Osaka - Thursday, April 7, 2011
The Japan disaster, what Dr. Neal calls “natech” (nature + technology) disaster as explained in the article How the World and Japan Should Handle Japan Disaster is extremely complex. For this reason, topics reported by Japanese media about the disaster range from anything about victims such as the severe environment in which they currently live in and how large group of them (in hundreds) transfer to somewhere safer, to Fukushima nuclear plant accident and variety of issues affected by the accidents that are negative for recovery and reconstruction of the country.
One of such a topic is “jishuku”, the fact that many events and entertainments are cancelled as “self-restraint” throughout Japan. It is interesting to note that reports and discussions on this topic are triggered by the article by New York Times online on March 27 about this topic, using the Japanese word “jishuku”.
In this article, the author would like to summarize recent reports and discussions by Japanese media adding what she actually experiences on the topic, and present a possible option to minimize negative effect of “jishuku”.
1. How is “jishuku” (self-restraint) spreading after the Japan disaster?
Many events (concerts, sport games etc.) that were originally planned to be held are cancelled or postponed since the earthquake and tsunami on that hit north eastern Japan on March 11 and are replaced by charity concerts and events.
April is when new graduates start working in Japan and April 1 is their welcoming ceremony; however, many companies cancelled such ceremonies. Parties welcoming new members as well as usual entertainments (eating, dining etc.) are mostly cancelled and therefore sales of restaurants and hotels have dropped than more than 50%, some even as much as 80%.
April in Japan is also when people enjoy “ohanami” events and entertainments, which is to enjoy cherry blossoms while eating and drinking, at daytime and night time, as mentioned in What is the Message of Recent Cherry Blossom Phenomenon? thus is one of the peak for tourism and entertainment of individuals but this is also in “jishuku” mood.
Tourist spots famous for beautiful cherry blossoms would plan and hold events to attract tourists; however, many of them downsize events, do away with night time light-ups, open the facility (e.g. temples) for shorter hours and so forth. Inevitably, hotels, souvenir shops and restaurants that usually benefit from “ohanami” seasons are hardly hit.
2. What are some of the exceptions?
The baseball tournament in which high schools from throughout Japan in the end of March in Kobe was held as every other year with additional programme in consideration to the disaster. In the opening ceremony in which a participant of the tournament representing players makes a declaration of fair competition, moment of silent prayer was set first. Also, the team from Tohoku (the most hardly hit area) was warmly welcomed in particular and students from Kobe supported to encourage them because in this situation their own supports would not be able to come all the way from north eastern Japan to Kobe in western Japan.
National professional baseball tournament is also to be held like previous years but there had been a great discussion as to the date of the start and the time of the day being played to avoid night games, considering the situation in which saving electricity to minimize blackout is a critical issue.
A few “ohanami” spots famous for beauty of cherry blossoms decided to hold events and night time lightening shows to entertain and encourage people including victims. Such examples include Maruyama Koen Park in Kyoto.
3. What is the opinion of the Japanese people about “jishuku”?
Their opinion is divided between for and against “jishuku”. The Governor of Tokyo is for the “jishuku”, and a popular female minister responsible for renewal for administration is against “jishuku”. Both are very popular among media and the general public.
And, when Nikkei, a leading newspaper specialized in business and economy implemented a survey on April 5 and 6 about pros and cons of “jishuku” in which 4,823 people responded, 78% answered that currently it is too excessive and “consumption to assist economic recovery of Tohoku is necessary”.
1) People against (excessive) “jishuku”
What they meant is consumption directly contributing to recovery of the devastated area. For example, this is by proactively goods made in Tohoku, which are famous for high level rice, Japanese sake and many others, because it would have similar value with relief aid. Some others said that “everyone to proactively buy things and all business organizations could donate 1% of sales as relief aid” and “everyone could consume without feeling guilty if consumption tax is implemented to be used exclusively for issues related to the disaster”.
Some other comments from people who feels current “jishuku” is excess include “jishuku is not to be obligated (but done voluntarily)” and “jishuku and saving electricity/being frugal needs to be considered as something completely different”.
2) People in favour of “jishuku” and people who say “jishuku” cannot be avoided for economic reasons
It seems many of these people do not feel like enjoying entertainment if they think of victims in the devastated area. There was a comment such as “it may be necessary to have a certain period of “jishuku” nationwide so that everyone would remember the historic disaster”.
Some others seriously said that “jishuku” cannot be avoided due to economic reasons, worrying about their future, which implies secondary and thirdly negative effect of the disaster is spreading. Such people said that “In this situation surely the annual income will be reduced while tax will be increased”, “Our business has been shrinking since the outbreak of the disaster. It is quite possible that first comes overtime work cut followed by salary cut and then restructuring. Tax increase for recovery from the disaster is also quite possible. In such a situation how could you sped your money (on entertainment)?
3. How “jishuku” is better handled
Even people who are not directly affected by the disaster, they may well be forced to “jishuku” i.e. cut on spending for economic reasons as some commented in the survey; however, without sufficient consumer spending, the total economy would remain stagnant although there might be a little stimulant in general construction industry from reconstruction of social infrastructure (e.g. housing, roads, facilities).
What can be done is build consensus to hold events among the industry members then hold events saying that such consensus is formed in inviting people so that they will not feel guilty to participate in the events. This would require good communication among the industry members. This would be difficult normally because many organizations would like to keep their initiatives/plan secret; however, according to Naito, organizations have been exchanging information in depth even among rivals regarding countermeasure to aftermath of the disaster.
In addition, events could be tailored so that it could contribute to relief aids. Charity concerts, fund raising at the events, moment of silent prayers to the devastated area and victims, and other consideration are important.
Naito introduces a message from a business owner of Japanese sake in Tohoku at the end of his article, which is “please do not “jishuku” too much, but instead support us by enjoying our Tohoku sake”.
Excessive “jishuku” stagnates economy and this means lowing down of recovery and reconstruction. We all need to do what we can; save electricity, be frugal while consume appropriately and work hard, all to make our ends meet and keep the economy going, the requirement for recovery and reconstruction.
Resources:-
Naito, Ko (March 30, 2011) Truth of “jishuku of consumption” – countermeasures for minimizing “the fourth disaster” (In Japanese)
http://business.nikkeibp.co.jp/article/money/20110329/219215/?P=1
Naito, Ko (April 7, 2011) People who stand against “consumption jishuku” – Let’s do what we can if time allows (In Japanese)
http://business.nikkeibp.co.jp/article/money/20110406/219332/?P=1
Takagi, Koji (April 7, 2011) Japanese companies together cancelled ceremony welcoming new graduates and postponed welcoming parties – When should “jishuku” mood be eliminated when such mood has been spreading? (In Japanese)
http://diamond.jp/articles/-/11783
Nikkei (April 7, 2011) 78% responded “jishuku” is too much and “consumption to support” necessary – From survey (In Japanese)
http://www.nikkei.com/life/simple/article/g=96958A90889DE0E4E0E4E4E2E3E2E2E4E2E6E0E2E3E3E2E2E2E2E2E2;dg=1;q=F2F2F2F2F2F2F2F2F2F2F2F2F2F2;p=9694E3E6E2E4E0E2E3E2E4EAE1E3
2011年3月26日土曜日
How Japan Can Make the Third Miracle from the Disaster
Osaka - Saturday, March 26, 2011
Japan has made miracles twice in its history. The first one is of 140 years ago, of Meiji Revolution in which after almost 300 years of isolation from the rest of the world of the Edo period Japan opened the door to the rest of the world and made drastic innovation to realize revolution. The second one is of 70 years ago, of reconstruction from the defeat of World War II in which atomic bomb was dropped to Hiroshima and Nagaski and it was believed that the country would not be able to revive. But with support from the U.S. and other countries, Japan, the only country ever to suffer an atomic attack, managed to recover and reconstruct, to realize substantial economic growth to become the second biggest economy.
What Dr. Neal calls “natech” (“Na”ture + “Tech”nology combined) disaster in the interviewed introduced in the previous article How the World and Japan Should Handle Japan Disaster is the worst disaster since the World War II defeat. Recovery has started and it is reported in media that the world is surprised at the speed to rebuilding of roads in Sendai; however, and recovery and reconstruction from the “natech” disaster is like making the two previous miracles, as mentioned in an article issued on March 25, of Nikkei, the Japan’s leading newspaper specialized in business and economy.
Following the previous article Japan Disaster to Hit Global and Japanese Economy in which she outlined the size of the affect of the disaster, the author would like to outline what needs to be done to make the third miracle, of recovery and “creation” of a new country, to conclude her (first) series of blog articles about the disaster.
1. First and foremost, rescue people who are still missing
As of 9:00 on March 24, as announced by the National Police Agency and reported by Nikkei, 9,811 people are dead, 17,541 are missing, and 2,779 are injured. It is two weeks from the earthquake and tsunami and the rate of survival is extremely low, but a woman of 80 years old and her grandchild survived for 9 days and were rescued. Some cities/villages are totally swept out by tsunami and wreckage remains in wide a scope of areas so rescuing the remaining people missing is taking time. However, rescue needs to be proceeded.
2. Immediate recovery of Fukushima Daiichi Nuclear Plant is critical
It goes without saying that immediate recovery of Fukushima nuclear plant is inevitable to avoid further negative effects on lives of residents in the area, on agriculture and fishery of the area and prefectures near by, on water supply to regions including Kanto (e.g. Tokyo, Chiba, Saitama), and on global environment. Engineers of Tepco have been doing everything they can for recovery in extremely tough situation as reported in online news on March 25 in website of Asahi, a major Japanese newspaper, based on the information from wives of the engineers; very little time to sleep and when they sleep they do so sitting on chairs, food is only biscuits with minerals, and so forth.
3. Smooth recovery of electricity supply in Kanto area is inevitable
Halt of Fukushima nuclear plant led to shortage of electricity supply in Kanto area and thus “planned” blackout has been ongoing, which is likely to continue for months. This has been causing many problems in the society, business and people’s everyday lives, as mentioned in the previous article The Reality of Japan Disaster – Affecting Nationwide. Without recovery of electricity supply, people’s lives would not return to what it was before the disaster, nor business activities which is the source of economy and capital necessary for reconstruction.
Organizations and individuals are making upmost efforts to save energy to avoid “planned” blackout but the experts estimated that blackouts cannot be avoided in summer and winter, when electricity usage reaches at the peak due to use of air conditioning. Some experts also point out that transferring electricity from Kansai (western Japan) and Hokkaido (northern island) to Kanto would be extremely limited because of technical reasons for Kansai and need to cross over sea for Hokkaido.
Noguchi proposes that such measures as immediately reviewing jacking up of basic rate of electricity and fetching down amperage under contract could avoid “planned” blackout until the end of April. However, he also says that even such measures would not be sufficient to avoid “planned” blackout in summer. Other experts and the government are pursuing other measures such as implementation of summer time.
After recovery of the plant, the government and energy supply related parties would need to reconsider total energy supply system. The key concept in reconsideration would be diversification of energy supply to minimize risk of energy supply shortage, and pursuing green and safe energy.
4. Of course, reconstruction of lifeline and social infrastructure is a big issue
Since everything is destroyed including local government office of many cities even if the cities were not 100% swept away by the tsunami, reconstruction of social infrastructure including roads, public and commercial facilities, housing, energy and water supply is necessary. It is just like creating new cities/prefectures from scratch.
This process would not necessarily mean reconstructing exactly what it used to be. Process needs to be that of determining what to recover/leverage and what to change/create to improve/eliminate the weaknesses the Tohoku and Japan had before the disaster. In fact, this could be a great opportunity to eliminate weakness and correct “contradictions” the country had and transform the total economic, industrial and social structures.
