Monday, December 28, 2009 – Osaka, Japan
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on Saturday 26th the Japanese government’s finalized 2010 budget plan, from which it became quite prominent that realizing the DPJ (Democratic Party of Japan) Manifest and acquiring its financial resources is incompatible. The government is to solve by issuing new government bond meaning drastically increasing the debt, but this is likely to have negative impact on the overall economy. It is high time for the government to develop and execute growth strategy, aligning with the Japan and worldwide current trend, and the high time for all parties (politicians and bureaucrats, academic world and all other public sector, companies and all other private sector and citizens) to change their mindset and tackle the problem of recovering the economy together.
1. What is the big picture of the finalized 2010 budget plan and how unsound is the financial condition?
General accounts totaled 9.2 trillion yen (+4.2% vs. PY), which is the biggest in the history. Looking in details, general expenditure increased from 51.7trillion yen to 53.5 trillion yen, local allocation tax etc. increased from 16.5 trillion yen to 17.5 trillion yen, and debt servicing cost increased from 20.2 trillion yen to 20.6%. Moreover, adjustment cost for settlement of 0.7 trillion yen was added.
With budgeting policy emphasizing local and family budget, the total expenditure expanded. Public projects was cut 1.3 trillion yen (-18%) and reviewing respective business and budget by task force members which was a first trial in Hatoyama administration contributed to cost reduction of 1 trillion yen. However, local tax allocation increased by 1 trillion yen, social security cost increased by 10% due to aging society, and 3 trillion yen was added as costs to realize major measures of DPJ (Democratic Party of Japan)’s Manifest such as family budget assistance*.
Regarding budget revenue, tax revenue is expected to decrease from 46.1 trillion yen to 37.4 trillion yen, so although non-tax revenue is expected to increase from 9.1 trillion yen to 10.6 trillion yen, the government decided to increase government bond from 33.3 trillion yen to 44.3 trillion yen to cover-up the insufficient financial resources. This means that dependence of the national budget on government bonds will be extremely high, almost 50%.
Major Expenditure Items by Ministries
(Source: Nikkei, translated by the author)
Ministry Name / Budget (trillion yen) / Increase/Decrease (vs PY) / Concept of Budgeting
MHLW (Ministry of Health, Labour and Welfare) / 27.56 / Increase / Drastic increase with “family budget assistance” Increase by 2.4 trillion yen attributing to “family budget assistance” including allowance for children, lower medical expense and assistance of household with single parent.
MLIT (Ministry of Land, Infrastructure, Transport and Tourism) / 5.61 / Decrease / Expenditure for FOC motorways shrunk to 0.1 trillion yen. Public projects expenditure decreased drastically. Expenditure for FOC motorways cut from original request of 0.6 trillion yen to 0.1 trillion yen.
MIC (Ministry of Internal Affairs and Communications) / 18.60 / Increase / Tax allocation increased by 1.1 trillion yen. Increase in local tax allocation received by local governments by 1.1 trillion yen, first time in 11 years. IT related budget focuses on promoting IT use.
METI (Ministry of Economy, Trade and Industry) / 0.99 / Decrease / Focuses on supporting financing of SMB businesses. Focuses on supporting financing of SMB businesses. Increase in budget for supporting technical development for global warming countermeasures.
MAFF (Ministry of Agriculture, Forestry and Fisheries of Japan) / 2.28 / Decrease / Drastic decrease in land improvement business. Full requested expenditures related to the Manifest including system to assist rice farmer households were booked. Drastic cut in expenditure for land improvement business supported by LDP.
MOFA (Ministry of Foreign Affairs of Japan) / 0.66 / Decrease / Increase in supporting Afghanistan etc. Drastic increase in supporting Afghanistan and Pakistan. Cut in grant aid for third sector facilities.
MEXT (Ministry of Education, Culture, Sports, Science and Technology) / 5.60 / Increase / To free tuition fee for public senior high school students. To free tuition fee for public senior high school students. Assist 120 thousand yen/child for private senior high schools. Increase students benefiting from interest-free scholarship by 5000. Decrease outlays for promoting science and technology for the first time.
DA (Ministry of Defense) / 4.79 / No change / To defer Futemma base relocation related cost. Drastic increase in expenditures related to realignment of U.S. forces in Japan. To defer Futemma base relocation related cost. Implement new naval escort.
MOE (Ministry of the Environment) / 0.21 / Decrease / Focus on biodiversity conference.
Focus on biodiversity conference to be held in Nagoya City in October 2010 and on natural energy proliferation.
With efforts to minimize annual spending by freezing a few minor Manifest items, major items of the DPJ’s Manifest will be implemented from 2010, but with current financial resource outlook, whether the government would be able to continue the implementation 2011 onwards is a question. Primary balance**, a barometer for soundness of the country’s financial condition, is expected to reach minus 23.65 trillion yen for 2010, with the biggest increase in deficit from the previous year in history. Combined total of outstanding debt for both central and local governments is expected to reach the biggest in history of 862 trillion yen at the end of 2010. Hatoyama administration needs to immediately get the balance sheet of annual spending and revenue in shape.
2. What is the possible effect on the economy?
The author views that the finalized budget is unlikely to contribute to improving the economy as expected, and the government’s economic policy management may well needs to be improved to meet the expectation of the citizens, economic and industry experts and the stock market.
1) 10 economy experts view differently but in general they are rather pessimistic.
According to Nikkei’s interviews to 10 economy experts, although their views varied, they agreed on the fact that the actual rate of GDP’s growth is expected to remain low. Their average outlook was 1.2%, which is below the government’s outlook of 1.4%. Effect on the economy ranged from +0.4% to -0.3%. 4 people said that there would be some positive effects because “family budget assistance” stimulates the economy, 3 people said that the total effect will be zero, and the remaining 3 people said that there would be negative effects because of the reduction of public projects.
With low GDP growth outlook and deflation to continue as mentioned in the previous article How Japan Can Get Out From 10 Year Deflation?, strong growth strategy to drive investment and stimulate consumer spending is inevitable, which requires economic policy management aligning with to the current global economy environment and Japanese competitiveness. However, many experts seem to feel that the current economic policy management is not up to date, based on the concept that was valid 20 years ago before the burst of the bubble economy (i.e. when the economy and domestic demand continued to grow), to which the author agrees.
2) The government is not taking appropriate and sufficient actions to make Japan strong and its economy grow.
Today, Japan is suffering from low GDP growth and deflation, and its financial status is one of the worst among developed countries, so what really should be focused on is, similarly to turnaround of ailing companies, eradicate unnecessary cost and debt, improve global competitiveness, and develop and execute growth strategy. However, the message of the finalized budgeting is NOT putting priority on improving environment for companies to compete in the global economy, and consequently to pass the burden to succeeding generations by issue of government bonds. The government intends to stimulate consumer spending but measures and actions to eliminate from citizens anxieties of their after-retirement life, the perquisites to stimulate consumer spending, are insufficient. The government needs to focus on expanding the total pie of the economy, i.e. growth, in order to create employment and establish sustainable social security systems.
