Japan

Kim sends more firecrackers across Japan that could hit Guam

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This cannot continue. Another missile fired across Japan’s shores. This missile flying 3,700km. Guam is technically in range by that measure. As I said on The Bolt Report, Kim’s technology will get to a point where he can become a serious threat. Taking out the threat before it gets even more capable is the only credible option. Even more biting UN sanctions haven’t stopped his quest to launch more missiles in utter defiance. My key thought is that China will be coerced into forcing regime change. It cannot afford to lose the strategic buffer North Korea provides but it can even less afford US military action on its back door. Unilateral action by China will not be frowned on by the majority of the rest of the world if Kim Jong Un is neutered.

Some discussions have also questioned whether he lobs missiles over Tokyo airspace. The danger here is a failure through dense commercial air traffic lanes. In any event the world community can’t sit by and let this oppressive regime continue a weapons program to use for extortion. Trump was on a morning breakfast program yesterday discussing North Korea where he effectively said for “China to start taking action”.

As I wrote last week, Japan’s entire Aegis destroyer fleet from Maizuru is at sea. They carry the SM-3 anti-ballistic missile system. Japan cannot take North Korea’s actions as anything other than the gravest threat to national security.

This crisis has to have an ending. It can only be Kim Jong Un’s. Watch China’s movements closely from here. They’re reaching breaking point on strategy.

Alfa Romeo Giulia launch in Tokyo

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You have to hand it to the Italians for design and flair. Fiat Chrysler Automobiles (FCA) launched its new Alfa Romeo Giulia model in Tokyo tonight. It is a car I’ve long been fond of given my father owned a 1970s version. In Japan FCA sales have almost quadrupled in 10 years to over 20,000 cars. Chrysler/Jeep sales are up 10x over that period as well. American cars have always struggled in Japan for the obvious reasons of narrow streets being unsuitable for Yank tanks. Jeep has put one of its cars on a photocopier and shrunk it for Japan. Boom. Target client needs and away you go. FCA CEO Pontus Haggstrom has steered the company for the lst 9 years to turn it into the fastest growing foreign brand in Japan. Impressive.

The thing I loved most about the new Giulia Quadrifoglio is that it hasn’t been built in a gluten-free multi-ethnic factory which has one eye on Johnny Polarbear. It is pure noise, speed and emotion. As the head of design said, “we want a car that rules the heart not the head”. Too true. No wonder the tag line of Alfa is “la meccanica delle emozioni’.

Kim’s pulse will be electromagnetic if he picks the wrong target

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Electromagnetic Pulse (EMP) is the latest buzzword coming from North Korea. The subject of EMP was revealed in James Bond 007 GoldenEye when Xenia Onnatop stole a helicopter and helped detonate ‘Petya’ over Sevrenaya. Anything with an electric circuit would be rendered unusable. Japanese breakfast programs were talking about what EMP might do if Kim Jong Un detonated a nuke at low altitude. Don’t forget the bomb dropped on Hiroshima exploded at 500ft. The impacts are greater.

The reality of EMP is more relevant in space. Much of the US military backbone comes from a vast array of spy and military satellites which help smart bombs and cruise missiles hit targets with such precision and connectivity between land, sea and sky. Much of the modern US satellite hardware is EMP resistant but it isn’t “bulletproof” to space junk. If Kim was able to detonate a nuke in space it could knock out some of the network. Apart from the billions invested in satellites we need to understand just how seriously America regards space as a sanctuary. Around 5 years ago the Chinese fired a missile to shoot down one of their older satellites. Apart from the advancement in Chinese technology which was of concern to the US it was also the amount of space junk from floating schrapnel that could damage US assets in space. If Kim hits satellites in low orbit he also risks taking out Russian and Chinese satellites too.

Remember when Reagan spoke of Star Wars in the 1980s? The point to weaponise space such that rogue enemy ICBMs could be taken out in the outer atmosphere.

The point here is simple. Should Kim threaten to drop an H-Bomb on Tokyo he leaves such a massive exposure to himself. US satellites remain active and he would be squashed in no time by military reprisals. There would be no way that China could stand by and back him were he to make such an attack.

The more disturbing point here is that he is rattling a sabre which is bearing ever closer to a line where the West is forced to take action to prevent his rogue status from having proper fangs. War on the Korean Peninsula is not an impossibility and the more the US chain is yanked the higher the likelihood action is taken. Markets aren’t pricing this.

Abe’s “Trump” card will be more effective than the UN

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The Japanese newspaper front pages are all splashed with the latest North Korean nuke test. Japanese PM Shinzo Abe has to quit asking the UN to step up sanctions. That is a purely optical illusion. Kim Jong Un is playing a different game. He doesn’t care. Trump is Abe’s only viable card to get Japan out of this long term mess. If Kim does possess the H-bomb it is clear that he intends to exploit his new toy box to snub his critics and take even harder lines to extort money.

While war is the least desired outcome, Kim must be careful not to bring down his own demise. Obama was the first US president Kim had direct exposure to but he would be wise to treat Trump as completely different. Trump maybe willing to remove the cancer that many presidents before haven’t. The sad reality is that having a 33yo dictator who subjugates his people like his father and grandfather before with such disdain has little to lose.

Getting a capable nuclear arsenal is not desired. It is clear he’d be willing to sell his technology to other tinpot dictatorships to top up the DPRK’s coffers. This has been done before when Israel blew up Syria’s North Korean derived and supplied nuclear facility in 2007.

