Author: Luke Nottage

This year, Australia Day (26th January) fell on Chinese Lunar New Year, so there were a few more events celebrating Chinese traditions as well as the ever more frequent display of Australian flags around Sydney. But the day after, the Sydney Morning Herald ran a front-page story entitled ‘Revealed: secret whale deal‘. It highlighted the Federal Government’s involvement in generating a proposal whereby:

• Japanese whalers could hunt a regulated number of minke whales in its coastal waters, and take many more whales in the North Pacific, under the plan.
• Japan would agree to one of two offers in exchange: either to phase out scientific whaling in the Antarctic entirely, or to impose an annual Southern Ocean limit.
• The proposal was hammered out in secret by an International Whaling Commission drafting group of six nations, which includes Australia and Japan, at a meeting in Britain last month.

With the whaling season already underway, however, Australia’s Environment Minister insists that this is still under negotiation and that the Government remains opposed to any commercial whaling. But one NGO – the International Fund for Animal Welfare – calls this ‘Whalergate’, criticising the opaque nature of the IWC. Read more…

Author: Luke Nottage
(with thanks to Ichiro Araki)

Japan appeared to have recovered from its own financial crisis a decade ago, albeit at the cost of much accumulated government debt. The country was then hit by the collapse of its export markets and the rapid rise of the yen, following the imminent global recession.

Professor Iwao Nakatani, former Chairman of Sony, has urged a radical shift in economic policy in Japan and elsewhere from policy ‘based on neo-conservative economics and the philosophy of small government to one based on Keynesianism and welfare state ideology’.

Some may be sceptical as to whether Japan ever really embraced the former philosophy, and its ascendancy was certainly never as pronounced as in the US, the UK or then Australia.

But deregulation of alcohol distribution is one of Japan’s many transformations over the last decade. It is also the flipside of ever-stricter rules on drink driving, although these rules also reflect a broader trend towards criminalisation of socio-economic deviance, evident in product safety or consumer credit re-regulation.

On the other hand, deregulation is most notable in terms of where you can buy alcohol to celebrate this New Year of the Ox: namely, vending machines and those ubiquitous convenience stores. It is less obvious in what you pay, especially for certain beer substitutes, which reflect differential tax rates.

In fact, these tax rates may well violate WTO law. Yet there is probably not enough financial reward for potential beer exporters to Japan to encourage their home governments to sue Japan. So an implication for FTA negotiators , even those from Australia, may be to seek some offset advantage in their overall bilateral deal with Japan, which would further undermine the entire multilateral WTO framework. Read more…

Author: Luke Nottage

If you are one of those many more short-term visitors to Japan nowadays, and even if you are an old hand, watch out for signs setting out various rules that may be unexpected or new. Like these two signs:

The bigger one to the bottom left is one of many signs we see increasingly around Japan in English (and sometimes now Chinese or Korean). The text is small but reads: “In the Beautification Enforcement Areas you will be fined up to 30,000 yen for littering regardless of your nationality or status”. The kind of prohibition and penalty you might expect in Singapore. Not in Japan, where local communities have long taken pride in being tidy – although that has not excluded individuals or dodgy firms from dumping their rubbish in distant communities! But what is meant by the round blue sign up on the right? Read more…

Author: Luke Nottage

I’ve lived in Kyoto for five years, on or off, and visited Japan’s delightful former capital once or twice a year over the last two decades. But this is the first time that I’ve been struck by how many visitors from abroad there seem to be here these days. And not just at the main tourist spots, or now that the autumn colours are at their most resplendent.

Some preliminary statistical analysis suggests that I am not victim to the “availability” bias, for once, but also that the rise in foreign visitors may not be limited to Kyoto. And the sudden appreciation of the yen, combined with the global financial crisis, already appears to impacting on inbound tourism.

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Author: Luke Nottage

The Kyoto Shimbun reported last Wednesday the first de facto victory by a consumer representative group in injunction proceedings regarding unfair contract terms. The same page mentioned the Education Ministry’s response to the recent death of a sixth-year elementary student, who choked on some bread provided in school lunches – basically, ‘chew well’! By contrast, Japan’s largest manufacturer of konnyaku (konjac) jelly snacks, MannanLife, halted all production after a one-year-old boy choked to death on 29 July.

But that situation is rather different. It also more directly highlights when and how a new Consumer Agency (shohisha-cho) might emerge in Japan. Ex-PM Fukuda’s Cabinet approved a Bill, but it then resigned without putting it through. It is unclear when and how PM Aso will submit a new Bill, and what line the opposition DPJ will now take, especially given the uncertainty about a possible early general election.

