Japan – Page 21 – Mutantfrog Travelogue

No Tokyo Olympics, and that’s OK

As I write this the IOC has still not released who will get the games (Update: Rio!), but we do know this – it won’t be Tokyo. I was watching Fuji TV when the interpreter spoke the words “Tokyo has lost” (東京が落選しました) — the TV anchors fell silent for about 15 seconds, save for a few sighs.

For my own completely selfish reasons, I am happy to avoid the inconvenience of over a million extra people in the city during the spectacle.

On the other hand, I can’t deny a tinge of longing and disappointment that Tokyo won’t get its chance to shine. Whatever the practical and logical concerns (and there are many), Tokyo is a beautiful and complicated city that the world overlooks to its detriment. And it’s true that if 2016 Olympics offered Tokyo just 1/10th the cachet, prestige and aura of achievement and arrival that the Beijing Olympics had in China, there could be a credible case for wanting them in Tokyo too. Setting aside all issues of cost and objectivity, the propaganda value of a truly successful and memorable Olympics is very real.

But Tokyo already had its Beijing 2008 moment back in 1964. If the Olympics can bring any real, lasting impact, it’s because they underscore and promote underlying historical trends. If Tokyo had the Olympics in 2016, it wouldn’t shake the “Japan is dying” narrative – it would just be a perfunctory, lackluster games all but forgotten a decade later, like Atlanta in 1996. At this point the overall message of “Japan as ecological technology superpower” is just not getting through, and the IOC judges apparently were not convinced. If Rio gets it they will fit this model.

So while Hatoyama made an eleventh-hour decision to show up in Denmark and give a speech, I don’t think the concept of another Tokyo Olympics jived with the spirit of the DPJ’s push to shift the nation away from relying on ever-more construction and development as a source of prosperity. Better that Japan tidy set its house in order before winning another chance to showcase itself to the world.

Japan’s airliner industry

In the last week or so, there has been some buzz on the NBR mailing list about Japan’s airliner industry. Many very educated people seem completely unaware that Japan has built whole commercial planes before, and that it is still deeply involved in this business despite not having a strong brand in the aircraft business. For regional pundits who are newbies to the aerospace industry, here’s a brief history of Japan’s forays into my favorite line of business.

The Imperial days

Before and during World War II, various Japanese firms built a variety of propeller-driven planes which were used for both civilian and military transport purposes. Many of these models were based on, or provided the basis for, Imperial Army and Navy bomber airframes. Wikipedia has a good list of these planes in its article on Imperial Japanese Airways, the old state-sponsored airline. I particularly like the Kawanishi H6K, a flying boat which was used for flights between Japan and its South Pacific mandate. Flying boats are awesome.

Besides unique designs like the H6K, there were also Japanese planes based on American or European designs; in fact, the Douglas Aircraft Company was granting production licenses to Japanese firms as late as 1938. Throughout the Pacific War, the Japanese forces were flying transport planes almost indistinguishable from parallel models in the Allied forces’ fleet.

After Japan lost the war, the American occupation forces banned Japanese firms from developing or building aircraft, and confiscated all the related technical materials they could find. The demands of the Korean War, however, quickly revitalized the aircraft servicing industry in Japan, as the US needed skilled workers to fix its fighters and bombers at Japanese bases. Japanese aviation resumed in earnest with the peace treaty of 1952, which removed some of the restrictions and allowed scheduled domestic flying to resume.

The YS-11

In 1956, when the aircraft production ban was completely lifted, the Ministry of International Trade and Industry immediately made it a priority to develop a home-grown replacement for the war-era planes then flying throughout Japan. They negotiated with the Finance Ministry and Transport Ministry to come up with a production budget and implementation plan, and in 1957 secured funding to set up a Transport Aircraft Design Research Association (輸送機設計研究協会 Yusōki sekkei kenkyū kyōkai) based at the University of Tokyo, overseen by MITI and a consortium of domestic manufacturers.

The first initials of the Association’s Japanese name, “YS,” were applied to the name of their final aircraft design, the YS-11. With mock-ups prepared and the design ready for production, the Association turned over control to a newly-formed parastatal Nippon Aircraft Manufacturing Corporation (日本航空機製造) or “NAMC,” comprised mainly of staff seconded from the major keiretsu manufacturers.¹

The first YS-11 rolled out in 1962 and represented a major advance in Japanese aircraft-building technology.

There was still work to be done, though. Although most production took place in Japan and was overseen by Japanese firms, Japan did not have the technical capability to make the airframe materials or engines for a modern aircraft, and ended up acquiring these parts from Alcoa and Rolls-Royce respectively.

Still, the YS-11 was a pretty solid aircraft, seating 64 passengers with a cruise speed around 650 km/h. Although most found themselves on regional flights within Japan, Japan’s neighboring countries also bought many of the type. Piedmont Airlines flew YS-11s around the southern United States for a while, and Olympic Airways operated the type around Greece. Having made some return on the government’s investment (though not enough to turn a profit), NAMC set its sights on more advanced planes which never saw the light of day.

The YS-33

In the mid-1960s, NAMC got cocky and decided that it would try to clone the McDonnell Douglas DC-10 widebody trijet, which was one of the most popular airliner models at the time despite an array of safety issues. The initial plan called for three models seating 100 to 150 passengers, but by 1970 it was clear that the market was demanding something more in the range of 200 to 250 passengers. Planned development costs skyrocketed from 15 billion yen to 100 billion yen as the plan got bigger and more technically complicated.

