Saturday, January 7, 2012

Japan's Lost Decade? - Facts which deconstruct the myth

Despite some small signs of optimism about the United States economy, unemployment is still high, and the country seems stalled. Time and again, Americans are told to look to Japan as a warning of what the country might become if the right path is not followed, although there is intense disagreement about what that path might be.

Here, for instance, is how the CNN analyst David Gergen has described Japan: “It’s now a very demoralized country and it has really been set back.”

But that presentation of Japan is a myth. By many measures, the Japanese economy has done very well during the so-called lost decades, which started with a stock market crash in January 1990. By some of the most important measures, it has done a lot better than the United States.

Japan has succeeded in delivering an increasingly affluent lifestyle to its people despite the financial crash. In the fullness of time, it is likely that this era will be viewed as an outstanding success story.
How can the reality and the image be so different? And can the United States learn from Japan’s experience?

It is true that Japanese housing prices have never returned to the ludicrous highs they briefly touched in the wild final stage of the boom. Neither has the Tokyo stock market.

But the strength of Japan’s economy and its people is evident in many ways. There are a number of facts and figures that don’t quite square with Japan’s image as the laughingstock of the business pages:

  • Japan’s average life expectancy at birth grew by 4.2 years — to 83 years from 78.8 years — between 1989 and 2009. This means the Japanese now typically live 4.8 years longer than Americans. The progress, moreover, was achieved in spite of, rather than because of, diet. The Japanese people are eating more Western food than ever. The key driver has been better health care.
  • Japan has made remarkable strides in Internet infrastructure. Although as late as the mid-1990s it was ridiculed as lagging, it has now turned the tables. In a recent survey by Akamai Technologies, of the 50 cities in the world with the fastest Internet service, 38 were in Japan, compared to only 3 in the United States.
  • Measured from the end of 1989, the yen has risen 87 percent against the U.S. dollar and 94 percent against the British pound. It has even risen against that traditional icon of monetary rectitude, the Swiss franc.
  • The unemployment rate is 4.2 percent, about half of that in the United States.
  • According to skyscraperpage.com, a Web site that tracks major buildings around the world, 81 high-rise buildings taller than 500 feet have been constructed in Tokyo since the “lost decades” began. That compares with 64 in New York, 48 in Chicago, and 7 in Los Angeles.
  • Japan’s current account surplus — the widest measure of its trade — totaled $196 billion in 2010, up more than threefold since 1989. By comparison, America’s current account deficit ballooned to $471 billion from $99 billion in that time. Although in the 1990s the conventional wisdom was that as a result of China’s rise Japan would be a major loser and the United States a major winner, it has not turned out that way. Japan has increased its exports to China more than 14-fold since 1989 and Chinese-Japanese bilateral trade remains in broad balance.

As longtime Japan watchers like Ivan P. Hall and Clyde V. Prestowitz Jr. point out, the fallacy of the “lost decades” story is apparent to American visitors the moment they set foot in the country. Typically starting their journeys at such potent symbols of American infrastructural decay as Kennedy or Dulles airports, they land at Japanese airports that have been extensively expanded and modernized in recent years.

William J. Holstein, a prominent Japan watcher since the early 1980s, recently visited the country for the first time in some years. “There’s a dramatic gap between what one reads in the United States and what one sees on the ground in Japan,” he said. “The Japanese are dressed better than Americans. They have the latest cars, including Porsches, Audis, Mercedes-Benzes and all the finest models. I have never seen so many spoiled pets. And the physical infrastructure of the country keeps improving and evolving.”

Why, then, is Japan seen as a loser? On the official gross domestic product numbers, the United States has ostensibly outperformed Japan for many years. But even taking America’s official numbers at face value, the difference has been far narrower than people realize. Adjusted to a per-capita basis (which is the proper way to do this) and measured since 1989, America’s G.D.P. grew by an average of just 1.4 percent a year. Japan’s figure meanwhile was even more anemic — just 1 percent — implying that it underperformed the United States by 0.4 percent a year.      