Domestic demand expansion needs regulation revolution to promote entering industries with great needs such as healthcare, nursing care and child-care, which requires tough national coordination. Tough national coordination is also required for FTA conclusion meaning opening of agriculture market and so forth. However, with, the House of Councilors election coming up in summer 2010, it is highly unlikely that the government would take actions in these kinds of issues.
In the current economic environment in which Japan cannot possibly expect growth in domestic demand, Japan would need to rely on external demand, expanding business in emerging markets, and the prerequisites would be to create the environment in which Japanese companies improve competitiveness in the global market so that they can compete with their global counterparts. Such possible measures include decreasing corporate tax rate (currently 40%), which is far greater than other countries, and concluding FTA (Free Trade Agreement) with EU and other regions/countries similarly to what Korea is trying to do. Such measures had always been advocated by Japan Business Federation (Nippon Keidanren) and other experts but the government does not seem to take actions.
What the government needs to do is take measures strategically to attract talents, technologies, capital, information and so forth from around the globe just like what Singapore is doing, as well as taking measures to create environment and systems mentioned above and focus on education to level up the skills and competencies of its citizens to make them competitive in the global economy. Unless the government first acknowledge that the world is flat as Thomas L. Friedman depicts in his book “The World Is Flat 3.0: A Brief History of the Twenty-first Century" and change mindset to take actions accordingly, it is unlikely that the citizens acknowledge the reality and change their mindset.
3) Japanese companies and TSE started to take actions for survival at last. Are other players to follow?
Of course, Japanese companies also need to change their mindset; they seem to lack in “hungry and fighting spirit” unlike Korean counterparts who are fully aware that they need to win in the global market to survive with the small economy size of Korea. This may well be because as Mr. Toshihiko Fukui, the former Bank of Japan Governor, says in the interview with Nikkei according to the article of the newspaper dated December 27, that Japan has been enjoying the position of the second largest economy. The author fully understands what Mr. Fukui says and agrees; she worked in a Japanese electronics giant for many years until 2006 and during that time the Korean counterpart actually became more competitive in the global market, as company ranking of Forbes clearly indicated for example as well as other signs of defeat. But the position is soon likely to be replaced by China, and the global battle for survival is becoming tougher and tougher. Therefore, companies need to revive their fighting spirit to go back to the basics and strengthen product development and marketing (including branding) meeting customer needs and generate business by step by step sales, similarly to what they have done in the recovery period after the World War II.
The initiatives of Japanese FMCG (Fast Moving Consumer Good) companies mentioned in the previous article "Japanese Food and FMCG Giants to Foster "Global Brands"is a sign that they are changing their mindset and starting to take actions. TSE (Tokyo Stock Exchange) to revise listing regulation as mentioned in the previous article "With Slow Japanese Stock Market Recovery TSE to Revise Listing Regulation" is a sign that TSE also started to take their action. In order for such initiatives to bear fruit, optimum environment needs to be created by all public sector players as well as mindset change and actions from all parties including the community and citizens. They all need to acknowledge the reality, and all players, public and private, need to tackle the problem together, from total optimization perspective.
* DPJ’s “Family Budget Assistance” (Source: Nikkei, edited and translated by the author)
Key economy boosting measures that the DPJ promised as their Manifest to win the General Election held on August 30 2009. The scenario is to increase disposable income by directly providing benefits to family budget etc. and stimulate consumer spending. The DPJ intends to change from the LDP’s economic policy focusing on supporting companies to realize economic growth driven by domestic demand.
Main items of “family budget assistance” include providing allowances for children, freeing tuition fee for senior high school students, freeing motorways, abolishing temporary tariff rate etc. Their positive effects may well be converted to savings instead of being consumed unless anxieties for post-retirement lives and distrust of social security system are eliminated from citizens.
Items of “family budget assistance” / Measures to be implemented from 2010
Allowance for children / 13,000 yen/child per month to be provided.
Free tuition fee for senior high school students / Tuition fee for public senior high school students to be made free. Assistance to private senior high school students to be provided as well.
Income indemnity for farmer households / To be executed to nationwide rice farmer households.
Free motorways / Test demonstration for pilot regions.
** Primary Balance (Source: Nikkei, translated by the author)
Balance of payments calculated by subtracting new government issuance (new debt) from debt service cost (nation’s debt). If the calculation is in black (i.e. positive), fiscal condition is good, and if it is in red (i.e. negative), fiscal condition is bad. Japan has always been negative and its big challenge had always been to make a balance mid/long-term.
2009年12月20日日曜日
Japanese Food and FMCG Giants to Foster “Global Brands”
Sunday, December 20, 2009 – Osaka, Japan
Today, Japan’s leading newspaper specialized in economy/business and politics, reported that Japanese food and FMCG (Fast Moving Consumer Good) giants are to roll out their major Japan domestic brand products worldwide, fostering them as global brands. For example, Asahi Beer plans to double their overseas sales of “Asahi Super Dry” in 3 years, the sales equivalent to approximately their 10% of their Japan domestic sales. Lotte will establish a sweet manufacturing plant in Thailand to sell in Asia. Lion will position such brands as “Top”, brand of detergent for clothes, as their strategic brand and increase manufacturing plants in Asia. With shrinking domestic market and expanding middle income group in emerging markets, domestic demand oriented industries/companies start to foster global brands in earnest.
1. What are “Global Brands”?
Global brands are brands of products (& services) that have been taken root and enjoy good sales in major countries and regions worldwide. An excellent example includes Coca Cola,
Major Global Brands of Food and FMCG
(Source: Nikkei, translated by the author)
Brand Name / Products / Company Name
Kikkoman / Soy sauce / Kikkoman
Nabisco / Biscuit / Kraft Foods
Pepsi / Cola beverage / PepsiCo
Avian / Mineral water / Danone
Budweiser / Beer / Anheuser-Busch
Pampers / Diapers & nappies / Proctor & Gamble
Lux / Healthcare / Unilever
2. How are western giants enjoying global brand business?
Western giants have been focusing their resources to global brands and have been enjoying excellent revenue and profitability. For example, Global foods leader of Nestle enjoys business of approximately 30 global brands including KitKat, each of which generates over 1 billion USD (90 billion yen) revenue. Nestle’s annual total sales amounts 9.6 trillion yen, which is 2-1/2 times of the sum of Japan’s No.1 & No.2 beverage companies (now negotiating for M&A) yet net profit amounts to 14 times of 1.6 trillion yen.
3. What are the trends of Japanese food and FMCG giants in fostering global brands?
Global brands are fostered targeting Asia and other emerging market. Asahi Super Dry overseas sales is planned to double from current 5 million cases (1 case = 20 big bottles) to 10 million cases. In China Asahi invested 20% to establish a Joint Venture company with China’s 2nd beer company Tsingtao Brewery to utilize manufacturing plant and distribution channel. For Thailand market, Asahi will expand production and sales entrust to its alliance, Thailand’s beer leader. And for western market, Asahi will exploit local city market to bottom-up their business.
