AOYAMA VIEW 08.03.2020

List of previous columns

08.03.2020
VIRUS SPREADS, ECONOMIES IN DOUBT, POLITICAL LEADERS STRUGGLE

One week passed from the last column – what‘s new in virus? Well, plenty news of it spreading around the world and infection numbers growing in countries where it landed earlier – like Japan. Only China tells us it‘s in decline there already – believe it or not. Worries about business disruption and economic decline are voiced with increasing shrill all around, even in Finland. Now some say this year is going to be as bad as 2009. Political leaders are blamed for this all, of course.

Economic analysts are rushing out new estimates almost every day of how much economies will decline here and there and globally overall. Some are still conservative, some more radical – what unites them is that they‘re lower day by day. The most radical I read says “China GDP will decline -25% in 1Q and -10% in 2Q – it‘s a depression, not just recession there. It‘s the world economy that will have recession. There‘s been too much damage done to consumer confidence, supply chains and corporate spending plans to recover the full year.“

GLOBAL ECONOMIC MODEL UNDER STRESS

Indeed, “global interconnectivity” and China‘s central position in it is getting clear with increasing examples all over.

In Japan, Honda joined Nissan in stopping production in lack of spare parts and the construction industry says it has difficulties to proceed with building projects as materials including Toto toilets and Lixil bathroom fixtures are missing – both are today made in China. In Finland, shipbuilder Wartsila says it‘s missing parts and Finnair says it will furlough all of its 6000 domestic staff after China flights were stopped (Korea, too, yet only two flights to/from Japan were reduced). In USA, it is expected that materials will run out in a variety of industries soon and Walmart shelves will be empty of low-priced products coming from China. Companies around the world, who still have orders to China, can‘t ship them for lack of containers: they are all in China waiting to get unloaded and filled up with export cargo to ship out first.

Even Hollywood is hit: new James Bond movie has been postponed from April to November.

The first big central bank that rushed into action was US Fed, who cut its prime rate by whole 50 bps – earlier only SEA countries like Vietnam, Malaysia and Indonesia had done that. Analysts wondered why? US economy is in good shape fundamentally and much less dependent on China than many others and, anyway, interest rate cuts don‘t alleviate consumer worries of the virus spread. But the move did impact Wall Street and Dow index surged up to president Trump‘s delight – maybe that‘s exactly what it was meant to do. Seems US investors believe now Fed will make another cut in next meeting March 17 and we will see US rates go down to zero by summer like they already are in Europe and Japan. USD started going down against JPY and EUR – another sought after target by Trump. Otherwise his re-election could get in doubt and investors could miss a new corporate tax cut in White House plans for next year.

SUPPORT FOR THE SMALL PEOPLE

“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.

Most analysts agree that financial support to ailing companies, especially finacially weak SME sector, would help more to keep wheels turning, salaries paid and consumer confidence up. Abe government plans to proceed that way: small businesses will get government loans to keep going as well as subsidies to help pay telecommuting costs and salaries for parents, who have to take time off to look after children when schools are closed. Subsidies for baby-sitting services will rise to JPY 264,000 this month – that‘s double as much as average “arbeiter” salary!

This money is part of the USD 2 billion anti-virus spending plan that PM announced in his speech last week: he will announce details on March 10. It‘s what is left of the FY2019 budget emergency fund after even bigger spending to cover the October typhoon damage. Prime Minister promises more will follow from the FY2020 budget that takes effect April 1. We‘ll see if all this will help repair Abe‘s sunken popularity.

WHAT ABOUT THE HEALTH CONTROL?

What‘s in doubt in Japan is the actual figures of infections and measures to stop the virus spreading. We all wonder how closing schools and sending kids to daycare, hobby circles or game centers instead will help to stop the spread – Harajuku was bustling with teenagers shoulder to shoulder past week free from schools from all over Kanto. Japan is not alone in this: 290 million kids around the world were facing same as per Thursday.

What‘s more worrying is Japanese health officials‘s capacity to perform tests that would show how many people really are infected. The week before, Italy had managed 10,000 tests when Japan had done just 5700 including 3700 on Diamond Princess, ie. only 2000 local citizens had been tested. Now we hear Korea can perform 10,000 tests – per day! Can it be that the number of infected here is just over 300 when it’d over 6000 in Korea? Even latecomer USA is about to overtake us. (It also has a virus ship in quarantine of its own now: it will be interesting to see how US media will tackle that “prison ship”).

Is Japan’s low figure just incompetence or is it deliberate delay by government to prevent public panic rise? How many infected people, many unknowingly if their symptoms are not strong, are walking on the streets, taking train, working in offices and factories? Maybe in hospitals, too.