 A look at the underlying accounting, however, suggests that, far from underperforming, Japan may have outperformed. For a start, in a little noticed change, United States statisticians in the 1980s embarked on an increasingly aggressive use of the so-called hedonic method of adjusting for inflation, an approach that in the view of many experts artificially boosts a nation’s apparent growth rate.

On the calculations of John Williams of Shadowstats.com, a Web site that tracks flaws in United States economic data, America’s growth in recent decades has been overstated by as much as 2 percentage points a year. If he is even close to the truth, this factor alone may put the United States behind Japan in per-capita performance.

If the Japanese have really been hurting, the most obvious place this would show would be in slow adoption of expensive new high-tech items. Yet the Japanese are consistently among the world’s earliest adopters. If anything, it is Americans who have been lagging. In cellphones, for instance, Japan leapfrogged the United States in the space of a few years in the late 1990s and it has stayed ahead ever since, with consumers moving exceptionally rapidly to ever more advanced devices.

Much of the story is qualitative rather than quantitative. An example is Japan’s eating-out culture. Tokyo, according to the Michelin Guide, boasts 16 of the world’s top-ranked restaurants, versus a mere 10 for the runner-up, Paris. Similarly Japan as a whole beats France in the Michelin ratings. But how do you express this in G.D.P. terms?

Similar problems arise in measuring improvements in the Japanese health care system. And how does one accurately convey the vast improvement in the general environment in Japan in the last two decades?
Luckily there is a yardstick that finesses many of these problems: electricity output, which is mainly a measure of consumer affluence and industrial activity. In the 1990s, while Japan was being widely portrayed as an outright “basket case,” its rate of increase in per-capita electricity output was twice that of America, and it continued to outperform into the new century.

Part of what is going on here is Western psychology. Anyone who has followed the story long-term cannot help but notice that many Westerners actively seek to belittle Japan. Thus every policy success is automatically discounted. It is a mind-set that is much in evidence even among Tokyo-based Western diplomats and scholars.

Take, for instance, how Western observers have viewed Japan’s demographics. The population is getting older because of a low birthrate, a characteristic Japan shares with many of the world’s richest nations. Yet this is presented not only as a critical problem but as a policy failure. It never seems to occur to Western commentators that the Japanese both individually and collectively have chosen their demographic fate — and have good reasons for doing so.

The story begins in the terrible winter of 1945-6, when, newly bereft of their empire, the Japanese nearly starved to death. With overseas expansion no longer an option, Japanese leaders determined as a top priority to cut the birthrate. Thereafter a culture of small families set in that has continued to the present day.

Japan’s motivation is clear: food security. With only about one-third as much arable land per capita as China, Japan has long been the world’s largest net food importer. While the birth control policy is the primary cause of Japan’s aging demographics, the phenomenon also reflects improved health care and an increase of more than 20 years in life expectancy since 1950.      

Psychology aside, a major factor in the West’s comprehension problem is that virtually everyone in Tokyo benefits from the doom and gloom story. For foreign sales representatives, for instance, it has been the perfect get-out-of-jail card when they don’t reach their quotas. For Japanese foundations it is the perfect excuse in politely waving away solicitations from American universities and other needy nonprofits. Ditto for the Ministry of Foreign Affairs in tempering expectations of foreign aid recipients. Even American investment bankers have reasons to emphasize bad news. Most notably they profit from the so-called yen-carry trade, an arcane but powerful investment strategy in which the well informed benefit from periodic bouts of weakness in the Japanese yen.

Economic ideology has also played an unfortunate role. Many economists, particularly right-wing think-tank types, are such staunch advocates of laissez-faire that they reflexively scorn Japan’s very different economic system, with its socialist medicine and ubiquitous government regulation. During the stock market bubble of the late 1980s, this mind-set abated but it came back after the crash.

Japanese trade negotiators noticed an almost magical sweetening in the mood in foreign capitals after the stock market crashed in 1990. Although previously there had been much envy of Japan abroad (and serious talk of protectionist measures), in the new circumstances American and European trade negotiators switched to feeling sorry for the “fallen giant.” Nothing if not fast learners, Japanese trade negotiators have been appealing for sympathy ever since.