Lotte plans to expand current business focusing on Japan and Korea to other market at a stroke. Lotte plans to invest 3.5 billion yen to establish a manufacturing plant of “Koara-no-march”, a sweet brand, in Thailand, and start selling in South East Asia including Thailand, Vietnam and Indonesia, and then expanding its business to the Middle East and Americas. Lotte thus plans to increase its current sweet sales of approximately 10 billion yen to 90 billion yen by 2012.
Lion plans to position “Top” and “Systema”, tooth brush and tooth paste brand, as their strategic brands for Asia. Lion plans to invest 1 billion yen to strengthen their manufacturing plant in Thailand and Indonesia in 2010. Thus Lotte plans to increase their overseas sales from 15% in 2008 to 30% in 2012.
Trend of Brand Globalization
(Source: Nikkei, translated by the author)
Company Name / Plan
Morinaga / Start business of “Haichu”, candy, in Asia and North America, followed by Europe, Russia and Brazil within 2 or 3 years.
Lotte / Foster total of 5 brands including sweet brands of “Koara-no-march”, “Ghana” and chewing gum brand of “Xylithol” as global brands.
Nisshin Oillio / Started business of low fat cooking oil brand “Healthy resetter” in China and Taiwan, followed by Korea this autumn.
Kao / Position total of 7 brands including brand for clothes detergents “Attack”, facial wash ”Biore” and healthcare “Asience” as strategic brands for Asia market.
Shiseido / Started business of high end make-up SHISEIDO global brand products in approximately 70 countries and regions worldwide in January this year. Targets to achieve sales of 100 billion yen/year for 2013.
Today, Japan’s leading newspaper specialized in economy/business and politics, reported that Japanese food and FMCG (Fast Moving Consumer Good) giants are to roll out their major Japan domestic brand products worldwide, fostering them as global brands. For example, Asahi Beer plans to double their overseas sales of “Asahi Super Dry” in 3 years, the sales equivalent to approximately their 10% of their Japan domestic sales. Lotte will establish a sweet manufacturing plant in Thailand to sell in Asia. Lion will position such brands as “Top”, brand of detergent for clothes, as their strategic brand and increase manufacturing plants in Asia. With shrinking domestic market and expanding middle income group in emerging markets, domestic demand oriented industries/companies start to foster global brands in earnest.
1. What are “Global Brands”?
Global brands are brands of products (& services) that have been taken root and enjoy good sales in major countries and regions worldwide. An excellent example includes Coca Cola,
Major Global Brands of Food and FMCG
(Source: Nikkei, translated by the author)
Brand Name / Products / Company Name
Kikkoman / Soy sauce / Kikkoman
Nabisco / Biscuit / Kraft Foods
Pepsi / Cola beverage / PepsiCo
Avian / Mineral water / Danone
Budweiser / Beer / Anheuser-Busch
Pampers / Diapers & nappies / Proctor & Gamble
Lux / Healthcare / Unilever
2. How are western giants enjoying global brand business?
Western giants have been focusing their resources to global brands and have been enjoying excellent revenue and profitability. For example, Global foods leader of Nestle enjoys business of approximately 30 global brands including KitKat, each of which generates over 1 billion USD (90 billion yen) revenue. Nestle’s annual total sales amounts 9.6 trillion yen, which is 2-1/2 times of the sum of Japan’s No.1 & No.2 beverage companies (now negotiating for M&A) yet net profit amounts to 14 times of 1.6 trillion yen.
3. What are the trends of Japanese food and FMCG giants in fostering global brands?
Global brands are fostered targeting Asia and other emerging market. Asahi Super Dry overseas sales is planned to double from current 5 million cases (1 case = 20 big bottles) to 10 million cases. In China Asahi invested 20% to establish a Joint Venture company with China’s 2nd beer company Tsingtao Brewery to utilize manufacturing plant and distribution channel. For Thailand market, Asahi will expand production and sales entrust to its alliance, Thailand’s beer leader. And for western market, Asahi will exploit local city market to bottom-up their business.
Lotte plans to expand current business focusing on Japan and Korea to other market at a stroke. Lotte plans to invest 3.5 billion yen to establish a manufacturing plant of “Koara-no-march”, a sweet brand, in Thailand, and start selling in South East Asia including Thailand, Vietnam and Indonesia, and then expanding its business to the Middle East and Americas. Lotte thus plans to increase its current sweet sales of approximately 10 billion yen to 90 billion yen by 2012.
Lion plans to position “Top” and “Systema”, tooth brush and tooth paste brand, as their strategic brands for Asia. Lion plans to invest 1 billion yen to strengthen their manufacturing plant in Thailand and Indonesia in 2010. Thus Lotte plans to increase their overseas sales from 15% in 2008 to 30% in 2012.
Trend of Brand Globalization
(Source: Nikkei, translated by the author)
Company Name / Plan
Morinaga / Start business of “Haichu”, candy, in Asia and North America, followed by Europe, Russia and Brazil within 2 or 3 years.
Lotte / Foster total of 5 brands including sweet brands of “Koara-no-march”, “Ghana” and chewing gum brand of “Xylithol” as global brands.
Nisshin Oillio / Started business of low fat cooking oil brand “Healthy resetter” in China and Taiwan, followed by Korea this autumn.
Kao / Position total of 7 brands including brand for clothes detergents “Attack”, facial wash ”Biore” and healthcare “Asience” as strategic brands for Asia market.
Shiseido / Started business of high end make-up SHISEIDO global brand products in approximately 70 countries and regions worldwide in January this year. Targets to achieve sales of 100 billion yen/year for 2013.
2009年12月13日日曜日
With Slow Japanese Stock Market Recovery TSE to Revise Listing Regulation
Sunday, December 13, 2009 – Osaka, Japan
Today, Japan’s leading newspaper specialized in economy/business and politics, reported that Japan stock market is still in the plunge when stock prices are at high level worldwide. Japan is the only country whose stock price fluctuation ratio is minus since end of this August (timing of General Election) among 20 major countries and regions. This is said to attribute to high yen, increase in capital investment and investors avoiding to invest in Japan stock from suspiciousness on management of the economy by Hatoyama administration. The Nikkei Stock Average has recovered to over 10,000 yen after having once plunged to far below 9,000 yen at the lowest, but compared to other stock market, it is prominent that Japan stock price has not been recovering sufficiently.
1. Stock prices of countries and regions excluding Japan and Italy have been on the rise since September in line with worldwide economic recovery.
Since the General Election in end of August, The Nikkei Stock Average dropped by 3.7% as of December 11. It has once declined by 13.4% in the end of November due to drastic high yen. On the other hand, stock prices of other major countries have been firmly improving since September with bottom-out of worldwide economy. Italy’s stock price has remained almost constant since September but all others have been rising; +27% for Russia, over +20% for China and Brazil, and the U.S has been steadily improving with approximately +10%.
2. There are several reasons for plunge in Japan stock price.
The first reason is drastic high yen. Since Japan relies much on export-oriented industries, this has huge negative impact on the Japanese economy.
The second reason is many companies have been issuing many new stocks to increase capital and enormous amount of share of stock were supplied to the stock market, leading to dilution of outstanding stocks.