As in the case of Kobe earthquake in 1995, the region was condensed in terms of both population and business activity sites thus it was quite logical to reconstruct as what is used to be. However, Tohoku in this case is quite different, how the region geographically extends and how the structure of the industry extends.
Moreover, as pointed out by Nikkei in its article issued on March 25, the “natech” disaster shed light upon the contradictions and weaknesses of Japan system. They are the fact that the regions in which functions/systems of healthcare, government and lives are dispersed when the country was facing decreasing and aging population and the reality that the country operation and management have been centralized in Tokyo when the electricity supply of Tokyo relied from local regions.
5. Companies/organizations and people need to get back to work as soon as possible
Nikkei online article reported on March 25 that more than 1,000 listed companies in Japan are affected by the disaster, large or small. The most affected are in general of automotive and electronic manufactures because many of they have core plants in Tohoku area and they have been unable to operate. Such plants include those that produce and supply core components to worldwide market and already is pointed out by worldwide media that it would affect many global companies operating outside Japan.
Of course, smooth reconstruction already mentioned to reconstruct global supply chain network as Kishi mentions would be the requirement.
5. And, consumption is also a requirement to get everything going
Events and entertainments are currently restrained voluntarily but excessive voluntary restraints would be a negative factor for smooth recovery. General construction industry is likely to benefit from reconstruction as long as the government would give clear direction and support the industry; however, construction industry alone cannot drive economic maintenance and growth. Consumer spending is a requirement to drive economy and thus it is wise not to excessively restraint events, entertainments and so forth. This was pointed out and discussed in a few recent online articles in Japan’s leading business media.
6. The author’s final thoughts – The country and its citizens are strong enough to make the third miracle a reality
It is true that people suffered directly and indirectly from the disaster were first shocked and was at a loss what to do but are now determined to do what they can and actually started to take proactive actions to recover and reconstruct. The author believes that the country and its people are strong enough to make the third miracle a reality. Japan cannot possibly remain to be a big burden of the international community because of the disaster.
In fact, the recovery and reconstruction from the “natech” disaster are expected to be converted to an opportunity of eliminating the weaknesses and contradictions the country had, transform the total structure of society, economy and industry. In other words, this is to be a catalyst the country needed to boost its economy for decades.
Last but not least, the author would like to introduce an idea she happened to listen to and was extremely was compassionate, which was introduced in Kansai local TV evening news on March 25 in which they introduced some ideas of some audience of what people in Kansai can do now to help the east, suffering directly from the disaster. The author believes that this is the mindset and behaviour that we all need to have, together with integrity, flexibility and teamwork/collaboration, and that the fact that a normal citizen has courage to share such mindset and behaviour indicates that the country and its citizen have the strengths of realizing the third miracle to create a new country, although it might be a long journey.
It is that every individuals need to unleash their own skills, competencies and strengths in this urgent situation. For example, entertainers focus on entertaining people and athletes playing games to perform well, to encourage and inspire people including those in the devastated area and make them feel better. Of course, business person are to focus on their business while doing what they can to help the people in need, and rescuers health care experts in the devastated area, each people playing an active role and fulfilling his/her mission.
References:-
Kishi, Hiroyuki (March 18, 2011) Discussion on economy management after rebuilt of Japan (in Japanese)
http://diamond.jp/articles/-/11538
Kishi, Hiroyuki (March 25, 2011) Anxiety of hollow out of eastern Japan attributing to the natural disaster and nuclear plant issue and future of Japanese economy (in Japanese)
http://diamond.jp/articles/-/11613
Koya, Tomoyuki (March 17, 2011) Three crisis that companies suffer from the disaster – resource crisis, demand crisis and mind crisis (in Japanese)
http://business.nikkeibp.co.jp/article/manage/20110316/219006/
Noguchi, Yukio (March 22, 2011) Reviewing basic rate of electricity for assumed electricity shortage this coming summer has much meaning (in Japanese)
http://diamond.jp/articles/-/11597
Resources:-
The natech (nature and technology) disaster is the most severe since the World War II and the economic loss from the disaster, direct and indirect combined, is enormous. However, Japan has made two miracles in its history, Meiji Revolution and recovery/reconstruction from World War II and the country and its citizen are strong enough to make the third miracle. The disaster is expected to be converted to an opportunity to transform total structure of society, economy and industry, to create a new country, thus a catalyst the country needed for decades to boost its economy.
Japan has made miracles twice in its history. The first one is of 140 years ago, of Meiji Revolution in which after almost 300 years of isolation from the rest of the world of the Edo period Japan opened the door to the rest of the world and made drastic innovation to realize revolution. The second one is of 70 years ago, of reconstruction from the defeat of World War II in which atomic bomb was dropped to Hiroshima and Nagaski and it was believed that the country would not be able to revive. But with support from the U.S. and other countries, Japan, the only country ever to suffer an atomic attack, managed to recover and reconstruct, to realize substantial economic growth to become the second biggest economy.
What Dr. Neal calls “natech” (“Na”ture + “Tech”nology combined) disaster in the interviewed introduced in the previous article How the World and Japan Should Handle Japan Disaster is the worst disaster since the World War II defeat. Recovery has started and it is reported in media that the world is surprised at the speed to rebuilding of roads in Sendai; however, and recovery and reconstruction from the “natech” disaster is like making the two previous miracles, as mentioned in an article issued on March 25, of Nikkei, the Japan’s leading newspaper specialized in business and economy.
Following the previous article Japan Disaster to Hit Global and Japanese Economy in which she outlined the size of the affect of the disaster, the author would like to outline what needs to be done to make the third miracle, of recovery and “creation” of a new country, to conclude her (first) series of blog articles about the disaster.
1. First and foremost, rescue people who are still missing
As of 9:00 on March 24, as announced by the National Police Agency and reported by Nikkei, 9,811 people are dead, 17,541 are missing, and 2,779 are injured. It is two weeks from the earthquake and tsunami and the rate of survival is extremely low, but a woman of 80 years old and her grandchild survived for 9 days and were rescued. Some cities/villages are totally swept out by tsunami and wreckage remains in wide a scope of areas so rescuing the remaining people missing is taking time. However, rescue needs to be proceeded.
2. Immediate recovery of Fukushima Daiichi Nuclear Plant is critical
It goes without saying that immediate recovery of Fukushima nuclear plant is inevitable to avoid further negative effects on lives of residents in the area, on agriculture and fishery of the area and prefectures near by, on water supply to regions including Kanto (e.g. Tokyo, Chiba, Saitama), and on global environment. Engineers of Tepco have been doing everything they can for recovery in extremely tough situation as reported in online news on March 25 in website of Asahi, a major Japanese newspaper, based on the information from wives of the engineers; very little time to sleep and when they sleep they do so sitting on chairs, food is only biscuits with minerals, and so forth.
3. Smooth recovery of electricity supply in Kanto area is inevitable
Halt of Fukushima nuclear plant led to shortage of electricity supply in Kanto area and thus “planned” blackout has been ongoing, which is likely to continue for months. This has been causing many problems in the society, business and people’s everyday lives, as mentioned in the previous article The Reality of Japan Disaster – Affecting Nationwide. Without recovery of electricity supply, people’s lives would not return to what it was before the disaster, nor business activities which is the source of economy and capital necessary for reconstruction.
Organizations and individuals are making upmost efforts to save energy to avoid “planned” blackout but the experts estimated that blackouts cannot be avoided in summer and winter, when electricity usage reaches at the peak due to use of air conditioning. Some experts also point out that transferring electricity from Kansai (western Japan) and Hokkaido (northern island) to Kanto would be extremely limited because of technical reasons for Kansai and need to cross over sea for Hokkaido.
Noguchi proposes that such measures as immediately reviewing jacking up of basic rate of electricity and fetching down amperage under contract could avoid “planned” blackout until the end of April. However, he also says that even such measures would not be sufficient to avoid “planned” blackout in summer. Other experts and the government are pursuing other measures such as implementation of summer time.
After recovery of the plant, the government and energy supply related parties would need to reconsider total energy supply system. The key concept in reconsideration would be diversification of energy supply to minimize risk of energy supply shortage, and pursuing green and safe energy.
4. Of course, reconstruction of lifeline and social infrastructure is a big issue
Since everything is destroyed including local government office of many cities even if the cities were not 100% swept away by the tsunami, reconstruction of social infrastructure including roads, public and commercial facilities, housing, energy and water supply is necessary. It is just like creating new cities/prefectures from scratch.
This process would not necessarily mean reconstructing exactly what it used to be. Process needs to be that of determining what to recover/leverage and what to change/create to improve/eliminate the weaknesses the Tohoku and Japan had before the disaster. In fact, this could be a great opportunity to eliminate weakness and correct “contradictions” the country had and transform the total economic, industrial and social structures.
As in the case of Kobe earthquake in 1995, the region was condensed in terms of both population and business activity sites thus it was quite logical to reconstruct as what is used to be. However, Tohoku in this case is quite different, how the region geographically extends and how the structure of the industry extends.
Moreover, as pointed out by Nikkei in its article issued on March 25, the “natech” disaster shed light upon the contradictions and weaknesses of Japan system. They are the fact that the regions in which functions/systems of healthcare, government and lives are dispersed when the country was facing decreasing and aging population and the reality that the country operation and management have been centralized in Tokyo when the electricity supply of Tokyo relied from local regions.
5. Companies/organizations and people need to get back to work as soon as possible
Nikkei online article reported on March 25 that more than 1,000 listed companies in Japan are affected by the disaster, large or small. The most affected are in general of automotive and electronic manufactures because many of they have core plants in Tohoku area and they have been unable to operate. Such plants include those that produce and supply core components to worldwide market and already is pointed out by worldwide media that it would affect many global companies operating outside Japan.
Of course, smooth reconstruction already mentioned to reconstruct global supply chain network as Kishi mentions would be the requirement.
5. And, consumption is also a requirement to get everything going
Events and entertainments are currently restrained voluntarily but excessive voluntary restraints would be a negative factor for smooth recovery. General construction industry is likely to benefit from reconstruction as long as the government would give clear direction and support the industry; however, construction industry alone cannot drive economic maintenance and growth. Consumer spending is a requirement to drive economy and thus it is wise not to excessively restraint events, entertainments and so forth. This was pointed out and discussed in a few recent online articles in Japan’s leading business media.
6. The author’s final thoughts – The country and its citizens are strong enough to make the third miracle a reality
It is true that people suffered directly and indirectly from the disaster were first shocked and was at a loss what to do but are now determined to do what they can and actually started to take proactive actions to recover and reconstruct. The author believes that the country and its people are strong enough to make the third miracle a reality. Japan cannot possibly remain to be a big burden of the international community because of the disaster.
In fact, the recovery and reconstruction from the “natech” disaster are expected to be converted to an opportunity of eliminating the weaknesses and contradictions the country had, transform the total structure of society, economy and industry. In other words, this is to be a catalyst the country needed to boost its economy for decades.
Last but not least, the author would like to introduce an idea she happened to listen to and was extremely was compassionate, which was introduced in Kansai local TV evening news on March 25 in which they introduced some ideas of some audience of what people in Kansai can do now to help the east, suffering directly from the disaster. The author believes that this is the mindset and behaviour that we all need to have, together with integrity, flexibility and teamwork/collaboration, and that the fact that a normal citizen has courage to share such mindset and behaviour indicates that the country and its citizen have the strengths of realizing the third miracle to create a new country, although it might be a long journey.
It is that every individuals need to unleash their own skills, competencies and strengths in this urgent situation. For example, entertainers focus on entertaining people and athletes playing games to perform well, to encourage and inspire people including those in the devastated area and make them feel better. Of course, business person are to focus on their business while doing what they can to help the people in need, and rescuers health care experts in the devastated area, each people playing an active role and fulfilling his/her mission.