NAMC realized that the government simply could not afford to home-grow an entire jumbo jet, so the YS-33 (alternatively known as the “YX”) never made it past badly-drawn concept art.

In 1971, NAMC shut down its production and design departments, effectively becoming a mere servicer for the YS-11. The company wound down its operations over ensuing years and finally closed in 1983.

The Boeing cooperation era

Around 1970, the global airline industry was suffering from a glut of overcapacity and rising fuel prices, and was shifting its demand to more efficient aircraft. Every major aircraft manufacturer was planning a widebody twinjet at the time: two-engine DC-10s and L-1011s were on the table, as well as the first Airbus (now known as the A300) and a Boeing project tentatively called the “7X7.”

The key Japanese aerospace companies, led by Mitsubishi Heavy Industries, Kawasaki Heavy Industries and Fuji Heavy Industries, set up a Civil Transport Development Consortium (民間輸送機開発協会 or CTDC) in 1973. CTDC signed a memorandum of understanding with Boeing to become a technical development partner on its 7X7 project. The 7X7 turned into what is now the 767, and Japan ended up providing about 15% of each aircraft, including fuselage and wing sections. The aircraft flew for the first time in 1981.

Since then, Japan’s involvement in large Boeing aircraft has continued. The next Boeing widebody, the now-ubiquitous 777, rolled out for the first time in 1994 with even more Japanese components, comprising 21% of the aircraft. On Boeing’s latest large aircraft project, the ongoing and beleaguered 787, Japanese firms have been contracted to build most of the wings and part of the center fuselage, a total of 35% of the plane, and an extremely important 35% at that.

These huge components are currently built in Nagoya, loaded onto pregnant 747s, and flown across the Pacific to the final assembly line in South Carolina.

This is one reason why Boeing aircraft are ubiquitous in Japan. Airbus’s last sale here was an ANA order for five long-range A340s, which ANA cancelled after placing the first non-US order for 777s. ANA and JAL both later became launch customers for the 787, and ANA has extensively advertised the unprecedented Japanese-ness of Boeing’s upcoming model. But neither airline is particularly beholden to Boeing. In fact, production problems with the 787 led JAL to threaten shifting its order to Airbus.

Airbus, for its part, has not paid much attention to Japan. Instead, it has thrown its money and time into marketing in China, going so far as to open an entire assembly line in Tianjin for its popular A320 family of short-haul jets promoting in the media and online using marketing resources like niche edits and others strategies you can find online. Airbus planes are becoming more and more common throughout China, and it’s likely that China will use imported Airbus know-how to jump-start its own large aircraft industry.

Meanwhile, the Boeing partnership is the most successful segment of the Japanese civil aircraft industry today–at least much more successful than all the other money-losing projects to build a “truly Japanese” airliner.

The 7J7

CTDC also came up with a “YXX” plan, first proposed in 1979. They sought to develop a 100-seat jet plane that could be used for domestic routes to secondary cities. Based on their success with the Boeing partnership, CTDC decided to get Boeing on board, and thus was born the Boeing 7J7.

The 7J7 was a fairly unique design in that it would have used propfans for engines. These are basically very aerodynamic propellers mounted on jet engines. Propfans are very fuel-efficient compared to regular jet engines, and are capable of attaining similar speeds. However, propfans are also very loud, which makes propfan aircraft less attractive from a passenger’s standpoint.

In a high fuel price environment, and with the Iranian revolution casting fear in the hearts of fuel-hungry airlines, the propfan’s advantages were extremely attractive. By the mid-80s, though, most airlines were out of money and fuel prices were back to manageable levels. Boeing shelved the 7J7 plan and concentrated on making more efficient conventional jets.

The YSX

Undaunted, the Japanese aerospace industry started chasing another pet aircraft project called the “YSX” in 1986. This aircraft was conceived as a direct replacement for the aging YS-11s, using a similar body with more modern wings and turboprop engines.

The YSX was a very underdeveloped plan which mainly fell victim to bad timing. By the late eighties, Japan was in the middle of an asset bubble while Europe and the US were facing a recession, and domestic manufacturing was no longer quite as competitive. Then came the Pan Am 103 disaster and the Gulf War, which tugged at the finances of already-strained airlines across the globe. By the time the industry picked back up in the mid-1990s, Japan was in a recession, US aircraft manufacturers were turning their attention to Chinese and Korean partnerships, and new types of aircraft were muscling small turboprops out of the market.

Mitsubishi Regional Jet

Today, propeller planes are becoming rarer and rarer. More airlines are switching to small jet aircraft for both short flights (where jets are more comfortable and almost as efficient) and long flights (where small jets can operate more convenient frequencies carrying less people on each flight). This is a market which Boeing and Airbus almost completely overlooked, and as a result, its leading players are now Bombardier of Canada and Embraer of Brazil, hardly countries one would expect to gain a strong toehold in the airliner market. Chinese, Russian and Ukrainian firms are also getting interested in this market segment.

In 2002, the newly-renamed Ministry of Economy, Trade and Industry decided that Japan should get in on the regional jet game, and started throwing billions of yen at a regional jet development project led by Mitsubishi Heavy Industries. The resulting design is called the Mitsubishi Regional Jet, and has managed to capture twenty-five orders from All Nippon Airways, though no other carriers have shown interest so far.