The third reason is uncertainty of government’s economic policy, leading to negative impact on market psychology. Immediate execution of countermeasures for deflation and high yen is critical but Hatoyama administration has other issues such as political donation and transfer of Futenma airbase, and some experts in economy are worried that the priority of economy under Hatoyama administration might be not so high. In addition, finalizing 2010 budget is taking time because the administration is having a tough time in reducing request of budget allocation. With this, on December 11, in bond market, long-term interest rate rose because of the laxing fiscal discipline, and in the stock market, many experts view that the Hatoyama administration has not yet developed long-term growth strategy.
3. Current situation needs to be improved immediately.
Under the severe current situation, Japan needs economic measure to be implemented immediately. Expectation of mid/long-term economic growth of Japan is shrinking among overseas investors. And with ongoing deflation as mentioned in the previous article "How Japan Get Out From 10 Year Deflation?", Japan’s GDP is at one of the lowest level in 19 years.
Under ongoing deflation situation, it would be difficult for companies to increase revenue and profit, and stock price tends to decrease as well. An expert in stock market comments that overseas investors are likely to avoid investing to countries that are going through deflation. And according to a survey executed by the U.S. Merrill Lynch in November, the percentage of investors who are timid to Japanese stocks was the highest since autumn of 2002.
Trading value for 2009 at the TSE (Tokyo Stock Exchange) is assumed to be at the lowest level in 5 years. Also, it is assumed that trading value of Shanghai Stock Exchange of China will be greater than that of TSE. Number of companies that newly listed this year in Japan is 19, which is the least in 31 years.
One of the few positive atmospherics is the fact that Japanese stocks on hand of investors seems to be less than usual. So when investors change their view and judgment on the administration’s management of the economy and/or exchange rate changes, big investors may increase again their Japanese stocks on hand, which would lead to improvement in Japan stock market.
However, in general, many experts view that for the time being, stock market prices will not improve so much because of the anxiety that the economy will plunge again with deflation.
With deteriorating cash flow of Japanese companies as reported in recent articles by Nikkei, it is natural that Japanese companies would need to raise capital and plunge in stock price would be a big negative factor for them. According to a Nikkei’s article of December 12, debt that Japanese companies have on UAE (general construction, trading etc.) of 66 billion yen (approximately 7.5 billion USD out of 15 billion USD) in total are still uncollected, as of December 11. Also, according to another Nikkei’s article of December 10, there is an anxiety that financial situation (especially consolidated cash flow and interest-bearing debt) of Japanese general construction companies, is deteriorating, attributing to factors such as big burden of reimbursed expenses of big overseas projects of UAE and Algeria.
4. TSE is to revise listing regulation to create an environment in which companies will be able to increase capital flexibly, with minimum negative impact on their shareholders.
According to another today’s article of Nikkei, TSE is to revise listing regulation to create an environment in which companies will be able to increase capital flexibly, with minimum negative impact on their shareholders. The objective of the revision is to enhance flexibility of raising capital and to activate plunging stock market.
Under the current environment, capital increased by public offering leads to drastic decrease in EPS (earnings per share), and current shareholders will gain loss from their stock. TSE will revise listing regulation by the end of the year so that companies can flexibly set capital increase and raise capital by allocating new share subscription right to their shareholders. This kind of method is called Right Issue in overseas stock market, and in Europe, this method is used to raise approximately 60% of total capital raised.
Today, Japan’s leading newspaper specialized in economy/business and politics, reported that Japan stock market is still in the plunge when stock prices are at high level worldwide. Japan is the only country whose stock price fluctuation ratio is minus since end of this August (timing of General Election) among 20 major countries and regions. This is said to attribute to high yen, increase in capital investment and investors avoiding to invest in Japan stock from suspiciousness on management of the economy by Hatoyama administration. The Nikkei Stock Average has recovered to over 10,000 yen after having once plunged to far below 9,000 yen at the lowest, but compared to other stock market, it is prominent that Japan stock price has not been recovering sufficiently.
1. Stock prices of countries and regions excluding Japan and Italy have been on the rise since September in line with worldwide economic recovery.
Since the General Election in end of August, The Nikkei Stock Average dropped by 3.7% as of December 11. It has once declined by 13.4% in the end of November due to drastic high yen. On the other hand, stock prices of other major countries have been firmly improving since September with bottom-out of worldwide economy. Italy’s stock price has remained almost constant since September but all others have been rising; +27% for Russia, over +20% for China and Brazil, and the U.S has been steadily improving with approximately +10%.
2. There are several reasons for plunge in Japan stock price.
The first reason is drastic high yen. Since Japan relies much on export-oriented industries, this has huge negative impact on the Japanese economy.
The second reason is many companies have been issuing many new stocks to increase capital and enormous amount of share of stock were supplied to the stock market, leading to dilution of outstanding stocks.
The third reason is uncertainty of government’s economic policy, leading to negative impact on market psychology. Immediate execution of countermeasures for deflation and high yen is critical but Hatoyama administration has other issues such as political donation and transfer of Futenma airbase, and some experts in economy are worried that the priority of economy under Hatoyama administration might be not so high. In addition, finalizing 2010 budget is taking time because the administration is having a tough time in reducing request of budget allocation. With this, on December 11, in bond market, long-term interest rate rose because of the laxing fiscal discipline, and in the stock market, many experts view that the Hatoyama administration has not yet developed long-term growth strategy.
3. Current situation needs to be improved immediately.
Under the severe current situation, Japan needs economic measure to be implemented immediately. Expectation of mid/long-term economic growth of Japan is shrinking among overseas investors. And with ongoing deflation as mentioned in the previous article "How Japan Get Out From 10 Year Deflation?", Japan’s GDP is at one of the lowest level in 19 years.
Under ongoing deflation situation, it would be difficult for companies to increase revenue and profit, and stock price tends to decrease as well. An expert in stock market comments that overseas investors are likely to avoid investing to countries that are going through deflation. And according to a survey executed by the U.S. Merrill Lynch in November, the percentage of investors who are timid to Japanese stocks was the highest since autumn of 2002.
Trading value for 2009 at the TSE (Tokyo Stock Exchange) is assumed to be at the lowest level in 5 years. Also, it is assumed that trading value of Shanghai Stock Exchange of China will be greater than that of TSE. Number of companies that newly listed this year in Japan is 19, which is the least in 31 years.
One of the few positive atmospherics is the fact that Japanese stocks on hand of investors seems to be less than usual. So when investors change their view and judgment on the administration’s management of the economy and/or exchange rate changes, big investors may increase again their Japanese stocks on hand, which would lead to improvement in Japan stock market.
However, in general, many experts view that for the time being, stock market prices will not improve so much because of the anxiety that the economy will plunge again with deflation.
With deteriorating cash flow of Japanese companies as reported in recent articles by Nikkei, it is natural that Japanese companies would need to raise capital and plunge in stock price would be a big negative factor for them. According to a Nikkei’s article of December 12, debt that Japanese companies have on UAE (general construction, trading etc.) of 66 billion yen (approximately 7.5 billion USD out of 15 billion USD) in total are still uncollected, as of December 11. Also, according to another Nikkei’s article of December 10, there is an anxiety that financial situation (especially consolidated cash flow and interest-bearing debt) of Japanese general construction companies, is deteriorating, attributing to factors such as big burden of reimbursed expenses of big overseas projects of UAE and Algeria.