China seems to be having less impact on young Kim. This should worry them.  China is the economic lifeblood of North Korea. The geopolitical buffer is a strategic must for China. There must be some circles calling for it to be turned into a Chinese protectorate. A Chinese led regime change where Kim Jong Un is granted an exile is a far better outcome than allowing US forces led strike to take it over

Although China may threaten to support Kim if the US preemptively strikes to topple the regime, they have said Kim’s on his own if he does anything stupid.

Kim isn’t stupid. However he is playing a very dangerous game of chicken with a player who realizes that this nuclear arsenal investment has to be stopped. It isn’t a question of if but when.

The idea that conflict can’t or won’t break out on Korean Peninsula is naive. Recall that the Korean War was never officially ended. Gut instincts suggest that if anyone is to take heavy handed action it is the Chinese that must do so. Beijing must also be wary of calling Trump’s bluff.

Abe’s sleepless nights won’t end until something definitive happens to North Korea. It is fraught with many risks but doing nothing now is the riskiest of all strategies over the long run. The UN is unlikely to achieve anything. Besides if they devoted even a slither of the energy and time they do to beat up Israel  one might have confidence in sanctions. Sadly too many vested interests with North Korea

Forget North Korea. Japan is more worried about China & Russia

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What many are probably unaware of is the changing nature of Japan’s threats in the region and how it isn’t just North Korea. Russia and China have aggressively stepped up their activity in aand around Japan’s territorial waters. In June last year I noted the sharp jump in aircraft and naval activity here.

If you refer to the Japanese Self Defence Force (SDF) White Papers it is clear that the current softly softly approach is completely incompatible with its defence needs. Unbeknownst to many Japan converted its SDF from an agency reporting to the PM to a full blown ministry which can apply for its own funding.

Japan is quickly developing its SDF to be ‘dynamic’ as opposed to ‘passive’. It’s security issues demand it. The latest SDF White Paper can be found here.

 

The concern is the risk of Kim Jong Un missing the target

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At 6am this morning North Korea conducted a missile test which flew between Hokkaido and Japan’s main island Honshu. The real question is not so much the capability of his missiles but their short comings. The reality is a reasonable failure rate (c.33% in the past 3 years alone) has a high level of risk attached to it, especially when sending them over Japanese land. While most failures have been at the launch pad stage, the risk is that should the tracking and guidance systems fail mid flight over Japan even without warheads, considerable damage could be inflicted. Japan said it would shoot down such test missiles when Trump was threatening to intervene several months back but clearly swerved first in this game of chicken.

While Kim Jong Un’s technology is undoubtedly improving, the risk is that eventually it will reach a stage where he can be a belligerent imp with real capability. Up til now his armaments have been relatively crude. The sanctions put on the $12bn economy, mostly China, are biting. These missile tests would undoubtedly be costing Kim a relative bomb (no pun intended) to conduct. Still allowing his people to suffer isn’t a priority. The saber rattling is no different to his father and grandfather before him. Fire a few missiles, threaten others and get a cash injection to shut up and then go away.

Unfortunately this game of geopolitical chess gets worse as his capability gets better. He has nothing to lose whereas his neighbours stand to suffer relatively catastrophic downside. Tokyo is 125x larger in GDP terms than NK. Seoul 68x.

Does he intend to point one at Tokyo, Seoul, Guam or even Washington DC when he has the capability? This argument that a pre-emotive strike on North Korea won’t happen is getting weaker. China knows its strategic value as a buffer to the US. Bribing Pyongyang by buying its ginseng and coal is a cheap form of diplomacy. Beijing’s stance last month was telling. If the US preemptively strikes China will defend Kim. If Kim does anything stupid then he’s on his own.

Still if you know your enemy will eventually get to the stage it can physically harm you and threatens to do so it makes perfect sense militarily to eliminate the threat before it eventuates. After the capability is reached  the risks are factorfold higher. So for every argument that says conflict won’t happen (odds favor it not) the smarter bets will begin to ponder the growing chance something does.

Korean 5yr CDS have jumped 4bps to 62 today, still below the 70 during last month and well below Kim Jong Un’s first missile test at 120bps. GFC was around 700bps. So markets aren’t panicked just yet but gold back over $1300/oz is pricing it gets worse.

Don’t rule out a modern day Gulf of Tonkin incident. With each of these tests, electronic interference (cyber attack) could be a factor. To justify a retaliatory attack, guiding these missiles to hit a remote paddyfield in Aomori or inside Japan’s territorial waters is possible. China must be concerned about this. Electronic warfare is getting seriously capable. Remember when the Iranian centrifuges mysteriously blew up due to the Stuxnet virus? The virus told the centrifuge computers to spin the motors well above design tolerance such that they exploded.

Conspiracy theory maybe but geopolitics is a dirty game with huge long term implications and the rules are that there are none. Kim’s preemptive strike might not start with his finger on the button.

Australia vs Japan – Coca Cola Index

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Whenever buying a Coke in Australia it is hard not to notice the exorbitant prices for a 500ml bottle – usually around $4. Here in parts of Japan you can pick up a 500ml Coke for less than $1. In convenience stores 500ml Coke sells for ¥129 or around $1.50. Either way Japan is a bargain basement country which is often contrary to expectations.