardly fathers, this is Japan! – have to take time off or even resign from their job to look after small kids alone at home. Family is losing valueable income and working careers are endangered. Haphazard allusion that “government would ask daycare homes to extend hours” made Prime Minister look even more lackadaisical.

Facing heavy criticism, Prime Minister took public podium Saturday night with speech and Q&A on live TV to assure nation he understands and cares and that everything will be better by end this month if we all co-operate in stopping the spread. We‘ll see if it turns out that way – and whether people believe him anymore. For many it looked more like a desperate PR effort than thorough explanation of his plans.

VIRUS SPREADING FROM CLUSTERS

“Clusters” around the country keep spreading the virus – a New Year party here, a bus or taxi, hospital, school or fitness club there. It feels like it‘s not safe to go anywhere. The virus carriers don‘t know they are that and spread it around unbeknowst.

It is no consolation for us that Japan is not alone and the infected numbers in Korea or Italy are much higher and new places around the world join in almost every day. The records show that only 3% of infected cases prove fatal, so you have a fair chance to survive if you have access to good medical treatment. The risk group is senior citizens and those with pre-existing problems – and unfortunately we have over 30 million of them. (I count myself as double risk.)

Moreover, it‘s now clear to all that Japan‘s healthcare system hasn‘t got sufficient capacity to treat big volume epidemic: even 3700 suspected cases on Diamond Princess was too much to incarcerate inland and 700 infected cases taken to hospitals from the boat filled up most isolated treatment facilities in Kanto area. Again, it‘s no consolation that neither are other countries capable to cope if this one turns big globally according to WHO, who warned about this risk last year.

There‘s still no vaccine or cure that has been proved to work against the virus and the scientists are not even sure how it spreads around. There are now cases that have had no contact with any suspected carrier and cases where patients, who cleared the virus with treatment, restarted symptoms again. Experts say tests can show “false negative” as well as “false positive” results. Practically the only thing we know for sure is that it now has a simplified name – COVID-19 – and that China suddenly adjusted its numbers closer to what was rumored to be reality, yet we cannot trust them even now. Some old HIV treatment seem to have helped in China and here one manufacturer claimed its anti-Ebola vaccine might help. It certainly helped to raise the company‘s stock price!

My medical industry friend says one US medicine under development – Remdesivir by Gilead – could be the one, but it‘s still months off from completing tests. The news that virus has now spread into USA should put speed into getting it approved there quicker than normally. Allegedly half of Trump‘s newly announced USD 2 billion emergengy money will go to Gilead.

Not to be outdone, Abe-san belatedly pledged as much in his Saturday speech. Earlier, the government‘s budget was only 5% of that. Where such big money will go did not come clear at all. Probably there is no plan yet.

What‘s good here is that a few labs and tech companies have come up with new test kits that analyse the samples in 15-30 minutes instead of 6 hours at NIID (National Institute for Infesteous Diseases) – after the institute had received them. With such new fast devices soon available in hospitals around the country, the daily analysis volume can be stepped up across the nation from miserable 100-300 rate at NIID initially.

We‘ll see where we are with the health scare after 2-3 weeks. Let‘s take a look at the eventual economic and political damage.

ECONOMIC IMPACT

Strict people control and travel limitations possible only in China might have helped to slow down virus spread there, but they also caused that the country‘s massive industry could not manage to start in full last week despite the earlier one week delay ordered by government. The continued delay extends the havoc in global supply chains including those of Japan, both export and import. Chinese economy is expected to suffer even more in consumer spending with people staying home, shops and restaurants closed already long time. Millions of SME companies that make 99% of all there and employ 88% of people face bankruptcy before long without renewed cashflow. Japan could face same fate.

Global stock markets finally reacted to the growing business risks with unprecented fall after Apple, the world‘s richest company unable to get phones produced to match sales, gave profit warning. In financial parlance, it was “correction” as investors “turned headline sensitive”. Stay tuned for more warnings. Next to follow are companies with high sales exposure in China. Think of Volkswagen, who gets 40% of its global sales there and GM with 25% as China auto sales dived 90% this month.There‘s many in Japan, too. It‘s certainly not only airlines, hotels and souvenir shops, who are in danger.