The strategy seems to have been particularly effective in Washington. Believing that you shouldn’t kick a man when he is down, chivalrous American officials have largely given up pressing for the opening of Japan’s markets. Yet the great United States trade complaints of the late 1980s — concerning rice, financial services, cars and car components — were never remedied.

The “fallen giant” story has also even been useful to other East Asian nations, particularly in their trade diplomacy with the United States.

A striking instance of how the story has influenced American perceptions appears in “The Next 100 Years,” by the consultant George Friedman. In a chapter headed “China 2020: Paper Tiger,” Mr. Friedman argues that, just as Japan “failed” in the 1990s, China will soon have its comeuppance. Talk of this sort powerfully fosters complacency and confusion in Washington in the face of a United States-China trade relationship that is already arguably the most destructive in world history and certainly the most unbalanced.

Clearly the question of what has really happened to Japan is of first-order geopolitical importance. In a stunning refutation of American conventional wisdom, Japan has not missed a beat in building an ever more sophisticated industrial base. That this is not more obvious is a tribute in part to the fact that Japanese manufacturers have graduated to making so-called producers’ goods. These typically consist of advanced components or materials, or precision production equipment. They may be invisible to the consumer, yet without them the modern world literally would not exist. This sort of manufacturing, which is both highly capital-intensive and highly know-how-intensive, was virtually monopolized by the United States in the 1950s and 1960s and constituted the essence of American economic leadership.
Japan’s achievement is all the more impressive for the fact that its major competitors — Germany, South Korea, Taiwan and, of course, China — have hardly been standing still. The world has gone through a rapid industrial revolution in the last two decades thanks to the “targeting” of manufacturing by many East Asian nations. Yet Japan’s trade surpluses have risen.

Japan should be held up as a model, not an admonition. If a nation can summon the will to pull together, it can turn even the most unpromising circumstances to advantage. Here Japan’s constant upgrading of its infrastructure is surely an inspiration. It is a strategy that often requires cooperation across a wide political front, but such cooperation has not been beyond the American political system in the past. The Hoover Dam, that iconic project of the Depression, required negotiations among seven states but somehow it was built — and it provided jobs for 16,000 people in the process. Nothing is stopping similar progress now — nothing, except political bickering.



http://www.nytimes.com/2012/01/08/opinion/sunday/the-true-story-of-japans-economic-success.html?_r=1

How the Japanese Media Works

It was perhaps the biggest financial story of postwar Japan — or it should have been.Yamaichi Securities, one of the nation's four top brokerages, which was among the world's six largest in the 1980s, had in 1992 started to illegally bury millions of dollars in red ink off the books, setting up dummy foreign companies to absorb the losses. For good measure, its bosses were paying off sōkaiya (corporate extortionists) to stop them blowing the whistle on this practice.

In 1994, though, after weeks of old-fashioned digging and trawling through financial statements, journalist Shigeo Abe had the scoop of a lifetime — he and a team of reporters uncovered the entire mess.

But instead of running the story with banner headlines, Abe says his bosses at the Nikkei newspaper spiked it, sent him out of the country and allowed Yamaichi to stagger on for another three years.
Yamaichi would eventually collapse in 1997, leaving creditors and taxpayers saddled with more than ¥300 billion in debt. Live on television, President Shohei Nozawa famously made a tearful apology to the nation for the company's losses. There was no mea culpa from the Nikkei.

"If we had published the story, the result for Yamaichi shareholders and people connected with the company might have been very different," says Abe today, a quietly spoken, casually dressed 63-year-old. He recalls his bewilderment, then anger, as he watched his painstakingly built story buried by a single phone call.

"The story was ready to go when it was stopped. The Yamaichi president had called the Nikkei president and pressured him to not run it. He said: 'If we go bankrupt it will cause chaos in the economy.' And that was that."

A few months later, Abe was sent to the Nikkei's office in London, a kind of five-star exile, he believes, likening it to shimanagashi, the feudal practice of sending political troublemakers away to live on remote islands. During his three years abroad, he pondered his chosen profession.

"There are no real scoops in Japanese newspapers," he says. "They are almost always authorized leaks. I wondered about whether I wanted to work for a company that only reported problems that didn't damage its business."

