Osaka – Tuesday, August 10, 2010
Nikkei, Japanese newspaper specialized in business and economy, reported on August 7 on how “eco-consumption (economic and ecological consumption)” is proliferating among Japanese customers, and how companies are trying to adapt to such customer needs. Japanese customers today seek to gain maximum satisfaction with minimum spending for maximum ROI of their spending. Such trend attributes to deflation, making consumers becoming smarter and smarter, to set extremely high standard in selecting which products and services to buy. In order to make smart consumers buy、 companies are forced to review their business strategy.
1. Why Japanese consumers are so keen on value of “low price plus something”?
It is because of their annually income when deflation is proceeding as mentioned in the previous article How Japan Can Get Out From 10 Year Deflation?. According to the survey executed by MLHW (Ministry of Health, Labour and Welfare), average income of household with children in 2008 was only 6.88 million yen, a decrease by 12% from the peak in 1996. It is estimated that the average income has decreased further in 2009 due to the worldwide economic recession.
2. How companies are trying to convince smart Japanese consumers to buy?
There are mainly 2 ways in which Japanese companies are trying to convince smart Japanese consumers to buy their products and services.
1) “Trial” campaign
This helps and encourages customers, who evaluate and select products and services severely based on their values, to judge ROI (return on investment) and convince that the products and services is pays and match their value.
Tryfeel Collection http://www.tryfeel.jp is a website that provides services that lets its customers try for the first time with average of 30% discount services hotels, restaurants and hair dressers, of total of 2800 nationwide. Its membership increased tenfold to reach 120,000 in only a year. The business owner of Tryfeel comments that women who want to confirm if they can really be satisfied with the products and services with discount rate by trial have increased in particular.
Companies have also been attentive to this strategy as an effective way of acquiring new customers. Many companies including high class hotels have already joined this campaign and the membership hotels and shops quintupled in a year. The Ritz Carton Osaka spokesperson says it pays as long as the new customers are converted into repeaters.
2) Low price plus appealing value/benefit(s)
Low price alone does not appeal to smart customers today; appealing value/benefit(s) to consumers in addition is also crucial. Defining the additional value/benefit(s) appropriately is the key for this strategy.
A good example is laundry detergent, “Attack NEO”, Kao’s best selling brand that recorded sales of 20 billion yen in a year. What attracted consumers is the product concept of “minimizing the number of rinsing in addition to its strong detergency. The concept leads to not only saving water and electricity but also wash time by 13 – 16 minutes in the case of drum-type washer-dryers. Decrease in wash time is supported by housewives, who are happy that that the product saved their house work time.
3. What new trend of customer and company relationship is emerging?
A few new trends of relationship between customer and company are emerging, that was not seen in the old economy. Underlying issue of this new trends is “who decides price = reflecting the value of products and services”.
1) Joint purchase
This is a system in which individuals (not acquaintances) connected on the Internet get together and seek to buy the products they want with low price. In this system, the more individual buyers get together, the lower the price it gets, sometimes as low as the price of major customers.
A good example is the recent case of a leading website called “netprice” http://www.netprice.co.jp/. The website attracted nearly 100 people who wanted to buy Adidas sports shoes in the beginning of this month. As a result, the price dropped from the original recommended retail price of 9,450 yen to 4,700 yen.
2) New pricing restaurant
In this new system, it is the customers that decide the price they pay for the foods they enjoyed.
The event of this new system is held by an organization that supports opening of restaurants in Yokohama. On average 3 events are held monthly and 40 reserved seats are always fully booked. The chef monthly serves cuisines full of originality. There is a rule that each customer needs to pay an admission fee of 1,500 yen and additional fee of the cuisine, maximum being 15,000 yen; however, the final decision of how much to pay is made by the customers who have enjoyed the cuisine.
4. What is the assumed future trend?
The eco-consumption style for lean and streamlined household spending is assumed to accelerate. It is companies and business owners that can catch up with such change and trend that is to open the new door to the new market. There are 3 points that support this assumption.
