Japan: The Economy June 2018

From Mizuho: In the Japan-US summit meeting on April 17-18, issues on North Korea and trade were the main topics. Concerning the trade issue, the two leaders agreed to undertake new trade talks. 

US President Trump addressed the issue of America’s “massive trade deficit with Japan” and showed his determination to slash the deficit, but he did not come up with any specific demands to Japan. He also made no reference to the currency issue, another area of concern. 

While Japan’s Prime Minister Abe expressed his position that “the Trans-Pacific Partnership (TPP) is the best for the US and Japan,” President Trump rejected the idea of returning to the TPP without renegotiating the conditions and emphasized his preference for bilateral talks. The new trade negotiations with the US are expected to be challenging for Japan.

The Japan-US FTA and the US return to the TPP The possibility of initiating the Japan-US FTA talks has been rumored since the outset of the Trump administration. Speculation that the US would officially request Japan to start FTA talks emerged right before the summit meeting. One factor behind this speculation was the statement made by US Trade Representative Lighthizer at the Committee on Ways and Means in the House of Representative, where he said, “We have told Japan that we are interested in having a free trade agreement with them at the appropriate time.”15 Also, since the countries exempted from the US import restrictions on steel and aluminum products, effective from March 23, were either countries with a trade surplus with the US or countries currently negotiating FTAs, it strengthened the belief that the United States would ask Japan to start FTA negotiations in exchange for 11 The Nikkei, “Pressure grows on Japan again. President Trump says, ‘I won’t be cheated again,’” March 24, 2018. 12 USTR, 2018 Trade Policy Agenda and 2017 Annual Report of the President of the United States on the Trade Agreements Program, March 2018. 13 The Nikkei, “President Trump urges purchase of US defense equipment,” November 7, 2017. 14 U.S. Department of the Treasury, Office of International Affairs, Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, April 2018. 15 USTR, “Opening Statement of USTR Robert Lighthizer to the House Ways and Means Committee,” March 21, 2018. 6 exempting Japan from the additional import tariffs. 16 Furthermore, since the FTA renegotiations between the US and South Korea were concluded in favor of the US side, there were increasing concerns within Japan that Japan would be the next target.17 Meanwhile, concerning the possibility of the United States returning to the TPP, there has been no specific development after President Trump’s reference to the TPP at the World Economic Forum’s Annual Meeting (Davos conference) in January this year. But discussions on the TPP came under the spotlight again, triggered by President Trump, who instructed Robert Lighthizer, the US Trade Representative and Larry Kudlow, the director of the National Economic Council to examine the conditions for returning to the TPP, when he met with Republican senators on April 12. Nonetheless, President Trump has not changed the conditions of the United States returning to the TPP, as the US may return to the TPP “only if the TPP becomes a substantially better deal.” On the night of April 17, when the first day of the Japan-US summit meeting was coming to an end, President Trump tweeted, “While Japan and South Korea would like us to go back into the TPP, I don't like the deal for the United States. … Bilateral deals are far more efficient, profitable and better for OUR workers.”18 This suggested that the situation was far from hopeful that the US would return to the TPP talks. For Japan, which wanted to avoid Japan-US FTA talks but could not respond positively to renegotiating the TPP,19 it was believed that when asked by the United States to start the FTA negotiations, the best solution would be to conduct discussions within the Japan-US Economic Dialogue initiated with trade and investment as one of its main pillars. But as the two countries had already held the dialogue twice, and the US had begun to view Japan as using the dialogue to buy time, it was thought this option would be difficult for the two countries to take before the summit meeting. Under these circumstances, Japan prepared a new alternative to establish a new framework for dialogue. 20 During the summit meeting, the two leaders agreed to start “talks for free, fair, and reciprocal trade deals” between Japan’s Minister of State for Economic and Fiscal Policy 16 The Mainichi Shimbun, “US to exercise import barrier on steel; EU and South Korea exempted but not Japan,” March 23, 2018. In the Committee on Financial Affairs of the House of Councillors held on March 29, government witness Tsutomu Koizumi, Deputy Director-General / Deputy Assistant Minister of the Economic Affairs Bureau in the Ministry of Foreign Affairs, stated that “we should prudently take note of the fact that the US is using the exemption of certain countries from the import restrictions as a tool to proceed with trade talks with each country.” Following this statement, Finance Minister Taro Aso stated that “the most important thing is to avoid the situation where Japan will be drawn into bilateral negotiations in exchange for an exemption from import restrictions. … We will firmly reject this situation.” (The House of Councillors “the 196th Diet, record taken at the Committee on Financial Affairs, March 29, 2018, no. 8.”) 17 The Mainichi Shimbun, “The US-South Korea FTA – Japan feels threatened from pressure,” March 27, 2018. 18 Tweets by President Trump (@realDonaldTrump), April 18, 2018 11:49 (Japan time). It should be noted that although South Korea has not signed the TPP and CPTPP, it seems to be positive on joining them. 19 On this issue, refer to Junichi Sugawara, “Conclusion of TPP11 and its outlook,” Mizuho Insight, Mizuho Research Institute, February 15, 2018. 20 The Nikkei, “US and Japan to start new trade talks, the government will make a proposal at the summit meeting,” April 14, 2018. 7 and Minister in charge of Economic Revitalization Toshimitsu Motegi, who heads the TPP negotiations, and US Trade Representative Robert Lighthizer, who is responsible for trade negotiations. It was decided that details of the talks would be reported in the Japan-US Economic Dialogue.21 Japan made it clear that the new trade talks would not be a preliminary deliberation to a Japan-US FTA, and Prime Minister Abe expressed to President Trump that he has no intention to conclude a Japan-US FTA.22 But since President Trump has declared that a bilateral deal would be preferable, we cannot deny the possibility that the United States will try to persuade Japan to turn the new trade talks into Japan-US FTA negotiations.

From Zermatt Research:
While the outlook moderates, the economy lost steam in Q1. Analysts see a gradual recovery this year and next, with inflation staying near 2% from raw material and rising labor costs.

Employment
According to the Labour Force Survey and Mizuho Research, the number of employed persons in Japan FY2017 reached an all time high - or a historical high - of 65.57M. There has been a dramatic increase in female employment as well. Well, for starts Japan realized that last year (FY2017) the country reached a historical employment high — and that included record amounts of women entering the work force. The shift in numbers of females from part-time to full-time / regular employment in the welfare, medical and healthcare sectors will increase the average wage per worker too.

PMI in Japan, as well as Hong Kong, came in lower.