4. TSE is to revise listing regulation to create an environment in which companies will be able to increase capital flexibly, with minimum negative impact on their shareholders.
According to another today’s article of Nikkei, TSE is to revise listing regulation to create an environment in which companies will be able to increase capital flexibly, with minimum negative impact on their shareholders. The objective of the revision is to enhance flexibility of raising capital and to activate plunging stock market.
Under the current environment, capital increased by public offering leads to drastic decrease in EPS (earnings per share), and current shareholders will gain loss from their stock. TSE will revise listing regulation by the end of the year so that companies can flexibly set capital increase and raise capital by allocating new share subscription right to their shareholders. This kind of method is called Right Issue in overseas stock market, and in Europe, this method is used to raise approximately 60% of total capital raised.
Japanese Tax Haven Application Rule to Change
Sunday, December 13, 2009 – Osaka, Japan
Yesterday on December 12, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that the Japanese government has set policy of reviewing corporate tax system to change application rule of tax haven* with the objectives of eliminating tax dodge 2010 onwards. The government will lower the criteria of corporate tax burden of the regions and countries that the tax haven system is applicable for the first time, from the current 25% to just over 20%. Exceptions of the tax system will be more widely applied after the revision. These are all because emerging countries have been lowering corporate tax rate. This means bigger burden of corporate tax for Japanese companies, which could may well refrain them from starting and expanding their business in emerging countries. By reviewing the system, the Japanese government is to support Japanese companies starting and expanding business in growing markets.
1. Primary objective of changing the current tax haven application rule is to ease burden of Japanese companies.
Primary objective of the Japanese government reviewing the current corporate tax system is ease the burden of tax practices of Japanese companies. In a situation in which emerging countries have been aggressively lowering their corporate tax rate, it is not rationale to set the criteria of corporate rate tax rate for tax haven system application at 25%. And Ministry of Finance estimates that the decrease in corporate tax income by the corporate tax change is not critical.
2. Background of reviewing to change the system is the fact that corporate tax of Japan is the highest among developed countries.
Corporate tax of Japan is 40%, which is the highest among developed countries. And currently in principle, tax haven system is applicable to overseas affiliate companies located in regions and countries whose corporate tax rate is below 25%. When it is applied, a part of profit generated by the overseas affiliates is added to Japan HQ’s domestic income and the 40% of the sum is imposed as corporate tax. Under current criteria, it is quite possible that countries such as China, Korea, Vietnam and Russia, which Japanese companies are aggressive to enter and expand their business, are regarded as tax haven countries.
According to overseas business survey executed by METI (Ministry of Economy, Trade and Industry), out of overseas affiliates and subsidiaries (approximately 17,000 companies) of Japanese companies, half of them are located in tax haven countries under the current system. With problems of a Japanese company being imposed additionally for its affiliate located in Hong Kong which led to court case, Nippon Keidanren (Japan Business Federation) etc. have been requesting the government to review the current system. Therefore, the government has started to study to revise the criteria to just over 20%.
3. Currently there are exceptions to applying tax haven rule.
Under the current corporate tax system, there are exceptions to applying tax haven rule; i.e. there are some cases in which the rule mentioned above is not applied even if the corporate tax rate of countries and regions in which overseas affiliates are located is below 25%. Many companies leverage exceptions when, for example, more than half the trade of overseas affiliate is with non-affiliate companies.
Being exceptions, there are demerits such as companies bearing cost trading with non-affiliate companies. The government is to take this into account as well in reviewing the system. For example, they are to study to review the system so that the regional (e.g. Asia and Europe) HQs of Japanese manufacturers will not need to apply tax haven system even if their trade with non-affiliates is less than half the total trade.
4. The government will study and implement regulation to eliminate tax dodging of companies.
Taking the opportunity of changing the application of tax haven rule, the government will also set regulation to eliminate tax dodge of Japanese companies. The government will study to imposing corporate tax exclusively on incomes from assets such as interest and dividends for exceptions of tax haven system overseas affiliates. This is designed to eliminate tax dodge by Japanese parent company that has earned dividend by investing to overseas companies establishing substantive paper company in a third country. The U.S. has already transferred to this kind of system.
In fact, at the G20 (Pittsburgh) Summit held in September in which 20 regions/countries participated, the participants agreed to strengthen monitoring tax dodge of investors using tax haven system. The Japanese government is to closely collaborate to exchange information with respective countries about tax dodge while strengthening regulation of tax dodge from financial trade.
* Tax Haven
(Source: Nikkei, edited and translated by the author)
Tax haven is country or region whose corporate tax rate and/or tax of interest and/or dividend is zero or extremely low. Well known are Cayman Islands and multi-national companies and financial institutions, hedge funds etc. have been applying tax haven countries in order to making escape from being imposed of corporate tax.
Japanese tax haven system is applicable to countries and regions whose corporate tax is below 25%, thus many people have been pointing out that this system have been applied to regions and countries which cannot be said that it is sufficiently at a low level. In fact, it is possible that this system is applied to countries such as China and Vietnam in which many Japanese companies have started business. The Japanese government has set exceptions but the criteria are too high and Japanese business world has been requesting for review.
Major exceptions for tax haven are as below.
1) Business criteria: Major business is not owning stocks and debts
2) Reality criteria: Offices exists at head office address.
3) Administration and control criteria: Administration and control of business is performed at head office address.
4) Non-affiliate criteria: Business is mainly done with non-affiliate companies.
Yesterday on December 12, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that the Japanese government has set policy of reviewing corporate tax system to change application rule of tax haven* with the objectives of eliminating tax dodge 2010 onwards. The government will lower the criteria of corporate tax burden of the regions and countries that the tax haven system is applicable for the first time, from the current 25% to just over 20%. Exceptions of the tax system will be more widely applied after the revision. These are all because emerging countries have been lowering corporate tax rate. This means bigger burden of corporate tax for Japanese companies, which could may well refrain them from starting and expanding their business in emerging countries. By reviewing the system, the Japanese government is to support Japanese companies starting and expanding business in growing markets.
1. Primary objective of changing the current tax haven application rule is to ease burden of Japanese companies.
Primary objective of the Japanese government reviewing the current corporate tax system is ease the burden of tax practices of Japanese companies. In a situation in which emerging countries have been aggressively lowering their corporate tax rate, it is not rationale to set the criteria of corporate rate tax rate for tax haven system application at 25%. And Ministry of Finance estimates that the decrease in corporate tax income by the corporate tax change is not critical.
2. Background of reviewing to change the system is the fact that corporate tax of Japan is the highest among developed countries.
Corporate tax of Japan is 40%, which is the highest among developed countries. And currently in principle, tax haven system is applicable to overseas affiliate companies located in regions and countries whose corporate tax rate is below 25%. When it is applied, a part of profit generated by the overseas affiliates is added to Japan HQ’s domestic income and the 40% of the sum is imposed as corporate tax. Under current criteria, it is quite possible that countries such as China, Korea, Vietnam and Russia, which Japanese companies are aggressive to enter and expand their business, are regarded as tax haven countries.