1) Result of recent household budget survey
A private financial institute recently executed household budget survey, to which 78% respondents answered that they want to review their household budget to make it lean and streamlined. Citizens just need to cut spending when their income decreases. In such a situation, if they want to maintain pleasure of living, they would need to focus more than they used to on spending performance in addition to low price.
2) Further downsizing in household budget
Household budget, that supports consumption, is estimated to further downsize in number of household as well as amount per household (= income). Due to low birthrate, the growth in the number of household in Japan is estimated to become negative in 2016 and by 2030 it will become 48.8 million households, which is decrease by 4% from today.
3) Shift in main players of consumption market
The main players of consumption market will shift to people in 20s and 30s, who have been brought up in “2 decades of deflation” when household budget has been downsizing. This is assumed to accelerate the trend of eco-consumption.
2010年8月10日火曜日
2010年1月3日日曜日
How Japan’s Growth Strategy Should Be?
Sunday, January 3, 2010 – Osaka, Japan
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on December 31 2009 that on December 30 the Japanese government defined basic policy new growth strategy for sustainable economic growth. “Economic management is to be performed, positioning achievement of nominal growth rate* as the most important challenge” is specified. Targets including “By 2010 average nominal growth rate of 3% and bigger growth than actual growth rate of 2%” with engines of industries including environment, healthcare and tourism, and “nominal GDP (Gross Domestic Product) of 650 trillion yen for 2020” were specified. However, according to an article reported today by Nikkei, approximately 60% of 17 economy experts are dissatisfied with the government’s economic policy and estimate that it takes a few years for the economy to recover.
1. Why “nominal“ instead of “actual” is used to define growth target?
It is unusual for the government to define growth target in “nominal” instead of “actual” excluding effects of price fluctuation. “Nominal“ is used from the sense of urgency of the current economic situation; deflation mentioned in the previous article "How Japan Can Get Out From 10 Year Deflation?" and its negative effect on family budget and company business.
2. How has Japan’s nominal GDP been until today? What are the upcoming plans?
For nearly 20 years since 1990, Japan’s nominal GDP has been hovering at the low level of 500 trillion yen, and therefore 650 trillion yen level is increase by +30% vs. 2008. Growth of nominal growth rate of +3% has not been achieved since 1991.
In order to achieve both nominal growth rate of 3% and actual growth rate of 2%, first, deflation needs to be overcome then control inflation rate under 1%/year. Mr. Naoto Kan, Vice Prime Minister and Head of National Strategy emphasized in the press conference held on December 30 that “these targets are sufficiently achievable”; however, experts feel that it is difficult to achieve the targets, considering the past Japanese economy performances and financial policies.
Prime Minister Mr. Yukio Hatoyama expressed in the press conference on December 30 his determination to achieve the target, saying that he is fully aware that the effectiveness of his administration really counts. The government is to develop growth strategy action plan (roadmap/timeline) for the time span until 2020 by June.
3. Which fields are to be focused to achieve growth strategy?
The following 6 fields are specified as focuses for growth strategy.
1) Environment and energy
Expand environment related market from 70 trillion yen to 120 trillion yen. Create 1.4 million jobs. Leverage Japan’s technologies to contribute to cutting 1.3 billion ton worldwide GHG, equivalent to Japan’s emission volume. Leverage IT to make next generation transmission network pervasive to control electricity supply. Make pervasive eco-friendly housing and expand natural energy use, and LED and other energy saving lighting.
2) Healthcare
Create healthcare, nursing and medical market of 45 trillion yen and 280 jobs by leveraging technologies to create internal and external demand. Initiate R&D of innovative medical and nursing technologies such as regenerative medicine, telemedicine system, nursing robots etc. and provide healthcare related services to Asian markets expected to experience aging society. Strengthen infrastructure supporting aging society such as medical, nursing and housing to eliminate anxieties for the future to promote consumption by elders.
3) Asia
Create demand together with Asia, “the growth centre of the world”, positioning formulation of EFAAP covering 21 countries and regions that are currently members of APEC as its foundation. Develop infrastructure demand of Asia such as transportation, water and energy.