There seems to be little chance that MRJ will ever be profitable, as estimates show 600 airframes would have to be produced in order to yield a profit.

*** UPDATE: Just hours after this post came out, Trans States Airlines, a feeder contractor for a few major US airlines, ordered more than 100 MRJs.

Why can’t Japan build a jumbo jet?

The large-aircraft industry has long been supported by government funding. Boeing’s early money-winners, the 707 and 747 lines, started out as military transport planes and were later adapted for passenger service.² Airbus started out with a huge amount of funding by the British, French and West German governments as a way to jump-start the lagging European aerospace industry, and its parent company EADS is still subsidized to develop military aircraft for European forces. The other country to develop a significant big-plane industry was the Soviet Union in its heyday, and since the collapse of its command economy, its once-great aircraft manufacturers like Antonov and Ilyushin have been relegated to making poor copies of designs developed elsewhere.

While we all know Japan has no qualms about throwing tons of money at questionable business plans, the state’s obvious disadvantage here is Article 9. Strategic military infrastructure is legally out of the government’s reach, yet this is the sector which has the deepest technical nexus with large airliners. Without the prospect of national defense applications, there is much less economic rationale to invest in a whole production line for a plane with more than a hundred seats. It takes a hell of a lot of infrastructure, too: Boeing’s assembly line near Seattle is the largest building in the world, covering 400,000 square meters, and is mainly for assembly, not even producing all the huge components.³

Japan certainly has the native technical capability to put together a jumbo jet; the question is whether they could ever make money on it, and whether they could even put together a business plan which makes more sense than piggy-backing on a foreign producer.

* * *

¹ NAMC’s chief technician, Teruo Tojo, was a Mitsubishi Heavy Industries employee who also happened to be prime minister/war criminal Hideki Tojo’s second son.

² The 707 airframe is still in military use as an airborne command post and mid-air refueling platform; the 747 started out life as a bid for a giant military transport plane, and morphed into a giant passenger plane after Boeing’s bid lost to Lockheed’s (which became the C-5 Galaxy).

³ It also allegedly has the busiest Tully’s Coffee in the world.

Depressing Historic Context of DPJ Victory from Nikkei Business

The Nikkei Business Magazine is a weekly print publication that is perhaps the Japanese equivalent of the Economist. In a recent article, they produced the following chart in their cover article to explain one context of the two parties in Japan — instead of the banal left v.s. right, liberal v.s. conservative, salaryman v.s. farmer dynamic, the article looks at the dynamic between the party promoting economic equality and the party promoting structural reform.

Click image for a larger version of the scan.

To ensure that everyone can understand this post and participate in the discussion in the comments, I’ve translated the chart:

Reform v.s. Stability in Japan's political parties-translation

The Nikkei narrative goes something like this: following the bubble bursting in the early 90s, the LDP advocated economic stability and maintaining economic equality instead of structural reforms. Many reformers inside the LDP left the party to form a number of smaller parties. (For more context, see my recent post on the graphical timeline of the DPJ.)

However, several years later it was Koizumi who transformed the LDP in a party that advocated structural reform. In some ways this undermined the DPJ’s core platform and brought the pro-Koizumi members of the LDP to overwhelming victories. But after the Koizumi era, the DPJ effectively turned itself into the party that would correct the inequities of the Koizumi structural reforms, and the LDP old guard, never comfortable with being the party of reform in the first place, waffled on the issue of economic equality v.s. structural reforms until it abandoned the reform platform before the election — but too late to benefit from the shift in the public’s concern.

This type of fluctuation in the policies and philosophies between competing political parties isn’t new — it’s a natural development in party politics that political scientists call realignment. (To note one clear example for US readers, the Democrats were the dominant political party in the conservative South for a century from the 19th century until the 1960s, after during which time there was a slow reversal that resulted in the region becoming a stronghold of the Republican Party — the names of the parties didn’t change, but their constituents did.) That being said, it’s depressing to read an analysis that ultimately concludes that with the exception of the charismatic Koizumi, the party advocating the status quo and rejecting structural reforms is the party that wins.

DPJ supporters want to believe that the DPJ is still the party of reform. I wish this was the case — but as I see it, the DPJ is getting the little things right and the big things wrong. Minor improvements such as ending the kisha club system that grants preferences to big media and allowing married couples to keep separate names are welcome reforms. But as of this morning, the leadership appears to agree with Kamei Shizuka that borrowers should be able to skip repayments on loans, which will spread the “zombie company” phenomenon to Romero-esque levels. That’s definitely a policy heavily favoring so-called economic equality and not structural reform.

Dissolving the House of Representatives is not as straightforward as you might think

Like many Westminster-style political systems, Japan employs a system where the Cabinet has the power to dissolve the lower house of the legislature prior to the expiration of said house’s full term. Once the House is dissolved, an election is held, new legislators take office and another four-year term begins.

This has become the standard process for holding lower house elections under the postwar Constitution. Only one election has ever been held following the natural expiration of the House’s four-year term of office (the 1976 election). In twenty-one other instances so far, the Cabinet has kept its nose to the air, waiting for opportune times to torpedo the legislative branch and hopefully have themselves re-elected.

In 2005, Jun’ichiro Koizumi dissolved the House after it voted down his postal privatization plan, and his LDP surged through the ensuing election to win a commanding majority for the next four years. This past July, Taro Aso dissolved the House a month before its four-year term was due to expire, only to watch the LDP fall and Yukio Hatoyama take over the prime minister’s office.