References:-
Kishi, Hiroyuki (March 18, 2011) Discussion on economy management after rebuilt of Japan (in Japanese)
http://diamond.jp/articles/-/11538
Kishi, Hiroyuki (March 25, 2011) Anxiety of hollow out of eastern Japan attributing to the natural disaster and nuclear plant issue and future of Japanese economy (in Japanese)
http://diamond.jp/articles/-/11613
Koya, Tomoyuki (March 17, 2011) Three crisis that companies suffer from the disaster – resource crisis, demand crisis and mind crisis (in Japanese)
http://business.nikkeibp.co.jp/article/manage/20110316/219006/
Noguchi, Yukio (March 22, 2011) Reviewing basic rate of electricity for assumed electricity shortage this coming summer has much meaning (in Japanese)
http://diamond.jp/articles/-/11597
Resources:-
The natech (nature and technology) disaster is the most severe since the World War II and the economic loss from the disaster, direct and indirect combined, is enormous. However, Japan has made two miracles in its history, Meiji Revolution and recovery/reconstruction from World War II and the country and its citizen are strong enough to make the third miracle. The disaster is expected to be converted to an opportunity to transform total structure of society, economy and industry, to create a new country, thus a catalyst the country needed for decades to boost its economy.
2011年3月24日木曜日
Japan Disaster to Hit Global and Japanese Economy
Osaka - Wednesday, March 23, 2011
Stock market immediately reacted to the disaster that hit Japan on March 11. Japan’s Nikkei 225 index fell 6.4% extending a 6.2% loss on Monday, March 14 when the S&P 500 fell only 0.6%.
Following series of articles on the Japan Disaster, the latest one being How the World and Japan Should Handle Japan Disaster, the author would like to briefly explain the effect of the Japan disaster on economy, global and Japan, summarizing estimation and viewpoint reported by global and Japanese media.
The author feels it would give an idea of the size of the disaster in the long term affecting macro economy, and the urgency of the aid and recovery/reconstruction to minimize the negative effect on economy, global as well as Japan.
1. What is the possible effect on the Japanese economy?
Most media agree that the loss from the disaster is much larger than the Kobe earthquake in 1995, which was 1 billion yen. What makes the loss far larger than Kobe is the fact that the disaster completely destroyed lifeline and social infrastructure. For this reason, all media agree that the rebuild would require at least 5 years, which was what Kobe post-earthquake rebuilt required.
1) “Direct” loss
The estimations reported by most media of the “direct” loss from the disaster of the earthquake and the tsunami of the Tohoku region (north eastern Japan that the earthquake and tsunami hit hard on March 11) would fall in the range of 1.5 to 2.5 trillion yen. 2.5 trillion yen is equivalent to 4% of the economic output of the country in 2010, according to the World Bank.
Professor Sato of Hitotsubashi University estimated with 2 scenarios, one of 2.5 billion yen loss and another of 3.5 trillion yen loss. Loss of 2.5 trillion yen is only of Kanto area, and 3.5 trillion yen loss includes loss of other areas/prefectures severely been effected by the earthquake. Such prefectures include Shizuoka, Aichi, Mie, Wakayama and Kochi.
2）“Indirect” loss
This estimation mentioned above is called “direct” loss because it does not include “indirect” loss of the disaster. Possible indirect losses include the following. Such “indirect” losses are extremely difficult to estimate but would be huge, and it is quite likely that this would enlarge fiscal strain on Japan, when the ratio of debt to GDP already is 200%, compared to 90% in the U.S. according to Oliver.
(1) Loss from destruction of social infrastructure
This includes roads, electricity and water supply.
(2) Broken link of supply chain network among companies
This includes everything related to economic activities of companies such as purchasing/procurement, energy and water supply, distribution channel to supply products to the market.
This is to severely affect western Japan as well. Today on March 23 JR West announced that it will drastically reduce trains on service from April because they cannot obtain components necessary in maintenance. Such components are made in plants in Tohoku area (Fukushima) and the plants are unable to operate.
(3) Loss from the Fukushima nuclear plant issue
This includes many possible losses such as the following.
(i) People evacuating from (east) Japan meaning negative effect on tourism, and many events being cancelled meaning negative effect on consumer spending..
(ii) Contamination making agriculture and fishery products unsuitable to ship and consume. This would likely to have direct impact on domestic food supply as well as international trade. This means loss of agriculture and fishery businesses and some business owners may well be forced to go bankrupt. The bad reputation could further enlarge loss.
(4) Electricity shortage
This is not only in Kanto region. In fact, this is a serious issue already in Kanto (e.g. Tokyo, Kanagawa/Yokoyama, Chiba, Saitama) leading to “planned” blackout. This is an enormous negative factor for business in all industry
2. What is the possible effect on global economy?
There seem to be different perspectives on the effect on global economy. There are some people such as Oliver, although agree that the loss from the disaster is huge on Japan, say that global economy should not be hardly hit by the Japan disaster because the GDP of Japan in the world economy is limited.
However, others say that the Japan disaster could hit global economy hard. This is because there have been many core plants of automotives (e.g. of Japan big 3 automobile companies) and electronics including plants that have been manufacturing core components of mobile phones that such global companies as Nokia and Samsung has been relying on. It was soon reported in multiple western media that such global companies of consumer electronics are to be hit hard and although they will try to acquire components from other sources it would be extremely difficult for them to come up with good options.
The World Bank predicted in a separate report that East Asia would be affected. They say that in the immediate future the biggest impact will be in terms of trade and finance. The World Bank report also says that the other worrying factor for the region is that about one quarter of East Asia’s log-term debt is dominated in yen. For China it is about 8% but for Thailand it is about 60%. Thus the report points out that a 1% appreciation in the Japanese yen translated into about 250 million USD increase in annual debt servicing on the yen-dominated assts held by the nations.
3. The author’s final thoughts
The author feels there are other possible negative effects on global economy if Japan, with world class technology in many fields such as environment that the world requires today, struggles too much in reconstruction.
Japan has recovered from various disasters in its history, from many major earthquake (e.g. of Kanto in 1929, of Kobe in 1995) and from World War II and the author believes it can recover again, with the help from the international community as well as its citizens. This is probably another “test for toughness to survive”, as Fingleton says.
By overcoming what Koya says “resource crisis, demand crisis, and mind crisis” of the disaster, Japan needs to pass the test for toughness to survive, and transform the reconstruction to, what Rosembush words as “growth catalyst that Japan needed for decades”.
References:-
BBC News (March 21, 2011)
http://www.bbc.co.uk/news/business-12802193
CNNMoney.com staff (March 15, 2011) Tokyo stocks plummet as crisis deepens CNNMoney.com staff http://money.cnn.com/2011/03/14/markets/japan_world_markets_tuesday/index.htm?section=money_topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_topstories+%28Top+Stories%29&utm_content=Twitter
Fingleton, Eamonn (March 15, 2011) Broken Links - How much will the Japan quake hurt the global economy? http://www.tnr.com/article/85236/japan-earthquake-tsunami-industry-economy
Isidore, Chris (March 14, 2011) Will global economy be hit by Japan? http://money.cnn.com/2011/03/14/news/international/japan_earthquake_tsunami_economic_impact/index.htm
Koya, Tomoyuki (March 17, 2011) Three crisis that companies suffer from the disaster – resource crisis, demand crisis and mind crisis (in Japanese)
http://business.nikkeibp.co.jp/article/manage/20110316/219006/
Los Angeles Time (March 15, 2011) Japan quake likely to affect business globally http://www.latimes.com/business/la-fi-japan-business-20110315,0,2713425.story?track=rss
Nikkei (March 23, 2011) Loss from the Japan earthquake to total 15-25 billion yen, more than the loss from Kobe earthquake that was 10 billion, according to the estimation of the Japanese government (in Japanese) http://www.nikkei.com/news/headline/article/g=96958A9C93819481E0E0E2E1838DE0E0E2E1E0E2E3E39F9FEAE2E2E2
Oliver, Shane (March 15, 2011) Global Economy should not be badly hit by Japan’s heartbreaking tsunami
http://www.smartcompany.com.au/economy/20110315-global-economy-should-not-be-badly-hit-by-japan-s-heartbreaking-tsunami-oliver.html
Rosenbush, Steve (March 15, 2011) How Japan Earthquake Will Impact Global Economy
http://www.institutionalinvestor.com/rss/Articles/2787087/How-Japan-Earthquake-Will-Impact-Global-Economy.html?p=1
Reuters (March 16, 2011) Japan’s rebuilding needs at least 5 years (in Japanese) http://jp.reuters.com/article/topNews/idJPJAPAN-20060120110316
Sakai, Koichi (March 18, 2011) In 10 years Japan to become an attractive country to invest in, according to a famous U.S. investor (in Japanese)
http://business.nikkeibp.co.jp/article/manage/20110317/219023/
Sato, Motohiro (March 15, 2011) Overview of economic loss from the Japan disaster (in Japanese)
http://diamond.jp/articles/-/11498
Takenaka, Heizo (March 16, 2011) Huge disaster when the economy was about to recover (in Japanese)
http://www.nikkei.com/biz/editorial/article/g=96958A9C93819499E3E6E2E2998DE3E6E2E1E0E2E3E3E2E2E2E2E2E2;p=9694E2E4E3E2E0E2E3E2EBE4E1E6
Stock market immediately reacted to the disaster that hit Japan on March 11. Japan’s Nikkei 225 index fell 6.4% extending a 6.2% loss on Monday, March 14 when the S&P 500 fell only 0.6%.
Following series of articles on the Japan Disaster, the latest one being How the World and Japan Should Handle Japan Disaster, the author would like to briefly explain the effect of the Japan disaster on economy, global and Japan, summarizing estimation and viewpoint reported by global and Japanese media.
The author feels it would give an idea of the size of the disaster in the long term affecting macro economy, and the urgency of the aid and recovery/reconstruction to minimize the negative effect on economy, global as well as Japan.
1. What is the possible effect on the Japanese economy?
Most media agree that the loss from the disaster is much larger than the Kobe earthquake in 1995, which was 1 billion yen. What makes the loss far larger than Kobe is the fact that the disaster completely destroyed lifeline and social infrastructure. For this reason, all media agree that the rebuild would require at least 5 years, which was what Kobe post-earthquake rebuilt required.
1) “Direct” loss
The estimations reported by most media of the “direct” loss from the disaster of the earthquake and the tsunami of the Tohoku region (north eastern Japan that the earthquake and tsunami hit hard on March 11) would fall in the range of 1.5 to 2.5 trillion yen. 2.5 trillion yen is equivalent to 4% of the economic output of the country in 2010, according to the World Bank.
Professor Sato of Hitotsubashi University estimated with 2 scenarios, one of 2.5 billion yen loss and another of 3.5 trillion yen loss. Loss of 2.5 trillion yen is only of Kanto area, and 3.5 trillion yen loss includes loss of other areas/prefectures severely been effected by the earthquake. Such prefectures include Shizuoka, Aichi, Mie, Wakayama and Kochi.
2）“Indirect” loss
This estimation mentioned above is called “direct” loss because it does not include “indirect” loss of the disaster. Possible indirect losses include the following. Such “indirect” losses are extremely difficult to estimate but would be huge, and it is quite likely that this would enlarge fiscal strain on Japan, when the ratio of debt to GDP already is 200%, compared to 90% in the U.S. according to Oliver.
(1) Loss from destruction of social infrastructure
This includes roads, electricity and water supply.
(2) Broken link of supply chain network among companies
This includes everything related to economic activities of companies such as purchasing/procurement, energy and water supply, distribution channel to supply products to the market.
This is to severely affect western Japan as well. Today on March 23 JR West announced that it will drastically reduce trains on service from April because they cannot obtain components necessary in maintenance. Such components are made in plants in Tohoku area (Fukushima) and the plants are unable to operate.
(3) Loss from the Fukushima nuclear plant issue
This includes many possible losses such as the following.