4) Tourism and revitalizing local community
Achieve in line with 1)-3)
5) Science and technologies
Achieve in line with 1)-3)
6) Employment and human resources
Achieve in line with 1)-3)
4. How effective is the growth strategy?
The author basically agrees with views of majority of experts; measures for achievement are not clear and need to focus more on motivating companies and other private sector to invest in growth sectors such as deregulation, tangible growth strategy development and execution, and develop mid-term financial policy outlook/plan. Focusing on assisting family budget, the biggest anxiety lies in whether the Hatoyama administration can educe vitality of companies, the source/engine of economic growth.
Reasons for such evaluation from experts include lack of explanation of concrete policies, and lack of perspective that main player (source/engine) of economic growth is companies. The latter is more critical.
Drivers and engines of economic growth are R&D of companies and equipment investment. It is unlikely to achieve high growth driven by inefficient public sector, and sufficient financial resource cannot be acquired, neither. In fact, in 2008, value added (personnel cost, profit, corporate tax etc.) generated by companies excluding financial institutes reached 26.4 trillion yen. This means that more than 50% of nominal GDP is generated by companies.
5. What is the ideal scenario for economic recovery and achieving the target?
The government is supposed to buy over companies and market, and give incentives and motivation, creating favourable environment for companies and other private sectors to proactively invest in growth sectors. That is the solution to solve the root cause of the ongoing economic plunge. Also minimizing interference of government is necessary and public institutions not to get in the way of private sectors making decisions.
However, from the growth strategy reported, such message is not sufficiently delivered. It does not remove anxieties mentioned in the previous articles "How Japan Can Get Out From 10 Year Deflation?", "Japanese Companies Refraining from Equipment Investmen", "Service Price Drop in Japan Prominent: The Biggest Among 10 Major Countries" and "Japan's Debt to Drastically Increase - What is the Effect on Economy?"
Mentality of “Economy for human being based on friendship and love” alone is not sufficient to achieve the economic growth. Nikkei introduces varieties of innovative technologies of all sectors and industries (environment and energy, healthcare, IT etc.) in their special reports on January 1 2010. It is with tangible growth strategy, tactics and action plan leveraging such technologies, that create new demand and market in sectors and industries where needs exist in aging society with low birthrate, ubiquitous networking society. And it is with appropriate economic policies mentioned by the economists in Nikkei’s report on January 3 such as deregulation, tangible mid-term financial policy outlook, reduction in corporate tax rate (currently 40%), concluding EPA/FTA with Asian countries/regions, and pension system reform that create favourable environment for the growth strategy to be actually executed.
It is only when companies invest in such growth sectors, (many of them contributing to improving social infrastructure and systems), collaborate with academia and other public sectors in R&D in particular, and operate efficiently with high productivity, that they would be able to generate revenue to improve their financial performance. It is with good financial performance of companies that leads to new job creation, higher salaries for their employees, pensions guarantee etc., which contributes to minimizing anxieties of citizens making their own living and live happily after retirement as well as providing citizens with better lives and society, based on the mentality of “friendship and love”. It is by eliminating their anxieties that citizens utilize allowances for consumer spending instead of setting aside for saving, meaning the government’s economy boosting measures become successful, and as a result Japan will be able to get out of deflation, its economy recovered, and achieve the target.
We would need to wait and see what kind of roadmap and action plan the government will develop and announce in June.
* Nominal Growth Rate (Source: Nikkei, edited and translated by the author)
Nominal growth rate is GDP growth rate including effects of price fluctuation. Almost equals to sum of after-tax pay of workers and profits generated by companies. In general, changes in GDP are measured by actual growth rate (excluding effects of price fluctuation) but nominal growth rate can be said to precisely reflect the actual sensation of business and economy because income and profits are all of nominal value.
Average economic growth rate by decades since 1980
Decades / Nominal Growth Rate (%) / Actual Growth Rate (%)
1980s / 6.1 / 3.8
1990s / 2.0 / 1.4
2000s / -0.5 / 0.7
Rise in nominal growth rate leads to both getting out of deflation and economic growth. In 2000s, actual growth rate was +0.7% but nominal growth rate was -0.5%, which implies that long term economic recovery was achieved but lacked in actual sensation. This was because nominal growth rate was minus.