Dissolution is thus at the heart of the greatest shifts in Japanese politics. That said, most dissolutions have been highly sketchy from a legal perspective, thanks to some inadequate drafting in the constitution. There are two big questions which the Constitution and jurisprudence have never quite resolved…

Question 1: Who can dissolve the House?

The Constitution only says this:

第七条　天皇は、内閣の助言と承認により、国民のために、左の国事に関する行為を行ふ。・・・
三衆議院を解散すること。
Article 7. The Emperor, with the advice and approval of the Cabinet, shall perform the following acts in matters of state on behalf of the people: …
3. Dissolution of the House of Representatives.

So it’s technically the Emperor’s job, not the Cabinet’s. However, three academic theories (never actually enshrined in black-letter law) have led to general acceptance that dissolution is a Cabinet decision:

# The Article 7 Theory (7条説): Enumerated Imperial acts of state in the Constitution are assumed to actually be acts of the Cabinet, on the basis that the Emperor must have the Cabinet’s advice and approval before acting.
# The Systemic Theory (制度説): Instead of looking to the text of the Constitution, this theory looks to the international standard for the Westminster parliamentary system, which assumes that the cabinet has the ability to dissolve the parliament.
# The Administrative Theory (行政説) or Article 65 Theory (65条説): Article 65 of the Constitution gives the cabinet general authority over public administration, which is generally defined to mean all legal authority other than legislation and jurisprudence. Dissolution of the House is neither legislation nor jurisprudence, so it must be administrative in nature and therefore under Cabinet control.

Question 2: When can the Cabinet and Emperor dissolve the House?

This one is trickier. Again, we start with the text of the Constitution:

第六十九条　内閣は、衆議院で不信任の決議案を可決し、又は信任の決議案を否決したときは、十日以内に衆議院が解散されない限り、総辞職をしなければならない。
Article 69. If the House of Representatives passes a non-confidence resolution, or rejects a confidence resolution, the Cabinet shall resign en masse, unless the House of Representatives is dissolved within ten days.

Note that it doesn’t say the House can be dissolved in any other instance. Nor does it say that there is no other instance when the House can be dissolved. It just says that the House can be dissolved if it holds a no-confidence vote.

This became an issue of intense debate in the early postwar years. In October of 1948, Shigeru Yoshida’s newly-formed second cabinet attempted to execute the first dissolution of the House under the new Constitution, without first receiving a resolution of no confidence. The opposition, led by Tetsu Katayama, cried foul and declared that Article 69 should be the limit of the Cabinet’s power to dissolve the House. Allied GHQ, which still had military control of Japan at the time and which had written the new Constitution, sided with Katayama and the “69ers.”¹ It was a ripe situation for a constitutional law stand-off until Katayama’s side passed a resolution of no confidence, which allowed the dissolution and election to go forward. This became known as the nare-ai kaisan (馴れ合い解散) or “collusive dissolution.” Yoshida’s side won the ensuing election, and he held on to his seat for a few more years after that.

Then came the nuki-uchi kaisan (抜き打ち解散) or “surprise dissolution” of August 1952. The Occupation was over, Yoshida was still in charge of the government, and he was facing mounting challenges from Ichiro Hatoyama.² Yoshida decided to pull the trigger on a new election early, and had the Emperor issue a dissolution order “under Article 7.” The election went forward, and Yoshida’s faction won a sufficient number of seats to secure Yoshida another two years in office.

A few Diet members who lost their seats decided to challenge the validity of the election. The Supreme Court doesn’t hear “political questions,” though; it only hears actual disputes over physical or proprietary damages. So the Diet members structured their lawsuit as a suit against the government for lost pay, and cited the unconstitutional election as the illegal act which caused their financial injury. Unfortunately for anyone who wanted a clear view on the question, the lawsuit failed: the Supreme Court, in the rambling fashion typical of Japanese judges, held that dissolution of the Diet was ultimately a political question beyond the scope of judicial review.

Thus the question was settled without being settled. Today, nobody knows whether it’s really legal for the Cabinet to dissolve the Diet out of the blue. All we know is that nobody will stop them if they do so. Since 1952, the Emperor has continued to issue most dissolution orders under his Article 7 power, and the members of the Diet have faithfully followed every order.

* * *

¹ I find GHQ’s position very interesting. Being Americans, they may have envisioned Diet elections working much like Congressional elections in the US, where the executive is stuck with their legislature until the next fixed election cycle.

² At the time, he had just returned to the Diet after a five-year purge from politics by skittish Allied officials who thought he was an Imperial war machine collaborator. He was Yoshida’s main rival within the ruling Liberal Party (forerunner of the LDP) throughout the early fifties. It may have had something to do with the fact that Yoshida was Catholic and Hatoyama was Baptist. Either way, the rivalry ended up running in the family: Hatoyama’s grandson Yukio Hatoyama recently defeated Yoshida’s grandson Taro Aso to become Prime Minister.

Nine Days Left…

Curzon is pumped for the 2016 Olympics — I really hope Tokyo wins the big to host the Olympics, and the decision is to come out on October 2, just nine days away.

I gave an overview of the four candidate cities at ComingAnarchy more than a year ago, and I might as well share the background with MF readers as the date of decision approaches.

