Three big stories out of Japan: nuclear, elections and out of control bonds

When everyone’s zigging, sometimes it’s fun to zag.

So let’s pivot from the world’s least-populated territory and largest island (Greenland), down to an island one sixth the size but 13,000 times more densely populated… Japan.

And to add a little pizzazz, let’s do it by numbers: 

• 5

That’s how many hours the world’s largest nuclear power plant (Kashiwazaki-Kariwa) lasted on Wednesday night before Japan’s authorities had to switch it back off again!

In its heyday, Kashiwazaki-Kariwa’s seven operational reactors had a total capacity of 8 gigawatts — that’s enough to power ~Finland, or an ambassador’s sense of self-satisfaction.

But more than a decade after shuttering all 50+ of its nuclear reactors post-Fukushima, Japan now wants to bring this mega-plant back online. Why? Some 80% of its energy now comes from coal, oil, and gas, imported via sea lanes looking more contested every day.

But for several reasons revealed on Wednesday night, it’s not so simple:

First, the tech: you don’t switch this back on like it’s an Xbox. Authorities switched reactor #6 back on around 7pm, but a malfunction alarm was already sounding by midnight.

Second, the public: to manage the divisions, authorities are going slow, with nearby reactor #7 not scheduled to switch back on until at least 2030 (the rest remains TBC).

And a related third, the optics: Tokyo’s post-Fukushima pause was to reassure everyone this nuclear tech is in safe hands, but there’ve been some Looney Tunes-level mess-ups, whether via the worker who drove off with a stack of sensitive docs on his car roof, or the security phone someone lost in Shanghai, or the falsified seismic data at Hamaoka.

And it’s all coming at a tough time, because…

• 1

That’s the size of Prime Minister Takaichi’s House majority, which is why she’s officially dissolved parliament today (Friday) for snap elections in just over two weeks.

That might seem a bold move given her Liberal Democratic Party (LDP) predecessor suffered a historic defeat just six months ago. But she’s hoping her sky-high approval (~mid 70s) will help parlay this election into a stronger mandate and wider majority. Tactically, the short campaign also gives the opposition less time to organise.

Still, her gambit has further rattled markets, leading to…

• 31

That’s how many years since any Japanese bond yield last surpassed 4% — ie, lenders now want more reward to carry what they see as more risk in Japan’s finances. Why?

Takaichi paired her snap election with plans to suspend Japan’s 8% consumption tax on food for two years — it’s a naked appeal to voters worried about living costs, but it’ll cost ~$64B in revenues for a country already sitting at a hefty 260% debt-to-GDP ratio.

By way of comparison, Greece topped out at 206% during its debt crisis, though it’s worth noting Japan’s fiscal position gets bonus sustainability via a) more domestic ownership, b) lower rates, and c) the yen’s reserve currency status. But still, the Bank of Japan seems to have entered the market to defend the yen today.

And it was enough for Citadel CEO Ken Griffin to tell Davos: “I think that what happened in Japan is a very important message to the House and to the Senate: You need to get our fiscal house in order.”

Intrigue’s Take

There are so many reasons to watch Japan’s February 8th elections closely, but one of the biggest is actually China! You’ll recall after the hawkish Takaichi answered a November question in the Diet by observing that any full-scale China invasion of Taiwan could be a “survival-threatening situation” for neighbour Japan, China went postal:

• A PRC diplomat seemingly threatened to behead Japan’s PM
• China’s tourism ministry warned its citizens against visiting Japan
• China’s commerce ministry slapped a broad dual-use export ban, and
• China’s mass Taiwan military drills were partly also a warning to “external forces”.

The idea was to impose costs on Takaichi’s remarks, and undermine her more hawkish premiership before it could find its feet amid Japan’s political instability.

But aside from the curious sight of rehearsing an invasion to condemn Japan’s militarism, China’s response might’ve backfired: not just because Japan’s voters have now driven Takaichi’s approvals to some of the highest levels in decades (up there with Abe and even Koizumi), but because even Japan’s new ‘Centrist Reform Alliance’ opposition just revealed its platform Monday, likewise pledging “a firm response to concerns over China”.

To put it another way, China’s punitive approach might’ve achieved little more than the wholesale hardening of Japanese sentiment. And in the process, Japan’s relatively calm approach might’ve left Beijing looking, per the Mandarin idiom, like a guy arguing alone.