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Japan's economic future part 6

Written by Hugh Ashton Monday, 28 March 2011 10:57
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Wrapping up

Actually, I wish we were wrapping up this mess. Things are still pretty dire up there, both on the nuclear and other fronts. There is now fresh water going into the reactors, which has removed one possible anxiety – that of salt corrosion of vital parts, as well as a possible buildup of salt on the nuclear fuel, causing a heat buildup and possible fire.

 

However, there have been highly radioactive puddles of water discovered on the floor where they shouldn't be, and in what is looking ever more like a true to form move by TEPCO, the amount was overstated by a factor of 100. Not a clever move, and this sloppiness was publicly castigated in the government's press briefing as "unacceptable" – a very strong term in the Japanese political vocabulary.

 

The president of TEPCO, Masataka Shimizu,  fell sick soon after the quake. Dodging bullets by entering hospital is an old Japanese political trick – when the going gets tough, the tough get sick – but apparently he has been prodded out of bed to get his organisation in line. However, it is almost certain that the axe will fall when the crisis is over. The government is holding his feet to the fire right now, and I am sure that if he offered to resign to "take responsibility" in the middle of this crisis, he would be met with an angry counterblast from the Cabinet. There is also news from various sources that the Japanese police are starting to prepare a "criminal negligence" case against TEPCO – something that would be heartily welcomed by most Japanese, I feel. In this case, the usual suspended sentences might not apply, and an actual prison sentence might loom large in some executives' future CVs.

 

Kan has gained 8 percentage points in approval (still under 30%), and although a majority do not approve of his handling of the nuclear crisis, the way the government has managed the earthquake and tsunami has generally gained majority approval. To my mind, the nuclear crisis is to a certain extent out of Kan's hands – he is reliant on TEPCO for the information on which he makes his  decisions and actions. If they do not provide him with the information in a timely fashion, or provide him with the wrong information, it's unfair to expect him to second-guess them. It does seem that foreign experts are advising (the US has also been magnificent in deploying its resident military to help with the quake/tsunami situation, and US Ambassador John Roos has been using Twitter and Facebook very effectively to get messages to the Japanese and the American populations), but foreign experts and university professors are not the people who have run the plant for the past 40 years, and are sensitive to its idiosyncrasies and unique quirks. At the moment, TEPCO is the least bad alternative – and that hurts.

 

This is not to decry the hard work and bravery of the workers, skilled and unskilled, who are laboring there, but these are tiring times, and tired people make mistakes, such as walking in highly radioactive water without boots, while ignoring the dosimeters shrilling in their ears ("because we thought they were broken"). Happily, these people seem to have suffered the equivalent of medium sunburn, and they have now been released from hospital.

 

We still have seawater contamination – it's early days to say when it will stop, or what the long-term effects will be. Shellfish from that area is off my menu, and so is seaweed from there, as strongly recommended by the British Chief Scientific Adviser. The farming/fishery business in that area is dead, but the exact geographical extent, as well as the timescale of the effects, are still very much up in the air.

 

China and taxes

 

But to China and taxation, the last items on the list of stumbling blocks faced by (pre-quake) Japan. China right now is not too happy with "radioactive" food from Japan. In actual fact, it's a fair bet that much of the radiation that is now being discovered was there all along – it's just that no-one thought to look for it. But when the scare aspect of all this is forgotten (and I'm willing to bet this will happen within six months – something is going to take the Chinese mind off things), and Japan can prove (as opposed to claim) to customers that the food being produced for export is safe, the vision of the luxury produce market may become a reality again. No guarantee of this, at all, of course, but people have short memories. Especially if no-one dies immediately as a result of this nuclear disaster (and remember, that 17 days into the disaster, no-one has died, and only three people have been hospitalised for a short period).

 

Japan had already started to resign itself to being number three in the world economy table, and of course, the drop in GDP, which will not be limited to the costs of rebuilding, but will be accentuated by drops in the service sectors (restaurants, travel, etc.) and various other affected areas (for example, the two Tokyo Disney resorts are closed until further notice, partly because of seismic reasons, and partly in an altruistic move to save power), will push Japan a little further down the table. Does this matter? Maybe not, as long as China continues to show demand for high-quality Japanese goods and products, and there is a booming affluent class there.

 

Taxation? There I am a little more than usual out of my depth. However, the cohesive power of the Japanese society is shown by a survey that claimed that two-thirds of those surveyed would support higher taxes to provide money for rebuilding the affected areas. Given the traditional Japanese move towards support for large companies, I expect the tax bill to fall on individuals, rather than on corporations.

 

The small and medium-sized businesses which are affected by the disasters, directly and indirectly, will require support. In a way, this is the designated task of the shinkin, the local credit unions whose appointed job is to take care of their local businesses. Given the nature of Japanese honesty and hard work, the default rate on these loans, many of which would be under $50,000 or so, would be low, and if securitised, would probably earn a AAA rating. Though there is no tradition of these credit unions selling off their debts (to my knowledge, at least), this could be a very interesting way for the local "on the ground" entities to provide financing to their communities, while exposing themselves to remarkably little risk. I put this forward as a suggestion to anyone who wants to take it up. One caveat – the organised crime groups would almost certainly move in to collect these easy pickings, if left unchecked, as appears to have happened with the ill-fated Tokyo Incubator Bank. Due diligence would be a key component of any such undertaking.

 

And that covers all that I originally meant to say, and a lot more. But as other news comes in, and further developments show themselves, I may add to these ramblings.

Last modified on Monday, 28 March 2011 11:01

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