In June 2008, four candidate cities were chosen for the shortlist on when a complete “bid score” was issued to aid the decision-making process. The finalists: Tokyo, Madrid, Chicago, and Rio de Janeiro.

Shortlist:
+ Tokyo — score 8.3
+ Madrid — score 8.1
+ Chicago —score 7.0
+ Rio de Janeiro — score 6.4

Elminated Candidates:
+ Baku — score 4.3
+ Doha — score 6.9
+ Prague — score 5.3
(Doha received a higher score than Rio de Janeiro but was eliminated because it wanted to hold the games in October, not August.)

Here’s a brief overview, with more details from Wikipedia here.

Chicago
The last summer Olympic games to be hosted by the Americas was the 1996 Games in Atlanta, and Chicago has an extensive public transit system, a wide range of venues, and a strong sports culture. Five new venues and eleven temporary venues will be built for the games. Chicago is reported to be the strongest contender in terms of infrastructure, public support, and money, but is still deemed to be behind Tokyo and Madrid in the technical aspect.

Madrid
Madrid benefits from its strong reputation from the 2012 bid as well as having 85% of venues already in place and experience in hosting Olympic qualifying events. One potential problem is that no continent has hosted successive Summer Games since 1952, when Helsinki followed London as host city, and London is hosting the 2012 Summer Olympics and Sochi, Russia is hosting the 2014 Winter Olympics.

Rio de Janeiro
Rio de Janeiro boasts natural beauty and recently hosted the XV Pan American Games. International Olympic Committee head Jacques Rogge expressed eagerness to have either South America or Africa host the Games, as neither have ever served as hosts. However, it has a weak bid because of poor infrastructure and high crime rate.

Tokyo
Tokyo is touting “the most compact and efficient Olympic Games ever” with a setting on the shores of Tokyo Bay, refurbishing a run-down industrial area and reclaiming land from the bay, and stressing its “green” approach to plans. Tokyo boasts the highest technical score and has great infrastructure, but has the weakest public support of all candidates. Also, like Madrid, its bid is weakened by the recent regional hosting by Beijing.

Will Tokyo win because of its high score? Chicago because it’s “America’s turn”? Madrid because of its existing infrastructure? Or Rio de Janeiro because of continental favoritism/OIC “Affirmative Action”? Stay tuned, the decision is just nine days away.

Shizuka “Crusher” Kamei

Adamu from last week:

Shizuka Kamei has been appointed minister of postal issues and financial services. The man is a fierce, fierce fighter who likes to dredge up personal scandals using his ties as a former police official. That’s probably how he got the job. Now he’s going to make sure Japan Post remains the world’s biggest and possibly worst-managed bank and he’s going to crush regional banks by allowing all the people they lended money to stop paying for three years. Great.

Adamu didn’t elaborate at the time, this is what he was talking about: Kamei is pushing for a moratorium on loan repayments for small and medium-sized companies, and says this moratorium should last for three years. This would mean that small businesses with loans or credit lines from banks which cannot be repaid can avoid being pushed into bankruptcy by their creditors and basically demand a stay as a right. And -if- when banks have problems because they can’t collect the money that they loaned, Kamei thinks the government should step in with capital infusions to the banks. And on it goes, this thing of ours.

Let’s be clear that this is not the US cash infusion into/takeover of major institutions such as Citibank, AIG, and GM. The US directly acted on the belief that these companies were vital spokes to the superstructure of the economy, and their failure would be a disaster. (Exhibit A: “Lehman Shock.”) And Washington gained an enormous level of control in these takeovers that, while controversial, do give it a major say in how macro-management operates.

Kamei’s efforts to keep small companies afloat may look noble from the little guy’s perspective. But it’s woefully short-sighted. Small companies across Japan’s countryside that are having trouble making repayments should either restructure themselves, or fail and be restructured by creditors or new management. Many have antiquated management with regards to accounting, employment rosters, operational efficiency, supply chains, etc. Companies that can’t adapt to changed economic environments are supposed to fail. Yes, some good companies caught in unlucky times are destined to be caught in the current credit crunch as they are unable to repay loans and go bankrupt. But bankruptcy is a good thing! It is the engine of economic development that allows bad companies to fail, stifled talent to move elsewhere, assets to be sold at whatever price the market will bear, and bad management to be replaced. Yes, it sucks that people lose jobs and shareholders forfeit their investments, but that’s life! Letting this happen is a necessity for economic growth.

And on top of this, the poor local banks, only barely functioning after 15 years of treading water with the bad loan crisis, will now inevitably reduce their limited lending activities to nothing. There will be no money to lend, thus no local business growth or economic development, and thus no entrepreneurial activity. A short-term benefit for stabilized employment rates means the countryside gets screwed in the long term.

Adamu said that he hopes Kamei “simply collapses under his own weight. He may well overreach in a position that gives him barely any authority at all.” Indeed — Minister of Finance Fujii opposes the moratorium plan, saying that now is not the right time, to which Kamei responded “The Minister of Finance should stick to his own job.” And while the official party line is that the moratorium is an item of discussion, Kamei has said that the “three party union” is agreed on this issue. Also, legal jurisdiction over postal privatization resides with Minister of Internal Affairs Haraguchi, who said at a press conference on the 18th “I want to work together with Minister Kamei [on the postal privatization issue].” Kamei said in an interview afterwards, “I will handle post office privatization on my responsibility as we discuss going forward. I have no intention of including Minister Haraguchi on this.”