CANCELLATIONS GALORE

Cancellation of public events and business meetings, big and small, continue rise. Memorial event for the 3-11 triple catastrophe and annual high school baseball tournament at Koshien are two of the biggest. Government has even pleaded people to refrain from sakura parties this year: admiring them by looking just walking by is OK, but not to get together to eat and drink under the trees. Maybe Prime Minister is just souring that he had to cancel his own sakura party for this year after it was criticized for using too much tax money, possibly corruption?

China president‘s long waited state visit next month was “postponed”, too, with explanation that both sides are busy with antivirus fight now. Better explanation is that both sides could not meet enough many times to iron out official speeches and statements as well as the mutual document of how the relation will be developed in the future (“mutually beneficial close friendship and trust” etc). Both sides wanted to avoid repeating the catastrophe of the previous visit of China president over 23 years ago – we all remember Jiang Zenmin at Emperor‘s dinner! – but rather show to USA and others that all is OK now between the world No.2 and No.3 economies. (Of course, they are not, but this is politics.)

We‘ll see if the visit will happen even later this year as political schedules are tight on each side. China has to re-arrange its postponed People‘s Parliament session while Abe will focus on Olympics and – if the games turn out well and his popularity recovers – a Parliament snap election in autumn.

WHAT ABOUT OLYMPICS?

Will the Olympic be held? Nobody knows – it all depends whether the virus spread will stop. Not only in Japan, but around the world: it‘s not only if teams from here or there dare to come to Japan, but also if the organizers must refuse participants from here or there – that would not be in Olympic spirit of peace and harmony. Call me Trump, but Aoyama View is that the games will be held on time: the virus will slow down everywhere in next 2-3 months and the USD 5 billion TV-rights money to IOC is too much to go without. No more talk of “putting people‘s health first”. In fact, if the latter would be IOC‘s focus, it should bring the marathon back from Hokkaido as that prefecture is now the worst infected in Japan.

What IOC definitely does not care is the billions of Japanese tax payer money that have been spent to prepare for the facilities. Unfortunately for Abe, voters definitely will do.

Anyway, all talk of sudden shift of the games elsewhere at this short notice is pure boloney and the games have been held many times before despite all kind of virus scare. Remember SARS, MERS, bird flu, swine flu, zika flu etc.

ANYTHING POSITIVE?

So anything positive to mention this time? Well, to start with, toilet paper is coming back in the shops and food never ran out as in some other places. It’s more difficult with masks: majority of them were made in China and they need them for themselves now. Police patrols have been sent inside the Japanese-owned factories to check that nothing is shipped to Japan. As a gesture of good will, Jack Ma donated 1 million masks to Japan “with regards to Nikkai-san”, the LDP secretary, who organized similar shipment from Japan to China one month ago. (Remember Jack is CCP Parliament member, too.)

As well, air purifier sales are 40% up and lap top sales 20% up – the latter because teleworking from home is sudddenly growing. Some say already that Japan‘s stiff working culture emphasizing presence in office could change as default, but old Aoyama doubts that. Economist Jesper Koll, always superpositive about Japan, sees that even other corporate reforms that have been long held back despite everybody knows they should be done, could make a break in this special situation. Maybe some small steps to the right direction could happen, indeed. More will take place only when the old generation slowly moves away from blocking the road.

Sakura should start blooming in Tokyo a week from now, two weeks earlier than usual, and the new Takanawa station, designed by Kengo Kuma, will open same weekend. He‘s used a lot of wood there again, just like in his new National Stadium that was finished end November. Big events there, an opening concert and Emperor Cup final, left spectators impressed.

In between, the busy Mr. Bear also designed a new station entrance for the widely popular tourist place Mount Takao – yes, a lot of wood again! – and even his own design running shoes – wood fiber was used in them as you can guess. Maybe Mr. Wood would be better name for the man!

NEW LIFE STYLES

New anti-virus practices have crept into our daily lives, too. There‘s no self-serve buffet tables in restaurants anymore and the knives, forks and chopsticks, earlier often ready in a box on table together with salt and pepper, are all served now by waiter from safe place behind counter once you are seated. Kaiten sushi is a place to avoid as much as buffets.

When commuting, in addition to mask on your face, you keep gloves on or otherwise avoid holding on to anything. You don‘t push elevator button with your finger tip anymore but with your knuckle. Best new one: you do „high-five“ by touching elbows instead of palms.

Amazing what little things you can easily adapt to minimize risk. Otherwise, the life in Tokyo goes on as normal.

Timo Varhama

Tokyo, March 8, 2020