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on December 31 2009 that on December 30 the Japanese government defined basic policy new growth strategy for sustainable economic growth. “Economic management is to be performed, positioning achievement of nominal growth rate* as the most important challenge” is specified. Targets including “By 2010 average nominal growth rate of 3% and bigger growth than actual growth rate of 2%” with engines of industries including environment, healthcare and tourism, and “nominal GDP (Gross Domestic Product) of 650 trillion yen for 2020” were specified. However, according to an article reported today by Nikkei, approximately 60% of 17 economy experts are dissatisfied with the government’s economic policy and estimate that it takes a few years for the economy to recover.
1. Why “nominal“ instead of “actual” is used to define growth target?
It is unusual for the government to define growth target in “nominal” instead of “actual” excluding effects of price fluctuation. “Nominal“ is used from the sense of urgency of the current economic situation; deflation mentioned in the previous article "How Japan Can Get Out From 10 Year Deflation?" and its negative effect on family budget and company business.
2. How has Japan’s nominal GDP been until today? What are the upcoming plans?
For nearly 20 years since 1990, Japan’s nominal GDP has been hovering at the low level of 500 trillion yen, and therefore 650 trillion yen level is increase by +30% vs. 2008. Growth of nominal growth rate of +3% has not been achieved since 1991.
In order to achieve both nominal growth rate of 3% and actual growth rate of 2%, first, deflation needs to be overcome then control inflation rate under 1%/year. Mr. Naoto Kan, Vice Prime Minister and Head of National Strategy emphasized in the press conference held on December 30 that “these targets are sufficiently achievable”; however, experts feel that it is difficult to achieve the targets, considering the past Japanese economy performances and financial policies.
Prime Minister Mr. Yukio Hatoyama expressed in the press conference on December 30 his determination to achieve the target, saying that he is fully aware that the effectiveness of his administration really counts. The government is to develop growth strategy action plan (roadmap/timeline) for the time span until 2020 by June.
3. Which fields are to be focused to achieve growth strategy?
The following 6 fields are specified as focuses for growth strategy.
1) Environment and energy
Expand environment related market from 70 trillion yen to 120 trillion yen. Create 1.4 million jobs. Leverage Japan’s technologies to contribute to cutting 1.3 billion ton worldwide GHG, equivalent to Japan’s emission volume. Leverage IT to make next generation transmission network pervasive to control electricity supply. Make pervasive eco-friendly housing and expand natural energy use, and LED and other energy saving lighting.
2) Healthcare
Create healthcare, nursing and medical market of 45 trillion yen and 280 jobs by leveraging technologies to create internal and external demand. Initiate R&D of innovative medical and nursing technologies such as regenerative medicine, telemedicine system, nursing robots etc. and provide healthcare related services to Asian markets expected to experience aging society. Strengthen infrastructure supporting aging society such as medical, nursing and housing to eliminate anxieties for the future to promote consumption by elders.
3) Asia
Create demand together with Asia, “the growth centre of the world”, positioning formulation of EFAAP covering 21 countries and regions that are currently members of APEC as its foundation. Develop infrastructure demand of Asia such as transportation, water and energy.
4) Tourism and revitalizing local community
Achieve in line with 1)-3)
5) Science and technologies
Achieve in line with 1)-3)
6) Employment and human resources
Achieve in line with 1)-3)
4. How effective is the growth strategy?
The author basically agrees with views of majority of experts; measures for achievement are not clear and need to focus more on motivating companies and other private sector to invest in growth sectors such as deregulation, tangible growth strategy development and execution, and develop mid-term financial policy outlook/plan. Focusing on assisting family budget, the biggest anxiety lies in whether the Hatoyama administration can educe vitality of companies, the source/engine of economic growth.
Reasons for such evaluation from experts include lack of explanation of concrete policies, and lack of perspective that main player (source/engine) of economic growth is companies. The latter is more critical.
Drivers and engines of economic growth are R&D of companies and equipment investment. It is unlikely to achieve high growth driven by inefficient public sector, and sufficient financial resource cannot be acquired, neither. In fact, in 2008, value added (personnel cost, profit, corporate tax etc.) generated by companies excluding financial institutes reached 26.4 trillion yen. This means that more than 50% of nominal GDP is generated by companies.