(Oh, and an endnote to point out how much of an idiot Kamei is, in waffling over his opposition to foreigners voting in local elections, he had this to say: “The ratio of resident foreigners differs by region. It would be unacceptable if worry and dissatisfaction arose in certain areas where Japanese are the minority and their personal will is not reflected in local politics.” The town with the largest percentage of foreign residents is Oizumi-machi in Gunma prefecture, with a 10% population of foreign nationals. If I reverse engineer his point to its logical conclusion, we should implement voting for foreigners in local elections immediately and reconsider it in a few decades when there is finally a town large enough to put Japanese people in the minority.)

Hopping back to Japan

I arrived back in Kyoto Wednesday night, after a one month trip to the US. During the three weeks at home in Montclair, New Jersey and the five days in San Francisco on the way back to Japan I kept my Internet usage to a minimum, did virtually no blogging, read a lot of books, ate and drank a lot, and generally had a vacation. Living in the suburbs of New York City, I naturally spend a lot of time there, and I noticed the following changes while I was back.

There are bike lanes all over Manhattan, and people biking all over the place.

The much heralded conversion of Times Square and sections of Broadway into pedestrian only zones actually happened.

Subway cars with modern electronic signage are gradually spreading. Of course, the MTA only introduced them when retiring cars that are too old to remain in service, so it may very well be another decade or two before they are ubiquitous.

I had never been to San Francisco before, and I was very impressed by the food and general atmosphere, and could easily imagine myself living in that climate year-round. The one slice of pizza I had, however, was an unmitigated disaster, not helped by the fact that it was 3am and I was walking the wrong direction. It was also a bit disconcerting, although not unwelcome, after having just been in the New York area, to be in a major American city where residents feel comfortable smoking marijuana in public, at any time of day and in any neighborhood, and even in front of the police.

Upon landing in Kansai International Airport, I noticed two new things.

First, that there is a dedicated line at immigration for reentry permit holders. Before the recent re-introduction of mandatory fingerprinting for entering foreigners, we re-entry permit holders had the unique right of being able to choose EITHER the Japanese citizen lines OR the foreigner lines, whichever was shorter. However, immediately after the institution of the electronic fingerprinting and facial photographing system, we were lumped in with the general foreigner population. But now, and I do not know when it started, we get our very own line. And while both Japanese and visiting foreigners were piled up 3o deep behind green and red ropes, with a solid wait ahead of them, I managed to glide through the yellow-roped corridor with only one person ahead of me and no more than four behind.

Second, that there are drug detection dogs crawling all over the baggage claim/customs area, and the PA system never shuts up reminding you that they don’t bite. While the dogs themselves are not particularly annoying and it is mildly interesting to watch them work as I wait for my luggage to come out, there is still something a bit uncomfortable about having ones person repeatedly inspected, even if only olfactorily. Needless to say, having just come from San Francisco, where-as I mentioned above-marijuana is basically legalized, I found it a particularly unwelcoming welcome back. While the increased dog inspections are obviously a product of Japan’s recent craze of 1950s-esque reefer madness, having such dogs at the border still feels a bit pointless since, as far as I have heard, all of the marijuana consumed in Japan is actually produced domestically up in Hokkaido and Tohoku, and not smuggled into the country.

Regardless, the convenience of the MK Shuttle and almost comical politeness of the engloved driver provided a sharp contrast to the mildly surly and heavily burly Russian or Eastern European immigrant that had driven my corresponding airport pickup shuttle service in San Francisco.

Showdown at Narita: JAL vs. Ugly Americans vs. the DPJ

Various media sources have been reporting that JAL is now the subject of a tug-of-war between Delta and American Airlines, both of whom are interested in taking a large minority stake in Japan’s largest airline. (Korean Air and Air France have also popped up as “angel investors” in some reports.)

Let’s start with some background.

This is the ex-Narita route map of Delta Air Lines following its acquisition of Northwest. Delta is the #3 carrier at Narita with about 330 flights/week, compared to JAL’s 870 and ANA’s 500.

Northwest, whose operations account for the vast majority of Delta’s combined total, was the first airline to serve Japan following World War II. It provided the technical assistance which was necessary for JAL to start up in the early 1950s, and it has maintained an Asian mini-hub in Tokyo since the immediate postwar era. Delta came into the picture much later: they flew a very odd Portland-Nagoya route for a while in the 1980s, then pulled out of Japan completely, then came back in the 90s with a daily Atlanta flight. While Northwest was well-entrenched with travel agents and corporate travel desks, Delta relied more on feed from its US and Latin American route network out of Atlanta.

Now that Delta has absorbed Northwest, American is the small fry among US carriers at Narita, with just 70 weekly flights in comparison to Delta’s 330, United’s 150 and Continental’s 80. Despite this, AA has great marketing in Japan and their brand is fairly well-known here. Their saving grace is an extensive partnership with JAL through the oneworld airline alliance: JAL sells tickets on AA transpacific and US domestic flights, while AA sells tickets on JAL transpacific, Asian and Japan domestic flights. The carriers also cooperate with each other’s mileage programs, so that one can get JAL miles by flying AA, and vice versa.