Central banks in everywhere have said they will cut interest rates and supply more money into markets, if needed – even BOJ finally – but such moves mainly help to boost stock markets. They don‘t get people to go out to spend money as long as they are worried of their health.

In Japan, Nissan Kyushu factory was first to stop production due to lack of parts from China, but more could follow. Those exporting electronic parts etc to China are in trouble naturally. Consumers are likely to see some empty shelves at least of spring fashion at Uniqlo, who runs superfast supply chain from China: it takes just a few weeks to have newly planned frocks made and shipped to its 2200 shops around the world. Factories in Vietnam and Indonesia cannot help as they depend on materials from China – such is China‘s grip on the world. (In contrast, Finnish clothes shops say their worry is autumn fashion as spring and summer collections are in stock already – a big difference in supply chain efficiency.)

Main worry, though, is the consumers themselves, who make 70% of the economy. The longer they remain in no mood to go to shops, restaurants, travel etc anything more than necessary, the heavier the hit will be. Some analysts already estimate that Jan-March GDP could slide even further down from the deep hole it fell into last quarter.

In fact, October-December GDP fall was already shocking itself: 6,3% down instead of 2-3% expected. This was initial count and, as always, the final figure could be 1-2% different, but it was a big fall anyway. You don‘t need to be an economic expert to understand that the result was a combination of sliding exports to China, typhoon No.19 that made havoc in people‘s lives early October and government‘s wrongly timed sales tax increase on top of all. The two later ones took the wind out of consumers evidently much more than expected.

POLITICAL OUTLOOK

It is said that signs of turndown were visible to all, but government insisted on pushing through the tax hike in mistaken belief of Abenomic‘s strength. Others say insistence on this move – allegedly only not to admit how weak PM‘s acclaimed economic triumph was – and the feeble virus response show how the whole LDP line-up of ministers are an incompetent bunch of haughty bigots, who simply inherited their leadership in the ruling party from their fathers. You can see it in live TV from the Diet every now and then in their disparaging response to opposition criticism: it is easy to laugh them off as the biggest opposition party only holds 6% public support according to surveys against 32% of LDP.

Yet, Prime Minister certainly takes it seriously that his personal support dived from 49% to 36% over the past weeks while those opposing him rose to 47% “thanks” to his government‘s poor virus control. It does not look good either that he fell to distant third at just 12% when a survey asked “who would you like to see as Japan PM?”

Could we see a challenge against Abe‘s leadership from inside of the party once the commotion is over? Or will he recover again once the crisis is over and continue to rule until next year September as set in party rules? At least one of his favorites had the bad luck to be the Health Minister at wrong time with his incompetence in full display: count Kato-san out from the list of candidates to follow Abe.

SOME LIGHT SIDES

So that the entire column would not be just painting all black, here‘s some sides which could bring smile to you:

– Chinese are usually not people who stand in line and wait for their turn, but rather elbow their way in first through the crowd to any service counter, train door etc, but this time we saw scenes were they stood quiet in perfect line, even leaving 1-2 meter distance between each other. They called it “Finnish line”. Seems they know.

– with China’s industry idling coal burning has been down by third, you can enjoy rare blue skies there. One consequence of China slow down and same expected elsewhere, is that global oil price is expected to go down, all the way to USD 25 some analysts say. Filling up your car tank at half price soon, should bring smile to your face.

– with virus cases propping up outside of China, its immigration has now introduced rules limiting entrance of travellers from Korea and Japan. China FM is also saying that President Xi probably has to delay his planned visit to Japan because they have a serious virus spread there. Expect Korea soon to introduce similar rule for Japanese entrants.

– after all the criticism of (too much) plastic packaging, we are now happy to see it increased to wrap even individual, usually openly displayed products to protect them from hands touching them and sneezes spreading over them

– recalling the old saying that “Abe knows as much about economics as Bernanke about kabuki” we are now awed by his knowledge of household matters, children minding and tissue paper industry. “There‘s no need to be worried about toilet paper”, he said in his speech. Maybe Akie-san managed to get enough supplies from Shibuya Tokyu store to their Tomigaya home?

– many countries are barring people from other countries with (more) infections from entering. With infections now in Finland, too, Nauru has barred Finns from the island.

Wish we have more pleasant things to discuss by the time of next column.

Timo Varhama

Tokyo, March 1, 2020