5. What is the ideal scenario for economic recovery and achieving the target?
The government is supposed to buy over companies and market, and give incentives and motivation, creating favourable environment for companies and other private sectors to proactively invest in growth sectors. That is the solution to solve the root cause of the ongoing economic plunge. Also minimizing interference of government is necessary and public institutions not to get in the way of private sectors making decisions.
However, from the growth strategy reported, such message is not sufficiently delivered. It does not remove anxieties mentioned in the previous articles "How Japan Can Get Out From 10 Year Deflation?", "Japanese Companies Refraining from Equipment Investmen", "Service Price Drop in Japan Prominent: The Biggest Among 10 Major Countries" and "Japan's Debt to Drastically Increase - What is the Effect on Economy?"
Mentality of “Economy for human being based on friendship and love” alone is not sufficient to achieve the economic growth. Nikkei introduces varieties of innovative technologies of all sectors and industries (environment and energy, healthcare, IT etc.) in their special reports on January 1 2010. It is with tangible growth strategy, tactics and action plan leveraging such technologies, that create new demand and market in sectors and industries where needs exist in aging society with low birthrate, ubiquitous networking society. And it is with appropriate economic policies mentioned by the economists in Nikkei’s report on January 3 such as deregulation, tangible mid-term financial policy outlook, reduction in corporate tax rate (currently 40%), concluding EPA/FTA with Asian countries/regions, and pension system reform that create favourable environment for the growth strategy to be actually executed.
It is only when companies invest in such growth sectors, (many of them contributing to improving social infrastructure and systems), collaborate with academia and other public sectors in R&D in particular, and operate efficiently with high productivity, that they would be able to generate revenue to improve their financial performance. It is with good financial performance of companies that leads to new job creation, higher salaries for their employees, pensions guarantee etc., which contributes to minimizing anxieties of citizens making their own living and live happily after retirement as well as providing citizens with better lives and society, based on the mentality of “friendship and love”. It is by eliminating their anxieties that citizens utilize allowances for consumer spending instead of setting aside for saving, meaning the government’s economy boosting measures become successful, and as a result Japan will be able to get out of deflation, its economy recovered, and achieve the target.
We would need to wait and see what kind of roadmap and action plan the government will develop and announce in June.
* Nominal Growth Rate (Source: Nikkei, edited and translated by the author)
Nominal growth rate is GDP growth rate including effects of price fluctuation. Almost equals to sum of after-tax pay of workers and profits generated by companies. In general, changes in GDP are measured by actual growth rate (excluding effects of price fluctuation) but nominal growth rate can be said to precisely reflect the actual sensation of business and economy because income and profits are all of nominal value.
Average economic growth rate by decades since 1980
Decades / Nominal Growth Rate (%) / Actual Growth Rate (%)
1980s / 6.1 / 3.8
1990s / 2.0 / 1.4
2000s / -0.5 / 0.7
Rise in nominal growth rate leads to both getting out of deflation and economic growth. In 2000s, actual growth rate was +0.7% but nominal growth rate was -0.5%, which implies that long term economic recovery was achieved but lacked in actual sensation. This was because nominal growth rate was minus.
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.
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.
2009年11月22日日曜日
How Japan Can Get Out From 10 Year Deflation?
November 22, 2009 – Osaka, Japan
Yesterday Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that in November’s Monthly Economy White Paper issued on November 20, the Japanese economy is “in the moderate deflation status”. It is first time in 3 years and 5 months since June 2006 that the Japanese government officially identified deflation in the monthly white paper. Although the domestic economy has started to improve, with decrease in prices, there is a risk that company revenues deteriorate and unemployment increases. Therefore, the government is to speed up to drafting revised budget plan focusing on employment measures etc. The Japanese Economy will be much hobbled by deflation, and Mr. Kan Naoto, the Deputy Prime Minister, requested BOJ (Bank of Japan) also to cooperate to lead out from deflation in the press conference held on November 20. However, financial measure that BOJ can take is extremely.