AA has been doing fairly well lately, at least as far as US “legacy” airlines go. It just raised a cool billion dollars by selling frequent flyer miles to Citibank, which will, in turn, be dishing out more and more AA miles to credit card holders in the future. It also has more efficient planes trickling in to replace older MD-80 models in its US domestic fleet, which will improve its overall fuel efficiency and make it more competitive with the likes of Southwest and JetBlue.

JAL, on the other hand, is a financial disaster. Its “equal merger” with Japan Air System, which was supposed to make it more competitive in the domestic market, ended up creating two tracks of unionized employees, aircraft and operational infrastructure within the company, and this dichotomy has still not been sorted out. JAL still has a smattering of international routes that it doesn’t really need, most of which date back to the postwar economic explosion when the government basically tried to get JAL to fly everywhere in the world, on top of the extensive ex-JAS network within Japan that generally doesn’t mesh with the international network at all. On top of that, it has a huge, disorganized and fuel-hungry fleet of planes, and no money to swap them all out for a more streamlined fleet. JAL today looks a lot like Pan Am did in the 80s, and we all know what happened to Pan Am.

The Ministry of Land, Infrastructure and Transport has been pressing JAL to tie up with Delta for a few months now, according to media reports. Its reasoning is that the two carriers can code share, fill each other’s empty seats and tacitly cede certain markets to each other’s flight operations, much as JAL and American do now. Since Delta has many more routes from Narita, and significant overlap with JAL’s route network, turning the two competitors into allies would help JAL’s finances and justify some level of public funding to keep them afloat. Or at least, that was MLIT’s reasoning as of Taro Aso’s last day in power: New Transport Minister Seiji Maehara is being mum about the situation and implying that the Development Bank of Japan and private financial institutions may be on their own in financing a turnaround plan.

Delta has its own initiative to throw money on the table, and Delta’s interest basically explains American’s interest. I’ll let Cranky Flier, one of my favorite aviation bloggers, explain:

My guess is that [Delta’s Asian routes out of Narita] absolutely suck wind right now. If Delta is really losing a ton of money as I suspect, they could eliminate all those routes and either use the slots to fly to the US or transfer them to JAL. The additional connectivity in Tokyo that they could gain from this link-up would add a bunch more traffic to feed all that US-Tokyo flying Delta does now. (You people in Portland could breathe a sigh of relief, because this could probably help that flight come off the edge of the cliff.)

This move could make a big, immediate difference on the bottom line. If Delta can pour some money in but get it back out very quickly in the form of improved profits, then it’s a no-brainer. …

Of course, if JAL leaves, oneworld loses, so American has now come back with its plan to invest in JAL.

To this, I would only add that although Delta has inherited Northwest’s excellent sales and operational staff in Tokyo, Delta has not been making much effort to publicize its acquisition of Northwest here, except through a few ads here and there that are apparently direct translations of the ads they use in the US. This indicates to me that they are not particularly interested in developing their brand in Japan, despite the fact that it is now their most important overseas market. It’s much easier, from Delta’s perspective, to let JAL sell seats out of Japan under its own brand.

Some analysts and reporters have also raised the topic of Haneda slots, with very little clarification as to why Delta would care about Tokyo’s downtown, mostly-domestic airport. As many MFT readers know already, the Japanese government is slowly making Haneda more international. They are building a new international terminal and have started the legal documentation necessary to allow nonstop service from Haneda to Southeast Asia, Europe and other new destinations, primarily during late-night and early-morning hours when Narita is closed. The United States is not on the table yet, but many observers believe that an “open skies” treaty to open the aviation market between Japan and the US is long overdue, and with that treaty would come the ability to serve Haneda from the US. The most interesting aspect of Haneda for trans-pac flyers is that it will be open 24 hours, potentially allowing early morning or late-night flights between Tokyo and the West Coast that wouldn’t eat up a working day on either side of the ocean. Delta and American should both have an interest in such a service, especially if they can be assured of good domestic feed within Japan out of Haneda, which JAL is best positioned to provide.

It won’t be an easy ride, though. Whoever bails out JAL will have to sort through their mess of operational issues in order to get some return on the investment.

New DPJ cabinet is NOT totally awesome–the counterview to “Change We Can Believe In” irrational exuberance

Adamu is totally pumped about the new DPJ cabinet. You won’t be surprised to hear that I’m underwhelmed by Hatoyama’s sausage fest of a government, full of elected politicians with precious little experience in government, and incorporating no experience from the private sector.

That being said, we agree on the basics. PM Hatoyama should be applauded for appointing Messrs. Fujii and Okada, respectively as Ministers of Finance and Foreign Affairs, making sure that adults are heading the most important positions. The appointment of social policy progressive Keiko Chiba as Minister of Justice is interesting and probably a positive move. I look forward to seeing how she fares in promoting her liberal policies noted in Adamu’s post, which would probably be for the better of the country, although realistically, I have low expectations on her accomplishing anything. Kamei Shizuka is just awful in the position of the Financial Services Agency, and we can only hope that he has some sort of Makiko Tanaka-esque failure.

But then let’s get to what we disagree on. Kan Naoto has fortunately been placed in a senior position where is only role is waffling about policy. The DPJ and Kan have tried to polish his reputation by endlessly unearthing the fact that he on breaking open the AIDS blood transfusion scandal. But a more objective view would note that he was at the helm of the Ministry of Welfare and Labor when the pension fiasco began, he tried to target LDP politicians for not paying into the national pension program with Gingrich-esque hubris when he himself wasn’t paying into the pension program himself.