When he returned to Tokyo in 1997, the 25-year veteran quit and began working for the weekly press, eventually founding the monthly investigative magazine Facta, which last year out-scooped Japan's richest media to reveal the Olympus Corp. scandal.

The Olympus story must have felt like history repeating itself. Again, an elite company was involved in the same illegal practice of burying losses, known in Japan as tobashi.

And again the Nikkei, Japan's leading business daily, initially declined to report it — even after Facta published it in July, along with diagrams and alarming accusations.

It wasn't until the story made the front pages of the business press in Europe and America months later that the Nikkei and other leading vernacular newspapers began catching up.

Soon after the article appeared in Facta, and Olympus' newly appointed President and Chief Executive Officer Michael Woodford was sent a copy of the magazine's five-page story, he confronted Olympus Chairman Tsuyoshi Kikukawa about its claims. Those included one that Olympus had paid $800 million for what Woodford called "Mickey Mouse companies," and another that it had spent $687 million on advisory fees in a $2 billion deal for a British medical equipment firm named Gyrus.

"Kikukawa said I'd not been told because I was so busy, but that was ridiculous to me," Woodford said in December.

After that meeting with Kikukawa, he has described how he waited weeks for the scandal — openly published in Facta — to break in the local media, before realizing he was on his own.
Facta's claims of "bizarre acquisitions" by Olympus included a pet-food company and a face-cream maker — neither of which had turned a profit. Exactly why a camera- and optical machinery-maker had spent so much money on 100 firms with "zero synergistic" value to it is still unclear.

However, in a second exclusive article, published in August 2011, Facta offered one possible reason: payoffs to "antisocial forces," the Japanese euphemism for yakuza gangsters.

An increasingly nervous Woodford again faced off with Kikukawa — and was fired on Oct. 14, 2011.
As he walked out of the Olympus office in Shinjuku, central Tokyo, after surrendering his mobile phone and company car, Woodford reportedly said his "hands were clammy" and he feared for his safety.
He did the only thing he could think of, which was to call a foreign reporter — Jonathan Soble of The Financial Times — and met him in a public place with lots of people around. By the time Woodford arrived in London a day later, the tale was on the FT's front page.

Woodford later noted that even then it still took the mainstream Japanese media a full week to pick up the story, trailing most of the world's major news outlets in the process.

Abe says the reason is simple: Facta was able to write about Olympus because the magazine has no advertisements or commercial ties to anyone. It survives on fees from roughly 20,000 subscribers and the initial funding of anonymous donors.

"Running even a small magazine costs ¥100 million a year and most operate at a loss for the first few years," he says, recalling how one wealthy elderly woman from the Kansai region of western Japan had parted with her cash to the as-yet-unfounded magazine in 2005. "She told me, 'all this money is no good to me if our society is in danger.' "

Facta is not sold in bookstores either because, Abe explains, he would have to pay the stores to stock it.
The Olympus story was the product of the same ferreting techniques he used to dig out his Yamaichi story. "Our approach is to use the skills we've built up as financial experts over the years to follow irregularities. If you study corporate accounts long enough, something odd often pops up and you follow that trail till you find the reason."

He says a Facta freelancer — another ex-Nikkei journalist — was tipped off to the Olympus problems a year ago by a whistleblower. "It was absolutely clear something was odd," Abe explains. "They were making acquisitions and not making them public. The company's cash flow was extraordinarily high but its capital was shrinking year by year. It didn't add up."

The story was shopped around several disbelieving editors until Abe agreed to check it out and publish.
And he believes the Olympus scandal has yet to bottom out, pointing to the likely involvement of "criminal elements" — though he is careful to distinguish those from organized crime, saying, "I don't see evidence of that yet." He suspects the dummy Olympus companies were part of a money-laundering network, but that's as much as he will say for now.

He predicts, however, that other Olympus-type scandals are being protected by a wall of silence in the press. "The lack of disclosure at poorly performing Japanese companies is a key reason for the poor economy of the last 20 years. Many more should be scrutinized," he declares.