(i) People evacuating from (east) Japan meaning negative effect on tourism, and many events being cancelled meaning negative effect on consumer spending..
(ii) Contamination making agriculture and fishery products unsuitable to ship and consume. This would likely to have direct impact on domestic food supply as well as international trade. This means loss of agriculture and fishery businesses and some business owners may well be forced to go bankrupt. The bad reputation could further enlarge loss.
(4) Electricity shortage
This is not only in Kanto region. In fact, this is a serious issue already in Kanto (e.g. Tokyo, Kanagawa/Yokoyama, Chiba, Saitama) leading to “planned” blackout. This is an enormous negative factor for business in all industry
2. What is the possible effect on global economy?
There seem to be different perspectives on the effect on global economy. There are some people such as Oliver, although agree that the loss from the disaster is huge on Japan, say that global economy should not be hardly hit by the Japan disaster because the GDP of Japan in the world economy is limited.
However, others say that the Japan disaster could hit global economy hard. This is because there have been many core plants of automotives (e.g. of Japan big 3 automobile companies) and electronics including plants that have been manufacturing core components of mobile phones that such global companies as Nokia and Samsung has been relying on. It was soon reported in multiple western media that such global companies of consumer electronics are to be hit hard and although they will try to acquire components from other sources it would be extremely difficult for them to come up with good options.
The World Bank predicted in a separate report that East Asia would be affected. They say that in the immediate future the biggest impact will be in terms of trade and finance. The World Bank report also says that the other worrying factor for the region is that about one quarter of East Asia’s log-term debt is dominated in yen. For China it is about 8% but for Thailand it is about 60%. Thus the report points out that a 1% appreciation in the Japanese yen translated into about 250 million USD increase in annual debt servicing on the yen-dominated assts held by the nations.
3. The author’s final thoughts
The author feels there are other possible negative effects on global economy if Japan, with world class technology in many fields such as environment that the world requires today, struggles too much in reconstruction.
Japan has recovered from various disasters in its history, from many major earthquake (e.g. of Kanto in 1929, of Kobe in 1995) and from World War II and the author believes it can recover again, with the help from the international community as well as its citizens. This is probably another “test for toughness to survive”, as Fingleton says.
By overcoming what Koya says “resource crisis, demand crisis, and mind crisis” of the disaster, Japan needs to pass the test for toughness to survive, and transform the reconstruction to, what Rosembush words as “growth catalyst that Japan needed for decades”.
References:-
BBC News (March 21, 2011)
http://www.bbc.co.uk/news/business-12802193
CNNMoney.com staff (March 15, 2011) Tokyo stocks plummet as crisis deepens CNNMoney.com staff http://money.cnn.com/2011/03/14/markets/japan_world_markets_tuesday/index.htm?section=money_topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_topstories+%28Top+Stories%29&utm_content=Twitter
Fingleton, Eamonn (March 15, 2011) Broken Links - How much will the Japan quake hurt the global economy? http://www.tnr.com/article/85236/japan-earthquake-tsunami-industry-economy
Isidore, Chris (March 14, 2011) Will global economy be hit by Japan? http://money.cnn.com/2011/03/14/news/international/japan_earthquake_tsunami_economic_impact/index.htm
Koya, Tomoyuki (March 17, 2011) Three crisis that companies suffer from the disaster – resource crisis, demand crisis and mind crisis (in Japanese)
http://business.nikkeibp.co.jp/article/manage/20110316/219006/
Los Angeles Time (March 15, 2011) Japan quake likely to affect business globally http://www.latimes.com/business/la-fi-japan-business-20110315,0,2713425.story?track=rss
Nikkei (March 23, 2011) Loss from the Japan earthquake to total 15-25 billion yen, more than the loss from Kobe earthquake that was 10 billion, according to the estimation of the Japanese government (in Japanese) http://www.nikkei.com/news/headline/article/g=96958A9C93819481E0E0E2E1838DE0E0E2E1E0E2E3E39F9FEAE2E2E2
Oliver, Shane (March 15, 2011) Global Economy should not be badly hit by Japan’s heartbreaking tsunami
http://www.smartcompany.com.au/economy/20110315-global-economy-should-not-be-badly-hit-by-japan-s-heartbreaking-tsunami-oliver.html
Rosenbush, Steve (March 15, 2011) How Japan Earthquake Will Impact Global Economy
http://www.institutionalinvestor.com/rss/Articles/2787087/How-Japan-Earthquake-Will-Impact-Global-Economy.html?p=1
Reuters (March 16, 2011) Japan’s rebuilding needs at least 5 years (in Japanese) http://jp.reuters.com/article/topNews/idJPJAPAN-20060120110316
Sakai, Koichi (March 18, 2011) In 10 years Japan to become an attractive country to invest in, according to a famous U.S. investor (in Japanese)
http://business.nikkeibp.co.jp/article/manage/20110317/219023/
Sato, Motohiro (March 15, 2011) Overview of economic loss from the Japan disaster (in Japanese)
http://diamond.jp/articles/-/11498
Takenaka, Heizo (March 16, 2011) Huge disaster when the economy was about to recover (in Japanese)
http://www.nikkei.com/biz/editorial/article/g=96958A9C93819499E3E6E2E2998DE3E6E2E1E0E2E3E3E2E2E2E2E2E2;p=9694E2E4E3E2E0E2E3E2EBE4E1E6
2010年12月5日日曜日
Profitability Recovery of Japanese Companies Under High Yen
Osaka – Sunday, December 5, 2010
In the previous article "High Yen Slashes Profitability of Japanese Companies – The Reality" the author introduced some cases of how Japanese companies including those that are usually regarded as globally competitive have been suffering from the recent high yen.
In this article, the author would like to introduce some cases of how other companies have managed to recover their revenue and profitability despite the recent high yen.
1. How much Japanese listed companies recovered their performance in Apr-Sep 2010 despite extreme high yen?
1) Overall
The increase rate of consolidated operating profit was 2.4 times that of the previous year, which was much more than the original estimation of 70% increase from the previous year. The profit level recovered to 98% of Apr-Sep 2008 (i.e. before the worldwide economic crisis), and to 80% of Apr-Sep 2007 (i.e. the peak).
2) Specific examples
(1) Ushio, Inc.
Business of Ushio, Inc., whose business supports 3D movie boom with 3D film projector for theatres, continues to be strong even in high yen situation. They could only sell 3 products 10 years ago but their business is expected to grow as much as 7500 units, with global market share of 60%.
(2) Ricoh
Ricoh’s business in Americas that had been sluggish started to recover despite the recent high yen. They had thoroughly transferred sales know-how to the U.S. companies they had acquired, and their America business is expected to become positive soon in 2011, first time after 14 quarters.
2. How did Japanese companies manage to recover profitability despite the recent high yen?
1) Cost reduction
Primary reason for the profitability recovery is extreme cost reduction measures since the worldwide recession, which is sometimes said as practically the biggest post-war restructuring. Manufacturers drastically reduced cost (personnel etc.) last year to lower break even point by 13%. This decrease percentage is the biggest in the past 25 years (i.e. statistics is available and thus can compare).
Companies have been continuing their efforts to cut costs and improve productivity. For example, the reason for increase in Hitachi’s operating profit for Apr-Sep 2010 was increase in revenue and cost reduction (50% each).
Positive effects of such of their efforts have been conspicuous; operating profit of Japanese companies in total increased by 2.8% to reach 5.6%. The increase rate is the biggest since the economic bubble collapsed. The operating profit of 5.6% is almost 5.8% or Apr-Sep 2007, which was the peak.
2) Demand growth of emerging markets
Much of their sales and business growth came from growing demand of emerging market, Asia in particular. For example, increase of revenue of Komatsu in total was 33% when it was 58% for China. Increase of revenue of Nissan in total was 28% when it was 64% for Asia.
Some others were especially successful in business of emerging markets with launching products meeting local needs. For example, Sony developed and launched low cost flat panel TVs with limited functions in India and deprived the top market share position in India of Samsung.
3) Countermeasures to the high yen
This includes production shift to overseas as mentioned in the previous article, leveraging low cost components supplied from overseas, and owning both receivables and payables in foreign currencies.
For example, Hitachi Construction Machinery Co., Ltd. increased their production in Europe to raise their overseas production rate. Kawasaki Kisen Kaisha, Ltd. started to study accepting some portion of their receivables of their newly supplied products in USD instead of in Japanese yen. NEC separated their export-oriented semiconductor business and as a result they are no longer affected by foreign exchange fluctuation against USD. Toshiba, with similar measure, had positive effect with high yen, benefiting also with production outsourcing expansion to overseas contractors.
3. What is the outlook for the latter fiscal year of 2010?
1) Overall
Anxiety psychology proliferates among Japanese companies due to continuing high yen, termination of government’s economy stimulation incentives and slow recovery of economy of developed countries; however, there are some possible solutions of overcoming such anxiety factors. One is cultivating and harvesting the “new revenue seed” that was planted and came out in the first half of 2010. Another is flexibly adapting to external and internal environmental changes to upgrade available technologies and open/create new market.
2) Specific examples
(1) Ozu Corporation
Ozu Corporation, a leading paper distributor in Japan, started new business, operating their new factory of plants. With decreasing paper demand, they aim to benefit the recent trend of “security of foods”.
(2) NHK Spring Co., Ltd.
NHK Spring Co., Ltd started production and supply of new suspension that supports magnetic head of HDD (Hard Disk Drive). They already enjoy global market share of 45% but aim to further get ahead of their competitors with next generation products whose control accuracy has more than doubled.
In the previous article "High Yen Slashes Profitability of Japanese Companies – The Reality" the author introduced some cases of how Japanese companies including those that are usually regarded as globally competitive have been suffering from the recent high yen.
In this article, the author would like to introduce some cases of how other companies have managed to recover their revenue and profitability despite the recent high yen.
1. How much Japanese listed companies recovered their performance in Apr-Sep 2010 despite extreme high yen?
1) Overall
The increase rate of consolidated operating profit was 2.4 times that of the previous year, which was much more than the original estimation of 70% increase from the previous year. The profit level recovered to 98% of Apr-Sep 2008 (i.e. before the worldwide economic crisis), and to 80% of Apr-Sep 2007 (i.e. the peak).
2) Specific examples
(1) Ushio, Inc.
Business of Ushio, Inc., whose business supports 3D movie boom with 3D film projector for theatres, continues to be strong even in high yen situation. They could only sell 3 products 10 years ago but their business is expected to grow as much as 7500 units, with global market share of 60%.
(2) Ricoh
Ricoh’s business in Americas that had been sluggish started to recover despite the recent high yen. They had thoroughly transferred sales know-how to the U.S. companies they had acquired, and their America business is expected to become positive soon in 2011, first time after 14 quarters.
2. How did Japanese companies manage to recover profitability despite the recent high yen?
1) Cost reduction
Primary reason for the profitability recovery is extreme cost reduction measures since the worldwide recession, which is sometimes said as practically the biggest post-war restructuring. Manufacturers drastically reduced cost (personnel etc.) last year to lower break even point by 13%. This decrease percentage is the biggest in the past 25 years (i.e. statistics is available and thus can compare).
Companies have been continuing their efforts to cut costs and improve productivity. For example, the reason for increase in Hitachi’s operating profit for Apr-Sep 2010 was increase in revenue and cost reduction (50% each).
Positive effects of such of their efforts have been conspicuous; operating profit of Japanese companies in total increased by 2.8% to reach 5.6%. The increase rate is the biggest since the economic bubble collapsed. The operating profit of 5.6% is almost 5.8% or Apr-Sep 2007, which was the peak.
2) Demand growth of emerging markets
Much of their sales and business growth came from growing demand of emerging market, Asia in particular. For example, increase of revenue of Komatsu in total was 33% when it was 58% for China. Increase of revenue of Nissan in total was 28% when it was 64% for Asia.