According to Nikkei, Mr. Shirakawa, the Bank of Japan Governor, refrained from explicitly stating that the Japanese economy is in the deflation status in the press conference held on November 20 after Monetary Policy Meeting, but Mr. Kan judged as deflation for the following three reasons.
1. CPI (Consumer Price Index) is continuously decreasing. (This is conspicuous compared with western countries).
2. Respective index growth rate has been below actual for two consecutive quarters,
3. “Demand-Supply gap”, which is subtracting potential supply capacity from demand, has been minus and the degree of minus has expanded to 40 billion yen/year. This is a huge demand deficit.
The Actual Deflation is Much More Severe than the Statistics
(Source: Nikkei, translated by the author)
Item / Actual Purchasing Price vs. Previous Year / Actual Purchasing Price (yen) / CPI vs. Previous Year / CPI Sales Price (yen)
Men’s Suits / -40.4 / 23,604 / -1.7 / 37,092
TV Sets / -26.6 / 119,900 / -33.6 / 90,914
Skirts / -25.4 / 5,153 / -2.5 / 8,728
Umbrella / -23.3 / 801 / -0.8 / 2,505
Handbag / -19.0 / 7,399 / 0.2 / 15,905
Children’s Shirts / -13.9 / 952 / -2.9 / 637
Blouse / -12.0 / 3,647 / 1.2 / 5,742
Boy’s Socks / -7.8 / 298 / -0.9 / 679
Notes: Actual purchasing price is from purchasing price from family budget survey. Sales price is September’s price of Tokyo retail price statistics survey, which is the original statistics of CPI.
The reason for the government’s judgment is September’s CPI (excluding fresh food) was -2.3 from a year ago, and until August CPI has been dropping for four consecutive months and the degree of the minus for September was the biggest ever. Many private research institutes estimate that for three years the price drop trend continues. In fact, it is quite possible that the deflation has been going on for the past 10 years of so since September 1998.
Actual price drop might well be much more severe than the statistics, because CPI includes only basic items and excludes knockout price PB (Private Brand) and bargain products. For example, for men’s suits, the drop of CPI is 1.7% by statistics but when the government analyzed including knockout price products the actual average price was minus as much as 40%.
With continues drop in price, company revenues would not increase (or rather decrease), meaning household income would not increase. GDP for July-Sep was plus for two consecutive quarters, but respective GDP (assumed to reflect more accurately actual sense of economy) has been minus for six consecutive quarters. Respective item GDP is 479 billion yen/year and income is 254 billion yen/year, both of which are the level of 1992.
Without increase in company revenues and income, solid sense of economy recovery cannot be achieved. This means that government would not be able to gain their revenue from corporate tax, individual income tax and consumption tax, leading to further deterioration in financial situation.
Among major countries, Japan is the only country going through severe deflation. As for “Demand-Supply gap”, Japan is approximately -7%, whereas western countries are 3-4%. This is because market of automobile and consumer electronics, Japan’s primary export products, shrunk drastically, leading to severe over supply. In addition, chronic domestic demand decrease attributing to low birthrate with longevity is also a negative factor.
Outlook of deflation spiral in which price drop is linked with deterioration in economy cannot be denied. Retail giants have jeans with price less than 1,000 yen but sales of super markets have been decline from the previous year’s results for 10 consecutive months. Companies are going through war of attrition in which they cut margin to lower the price. The outlook of bonus for this winter for major companies is minus by 2 digits from a year ago, and downward pressure of employment and income environment is expected to become stronger and stronger.
Demand insufficiency of 40 billion yen needs to be resolved to get out of deflation. Although the government is insisting that this can be achieved by stimulating domestic demand with incentive to households with children, such stimulation is insufficient. Many experts believe that the possible solution is aggressively taking in external demand such as of China and other emerging countries.
Yesterday Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that in November’s Monthly Economy White Paper issued on November 20, the Japanese economy is “in the moderate deflation status”. It is first time in 3 years and 5 months since June 2006 that the Japanese government officially identified deflation in the monthly white paper. Although the domestic economy has started to improve, with decrease in prices, there is a risk that company revenues deteriorate and unemployment increases. Therefore, the government is to speed up to drafting revised budget plan focusing on employment measures etc. The Japanese Economy will be much hobbled by deflation, and Mr. Kan Naoto, the Deputy Prime Minister, requested BOJ (Bank of Japan) also to cooperate to lead out from deflation in the press conference held on November 20. However, financial measure that BOJ can take is extremely.