Among the many stories Abe points to as not being properly covered by the big Japanese media are the Fukushima nuclear crisis (see accompanying story) and the tremendous influence that a handful of advertising agencies and talent agencies wield over Japanese society.

"Have you ever seen an article about those agencies?" Abe inquires. "It's almost impossible to cover them or their influence in Japan. They represent a lot of clients in Japan who naturally don't want any negative publicity, so their influence on what the public reads and sees is immense. And that is largely unknown — it's terribly difficult to show their influence. I believe that kind of opacity is one of the scariest aspects of life in Japan."

http://www.japantimes.co.jp/text/fl20120108x1.html?

A similar story but covering the Japanese media coverage of Fukushima - http://www.japantimes.co.jp/text/fl20120108x3.html

Other stories - http://www.japantimes.co.jp/text/fl20120108x2.html

Thursday, January 5, 2012

2012- Most top firms predict no growth in new year

More than 70 percent of 105 leading Japanese companies see economic activity here either receding or flattening out because of the yen's continued strength and slowdowns in the U.S. and European economies, according to survey released Monday.


Japan's economy is regarded as "slowing" or "gradually slowing" by 17 companies, and leveling out by 58, the December survey carried out by Kyodo News said.
The survey sought responses from the top executives at leading companies including Canon Inc., Nippon Steel Corp., Sony Corp., Toyota Motor Corp. and Mitsubishi UFJ Financial Group Inc.

Asked to assess the hike in the consumption tax planned by the government of Prime Minister Yoshihiko Noda for comprehensive social security and taxation reform, 70 companies said they accept it, although many said the increase should follow a pickup in economic activity and thorough cuts in expenditures. Two firms opposed the plan, which would double the 5 percent rate to 10 percent in two stages.

Asked about worrisome factors the economy faces, 64 firms referred to the deepening European financial crisis, followed by 61 respondents who expressed concern about the rising value of the yen.
In contrast, 59 companies said they pin high hopes on earnest growth in demand for reconstruction work in the aftermath of the March 11 earthquake and tsunami.

The survey also found that 49 companies said they expect economic activity to improve six months down the road, compared with 43 firms forecasting it will remain unchanged.

With the dollar staying below ¥80, 54 companies said the strong yen has eaten into their earnings, while 41 said they have either been little affected or seen somewhat improved earnings.

Among other findings, nearly 60 percent of the respondents called for the government to step into the currency market to stem the yen's appreciation.


http://www.japantimes.co.jp/text/nn20120103a4.html?

Japanese love hotels: A recession-proof play

People get intimate in good times and bad, so taking exposure to the leisure hotel industry while values are at all-time lows could be a wise counter-cyclical investment, argues Alchemy Japan, an asset management and advisory firm that operates the country’s 10th largest chain of love hotels.

Asset prices are dependent on the availability of leverage – and since banks and finance companies have been reluctant to lend during the financial crisis, property prices have dropped and capitalisation rates (net operating income divided by property price) are at record highs, says Garry Frenklah, Alchemy’s Asia ex-Japan representative. Japanese lenders’ innate conservatism means that fewer still are prepared to lend against love hotels, he adds.

As a result, he notes that deals are closing in the 25-30% cap-rate range. The sale of the Japan Leisure Hotels (JLH) portfolio, the first significant transaction executed since the financial crisis, traded in June last year at 35%, a historic high. By comparison, the typical cap rate for hotel deals in the US is 6-8% at present, notes Frenklah.

The buyer of the JLH assets was able to re-trade two of the hotels within two months of purchase and has recently disposed of a third at rumoured cap rates of 23-25%, says Frenklah, suggesting that cap rates may be coming off their peaks and prices are starting to recover.

However, the deal also demonstrates the perils of getting in at the wrong level. JLH had to sell the portfolio following the exit of its largest shareholder, DKR Oasis, due to the hedge fund’s liquidation.

Still, firms such as Orix and Tokyo Star Bank – the sector’s biggest lenders – have tentatively started to re-enter the market, adds Frenklah, meaning cap rates are likely to continue to fall.
Investors should consider buying now, he says, especially given that love-hotel net cash flows are very high, at 10-14% a year in yen (and higher when swapped into higher-yielding currencies).