Some others were especially successful in business of emerging markets with launching products meeting local needs. For example, Sony developed and launched low cost flat panel TVs with limited functions in India and deprived the top market share position in India of Samsung.
3) Countermeasures to the high yen
This includes production shift to overseas as mentioned in the previous article, leveraging low cost components supplied from overseas, and owning both receivables and payables in foreign currencies.
For example, Hitachi Construction Machinery Co., Ltd. increased their production in Europe to raise their overseas production rate. Kawasaki Kisen Kaisha, Ltd. started to study accepting some portion of their receivables of their newly supplied products in USD instead of in Japanese yen. NEC separated their export-oriented semiconductor business and as a result they are no longer affected by foreign exchange fluctuation against USD. Toshiba, with similar measure, had positive effect with high yen, benefiting also with production outsourcing expansion to overseas contractors.
3. What is the outlook for the latter fiscal year of 2010?
1) Overall
Anxiety psychology proliferates among Japanese companies due to continuing high yen, termination of government’s economy stimulation incentives and slow recovery of economy of developed countries; however, there are some possible solutions of overcoming such anxiety factors. One is cultivating and harvesting the “new revenue seed” that was planted and came out in the first half of 2010. Another is flexibly adapting to external and internal environmental changes to upgrade available technologies and open/create new market.
2) Specific examples
(1) Ozu Corporation
Ozu Corporation, a leading paper distributor in Japan, started new business, operating their new factory of plants. With decreasing paper demand, they aim to benefit the recent trend of “security of foods”.
(2) NHK Spring Co., Ltd.
NHK Spring Co., Ltd started production and supply of new suspension that supports magnetic head of HDD (Hard Disk Drive). They already enjoy global market share of 45% but aim to further get ahead of their competitors with next generation products whose control accuracy has more than doubled.
2010年11月28日日曜日
High Yen Slashes Profitability of Japanese Companies - The Reality
Osaka – Sunday, November 28, 2010
In one of the previous article "Negative Effects of High Yen on Japan – The Reality" the author explained the mechanism of how high yen leads to profitability decrease of export-oriented Japanese companies, which constitutes the majority of Japanese companies operating globally such as of automobiles and consumer electronics.
In this article, the author would like to introduce such cases in more depth, based on a recent article of Nikkei, Japanese leading newspaper specialized in business and economy, to prove that high yen has significance negative effect on Japanese companies of the industries that are usually regarded as being globally competitive.
1. How high yen has cut profitability of Japanese manufacturers?
1) Automobile
The profitability decrease for fiscal year ending March 2011 of leading 7 automobile companies (including Toyota, Nissan and Honda), is estimated to total as much as 81.6 billion yen, when compared with total profit calculated with the exchange rate of 85 yen per USD, which was the rate used in their original estimation. This amount is equivalent to one third of the profit that should have been generated if there had not been deterioration in the exchange rate.
2) Rubber (Yokoyama Rubber Co. Ltd.)
Yokoyama Rubber business in Russia suffered from more than 1 billion exchange-rate loss despite their strong business in Russia. Their winter tires of Yokohama Rubber is popular in Russia and their business in Russia has been growing steadily in the first half of fiscal year 2010 in local currency base. However, with high yen and low ruble, their revenue decreased when converted to yen, resulting in over 1 billion exchange-rate loss.
3) Mechatronics (Shibaura Mechatronics Corporation)
In the case of Shibaura Mechatroonics Corporation, the financial performance deteriorated due to high yen verses low won. Low won made their Korea competitors strong in price competitiveness and deprived of their business and market share. As a result, the order that Shibaura Mechatronics received in the first half of 2010 was 40% less that their original plan.
2. To what degree the yen appreciated this year?
The yen appreciated by over 10% in only a year. It was around 93 yen per USD in average in fiscal year 2009. However, in the first has of this year the yen drastically appreciated against almost all currencies, and the yen has been hovering 80-83 yen per USD this year, which is around 10 yen or more per USD higher this year than last year. This is the primary factor for profitability reduction of Japanese companies.
3. At which high yen level would make Japanese companies in the red?
A Japanese research institute estimates that overall manufacturers would turn to red when the yen gets as high as 65 yen per USD. However, even in the current level (i.e. 80-83 yen per USD), many companies are suffering from balancing revenue and employment in Japan.
Net profit for the latter half of 2010 of Shinko Electric Industrial, would be almost zero at the level of 80 yen per USD. IC package for MPU (Micro Processing Unit), their major product, is of high value added products of many SKUs each with little volume. For this reason, it is difficult for them to shift their production to overseas, which is the first solution adopted by Japanese companies to overcome high yen.
4. What would be the primary factor that determines where the Japanese companies invest in the future?
It would be the foreign exchange rage, i.e. how yen is high or low against other major currencies. The fact that more companies including Nissan have decided to shift their production to overseas is the evidence.
Even Tokyo Electron Ltd. that had kept to their policy of manufacturing in Japan to avoid outflow of their technologies, decided to shift their production to overseas this October at last, because of the high yen. They will construct a production plant for producing LCD panel manufacturing equipment in China with the objective of cost reduction and of benefiting from growing China demand.
Asia is now not only production site but also has grown to a major consumption market. Investment environment also has improved and thus the hurdle for Japanese companies to decide shifting to Asia has drastically lowered.
5. How many people would become unemployed in Japan when production is shifted to overseas?
If Tokyo Electron mentioned above should shift their production to overseas, their current employment of their 4000 factory workers in Japan would become unemployed.
And, Toyota estimates that total of 120,000 people (inside and outside Toyota) in Japan would lose their job if their production of 1 million cars per year, which is equivalent to approximately one third of their total Japan domestic production, is to be shifted to overseas. This is equivalent to approximately 1.7 times that of Toyota employees (non-consolidated). A Toyota executive said in their recent financial performance announcement that the present currency level is above the competitiveness of Japan economy, at least of Toyota.
In one of the previous article "Negative Effects of High Yen on Japan – The Reality" the author explained the mechanism of how high yen leads to profitability decrease of export-oriented Japanese companies, which constitutes the majority of Japanese companies operating globally such as of automobiles and consumer electronics.
In this article, the author would like to introduce such cases in more depth, based on a recent article of Nikkei, Japanese leading newspaper specialized in business and economy, to prove that high yen has significance negative effect on Japanese companies of the industries that are usually regarded as being globally competitive.
1. How high yen has cut profitability of Japanese manufacturers?
1) Automobile
The profitability decrease for fiscal year ending March 2011 of leading 7 automobile companies (including Toyota, Nissan and Honda), is estimated to total as much as 81.6 billion yen, when compared with total profit calculated with the exchange rate of 85 yen per USD, which was the rate used in their original estimation. This amount is equivalent to one third of the profit that should have been generated if there had not been deterioration in the exchange rate.
2) Rubber (Yokoyama Rubber Co. Ltd.)
Yokoyama Rubber business in Russia suffered from more than 1 billion exchange-rate loss despite their strong business in Russia. Their winter tires of Yokohama Rubber is popular in Russia and their business in Russia has been growing steadily in the first half of fiscal year 2010 in local currency base. However, with high yen and low ruble, their revenue decreased when converted to yen, resulting in over 1 billion exchange-rate loss.
3) Mechatronics (Shibaura Mechatronics Corporation)
In the case of Shibaura Mechatroonics Corporation, the financial performance deteriorated due to high yen verses low won. Low won made their Korea competitors strong in price competitiveness and deprived of their business and market share. As a result, the order that Shibaura Mechatronics received in the first half of 2010 was 40% less that their original plan.
2. To what degree the yen appreciated this year?
The yen appreciated by over 10% in only a year. It was around 93 yen per USD in average in fiscal year 2009. However, in the first has of this year the yen drastically appreciated against almost all currencies, and the yen has been hovering 80-83 yen per USD this year, which is around 10 yen or more per USD higher this year than last year. This is the primary factor for profitability reduction of Japanese companies.
3. At which high yen level would make Japanese companies in the red?
A Japanese research institute estimates that overall manufacturers would turn to red when the yen gets as high as 65 yen per USD. However, even in the current level (i.e. 80-83 yen per USD), many companies are suffering from balancing revenue and employment in Japan.
Net profit for the latter half of 2010 of Shinko Electric Industrial, would be almost zero at the level of 80 yen per USD. IC package for MPU (Micro Processing Unit), their major product, is of high value added products of many SKUs each with little volume. For this reason, it is difficult for them to shift their production to overseas, which is the first solution adopted by Japanese companies to overcome high yen.
4. What would be the primary factor that determines where the Japanese companies invest in the future?
It would be the foreign exchange rage, i.e. how yen is high or low against other major currencies. The fact that more companies including Nissan have decided to shift their production to overseas is the evidence.
Even Tokyo Electron Ltd. that had kept to their policy of manufacturing in Japan to avoid outflow of their technologies, decided to shift their production to overseas this October at last, because of the high yen. They will construct a production plant for producing LCD panel manufacturing equipment in China with the objective of cost reduction and of benefiting from growing China demand.
Asia is now not only production site but also has grown to a major consumption market. Investment environment also has improved and thus the hurdle for Japanese companies to decide shifting to Asia has drastically lowered.
5. How many people would become unemployed in Japan when production is shifted to overseas?
If Tokyo Electron mentioned above should shift their production to overseas, their current employment of their 4000 factory workers in Japan would become unemployed.
And, Toyota estimates that total of 120,000 people (inside and outside Toyota) in Japan would lose their job if their production of 1 million cars per year, which is equivalent to approximately one third of their total Japan domestic production, is to be shifted to overseas. This is equivalent to approximately 1.7 times that of Toyota employees (non-consolidated). A Toyota executive said in their recent financial performance announcement that the present currency level is above the competitiveness of Japan economy, at least of Toyota.
2010年11月23日火曜日
Positive Effects of High Yen on Japan – Theory and Reality
Osaka – Tuesday, November 23, 2010
Yen had been hovering at the level of 80-82 yen per USD for quite a while, has depreciated a little hovering 83-83.5 yen per USD since the recent G20 held in Korea, but is still a serious issue in Japan. Taking this opportunity, the author discussed possible negatives effects of high yen on Japan in the previous article
Negative Effects of High Yen on Japan – The Reality
In this article, she would like to discuss on the positive ones in theory and the reality.
The conclusion is that there seem to be more negative effectives than the positive ones. Also, the possible positive effects have not all resulted in positive effects as expected/in theory because of the characteristics of the positive effects and other negative factors such as worldwide abnormal weather. As a result, the limited positive effects have been traded off with such negative factors. Therefore in total, negative effects exceed positive effects, and thus the result is ongoing sluggish economy.
1. Decrease in price of imported products
1) Theory
In theory, price of imported products should drop unless the wholesalers and/or retailers increase their margin. This is why in high yen times, there are usually bargains reducing benefits of high yen by retailers, with the objective of stimulating consumer spending leading to boost in their sales and growth in their businesses.
Also, since Japan depends most of its agricultural products and other household goods on import, high yen should mean decrease in total household expense.
2) Reality
(1) As theory
Recently in a TV programme, bargains reducing high yen were featured. A case of Nitori Co. Ltd, a company that does business in student desks, Japanese traditional school bags etc. imports 90% or more of their products from overseas and therefore additional 900 million yen profit is generated for every appreciated 1 yen per USD. Taking the opportunity of the recent high yen, Nitori has been slashing the retail price of their products by 10-30% to boost their sales. Moreover, according to their TVCF that went on the air this morning they have been additionally slashing their prices since October 30 by 15-40% to further boost their business, together with launching new products for Christmas business.
Another case featured was of a department store. Most of their products are imported and they also were trying to boost their sales by bargains reducing benefits of high yen.