According to overseas business survey executed by METI (Ministry of Economy, Trade and Industry), out of overseas affiliates and subsidiaries (approximately 17,000 companies) of Japanese companies, half of them are located in tax haven countries under the current system. With problems of a Japanese company being imposed additionally for its affiliate located in Hong Kong which led to court case, Nippon Keidanren (Japan Business Federation) etc. have been requesting the government to review the current system. Therefore, the government has started to study to revise the criteria to just over 20%.
3. Currently there are exceptions to applying tax haven rule.
Under the current corporate tax system, there are exceptions to applying tax haven rule; i.e. there are some cases in which the rule mentioned above is not applied even if the corporate tax rate of countries and regions in which overseas affiliates are located is below 25%. Many companies leverage exceptions when, for example, more than half the trade of overseas affiliate is with non-affiliate companies.
Being exceptions, there are demerits such as companies bearing cost trading with non-affiliate companies. The government is to take this into account as well in reviewing the system. For example, they are to study to review the system so that the regional (e.g. Asia and Europe) HQs of Japanese manufacturers will not need to apply tax haven system even if their trade with non-affiliates is less than half the total trade.
4. The government will study and implement regulation to eliminate tax dodging of companies.
Taking the opportunity of changing the application of tax haven rule, the government will also set regulation to eliminate tax dodge of Japanese companies. The government will study to imposing corporate tax exclusively on incomes from assets such as interest and dividends for exceptions of tax haven system overseas affiliates. This is designed to eliminate tax dodge by Japanese parent company that has earned dividend by investing to overseas companies establishing substantive paper company in a third country. The U.S. has already transferred to this kind of system.
In fact, at the G20 (Pittsburgh) Summit held in September in which 20 regions/countries participated, the participants agreed to strengthen monitoring tax dodge of investors using tax haven system. The Japanese government is to closely collaborate to exchange information with respective countries about tax dodge while strengthening regulation of tax dodge from financial trade.
* Tax Haven
(Source: Nikkei, edited and translated by the author)
Tax haven is country or region whose corporate tax rate and/or tax of interest and/or dividend is zero or extremely low. Well known are Cayman Islands and multi-national companies and financial institutions, hedge funds etc. have been applying tax haven countries in order to making escape from being imposed of corporate tax.
Japanese tax haven system is applicable to countries and regions whose corporate tax is below 25%, thus many people have been pointing out that this system have been applied to regions and countries which cannot be said that it is sufficiently at a low level. In fact, it is possible that this system is applied to countries such as China and Vietnam in which many Japanese companies have started business. The Japanese government has set exceptions but the criteria are too high and Japanese business world has been requesting for review.
Major exceptions for tax haven are as below.
1) Business criteria: Major business is not owning stocks and debts
2) Reality criteria: Offices exists at head office address.
3) Administration and control criteria: Administration and control of business is performed at head office address.
4) Non-affiliate criteria: Business is mainly done with non-affiliate companies.
2009年12月6日日曜日
Service Price Drop in Japan Prominent: The Biggest Among 10 Major Countries
December 6, 2009 – Osaka, Japan
Today Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that price drop in service sector such as accommodation and hair dressing is severe in Japan. According to nationwide CPI* (Consumer Price Index), “general service” sector has been minus vs. previous year for 6 consecutive months, and for October the decrease ratio was the biggest in statistic history. With worldwide demand decrease, CPI has been dropping in western countries as well but Japan is the only country whose service price is minus. Ongoing price drop likely leads to stronger pressure for decrease in wages. Economic recovery driven by domestic demand that Hatoyama administration aims at is not easy.
Main Services Whose Price Has Dropped (As of October 2009)
(Source: Nikkei, translated by the author)
Service Name / CPI (vs. October 2008) / Actual Price (In Yen)
Accommodation / -2.0 / 16,032
Beef-on-rice dish / -0.3 / 390
Tatami mat repair / -0.3 / 6,871
Air conditioner installation / -0.4 / 14,043
Cleaning (men’s suit) / -0.2 / 1,108
Package tour (abroad) / -22.8 / 67,080
Monthly fees for English conversation lessons / -0.6 / 20,277
Playing golf / -4.2 / 14,031
Video rental / -12.9 / 317
Esthetic clinic / -0.1 / 13,065
Note: Index is of nationwide. Prices of accommodation, package tour (abroad) are of nationwide. Prices of all the rest is of Tokyo.
Prices of general services have been minus vs. previous year for 6 consecutive months since May this year, and it was -0.6% for October. Overall service including public sector was -0.5%, the biggest drop together with February 2005 since 1971 (statistics are available from 1971). During the 7-year deflation that started in 1998, price drop in service sector such as dining out was prominent but for general service sector, the biggest drop had been 0.3% of February 2001. Looking by industry, culture and entertainment service was -3.1%, accommodation was -2.0%, package tour (abroad) was -22.8%, playing golf was -4.2%, and using karaoke room was -2.6. Among dining out, “symbol of deflation items” of bee-on-rice dish and hamburgers were minus vs. October 2008.
Frequency of using services also is decreasing and expenditure of household is greater than drop in unit price. According to household budget survey executed in October 2009, expenditure for tea and coffee of households with two or more wage-earners was -14.3%. Services related to clothing such as cleaning was -6.6%. Package tour was -8.0% and monthly fee for foreign language lessons was -5.6%.
Price drop for Japan is prominent compared to western countries; service prices was +0.9% for the U.S. and +1.8% for EU. One reason that Japan’s service prices tends to drop easily unlike western countries is difference in employment practice. Large portion of service cost is labour cost. When demand decreases, many western countries immediately cut jobs to align supply capacity with demand decrease and maintain prices. However, Japan still tends to prioritize job preservation. Many Japanese service companies try to preserve jobs in severe competition in their service sector, and therefore they are faced with bigger pressure to lower wages.
Another reason for price drop is the fact that Japan is facing severe demand shortage (over supply). According to estimation of IMF (International Monetary Fund), “demand-capacity gap” between actual demand and potential supply capacity is between -3% and -4% for western countries but is as high as -7% for Japan. In amount, Japan’s demand shortage is as big as 35 trillion yen/year and deflation pressure is large.
Service sector is an important market covering almost 60% of Japan domestic consumption, so price drop in this sector tends to lead to lowering of wages and it cannot be denied that it triggers further deflation. Hatayama administration advocates that it is to stimulate domestic demand by incentives for bringing up children etc. However, if price drop should continue, revenues of companies would not grow and it is quite possible that economy boosting measures as increase in income become ineffective.
* CPI (Consumer Price Index)
(Source: Nikkei, edited and translated by the author)
CPI is an economic indicator used to understand price trend of products and services that consumers pay to purchase. In Japan, MIC (Ministry of Internal Affairs and Communications) announces the index monthly. Index including items whose price fluctuation is large such as fresh foods draws much attention, and this index is an important factor for BOJ (Bank of Japan) in making policies such as interest rate cut. With continuous drop in index, the government also officially announced that Japan is in deflation status in November, as mentioned in the previous article How Japan Can Get Out From 10 Year Deflation?