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Author: Luke Nottage

I was hoping to share some views on Japan’s general election for its all-important Lower House, as a counterpoint both to the US presidential election scheduled for 4 November, and the distinctly less widely publicised general election called for 8 November in New Zealand. But Japan’s new Prime Minister Taro Aso now seems unlikely to call an election very soon. So instead I share some comparative observations on the prevalence – even, perhaps, the intensification – of family dynasties in Japanese politics. Read more…

Author: Luke Nottage

For weeks I have been tracking this latest evolving food safety scandal, but reports and reactions vary markedly across the region. Media coverage is likely to remain disparate. But the saga should provide lessons for developing bilateral and regional infrastructure to “trade up” to a more harmonized regime, better securing consumer product safety in our FTA era.

At a news conference this Wednesday the Chinese Health Ministry announced melamine limits for dairy products, but declined to provide updated statistics on those so far harmed by tainted products. In September the figures given were 53000 children sickened, 13000 hospitalised, and at least three dead from kidney stones due to drinking products made from milk that suppliers or intermediaries had bolstered with this chemical to hide the fact it had been watered down. Yet the government demands notification if Chinese lawyers decide to represent victims. Read more…

Author: Luke Nottage

In Japanese banking, the big boys are back, as I explained last week: The Economist now confirms it. Indeed, the latter suggests that “if Japanese banks have any unique skill, it may well be in coping with crisis”. Not an obvious point, as evidenced by the collective dithering after Japan’s financial markets collapsed in the early 1990s or the almost completely unexpected 1995 Kobe earthquake. But I suppose the Japanese can be very good at responding systematically, once they establish the broad parameters of the problem.

Anyway, Mitsubishi UFJ has now proceeded to take 21% of Morgan Stanley, and is now considering further integrating its securities subsidiary (involved in US$18.3b of M&A advisory work involving Japanese companies in 2007) with Morgan’s Japanese arm (which did $17.9b). This would challenge Nomura, which did $34.2b (“Aiming to Rival Nomura”, Asahi Shimbun, 4-5 October, p 25); but the latter has also snapped up Lehman’s operations in Asia (mostly Tokyo), hoping to retain many staff to grow its own business.

And on Friday, the US government finally agreed on a public bailout plan for up to $700b, which I reviewed critically earlier in the week. Along with $85b for AIG and $29b for Bear Stearns, this amounts already to 5.8% of GDP, “well above the 3.7% of the savings-and-loan bail-out in the late 1980s and early 1990s” and significantly less than the 24% of GDP committed by Japan after 1997.

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Author: Luke Nottage

Many commentators are belatedly pointing out parallels between the financial markets boom and bust cycle in Japan over the 1980s and 1990s, and that now afflicting the US. However, especially when it comes to solutions for the US and hence the world economy, things are not quite as simple as envisaged by Japan’s then financial services minister, Yoshimi Watanabe, who proclaimed in March: “The US should follow Japan’s example and tackle its sub-prime loan problem using public money. The situation is exactly like what Japan saw 10 years ago”.

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Author: Luke Nottage

In 2003, financial journalist Gillian Tett wrote a book with a self-explanatory title: Saving the Sun: How Wall Street Mavericks Shook Up Japan’s Financial World and Made Billions (Harper Collins). It epitomized a school of thought proclaiming a dramatic shift in Japan towards US-style corporate governance more generally. On 24 September, still writing for the Financial Times, Tett concluded that if she were writing her book again, she “would give it a more upbeat slant. Anyone know the Japanese for ‘eating humble pie’?”. The Japan Society of Scotland has already suggested “sunao ni ayamaru (to apologise obediently without protesting)” or “memboku wo ushinau (to lose face)”! Japan’s big financial institutions are certainly now back on the world stage, picking up some big pieces from America’s own financial crisis. And Japanese policy-makers and other commentators now want to lecture the US on how to deal with it.