(2) Not as theory
The overall household spending does not seem to have decreased and most household do not truly realize the benefit of high yen. Possible reasons for this are the following:-
a) Imported products with lower price in high yen targets limited customer segment
Most imported products whose price has dropped are of luxury products (e.g. branded products such as of Chanel, Louis Vuitton, Tiffany) and products that are not of daily necessities like that of Nitori.
This means it is mostly the rich people who can afford luxury products that benefit from high yen. Other possible people who benefit from high yen are those who need to buy products of Nitori business because their children have reached such an age, and who can afford to additionally buy non-daily necessities. Such people are minority of the total Japanese citizens. For this reason, bargains reducing benefits of high yen on total consumer spending is limited.
b) Prices of agricultural products has not dropped under high yen
Prices of imported daily necessities such as agricultural products have not dropped despite the high yen. This is because of poor harvesting due to abnormal climate worldwide, such as poor harvesting of wheat in Russia, vegetables in Australia and the U.S. Thus, decrease in yield of such products has traded off the benefits of high yen.
2. Boost in tourism business (tourists from Japan to overseas)
(1) Theory
In theory, more Japanese people would travel abroad leveraging the benefits of high yen, meaning boost in overseas tourism business. This is because under high yen, with the same amount of money in yen, people can buy more products abroad so high yen would be an incentive for them to travel abroad, buy products and bring them back to Japan and/or spend money abroad in other ways such as enjoying services.
(2) Reality
Tourism industry revenue has not increased as much as expected. This can be due to the fact that with ongoing sluggish economy and decrease in average income, it is only the limited rich people who can truly enjoy the benefit of high hen in tourism, and the majority of the Japanese cannot afford to travel abroad as in strong economy.
Yen had been hovering at the level of 80-82 yen per USD for quite a while, has depreciated a little hovering 83-83.5 yen per USD since the recent G20 held in Korea, but is still a serious issue in Japan. Taking this opportunity, the author discussed possible negatives effects of high yen on Japan in the previous article
Negative Effects of High Yen on Japan – The Reality
In this article, she would like to discuss on the positive ones in theory and the reality.
The conclusion is that there seem to be more negative effectives than the positive ones. Also, the possible positive effects have not all resulted in positive effects as expected/in theory because of the characteristics of the positive effects and other negative factors such as worldwide abnormal weather. As a result, the limited positive effects have been traded off with such negative factors. Therefore in total, negative effects exceed positive effects, and thus the result is ongoing sluggish economy.
1. Decrease in price of imported products
1) Theory
In theory, price of imported products should drop unless the wholesalers and/or retailers increase their margin. This is why in high yen times, there are usually bargains reducing benefits of high yen by retailers, with the objective of stimulating consumer spending leading to boost in their sales and growth in their businesses.
Also, since Japan depends most of its agricultural products and other household goods on import, high yen should mean decrease in total household expense.
2) Reality
(1) As theory
Recently in a TV programme, bargains reducing high yen were featured. A case of Nitori Co. Ltd, a company that does business in student desks, Japanese traditional school bags etc. imports 90% or more of their products from overseas and therefore additional 900 million yen profit is generated for every appreciated 1 yen per USD. Taking the opportunity of the recent high yen, Nitori has been slashing the retail price of their products by 10-30% to boost their sales. Moreover, according to their TVCF that went on the air this morning they have been additionally slashing their prices since October 30 by 15-40% to further boost their business, together with launching new products for Christmas business.
Another case featured was of a department store. Most of their products are imported and they also were trying to boost their sales by bargains reducing benefits of high yen.
(2) Not as theory
The overall household spending does not seem to have decreased and most household do not truly realize the benefit of high yen. Possible reasons for this are the following:-
a) Imported products with lower price in high yen targets limited customer segment
Most imported products whose price has dropped are of luxury products (e.g. branded products such as of Chanel, Louis Vuitton, Tiffany) and products that are not of daily necessities like that of Nitori.
This means it is mostly the rich people who can afford luxury products that benefit from high yen. Other possible people who benefit from high yen are those who need to buy products of Nitori business because their children have reached such an age, and who can afford to additionally buy non-daily necessities. Such people are minority of the total Japanese citizens. For this reason, bargains reducing benefits of high yen on total consumer spending is limited.
b) Prices of agricultural products has not dropped under high yen
Prices of imported daily necessities such as agricultural products have not dropped despite the high yen. This is because of poor harvesting due to abnormal climate worldwide, such as poor harvesting of wheat in Russia, vegetables in Australia and the U.S. Thus, decrease in yield of such products has traded off the benefits of high yen.
2. Boost in tourism business (tourists from Japan to overseas)
(1) Theory
In theory, more Japanese people would travel abroad leveraging the benefits of high yen, meaning boost in overseas tourism business. This is because under high yen, with the same amount of money in yen, people can buy more products abroad so high yen would be an incentive for them to travel abroad, buy products and bring them back to Japan and/or spend money abroad in other ways such as enjoying services.
(2) Reality
Tourism industry revenue has not increased as much as expected. This can be due to the fact that with ongoing sluggish economy and decrease in average income, it is only the limited rich people who can truly enjoy the benefit of high hen in tourism, and the majority of the Japanese cannot afford to travel abroad as in strong economy.
2010年11月14日日曜日
Negative Effects of High Yen on Japan – The Reality
Osaka – Sunday, November 13, 2010
High yen, hovering at the level of 80 – 85 yen per USD, was what export-oriented Japanese companies suffered from around 1995, and what made many of them shift some of their production to other countries of Asia. Yen has been hovering again at the level of 80-82 yen per USD for quite a while now when many of the Japanese companies are said to have originally made their made business plan at the exchange rate 87 – 95 yen per USD and therefore has been a serious issue in Japan.
Taking this opportunity, the author would like to discuss to clarify possible effects of high yen on Japan, focusing on the negative ones in this article, and positive ones in the upcoming article.
1. Profitability decrease of export-oriented Japanese companies
High yen directly hit profitability of export-oriented Japanese companies, when majority of the major Japanese companies such as Toyota, Sony and Panasonic to name just a few are such companies.
In the case of “made in Japan” products that are exported, high yen means decrease in gross margin because the total cost remains almost the same while the sales price in the market would be cut when converted to yen. If raw materials are imported their cost would be lower but it is the production cost accrued in Japan verses the sales price that is the primary determinant of gross margin.
For this reason, high yen is one of the reasons for slow in revenue and profit recovery of many of the Japanese companies compared to their western and Korean counterparts, as mentioned in the previous article "Japan Stagnates in Stock Market Recovery Unlike Worldwide – Why?"
According to the articles dated November 6 by Nikkei, Japanese leading newspaper specialized in business economy, the recovery rate for major Japanese companies fall behind those of western counterparts. Even Mitsubishi Trading that is #1 in the profit recovery, profit is 90% of that of pre-worldwide crisis. Panasonic is just below 50% and for Komatsu strong in Asia business is 60%.
Toyota’s case is probably one of the good examples to understand how high yen is negatively affective company’s profitability, whose profit remains as little as less than 20% of that of pre-worldwide crisis. According to Nikkei, for Apr-Sep 2010, Toyota, that was in negative by 137 billion yen for Apr-Sept 2009, has managed to turn back go black being in positive by 323 billion yen. This attributes to positive factors including sales increase (+570 billion yen) and improvement in cost competitiveness (+90 billion yen). But negative effect on currency (= high yen, which is higher by 7 yen per USD compared to last year) was 120 billion yen and therefore the total profit was only 323 billion yen
2. Shift in production of export-oriented Japanese companies to overseas
The first measures taken in many cases for cost reduction in high yen situation is cutting production cost by shifting production from Japan to countries of lower labour cost such as ASEAN and China. This is why production shift took place in many manufacturing companies especially consumer electronics and automobile companies in mid 1990s.
The recent high yen is triggering further production shift to overseas. Nissan was one of the first companies that explicitly said they will shift more production sites to Asia, followed by other companies. Others that have not yet announced the production shift but they say that if the high yen continues they also would consider production shift to overseas.
There is no sign of the yen to get lower and some view that it is quite possible that it will get higher than 80 yen per USD. Experts and people of the industry say that if the yen should get as high as 75 yen 100% of the production of automobiles need to be shifted to overseas for the companies to make ends meet.
3. Economy remaining sluggish
In addition, high yen would be a big factor for sluggish economy, because of decrease in consumer spending and slow tourism business. Low consumer spending is one of the primary factors for sluggish economy.
Shift in production to overseas drives restructuring and job cuts. As a result, employment rate goes up. In such a situation, consumer spending would unlikely be stimulated unless the government gives incentives/execute economy stimulation measures that trades off such negative factors.
Also, high yen would likely to keep away tourists coming to Japan because it would cost them more to enjoy their visit to Japan, meaning less consumer spending. This is because even if the number of tourists visiting Japan remains the same, they are more unlikely be able to purchase same amount of products and services as low yen time unless they can afford to bring more money with them.
High yen, hovering at the level of 80 – 85 yen per USD, was what export-oriented Japanese companies suffered from around 1995, and what made many of them shift some of their production to other countries of Asia. Yen has been hovering again at the level of 80-82 yen per USD for quite a while now when many of the Japanese companies are said to have originally made their made business plan at the exchange rate 87 – 95 yen per USD and therefore has been a serious issue in Japan.
Taking this opportunity, the author would like to discuss to clarify possible effects of high yen on Japan, focusing on the negative ones in this article, and positive ones in the upcoming article.
1. Profitability decrease of export-oriented Japanese companies
High yen directly hit profitability of export-oriented Japanese companies, when majority of the major Japanese companies such as Toyota, Sony and Panasonic to name just a few are such companies.
In the case of “made in Japan” products that are exported, high yen means decrease in gross margin because the total cost remains almost the same while the sales price in the market would be cut when converted to yen. If raw materials are imported their cost would be lower but it is the production cost accrued in Japan verses the sales price that is the primary determinant of gross margin.
For this reason, high yen is one of the reasons for slow in revenue and profit recovery of many of the Japanese companies compared to their western and Korean counterparts, as mentioned in the previous article "Japan Stagnates in Stock Market Recovery Unlike Worldwide – Why?"
According to the articles dated November 6 by Nikkei, Japanese leading newspaper specialized in business economy, the recovery rate for major Japanese companies fall behind those of western counterparts. Even Mitsubishi Trading that is #1 in the profit recovery, profit is 90% of that of pre-worldwide crisis. Panasonic is just below 50% and for Komatsu strong in Asia business is 60%.
Toyota’s case is probably one of the good examples to understand how high yen is negatively affective company’s profitability, whose profit remains as little as less than 20% of that of pre-worldwide crisis. According to Nikkei, for Apr-Sep 2010, Toyota, that was in negative by 137 billion yen for Apr-Sept 2009, has managed to turn back go black being in positive by 323 billion yen. This attributes to positive factors including sales increase (+570 billion yen) and improvement in cost competitiveness (+90 billion yen). But negative effect on currency (= high yen, which is higher by 7 yen per USD compared to last year) was 120 billion yen and therefore the total profit was only 323 billion yen
2. Shift in production of export-oriented Japanese companies to overseas
The first measures taken in many cases for cost reduction in high yen situation is cutting production cost by shifting production from Japan to countries of lower labour cost such as ASEAN and China. This is why production shift took place in many manufacturing companies especially consumer electronics and automobile companies in mid 1990s.
The recent high yen is triggering further production shift to overseas. Nissan was one of the first companies that explicitly said they will shift more production sites to Asia, followed by other companies. Others that have not yet announced the production shift but they say that if the high yen continues they also would consider production shift to overseas.
There is no sign of the yen to get lower and some view that it is quite possible that it will get higher than 80 yen per USD. Experts and people of the industry say that if the yen should get as high as 75 yen 100% of the production of automobiles need to be shifted to overseas for the companies to make ends meet.