Seiji Maehara, a hawkish DPJ faction leader who in some ways is philosophically closer to the LDP reform wing, has been appointed to lead the Ministry of Land, Infrastructure and Transport (and Tourism!) and has started out be reasserting the DPJ’s promise to cancel all dam projects, including the Yamba Dam project that has already gone through more than 300 billion yen of its 400 billion budget. The DPJ’s rejection of new projects is understandable; it’s refusal to approval the completion of projects that are done is just barmy — especially as the governors of Tokyo and Gunma, which have paid for part of the budget, are preparing litigation against the government to get back the money invested from their prefectural budgets, which they seem very likely to win.

Then there’s pension policy wonk Akira “Mister Nenkin” Nagatsuma (actually his real nickname) appointed as Minister of Health and Welfare. He was expected to be a vice minister for just pensions and yet has been appointed to run the whole ministry. The scene yesterday at his appointment was fascinating — outgoing LDP Minister Yoichiro Masuzoe gave his farewell address and was greeted by applause by the bureaucrats. Nagatsuma’s entrance was met with stony silence and shallow bows, which he answered by saying in his address that he was going to “purge the ministry of grime and pus.”

Nagatsuma’s post will probably be the ongoing test ground for the DPJ’s anti-bureaucrat stance: how can a minister who has spent the past years eviscerating the bureaucrats now effectively manage them? At least Tommy Carcetti understood the importance of co-opting people inside the institutions he had to change. The DPJ is going to need the help of the bureaucrats to effect the reforms they want to carry out.

The rest of the cabinet is hard to gauge because few have previous experience or much of a public reputation. The one other startling fact is the lack of private sector expertise. The Constitution of Japan only requires that a simply majority of the cabinet ministers be an elected member of either the upper or lower house. Koizumi was especially noticeable for bringing in private sector know-how to the cabinet. That is noticeably absent in the “mock-Westminster system” that the DPJ is advocating, for indiscernible reasons.

Hatoyama enters office with 75% approval ratings, numbers that are matched only by Koizumi in 2001. I would wager that they are at around 30% a year from now.

New DPJ cabinet is almost totally awesome

First, the bad news. Shizuka Kamei has been appointed minister of postal issues and financial services. The man is a fierce, fierce fighter who likes to dredge up personal scandals using his ties as a former police official. That’s probably how he got the job. Now he’s going to make sure Japan Post remains the world’s biggest and possibly worst-managed bank and he’s going to crush regional banks by allowing all the people they lended money to stop paying for three years. Great.

As I just commented over at Observing Japan’s assessment of the new lineup, I hope Kamei simply collapses under his own weight. He may well overreach in a position that gives him barely any authority at all. If any place should be safe from unwise political meddling, it’s the FSA which has SEC-like regulatory and law enforcement authority over all financial services institutions.

Otherwise, not a bad lineup. Though Time Magazine posits Ozawa as a “shadow shogun” (reflecting the “Ozawa is the real one in charge” theme trotted out by both Nikkei and Yomiuri, who are wary of a DPJ administration) the cabinet reflects a wide sampling from the party including people not so close to Ozawa, like finance minister Hirohisa Fujii who was an early voice calling for Ozawa to step down over the Nishimatsu political funds scandal.

Asahi had an interesting section listing some of the human side of each new minister. I reproduce some of it here:

Foreign Minister Katsuya Okada has a giant frog collection. I have heard it from an eyewitness that it’s really huge. Not sure if any of them are mutant.

The above-mentioned Kamei Shizuka is a sixth-degree black belt in aikido and has held exhibitions of his oil paintings.

Naoto Kan, head of the National Strategy Bureau, was DPJ president in 2004 when he was going after LDP politicians for failing to pay into the national pension system (a duty for all residents in Japan, including yours truly). When it was found that Kan himself failed to make his payments, he was forced to resign in shame. To get over the shock of the whole series of events, he decided to shave his head and make the traditional pilgrimage to 88 Buddhist temples in Shikoku.

Justice minister Keiko “Sonny” Chiba (not really her nickname) is a former Socialist Party member who’s against the death penalty, for dual citizenship, and pro letting women choose whether to take their husband’s names when they get married. The trifecta of policies I’ve been waiting for! There is no news that the DPJ plans to abolish the death penalty, but for the time being this election appears to have saved the life of Shoko Asahara, Tokyo subway sarin attack mastermind and Japan’s most famous blind cult leader/death row inmate (and my neighbor at nearby Tokyo Detention Center).

Social Democratic Party leader and consumer affairs, birthrate, and gender equality minister Mizuho Fukushima is not only a lawyer and former TV commentator, she is a huge Miyazaki fan and serves as a judge to select the Nikkan Sports film prizes, the top honors of which in 2007 went to “Even So, I Still Didn’t Do It” about a man wrongly accused of train groping.

Hirotaka Akamatsu, agricultural minister, was once a flight attendant in the 70s. One flight was hijacked by the PLO and he had to help negotiate with the terrorists in English.

Administrative reform minister Yoshito Sengoku had his stomach removed in 2002 due to cancer.

These two didn’t make it into the cabinet (this time), but I think it’s safe to say DPJ upper house member Ren Ho (who Ikeda Nobuo thinks would make a good press secretary) and “cosplay erotica writer” turned newly elected DPJ lower house member Mieko Tanaka are the two best-looking women in the Diet right now:

Handle with care, indeed.