“This is a unique play on something that is seemingly everything-proof,” says Frenklah.

There are different portfolios available, he notes, including one available from a large foreign institution that had bought at a low cap rate and now wants to exit for purely strategic reasons. Alchemy has managed the portfolio for years, so has intimate knowledge of the assets.

Foreigners can invest directly in Japanese land and property without restrictions and with or without leverage, says Frenklah, adding that Alchemy can package investments as any combination of pure debt, hybrids or equity via special-purpose companies.

The potential to make money is substantial, he adds. Japan’s love hotel industry is huge – its ¥4.2 trillion ($54 billion) in revenue exceeds that of the entire UK hotel industry. It is also very fragmented: the 448 rooms managed by Alchemy make it the 10th biggest operator in an industry with an estimated 625,000 rooms, and the top 10 operators account for less than 1% of the market.

There is a massive consumer base for this ubiquitous industry: every single day  2.5 million people, or 2% of Japan's population, use love hotels, with 70% in the 20-30 age bracket. That’s hardly surprising, since there is little privacy for most Japanese: the average person has 18 square metres of living space, and it is common for three generations to share the same accommodation.

In addition, profitability is very high: love hotel rooms are typically used several times a day, with a turnover rate of 236% for the industry and 265% for the hotels managed by Alchemy, and operating margins at 45-50% of sales.

For those investors put off by the thought of investing, it may provide some comfort that Japan’s love hotels are government-regulated and legal. Alchemy’s hotels hold licences identical to those of a Hyatt or a Hilton, there is no social stigma within the country and no systemic involvement by organised crime, says Frenklah.

Moreover, Alchemy says it is the only foreign asset manager in the industry that serves institutional investors and complies with the disclosure, reporting, audit and transparency requirements of sophisticated investors.

And on a final point, one of Alchemy’s founders is a former Australian public servant. Greig McAllan, the firm’s chief executive of group operations, was formerly head of Tourism Australia for North Asia. One would think he knows a thing or two about hospitality.


http://www.asianinvestor.net/News/285673,japanese-love-hotels-a-recession-proof-play.aspx

Tuesday, January 3, 2012

Impact of Property Taxes

There are many incentives for buying a home. One of them is to simply get out of paying rent — but that isn't to say that once you own your residence there aren't costs that have to be paid on a regular basis.
If it's a house it must be maintained, and if it's a condominium there are monthly management and repair fees that can add up to as much as the rent of an apartment.

Then there's property tax, which in Japan is made up of a koteishisan-zei (fixed-asset tax) and a toshikeikaku-zei (municipal tax). Though everyone knows property owners have to pay the authorities for the privilege of owning that property, the obligation doesn't always figure into a potential buyer's financial plan. Whenever we inspect properties we ask the real-estate agents how much the annual tax is, and many times they say they don't know, which seems strange. Understanding the tax liability is as important as understanding the payment terms of the housing loan.

If you hold the title deed to property on Jan. 1 you pay taxes on the property for that calendar year, and will likely receive your bill sometime between April and June. These taxes are based on a standardized assessment of the property, which is divided into land and structure.

The fixed-asset tax is 1.4 percent and the municipal tax 0.3 percent of the "taxable value," which is typically lower than the market price. Assessing rosenka (taxable value), is carried out by determining a price for a particular plot of land in a given area based on its relation to roads and train lines, and then using that price to determine other plots of land in the area using variables such as size, distance from amenities, etc. Assessing structures is based on materials and features, and as the structure ages its value depreciates. Though condominiums come with considerably less land, they are usually assessed at higher rates than houses because their structures are considered longer lasting.

Tax rates are determined by the central government, but the taxes are assessed and collected by local governments, which take 52 percent of the revenues, the rest being divided between the central and prefectural governments. Most localities also levy a second city tax for services. If a residential area is designated as an "urban zone," meaning the residents have access to services and infrastructure, they pay an extra property tax. One of the ironies of the tax-city services relationship is that houses assessed as being "stronger" — more fireproof, more quake-resistant — have higher values and thus pay higher taxes even though that strength makes them less likely to require city services such as the fire department.