Who would have thought, even a year ago, that Nomura Securities would be buying up the now-insolvent Lehman Brothers’ operations in Asia (including those in Australia, involving a total 3000 employees – with half in Tokyo) and then Europe (2500 employees)? And for just US$225m and “a nominal sum”, respectively, out of cash reserves of almost $6b Nomura has raised since April? Or that Mitsubishi UFJ, which spent $3.5b to buy out the Union Bank of California, would now be committing up to $9b to take 10-20% of Morgan Stanley, another precarious “Big Five” Wall Street investment bank? Or that Sumitomo Mitsui, which recently spent $1b for 2% of Barclays bank in the UK (which in turn has bought Lehman’s US operations), is prepared to invest US$1-3b in Goldman Sachs if requested by that other precarious Wall Street firm? Or that Mizuho would have recently pumped $1.2b into Merrill Lynch, another troubled firm that took refuge with the Bank of America in a $50b merger announced on 15 September? Read more…

Author: Luke Nottage

As outlined in FDI and Corporate Governance in Japan, in the context of growing inbound FDI and M&A activity, Japan is developing a hybrid approach to setting parameters for hostile takeovers. It is worthwhile taking a closer look at a third Report recently from a Study Group playing a major role, along with the courts, in elaborating Guidelines on permissible defensive measures. The Group’s membership seems to be changing, and differences are emerging compared to both the Anglo-Australian and American approaches to substantive rules on takeovers as well as the process for defining them. Read more…

Author: Luke Nottage

Ryan Manuel’s posting on ‘Market failure, the state and Olympic sport’ generated further thought-provoking views, from Dominic Meagher, as well as a follow-up on ‘switching costs‘. Relatedly, in the Sydney Morning Herald last Saturday, Hamish McDonald asked: ‘Billion Indians, but where are all their medals?’. We might pose a similar question about Japan, in contrast to China. This provides a springboard for introducing and assessing the new book by the former editor of The Economist, Bill Emmott’s Rivals – How the Power Struggle Between China, India and Japan Will Shape Our Next Decade. Read more…

Author: Luke Nottage

Interesting responses by Andrew MacIntyre and others follow Peter McCawley’s recent posting throwing light on Indonesia’s electricity crisis. Further to my subsequent posting on burgeoning FDI into Japan, yet the recent blocking of a English fund’s bid to expand shareholdings in the J-Power wholesaler, I wonder what Indonesia’s overall experience has been in attracting foreign investment into power projects. From Wells and Ahmad, Making Foreign Investment Safe (OUP, 2007), I do know of three major investments that resulted in arbitrations after Indonesia suspended many projects following the Asian Financial Crisis a decade ago. These already involved some involvement from Australia and especially Japan. Hence the question: why and how should we provide for investment arbitration in the Australia-Japan FTA or in ASEAN+ agreements? Read more…

Author: Luke Nottage

With Non-Performing Loans finally under control and economic recovery underway since 2002, Japan has also experienced a revival in FDI outflows. Many commentators focus on the large stocks built up in China, but there has also been steady interest in investing in Australia. Rather than tourism and property developments, Japanese firms have been quietly investing in infrastructure projects, and Nomura is reported recently as a possible buyer of the Australian investment banking arm of ABN AMRO.

A more remarkable development is the expansion of inbound FDI, particularly under the former Koizumi government. Fueled by a broader boom in M&A world-wide, Japan’s inflow rebounded to US$22 billion in 2007, and foreign investment stocks doubled over the last five years. But flows and stocks are still low by OECD standards relative to GDP, especially compared to the US, the UK and now Australia.

The Fukuda government has also sent more mixed messages recently. The Transport Ministry tried to include a blanket one-third cap on foreign shareholdings in Japanese airports. But others including the Financial Services Agency objected that this would choke off other inbound FDI, so this provision was dropped in March. The government is now considering the introduction of measures that more directly regulate the understandable security concerns arising from operating airports. Macquarie Airports Management Ltd, which already owns 19.9 percent of Haneda Airport, will be following this ongoing debate especially carefully.

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Author: Luke Nottage

Australia’s Productivity Commission recommended in 2006 several ways to improve our consumer product safety regulatory regime, which dates back to the 1970s. This year it published a more comprehensive Inquiry Report to strengthen our entire consumer law and policy framework. Several recommendations, like an obligation on suppliers to report serious product-related accidents to regulators, will start to bring Australia up to the higher standards expected and implemented in Japan since the 1990s. Those track the higher priority given recently to consumer protection particularly in the EU.

Japan and the EU illustrate the thesis of ANU Professors John Braithwaite and Peter Drahos that “global business regulation” can accommodate both economic deregulation of protected sectors domestically, and improved “social regulation” or a safety net for vulnerable groups of citizens. Japan also shares with the EU a greater concern about risks potentially affecting consumers or the environment. By contrast, as Berkeley Professor David Vogel has pointed out, since the 1980s the US has become much more concerned about risks to national security. Australia seems to have gone the same way. Yet such differing risk perceptions remain under-appreciated particularly in the Australia-Japan context. Read more…