Some experts point out that actual price fluctuation has not been accurately tracked in recent years. This is because the items used in calculating index are mainly regular items traded and distributed nationwide, when market share of PB (Private Brand) products are increasing in super markets, meaning the actual price drop (actual price that consumers pay) is bigger than that of the index.
Today Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that price drop in service sector such as accommodation and hair dressing is severe in Japan. According to nationwide CPI* (Consumer Price Index), “general service” sector has been minus vs. previous year for 6 consecutive months, and for October the decrease ratio was the biggest in statistic history. With worldwide demand decrease, CPI has been dropping in western countries as well but Japan is the only country whose service price is minus. Ongoing price drop likely leads to stronger pressure for decrease in wages. Economic recovery driven by domestic demand that Hatoyama administration aims at is not easy.
Main Services Whose Price Has Dropped (As of October 2009)
(Source: Nikkei, translated by the author)
Service Name / CPI (vs. October 2008) / Actual Price (In Yen)
Accommodation / -2.0 / 16,032
Beef-on-rice dish / -0.3 / 390
Tatami mat repair / -0.3 / 6,871
Air conditioner installation / -0.4 / 14,043
Cleaning (men’s suit) / -0.2 / 1,108
Package tour (abroad) / -22.8 / 67,080
Monthly fees for English conversation lessons / -0.6 / 20,277
Playing golf / -4.2 / 14,031
Video rental / -12.9 / 317
Esthetic clinic / -0.1 / 13,065
Note: Index is of nationwide. Prices of accommodation, package tour (abroad) are of nationwide. Prices of all the rest is of Tokyo.
Prices of general services have been minus vs. previous year for 6 consecutive months since May this year, and it was -0.6% for October. Overall service including public sector was -0.5%, the biggest drop together with February 2005 since 1971 (statistics are available from 1971). During the 7-year deflation that started in 1998, price drop in service sector such as dining out was prominent but for general service sector, the biggest drop had been 0.3% of February 2001. Looking by industry, culture and entertainment service was -3.1%, accommodation was -2.0%, package tour (abroad) was -22.8%, playing golf was -4.2%, and using karaoke room was -2.6. Among dining out, “symbol of deflation items” of bee-on-rice dish and hamburgers were minus vs. October 2008.
Frequency of using services also is decreasing and expenditure of household is greater than drop in unit price. According to household budget survey executed in October 2009, expenditure for tea and coffee of households with two or more wage-earners was -14.3%. Services related to clothing such as cleaning was -6.6%. Package tour was -8.0% and monthly fee for foreign language lessons was -5.6%.
Price drop for Japan is prominent compared to western countries; service prices was +0.9% for the U.S. and +1.8% for EU. One reason that Japan’s service prices tends to drop easily unlike western countries is difference in employment practice. Large portion of service cost is labour cost. When demand decreases, many western countries immediately cut jobs to align supply capacity with demand decrease and maintain prices. However, Japan still tends to prioritize job preservation. Many Japanese service companies try to preserve jobs in severe competition in their service sector, and therefore they are faced with bigger pressure to lower wages.
Another reason for price drop is the fact that Japan is facing severe demand shortage (over supply). According to estimation of IMF (International Monetary Fund), “demand-capacity gap” between actual demand and potential supply capacity is between -3% and -4% for western countries but is as high as -7% for Japan. In amount, Japan’s demand shortage is as big as 35 trillion yen/year and deflation pressure is large.
Service sector is an important market covering almost 60% of Japan domestic consumption, so price drop in this sector tends to lead to lowering of wages and it cannot be denied that it triggers further deflation. Hatayama administration advocates that it is to stimulate domestic demand by incentives for bringing up children etc. However, if price drop should continue, revenues of companies would not grow and it is quite possible that economy boosting measures as increase in income become ineffective.
* CPI (Consumer Price Index)
(Source: Nikkei, edited and translated by the author)
CPI is an economic indicator used to understand price trend of products and services that consumers pay to purchase. In Japan, MIC (Ministry of Internal Affairs and Communications) announces the index monthly. Index including items whose price fluctuation is large such as fresh foods draws much attention, and this index is an important factor for BOJ (Bank of Japan) in making policies such as interest rate cut. With continuous drop in index, the government also officially announced that Japan is in deflation status in November, as mentioned in the previous article How Japan Can Get Out From 10 Year Deflation?
Some experts point out that actual price fluctuation has not been accurately tracked in recent years. This is because the items used in calculating index are mainly regular items traded and distributed nationwide, when market share of PB (Private Brand) products are increasing in super markets, meaning the actual price drop (actual price that consumers pay) is bigger than that of the index.
GHG Emission Reduction Outlook of Japanese Manufacturers (13.9%) vs. Government’s Target (25%)
Saturday, December 5, 2009 – Osaka, Japan
On December 3, Nikkei, Japan’s leading newspaper specialized in economy/business and news, reported that according to their survey result of Environment Management, outlook of total GHG (Global Greenhouse Gas) reduction by primary Japanese companies by 2010 is 13.9% vs. 1990. Prime Minister Hatayama had set an extremely aggressive target of 25% and made a speech on it in the at the United Nation’s Climate Change Summit held on September 22 in New York, as mentioned in the previous article Japan Takes Lead in GHG Emission Reduction in the UN’s Climate Change Summit, and therefore there is a big gap between the target and the outlook. If the companies are to achieve the target, it is possible that they are forced to bear heavy burden such as purchasing emission allocation from overseas and therefore they cannot continue production in Japan.
The survey was executed in the beginning of November to which 835 companies including non-manufacturers answered. To the question regarding the degree of GHG emission reduction by 2020 by introducing energy saving equipments etc., 160 manufacturers answered and the weighted average was 13.9% vs. 1990. Industry section including manufacturers covers 37% of total Japan domestic GHG emission. 183 non-manufacturers (excluding electricity and gas companies) answered and their weighted average was 14.3% vs. 1990.
Mid-term target set under the previous Aso administration was 15% reduction vs. 2005, which is equivalent to 8% vs. 1990 and this target can be achieved without problem, but not the target set by the Hatoyama administration. Looking the outlook by industry, the drivers of GHG emission reduction are electronics that expects demand increase of solar batteries and EV cars is 33.1%, and automobile and components is 28.1%. Indeed, companies in such industries are the main players in top 20 of the Environment Management Ranking.
Environment Management Ranking
(Source: Nikkei, translated by the author)
Ranking(2009) / Ranking(2008) / Company Name / Score (500 = max)
1 / 4 / Panasonic / 490
2 / 17 / Sharp / 487
3 / 14 / Mitsubishi Electric / 485
4 / 5 / NEC / 483
5 / 1 / Toyota / 482
6 / 2 / Toshiba / 478
7 / 9 / Kyocera / 474
7 / 11 / Canon / 474
9 / 6 / Fuji Film Holdings / 473
9 / 22 / Nissan / 473
9 / 30 / Canon Electronics / 473
12 / 6 / Denso / 470
13 / 34 / Toyota Boshoku / 469
13 / 29 / Sumitomo Rubber Industries / 469
13 / 12 / Ricoh / 469
16 / 40 / TDK / 467
16 / 13 / Sanyo / 467
18 / 86 / NEC Tokin / 466
19 / 14 / Toyota Gosei / 465
19 / 24 / Dainippon Printing / 465
Scores were calculated in 5 fields: global warming countermeasure, product countermeasure, resource recycling, environment management organization, and countermeasures in contamination and biological diversity. Manufacturers were ranked by total scores of the 5 fields across the industry, and non-manufacturers were ranked by their own industry.