After the first of the year, the property owner receives a tax bill from the local government, which specifies the different levies but does not indicate the value of the property itself. Property assessments are adjusted every three years, but most homeowners never see an inspector. Commercial property owners sometimes hire independent evaluators, and according to a recent report by TBS news, some of these evaluators have discovered that local governments routinely overvalue properties.
In Tokyo alone, there are now more than 200 cases of overvaluation being investigated. The main problem is that many officials aren't properly trained to carry out assessments, though experts told TBS that it is also apparent some local governments purposely overvalue commercial properties. The evaluation manuals, which are notoriously detailed and as thick as telephone books, are compiled by the Ministry of Internal Affairs.

The vast majority of homeowners pay their bills when they arrive without asking how they were calculated; unless, of course, they don't have the money to pay them. Property tax is not based on how much the property owner earns, which means that people who suddenly lose income may be unable to pay their property tax. It also means that as long as you own property, even if you don't live on it or rent it out, you have to pay the tax. In 2009, 7.1 percent of all property owners nationwide did not pay the taxes they owed.

Keiko, who asked that her last name not be used, is one such property owner. She and her husband, both in their 50s, built a house in Kiryu, Gunma Prefecture, in 2001. They stopped paying property taxes four years ago after they both lost their jobs. Their annual tax bill is ¥160,000 for about 100 sq. meters of land and a two-story 110-sq. meter house.

As the couple's finances became tighter, they reached an understanding with the bank over their mortgage but ignored the property tax notices. Eventually, the local authorities threatened to "seize" their property if the taxes weren't paid, so they went in to talk to them. This is a common strategy. Local governments want cash, not property, since they aren't banks and don't have the resources to sell land or houses. The threat of "seizure" is made to get nonpayers attention.

"They worked out a plan where we could pay the back taxes at a rate of ¥50,000 a month," Keiko says. "But even that's too much for us."

She isn't sure if the standard 14 percent late payment penalty has been added to the bill. Often, local governments will not impose the penalty if nonpayers come to talk to them voluntarily. The local government had already tried to acquire the money owed by going into the couple's savings account, but since they had no savings, there was nothing to acquire.

Even if Keiko and her husband declared bankruptcy, it would only free them from their mortgage obligation. They would still be liable for back taxes. Local governments derive at least half their revenues from property taxes, and since land values are dropping, so are tax revenues. Consequently, the central government is discussing doing away with the special measure that currently reduces residential property taxes even more. This measure was originally implemented to keep in check sudden spurts in land prices, and without it property taxes will rise, even as property values themselves continue to decline.


http://www.japantimes.co.jp/text/fs20120103ht.html

Monday, January 2, 2012

2011 - TSE Performance

During many years, and 2011 has been one such year, the Tokyo stock market seems like a geriatric ward whose residents grow weaker, frailer, and more infirm by the day, and where at yearend the prognosis is further deterioration.

Granted, 2011 was extraordinary in visiting upon Japan a series of major, unprecedented disasters and difficulties:  the 3.11 Northeastern earthquake/tsunami; the Fukushima nuclear accident; prolonged financial crisis in Europe; massive flooding in Thailand; and—through it all—an historically strong yen.

But even if 2011 was  annus horribilis for the First Section of the Tokyo Stock Exchange (TSE),  2010 was not much better, and it is not hard to imagine that 2012 could be more of the same, or worse.  The obviously question is:  Is this market a classic contrarian “smart money” trade?   Many foreign “investors” have in fact entered this trade, being the biggest net buyers of Japanese equities over the past six months.   Domestic investors—institutions and individuals—have increasingly given up on the market—setting a “new” (actually old) trend of saving rather than investing–causing TSE First Section trading volume to drop to multi-year lows (see chart at left from the December 26 Nihon Keizai Shimbun).

