Panda Death a Metaphor

Relations between Asia’s two giants China and Japan are rarely straightforward. Despite being the second and third lagest economies in the world and doing hundreds of billions of dollars in bilateral trade, a few choice words by a prominent government official or a territorial incursion by a small fishing boat can quickly escalate into an international diplomatic crisis.

This week saw heightened tensions due to a Japanese government announcement that it intends to nationalise the Senkaku Islands, a group of islands in the South China Sea that are also claimed by China and Taiwan. China responded by sending “fishing vessels” into Japanese-claimed territorial waters around the islands. It was the top story on the evening news. Everyone was very upset. The Japanese government’s hand had been somewhat forced into making the purchase, as the right-wing mayor of Tokyo was already arranging for the Tokyo Metropolitan Government to purchase the islands on behalf of the country.

In a seemingly unrelated issue, Nicewife was watching TV on Wednesday when a Newsflash (the type that is usually reserved for earthquakes and typhoons) announced the death of a newborn baby panda at Ueno Zoo. The zoo director was in tears. The Prime Minister described the death as “very disappointing”. A major department store cancelled its “Happy Panda Week” sale. (Apparently dead pandas don’t sell handbags.) The country is in mourning.

Given that Ueno Zoo is also owned by the Tokyo Metropolitan Government, one can’t but help wonder if the baby panda death is an unfortunate metaphor for the future of Sino-Japanese relations.

baby panda
Newborn Panda at Ueno Zoo  (Photo: Ueno Zoological Gardens)
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Oi! Oi! Nuclear is Back!

Prior to the accident at Fukushima, Japan relied on nuclear power for around 30% of its generation capacity (with plans to raise that to 50% by 2030), and had a total of 54 active reactors dotted around the country’s coast. For the last few months none have been operational because of ongoing public concern over their safety.

With the summer season now upon us however, demand for electricity for air conditioning will skyrocket leaving the Kansai area in particular with a significant shortfall unless some of the nuclear reactors are restarted. The most likely candidate was the plant at Oi, in Fukui Prefecture, part of Japan’s “Nuclear Alley”. This is a place close to my heart, because when I was last living in Japan it was close to my home!

For weeks we have witnessed a pantomime with the nuclear regulator, plant operator, prefectural governments and the Prime Minister all playing roles. This pantomime slowly conveyed to a largely sceptical public a carefully crafted message: this is safe, and this is inevitable. When the Prime Minister finally announced the restart he framed his argument around the importance of affordable electricity for maintaining the Japanese standard of living.

The Oi reactor was restarted this week and is expected to start to transmit electricity from today.

I have just a few thoughts to share:

Firstly, I think it’s incredible that Japan has to-date survived the loss of 30% of its generation capacity without rolling blackouts. This has been achieved through restarting mothballed thermal plants and encouraging people and businesses to save energy.

Secondly, I note with interest that there is no sunset date for the restarted operation of Oi, something which would seem sensible given that the extra demand will only last until the summer ends and that reaching public consensus over the future of nuclear power in Japan is still far off.

Thirdly, I think geothermal electricity generation could in future play a much larger part in Japan’s energy mix. For this source of electricity Japan’s unstable geology becomes a strength rather than a weakness.

Finally, it is worth noting that the Tokyo area still have no nuclear plants in operation. Several years ago TEPCO boasted in a TV commercial that 40% of its power came from nuclear plants in Niigata and Fukushima. I didn’t want them looking silly (again), so I took the liberty of updating their ad.

before
Before (view commercial)
After

Peak Japan

Japan’s rapid development following its humiliating defeat in the Pacific War has been well documented. During the boom years of the 1970s and 1980s the country’s infrastructure developed at an unprecedented rate and to a very full extent. Highways and bridges were built servicing areas with no need for them. Airports were constructed in remote, lightly-populated areas to fly vegetables to the cities. (Have you ever bought a radish that has its own Air Miles?) Unused concert halls and empty art galleries were built in the smallest of hamlets. Railways were expanded to every corner of the country and sprawling subways (underground railways) were built under most of the major urban centres. While current residents enjoy the fruits of this investment, they are increasingly having to shoulder the burden of maintaining it all.

On NHK news last night there was a story about the increasing cost of maintaining Japan’s now ageing public infrastructure such as roads, highways, bridges, and municipal public buildings. Maintenance costs for public infrastructure have been increasing year on year for the last half-century, and last year, for the first time, more money was spent maintaining current infrastructure than building new stuff. In the last couple of decades Japan has been stuck in a cycle of deflation, so these increases in costs are real, not inflationary.

This would all probably be OK if the economy was growing (it’s barely moving), the population was increasing (it’s declining), the number of taxpaying workers was going up (it’s not),  there was little public debt (it’s now at a whopping 220% of GDP), and there were no other budgetary surprises (it is now forecast that decommissioning and decontaminating Fukushima will take 40 years). Living in Japan in 2012 really feels like living in a post-developed economy that is just starting to go into gradual but terminal decline.

So what’s the solution? On the news story last night NHK looked at how the municipality of Hamamatsu was dealing with the problem. Their solution is a public fire sale. Assets that can be sold will be sold, and the small amount of money raised will be used to demolish assets that have no value. The national government is currently pursuing legislation to increase sales tax. Further tax increases along with cuts to social services and the national pension scheme are inevitable.

Unless some other radical step is taken (such as opening the country to mass immigration) I think that residents of Japan in 2030 will look back to 2012 as the end of a golden era for Japanese public services, taxes, and infrastructure.

Down, Down, Dollar is Down

(If that title seems weird, try singing it to the Coles supermarket tune.)

This is what the Aussie has been doing with itself for the last 3 months. Looks like it has been officially rejected from the glamour club of world currencies.

Dollar vs JPY
AUD vs JPY over last 3 months

A couple of weeks ago I attended the meeting of the Nagoya International PC Club, and no-one had anything good to say about the rise of the Yen. A Japanese attendee who makes a living selling kimonos on e-bay said he could not raise his prices or this American and European customers would stop buying. A Polish developer lamented the fact that he was being paid in British Pounds, a currency which has fallen 50% against the Yen in since 2007. The American attendees were kinda annoyed too, given that their USD holdings have also declined significantly compared to the Yen.

What none of us could work out is why is the Yen so strong? Interest on savings in Yen is abysmal. The best we could come up with was that Japanese believe it is patriotic to hold government bonds and keep their significant savings in Yen in a local bank. Or perhaps that the sudden recent increase in the Yen was due to people getting out of the carry trade because they’re worried that their investment currency will tank.

Share your wisdom in the comments!