Panasonic, ranked #4 last year, was #1 this year, with highest score in environment management organization, and countermeasures in contamination and biological diversity, and with second highest score in global warming countermeasure. Department specialized in environment management strategy has been established which is directly controlled by the CEO, which has been promoting company-wide purchasing, equipment investment and development. As a result, they succeeded in promoting natural energy equipment installation such as natural gas implementation and use of solar energy to generate electricity to achieve their own GHG emission reduction mid-term target of minus 510 ton vs. 2006 in 2008, 1 year ahead of the original plan. Increasing energy saving products, that are the #1 in energy saving in its product category at the point of launch, totaled 233 in 2008, which was 3 times that of 2007, and Mr. Ohtsubo, the CEO, says that this will be further promoted when the acquisition of Sanyo is complete.
Sharp, ranked #17 last year, was #2 this year, with highest score in environment management organization together with Panasonic. Long term target is set in which by 2020 GHG emission reduction is to be tripled from original plan with new energy saving products by such measures as leveraging solar batteries.
Mitsubishi Electric, ranked #3 this year, has set the target of GHG emission upon production by 2021 by 30% vs. 1990. Representatives for this task have already been located in worldwide production sites and environmental experts from Global & Group HQ have been visiting the sites once every two years. NEC, ranked #4 this year, scored the highest in global warming countermeasures and products.
Toyota, that had been #1 for three consecutive years, was #5 this year. They have been aggressively launching EV cars, accumulating total reaching 2 million cars at the end of August this year. Nissan, which has also been aggressively promoting eco-car strategy, improved its ranking from #22 to #9.
The gap between gap between the outlook from the survey result of 13.9% for manufactures and the aggressive target of 25% set by the government and the current outlook of 13.9% is large and eliminating the gap is extremely tough. However, the author believes that the companies are capable of further driving innovation to drastically decrease GHG emission, eliminating the gap in the end.
On December 3, Nikkei, Japan’s leading newspaper specialized in economy/business and news, reported that according to their survey result of Environment Management, outlook of total GHG (Global Greenhouse Gas) reduction by primary Japanese companies by 2010 is 13.9% vs. 1990. Prime Minister Hatayama had set an extremely aggressive target of 25% and made a speech on it in the at the United Nation’s Climate Change Summit held on September 22 in New York, as mentioned in the previous article Japan Takes Lead in GHG Emission Reduction in the UN’s Climate Change Summit, and therefore there is a big gap between the target and the outlook. If the companies are to achieve the target, it is possible that they are forced to bear heavy burden such as purchasing emission allocation from overseas and therefore they cannot continue production in Japan.
The survey was executed in the beginning of November to which 835 companies including non-manufacturers answered. To the question regarding the degree of GHG emission reduction by 2020 by introducing energy saving equipments etc., 160 manufacturers answered and the weighted average was 13.9% vs. 1990. Industry section including manufacturers covers 37% of total Japan domestic GHG emission. 183 non-manufacturers (excluding electricity and gas companies) answered and their weighted average was 14.3% vs. 1990.
Mid-term target set under the previous Aso administration was 15% reduction vs. 2005, which is equivalent to 8% vs. 1990 and this target can be achieved without problem, but not the target set by the Hatoyama administration. Looking the outlook by industry, the drivers of GHG emission reduction are electronics that expects demand increase of solar batteries and EV cars is 33.1%, and automobile and components is 28.1%. Indeed, companies in such industries are the main players in top 20 of the Environment Management Ranking.
Environment Management Ranking
(Source: Nikkei, translated by the author)
Ranking(2009) / Ranking(2008) / Company Name / Score (500 = max)
1 / 4 / Panasonic / 490
2 / 17 / Sharp / 487
3 / 14 / Mitsubishi Electric / 485
4 / 5 / NEC / 483
5 / 1 / Toyota / 482
6 / 2 / Toshiba / 478
7 / 9 / Kyocera / 474
7 / 11 / Canon / 474
9 / 6 / Fuji Film Holdings / 473
9 / 22 / Nissan / 473
9 / 30 / Canon Electronics / 473
12 / 6 / Denso / 470
13 / 34 / Toyota Boshoku / 469
13 / 29 / Sumitomo Rubber Industries / 469
13 / 12 / Ricoh / 469
16 / 40 / TDK / 467
16 / 13 / Sanyo / 467
18 / 86 / NEC Tokin / 466
19 / 14 / Toyota Gosei / 465
19 / 24 / Dainippon Printing / 465
Scores were calculated in 5 fields: global warming countermeasure, product countermeasure, resource recycling, environment management organization, and countermeasures in contamination and biological diversity. Manufacturers were ranked by total scores of the 5 fields across the industry, and non-manufacturers were ranked by their own industry.
Panasonic, ranked #4 last year, was #1 this year, with highest score in environment management organization, and countermeasures in contamination and biological diversity, and with second highest score in global warming countermeasure. Department specialized in environment management strategy has been established which is directly controlled by the CEO, which has been promoting company-wide purchasing, equipment investment and development. As a result, they succeeded in promoting natural energy equipment installation such as natural gas implementation and use of solar energy to generate electricity to achieve their own GHG emission reduction mid-term target of minus 510 ton vs. 2006 in 2008, 1 year ahead of the original plan. Increasing energy saving products, that are the #1 in energy saving in its product category at the point of launch, totaled 233 in 2008, which was 3 times that of 2007, and Mr. Ohtsubo, the CEO, says that this will be further promoted when the acquisition of Sanyo is complete.
Sharp, ranked #17 last year, was #2 this year, with highest score in environment management organization together with Panasonic. Long term target is set in which by 2020 GHG emission reduction is to be tripled from original plan with new energy saving products by such measures as leveraging solar batteries.
Mitsubishi Electric, ranked #3 this year, has set the target of GHG emission upon production by 2021 by 30% vs. 1990. Representatives for this task have already been located in worldwide production sites and environmental experts from Global & Group HQ have been visiting the sites once every two years. NEC, ranked #4 this year, scored the highest in global warming countermeasures and products.
Toyota, that had been #1 for three consecutive years, was #5 this year. They have been aggressively launching EV cars, accumulating total reaching 2 million cars at the end of August this year. Nissan, which has also been aggressively promoting eco-car strategy, improved its ranking from #22 to #9.
The gap between gap between the outlook from the survey result of 13.9% for manufactures and the aggressive target of 25% set by the government and the current outlook of 13.9% is large and eliminating the gap is extremely tough. However, the author believes that the companies are capable of further driving innovation to drastically decrease GHG emission, eliminating the gap in the end.
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