The December 31 Nihon Keizai Shimbun ran the numbers for market capitalization of TSE First Section listed stocks at yearend 2011 compared with yearend 2010.  Overall, the market capitalization of the listed firms—Japan’s blue chips—declined 17 percent in yen terms to JPY 255 trillion, the lowest level since 2002.   By this year’s end only 47 individual companies on the TSE were able to boast market caps over JPY 1 trillion (USD 13 billion), 13 fewer than at yearend 2010.  Nomura Holdings (NYSE: NMR), JFE Holdings (OP: JFEEY), Fuji Film Holdings, and Mitsui Real Estate all dropped below JPY 1 trillion market value.  The company with the largest market cap, Toyota Motor Corporation (NYSE: TM), at JPY 8.8 trillion, having lost over JPY 2 trillion in value over the year—as also did Honda (NYSE: HMC)– left the TSE without a single company valued at over JPY 10 trillion (USD 130 billion), a result not seen for nineteen years.

Among the many huge market value blue chip losers during 2011 (the biggest loser, Tokyo Electric Power (OP: TKECY), lost over 90 percent of its value), there were a few winners.   These were, of course, “special cases.”  Japan Tobacco (NASDAQ-OTCF: JAPAY) gained a total of JPY 615 billion (USD 8 billion) market value, the most of any listed company.   The reason was the news that its major shareholder—the Japanese government—would be forced to sell a substantial portion of its shareholdings to fund Northeast disaster aid, and that the buyer was likely to be JT itself, raising the prospect of increased share dividends for remaining shareholders.

At 2011 market close, the top twenty TSE companies by market value (in yen trillions) were: 1. Toyota (8.8); 2. NTT Docomo (6.2); 3. NTT(5.2); 4. Mitsubishi UFJ Financial Group (4.6); 5. Canon (4.6); 6. Honda (4.3); 7. Japan Tobacco (3.6); 8. Nissan (3.1); 9. Sumitomo Mitsui Financial Group (3.0); 10. Fanuc (2.8); 11. Takeda Pharmaceuticals (2.7); 12. Mitsubishi Corp. (2.6); 13. Softbank (2.5); 14. Mizuho Financial Group (2.5); 15. KDDI (2.2); 16. Mitsui & Co. (2.2); 17. JR Eastern Japan (2.0); 18. Seven & I (1.9); 19. Denso (1.9); 20. Hitachi (1.8).

Looking at sectors, the biggest losers in 2011 were electric power and gas stocks, down some 44 percent (as at December 22).  The second biggest losers were non-bank financials, including securities firms, down some 35 percent.  Here the symbolic leader—being Japan’s last standing global player—was Nomura, whose stock touched 223 yen on November 24, a humiliating and—for shareholders–punishing descent from its bubble era April 1987 peak of 5990 yen.  The third worst performing sector was steel and non-ferrous shares, whose drop reflected prospects of much weaker growth in the BRICs.  Fourth, down some 30 percent, were electric equipment and precision machinery shares, a sector where competition from Korea and China is driving down margins and market share.  Real estate, banks, and autos follow in performing worse than the TOPIX average, which itself was down over 20 percent year-on-year by December 22.   Only retail and food sectors were flat or slightly positive YOY.


http://www.forbes.com/sites/stephenharner/2011/12/30/whither-japan-stocks-annus-horribilis-2011-but-how-about-2012/

20 year olds sink to all time low number of 1.2 million

The number of people aged 20 years old this New Year's Day is estimated at 1.2 million, falling to less than half its peak of around 2.4 million in 1970 for the first time, according to government statistics released Saturday.


Of the 1.2 million people that reached adulthood in the last year, 620,000 are men and 600,000 are women.

The total number of 20-year-olds — the legal age of adulthood — is down 20,000 from last year, hitting a record low for the fifth consecutive year, the Internal Affairs and Communications Ministry said.

The new adults account for 0.9 percent of the total population of 127.7 million, falling below 1 percent for the second straight year. The government began collecting comparable statistics in 1968.

Meanwhile, the number of Japanese who were born in a Year of the Dragon, as 2012 will be, is estimated at about 10.2 million. This breaks down to 4.9 million males and 5.2 million females.
Of the 10.2 million "Dragons," those who will turn 60 and 36 in 2012 form the largest groups, at nearly 1.8 million each.



http://www.japantimes.co.jp/text/nn20120101x1.html?