3. Economy remaining sluggish
In addition, high yen would be a big factor for sluggish economy, because of decrease in consumer spending and slow tourism business. Low consumer spending is one of the primary factors for sluggish economy.
Shift in production to overseas drives restructuring and job cuts. As a result, employment rate goes up. In such a situation, consumer spending would unlikely be stimulated unless the government gives incentives/execute economy stimulation measures that trades off such negative factors.
Also, high yen would likely to keep away tourists coming to Japan because it would cost them more to enjoy their visit to Japan, meaning less consumer spending. This is because even if the number of tourists visiting Japan remains the same, they are more unlikely be able to purchase same amount of products and services as low yen time unless they can afford to bring more money with them.
2010年11月7日日曜日
Japan Stagnates in Stock Market Recovery Unlike Worldwide – Why?
Osaka – Sunday, November 7, 2010
Nikkei, Japanese leading newspaper specialized in business and economy reported on November 6 that 70% of the worldwide stock market/share price (14 among 20 major markets including the U.S.) has recovered to the level of the pre-worldwide economic crisis of 2008 driven by additional credit ease by FRB (Federal Reserve Bank), while that of Japan stagnates. The worldwide recovery attributes to investment money generated by the easy money flowing into the stock market. Average share price of Japan stock market is still minus 20% from the level of the pre-worldwide economic crisis and its slow recovery stands out.
1. Which countries have been recovering the most?
It is the emerging markets, whose growth expectation is high. As shown in the table below, no.1 is Argentina (+103% from the level before the worldwide economic crisis), which is followed by China (+50%) and India (49%). These countries are all in upward trend.
Worldwide Main Stock Index Compared to the Level of Pre-Worldwide Economic Crisis
(Source: Nikkei, translated by the author)
Country / Advance/Decline Ratio vs Pre-Worldwide Crisis (%)
Argentina / 102.7
China / 50.5
India / 49.2
Brazil / 39.3
Taiwan / 33.9
South Korea / 31.2
Hong Kong / 28.5
Singapore / 26.0
Russia / 19.4
South Africa / 16.4
The U.K. / 8.2
Germany / 8.0
Canada / 0.9
The U.S. / 0.1
Australia / -1.7
Spain / -7.1
Switzerland / -8.6
France / -9.6
Japan / -21.6
Italy / -24.3
Majority of developed countries also recovered with capital inflow into their stock market. Dow index has recovered to the level of pre-worldwide crisis on November 4. Recovery rate of the U.K. and Germany is especially large with +8%. The reason is said to be the fact that with easy interest rate of the U.S. and Japan, yield of government bonds went down and therefore comparatively the stocks of the developed countries became attractive to investors.
2. Which countries stagnate in recovery?
It is the countries with structural problems, such as Italy, Spain and Japan. The amount of government bond of such countries is large but high growth cannot be expected; therefore, only limited capital has been flowing into their stock market. Average share price of Japan is -21.2 from the pre-worldwide crisis level, which is above only Italy i.e. second from the bottom of the 20 countries.
3. Why Japan’s recovery stagnates?
It is because the revenue recovery of Japanese companies is much slower than their overseas counterparts, due to the following.
1) High yen that seems to continue
Yen has been hovering around 80 yen per USD, the same level as the previous high yen level of around 1995 when Japanese companies suffered so much from high yen. The high yen trend seems to continue for some time, and some experts say it could reach as high as 75 yen per USD.
This is the contrary of South Korea and German companies, whose recovery have been accelerated, leveraging their low their currency. Ratio of net profit for July-Sep of Posco (South Korea) has recovered to 86% of July-Sep of 2008 while that of Nippon Steel (Japan) is only 56%. Net profit of for July-Sep of Volkswagen (Germany) is almost twice of July-Sep of 2008, when that of Toyota (Japan) is only 70%.
2) Unclear policy of the government unable to support recovery of the companies
As experts point out, with politics in chaos, the government has not been able to support improvement of global competitiveness of Japanese companies. This is another obstacle for money inflow into the Japan stock market.
Bank of Japan has started to take comprehensive easing measures including purchasing of risk assets such as ETF (Exchange Trade Fund) but many experts view that such measures are behind those of FRB.
In the upcoming article, the author would like to focus on the effects on high yen on Japan.
Nikkei, Japanese leading newspaper specialized in business and economy reported on November 6 that 70% of the worldwide stock market/share price (14 among 20 major markets including the U.S.) has recovered to the level of the pre-worldwide economic crisis of 2008 driven by additional credit ease by FRB (Federal Reserve Bank), while that of Japan stagnates. The worldwide recovery attributes to investment money generated by the easy money flowing into the stock market. Average share price of Japan stock market is still minus 20% from the level of the pre-worldwide economic crisis and its slow recovery stands out.
1. Which countries have been recovering the most?
It is the emerging markets, whose growth expectation is high. As shown in the table below, no.1 is Argentina (+103% from the level before the worldwide economic crisis), which is followed by China (+50%) and India (49%). These countries are all in upward trend.
Worldwide Main Stock Index Compared to the Level of Pre-Worldwide Economic Crisis
(Source: Nikkei, translated by the author)
Country / Advance/Decline Ratio vs Pre-Worldwide Crisis (%)
Argentina / 102.7
China / 50.5
India / 49.2
Brazil / 39.3
Taiwan / 33.9
South Korea / 31.2
Hong Kong / 28.5
Singapore / 26.0
Russia / 19.4
South Africa / 16.4
The U.K. / 8.2
Germany / 8.0
Canada / 0.9
The U.S. / 0.1
Australia / -1.7
Spain / -7.1
Switzerland / -8.6
France / -9.6
Japan / -21.6
Italy / -24.3
Majority of developed countries also recovered with capital inflow into their stock market. Dow index has recovered to the level of pre-worldwide crisis on November 4. Recovery rate of the U.K. and Germany is especially large with +8%. The reason is said to be the fact that with easy interest rate of the U.S. and Japan, yield of government bonds went down and therefore comparatively the stocks of the developed countries became attractive to investors.
2. Which countries stagnate in recovery?
It is the countries with structural problems, such as Italy, Spain and Japan. The amount of government bond of such countries is large but high growth cannot be expected; therefore, only limited capital has been flowing into their stock market. Average share price of Japan is -21.2 from the pre-worldwide crisis level, which is above only Italy i.e. second from the bottom of the 20 countries.
3. Why Japan’s recovery stagnates?
It is because the revenue recovery of Japanese companies is much slower than their overseas counterparts, due to the following.
1) High yen that seems to continue
Yen has been hovering around 80 yen per USD, the same level as the previous high yen level of around 1995 when Japanese companies suffered so much from high yen. The high yen trend seems to continue for some time, and some experts say it could reach as high as 75 yen per USD.
This is the contrary of South Korea and German companies, whose recovery have been accelerated, leveraging their low their currency. Ratio of net profit for July-Sep of Posco (South Korea) has recovered to 86% of July-Sep of 2008 while that of Nippon Steel (Japan) is only 56%. Net profit of for July-Sep of Volkswagen (Germany) is almost twice of July-Sep of 2008, when that of Toyota (Japan) is only 70%.
2) Unclear policy of the government unable to support recovery of the companies
As experts point out, with politics in chaos, the government has not been able to support improvement of global competitiveness of Japanese companies. This is another obstacle for money inflow into the Japan stock market.
Bank of Japan has started to take comprehensive easing measures including purchasing of risk assets such as ETF (Exchange Trade Fund) but many experts view that such measures are behind those of FRB.
In the upcoming article, the author would like to focus on the effects on high yen on Japan.
2010年7月25日日曜日
Abnormal Weather Worldwide – Why and Effects
Osaka - Sunday, July 25, 2010
Nikkei, Japan’s leading newspaper specialized in business and economy, reported on July 22 and 25, 2010 about recent worldwide abnormal weather. There have been repeated heavy rains in China and Japan, extremely hot summer days China, Russia, some parts of Europe and Japan, and extremely cold winter days in some parts of South America. The abnormal weather has been affecting economy and lives of citizens worldwide.
1. Why abnormal weather worldwide?
“Abnormal weather/climate” is a rare phenomenon that occurs once in 30 years or more, but such phenomenon has been increasing lately. According to JMA ((Japan Meteorological Agency), frequency of abnormal weather/climate 1975 - 2004 compared to 1901 – 1930 is 2.16 times for East Asia and 2.53 times for Europe. It can be said that the frequency has been increasing worldwide excluding Southern Africa.
Possible reasons for recent global abnormal weather are as below.
1) Heat wave in northern hemisphere
Some countries in northern hemisphere are covered by heat wave, attributing to meandering of upper westerly that flows from west to east. Assistant Professor Nakamura of University of Tokyo says that the heat wave has triggered consecutive abnormal weather worldwide. This is also said to be the reason of strong high pressure in Russia, Eastern Europe and East Asia meaning extreme heat that resulted in repeated heavy rains in China and Japan.
Professor Yamakawa of Japan University points out that meandering is not unusual but the degree is abnormally large. He adds that it is quite possible for this trend to continue until September. The meandering is, according to Professor Tachibana from Mie University, triggered by high water temperature of low latitude areas of North Atlantic Ocean. It is quite possible that activated convection developed high pressure in the eastern U.S. to prevent westerly flow and created meandering.
2) Arctic oscillation phenomenon
Arctic oscillation phenomenon is when the air pressure near the North Pole and its surroundings become reversed like a seesaw. Professor Yamazaki from Hokkaido University points out that with current pattern in which air pressure of the North Pole is low and air pressure of mid-latitude area is high, it is likely that cold air is accumulated in north pole and places such as Europe and Siberia tends to get hot.
3) High temperature of Eastern Pacific tropical waters
Sea temperature of Eastern Pacific tropical waters have been higher than usual and developed high pressure near Japan, leading to extreme heat, according to Professor Yamagata of University of Tokyo. He adds that La Nina phenomenon, the reverse of El Nino phenomenon, is to occur, meaning it is quite possible that extreme heat remains in northern hemisphere for a while. Also, Professor Yamakawa adds that it is possible that there will be increased number of strong typhoons this year.
2. What is the effect of abnormal weather economy and lives of citizens worldwide?
Effects range from crop yield decrease, floods and landslides such as the case in Japan mentioned in the previous article What are the Effects of the Recent Heavy Rains in Japan? to deaths of many people.
1) China
Since June, there have been repeated torrential rains in central and southern China from which more than 700 people died and 1,130 billion people have been affected.
Repeated heavy rains’ negative effect on crops is also severe, equivalent to economic loss of approximately 142.2 billion RBM (1.83 yen). Being anxious of negative effect on harvesting in autumn, production plan is now being reviewed.
Three Gorges Dam, a world class dam located in mid-point of Yangtze, recorded historical water volume flowing in dams since 1998 on July 20. Water volume flowing out was immediately increased and closed ship navigation for 4 days. This led to temporal negative effects on transportation between industrial regions such as Shanghai.
2) Russia
One in a century hot summer days were recorded, and in some southern regions the temperature reached as high as 40℃ with little rain. With spreading drought, government and farmers in south and midlands announced as emergency situation. Russia’s agriculture ministry had already estimated crop yields for July 2010 – June 2010 such as wheat to be 85 million ton, which is decrease by 12% from previous year; however, it is quite possible that revision of estimation is required. An executive of Russia crop association pointed out the possibility of this year’s export to be reduced by 20%.
With estimation of lack in wheat supply, wheat future quotation of Chicago rose by more than 20% in July. On July 23, it was as high as 5.9625 / bushel, which is at a high level since June 2009.
In some other regions in China it has been extremely hot, leading to effects similarly to other parts of the world that have been suffering from hot summer days.
3) North Korea
With nationwide heavy rains in the end of July, a whole village in northern part of the country was flooded.