According to Nikkei, Mr. Shirakawa, the Bank of Japan Governor, refrained from explicitly stating that the Japanese economy is in the deflation status in the press conference held on November 20 after Monetary Policy Meeting, but Mr. Kan judged as deflation for the following three reasons.
1. CPI (Consumer Price Index) is continuously decreasing. (This is conspicuous compared with western countries).
2. Respective index growth rate has been below actual for two consecutive quarters,
3. “Demand-Supply gap”, which is subtracting potential supply capacity from demand, has been minus and the degree of minus has expanded to 40 billion yen/year. This is a huge demand deficit.
The Actual Deflation is Much More Severe than the Statistics
(Source: Nikkei, translated by the author)
Item / Actual Purchasing Price vs. Previous Year / Actual Purchasing Price (yen) / CPI vs. Previous Year / CPI Sales Price (yen)
Men’s Suits / -40.4 / 23,604 / -1.7 / 37,092
TV Sets / -26.6 / 119,900 / -33.6 / 90,914
Skirts / -25.4 / 5,153 / -2.5 / 8,728
Umbrella / -23.3 / 801 / -0.8 / 2,505
Handbag / -19.0 / 7,399 / 0.2 / 15,905
Children’s Shirts / -13.9 / 952 / -2.9 / 637
Blouse / -12.0 / 3,647 / 1.2 / 5,742
Boy’s Socks / -7.8 / 298 / -0.9 / 679
Notes: Actual purchasing price is from purchasing price from family budget survey. Sales price is September’s price of Tokyo retail price statistics survey, which is the original statistics of CPI.
The reason for the government’s judgment is September’s CPI (excluding fresh food) was -2.3 from a year ago, and until August CPI has been dropping for four consecutive months and the degree of the minus for September was the biggest ever. Many private research institutes estimate that for three years the price drop trend continues. In fact, it is quite possible that the deflation has been going on for the past 10 years of so since September 1998.
Actual price drop might well be much more severe than the statistics, because CPI includes only basic items and excludes knockout price PB (Private Brand) and bargain products. For example, for men’s suits, the drop of CPI is 1.7% by statistics but when the government analyzed including knockout price products the actual average price was minus as much as 40%.
With continues drop in price, company revenues would not increase (or rather decrease), meaning household income would not increase. GDP for July-Sep was plus for two consecutive quarters, but respective GDP (assumed to reflect more accurately actual sense of economy) has been minus for six consecutive quarters. Respective item GDP is 479 billion yen/year and income is 254 billion yen/year, both of which are the level of 1992.
Without increase in company revenues and income, solid sense of economy recovery cannot be achieved. This means that government would not be able to gain their revenue from corporate tax, individual income tax and consumption tax, leading to further deterioration in financial situation.
Among major countries, Japan is the only country going through severe deflation. As for “Demand-Supply gap”, Japan is approximately -7%, whereas western countries are 3-4%. This is because market of automobile and consumer electronics, Japan’s primary export products, shrunk drastically, leading to severe over supply. In addition, chronic domestic demand decrease attributing to low birthrate with longevity is also a negative factor.
Outlook of deflation spiral in which price drop is linked with deterioration in economy cannot be denied. Retail giants have jeans with price less than 1,000 yen but sales of super markets have been decline from the previous year’s results for 10 consecutive months. Companies are going through war of attrition in which they cut margin to lower the price. The outlook of bonus for this winter for major companies is minus by 2 digits from a year ago, and downward pressure of employment and income environment is expected to become stronger and stronger.
Demand insufficiency of 40 billion yen needs to be resolved to get out of deflation. Although the government is insisting that this can be achieved by stimulating domestic demand with incentive to households with children, such stimulation is insufficient. Many experts believe that the possible solution is aggressively taking in external demand such as of China and other emerging countries.
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