4) France
There had been extremely hot summer days of over 35℃ temporarily. Therefore, a new loan system was launched with interest rate as low as 4 – 5% to help people buy air conditioners.
5) Germany
There has been extremely hot summer days. Air conditioning of high-speed railway ICE broke down, and many passengers were carried to hospitals because of heat stroke and dehydration.
6) Southern part of South America
Historically cold winter days were recorded. People who died from reasons attributing to cold weather such as pneumonia and carbon monoxide poisoning due to imperfect combustion of heaters have reached over 200 in total in countries such as Argentina, Peru and Bolivia. And on July 20, food was supplied to people living in the streets in Argentina.
On July 21, the Paraguay government announced that approximately 2,000 cows died nationwide. The reason is assumed to be low temperature.
3. Is there no positive effect at all?
Extremely hot summer days after the rainy season in Japan have some positive effect on consumer spending. But in total, abnormal weather has more negative effect on economy, business and lives of people.
1) How temperature rise in summer has positive effect on consumer spending
According to estimation of a private research company, average temperature rise by 1℃ in Tokyo and Osaka July – September from previous years increases consumer spending by 433.3 billion yen. This means a positive effect on GDP by 0.3%.
Such estimation seems to be quite true. With the arrival of hot summer days (many parts including Tokyo reaching above 35℃, even 38.9℃ in Gunma), business of summer products started to pick up, supporting recovery of consumer spending. As a result, Nikkei average stock price at Tokyo Stock Exchange Market on July 21 was declining but stock price of air conditioner makers such as Daikin and Fujitsu General gone up. Stocks of beverage makers such as Itoen and Asahi Breweries were popular.
2) Some examples of consumer recovery with rise in temperature
(1) Air conditioner
It is usually said that when sweltering night continues for more than three days air conditioners start to sell well, and indeed in many mass merchandisers air conditioners started to sell well on July 19. For example, in a leading mass merchandiser, air conditioner sales for July 20 – 21 were 2-1/2 to 3 times that of last year.
(2) Bed clothing for summer
Sales of bed clothing for summer made from excellent ventilation materials are now strong in department stores. Sales of pillows and mattresses made from such materials increased by 50% from last year for 2 leading department stores. Another leading department store doubled selling space of related goods from July 21.
Sales of under wears that absorbs sweat well and dries quickly are strong, and a leading retailer is to speed up purchasing of such products (price range = 500 – 980 yen). The annual sales plan for such goods is 4.25 million in volume. So far, products are being sold at the pace of 50% more than the plan and therefore the retailer made additional order to a factory in China.
(3) Foods and beverages
Water melon sales started to become strong, according to wholesalers. In a Tokyo’s wholesaler market, water melons of top brands were traded at 3,675 yen for 13kg, which is approximately 8% higher than previous years.
Beer business started to become strong, too. By the end of July, Asahi Breweries will increase supply of its main product “Asahi Super Dry” at below 0℃ by 300 restaurants, equivalent to 50% increase, compared with beginning of the month.
Ice crème business started to pick up, too. Ice crème business of a leading maker was hovering at only 3% increase from last year until the middle of July. But from July 19 after the end of the rainy season, it has increased by double digit.
(4) Leisure
Summer leisure business also started to pick up. Visitors of a major pool in Tokyo for July 19-21 (extended weekend) increased by 40% from last year, reaching 34,900 people.
3) Consumer spending overall
The above sales pick-ups do not mean overall consumer spending has recovered across all industry. Total sales of leading department stores for July 1 – 19 are minus by 1.4% and 1.0% from last year. Also, if the temperature rises too much for too many days, less people (especially elders) would be visiting stores for shopping.
What is more, Japan’s crop harvesting is also estimated to be lower than previous years, and almost 20 people have died already from heat stroke.
Nikkei, Japan’s leading newspaper specialized in business and economy, reported on July 22 and 25, 2010 about recent worldwide abnormal weather. There have been repeated heavy rains in China and Japan, extremely hot summer days China, Russia, some parts of Europe and Japan, and extremely cold winter days in some parts of South America. The abnormal weather has been affecting economy and lives of citizens worldwide.
1. Why abnormal weather worldwide?
“Abnormal weather/climate” is a rare phenomenon that occurs once in 30 years or more, but such phenomenon has been increasing lately. According to JMA ((Japan Meteorological Agency), frequency of abnormal weather/climate 1975 - 2004 compared to 1901 – 1930 is 2.16 times for East Asia and 2.53 times for Europe. It can be said that the frequency has been increasing worldwide excluding Southern Africa.
Possible reasons for recent global abnormal weather are as below.
1) Heat wave in northern hemisphere
Some countries in northern hemisphere are covered by heat wave, attributing to meandering of upper westerly that flows from west to east. Assistant Professor Nakamura of University of Tokyo says that the heat wave has triggered consecutive abnormal weather worldwide. This is also said to be the reason of strong high pressure in Russia, Eastern Europe and East Asia meaning extreme heat that resulted in repeated heavy rains in China and Japan.
Professor Yamakawa of Japan University points out that meandering is not unusual but the degree is abnormally large. He adds that it is quite possible for this trend to continue until September. The meandering is, according to Professor Tachibana from Mie University, triggered by high water temperature of low latitude areas of North Atlantic Ocean. It is quite possible that activated convection developed high pressure in the eastern U.S. to prevent westerly flow and created meandering.
2) Arctic oscillation phenomenon
Arctic oscillation phenomenon is when the air pressure near the North Pole and its surroundings become reversed like a seesaw. Professor Yamazaki from Hokkaido University points out that with current pattern in which air pressure of the North Pole is low and air pressure of mid-latitude area is high, it is likely that cold air is accumulated in north pole and places such as Europe and Siberia tends to get hot.
3) High temperature of Eastern Pacific tropical waters
Sea temperature of Eastern Pacific tropical waters have been higher than usual and developed high pressure near Japan, leading to extreme heat, according to Professor Yamagata of University of Tokyo. He adds that La Nina phenomenon, the reverse of El Nino phenomenon, is to occur, meaning it is quite possible that extreme heat remains in northern hemisphere for a while. Also, Professor Yamakawa adds that it is possible that there will be increased number of strong typhoons this year.
2. What is the effect of abnormal weather economy and lives of citizens worldwide?
Effects range from crop yield decrease, floods and landslides such as the case in Japan mentioned in the previous article What are the Effects of the Recent Heavy Rains in Japan? to deaths of many people.
1) China
Since June, there have been repeated torrential rains in central and southern China from which more than 700 people died and 1,130 billion people have been affected.
Repeated heavy rains’ negative effect on crops is also severe, equivalent to economic loss of approximately 142.2 billion RBM (1.83 yen). Being anxious of negative effect on harvesting in autumn, production plan is now being reviewed.
Three Gorges Dam, a world class dam located in mid-point of Yangtze, recorded historical water volume flowing in dams since 1998 on July 20. Water volume flowing out was immediately increased and closed ship navigation for 4 days. This led to temporal negative effects on transportation between industrial regions such as Shanghai.
2) Russia
One in a century hot summer days were recorded, and in some southern regions the temperature reached as high as 40℃ with little rain. With spreading drought, government and farmers in south and midlands announced as emergency situation. Russia’s agriculture ministry had already estimated crop yields for July 2010 – June 2010 such as wheat to be 85 million ton, which is decrease by 12% from previous year; however, it is quite possible that revision of estimation is required. An executive of Russia crop association pointed out the possibility of this year’s export to be reduced by 20%.
With estimation of lack in wheat supply, wheat future quotation of Chicago rose by more than 20% in July. On July 23, it was as high as 5.9625 / bushel, which is at a high level since June 2009.
In some other regions in China it has been extremely hot, leading to effects similarly to other parts of the world that have been suffering from hot summer days.
3) North Korea
With nationwide heavy rains in the end of July, a whole village in northern part of the country was flooded.
4) France
There had been extremely hot summer days of over 35℃ temporarily. Therefore, a new loan system was launched with interest rate as low as 4 – 5% to help people buy air conditioners.
5) Germany
There has been extremely hot summer days. Air conditioning of high-speed railway ICE broke down, and many passengers were carried to hospitals because of heat stroke and dehydration.
6) Southern part of South America
Historically cold winter days were recorded. People who died from reasons attributing to cold weather such as pneumonia and carbon monoxide poisoning due to imperfect combustion of heaters have reached over 200 in total in countries such as Argentina, Peru and Bolivia. And on July 20, food was supplied to people living in the streets in Argentina.
On July 21, the Paraguay government announced that approximately 2,000 cows died nationwide. The reason is assumed to be low temperature.
3. Is there no positive effect at all?
Extremely hot summer days after the rainy season in Japan have some positive effect on consumer spending. But in total, abnormal weather has more negative effect on economy, business and lives of people.
1) How temperature rise in summer has positive effect on consumer spending
According to estimation of a private research company, average temperature rise by 1℃ in Tokyo and Osaka July – September from previous years increases consumer spending by 433.3 billion yen. This means a positive effect on GDP by 0.3%.
Such estimation seems to be quite true. With the arrival of hot summer days (many parts including Tokyo reaching above 35℃, even 38.9℃ in Gunma), business of summer products started to pick up, supporting recovery of consumer spending. As a result, Nikkei average stock price at Tokyo Stock Exchange Market on July 21 was declining but stock price of air conditioner makers such as Daikin and Fujitsu General gone up. Stocks of beverage makers such as Itoen and Asahi Breweries were popular.
2) Some examples of consumer recovery with rise in temperature
(1) Air conditioner
It is usually said that when sweltering night continues for more than three days air conditioners start to sell well, and indeed in many mass merchandisers air conditioners started to sell well on July 19. For example, in a leading mass merchandiser, air conditioner sales for July 20 – 21 were 2-1/2 to 3 times that of last year.
(2) Bed clothing for summer
Sales of bed clothing for summer made from excellent ventilation materials are now strong in department stores. Sales of pillows and mattresses made from such materials increased by 50% from last year for 2 leading department stores. Another leading department store doubled selling space of related goods from July 21.
Sales of under wears that absorbs sweat well and dries quickly are strong, and a leading retailer is to speed up purchasing of such products (price range = 500 – 980 yen). The annual sales plan for such goods is 4.25 million in volume. So far, products are being sold at the pace of 50% more than the plan and therefore the retailer made additional order to a factory in China.
(3) Foods and beverages
Water melon sales started to become strong, according to wholesalers. In a Tokyo’s wholesaler market, water melons of top brands were traded at 3,675 yen for 13kg, which is approximately 8% higher than previous years.
Beer business started to become strong, too. By the end of July, Asahi Breweries will increase supply of its main product “Asahi Super Dry” at below 0℃ by 300 restaurants, equivalent to 50% increase, compared with beginning of the month.
Ice crème business started to pick up, too. Ice crème business of a leading maker was hovering at only 3% increase from last year until the middle of July. But from July 19 after the end of the rainy season, it has increased by double digit.
(4) Leisure
Summer leisure business also started to pick up. Visitors of a major pool in Tokyo for July 19-21 (extended weekend) increased by 40% from last year, reaching 34,900 people.
3) Consumer spending overall
The above sales pick-ups do not mean overall consumer spending has recovered across all industry. Total sales of leading department stores for July 1 – 19 are minus by 1.4% and 1.0% from last year. Also, if the temperature rises too much for too many days, less people (especially elders) would be visiting stores for shopping.
What is more, Japan’s crop harvesting is also estimated to be lower than previous years, and almost 20 people have died already from heat stroke.
2010年7月19日月曜日
Turning Point in Japan’s Trade with China
Osaka – Monday, July 19, 2010
Nikkei, Japanese newspaper specialized in business and economy, reported today that Japan’s trade with China is at the verge of turning point and may even abolish trade deficit with China to make it trade surplus. With low cost made in China products imported to Japan, trade deficit with China had been around 2 to 3 trillion per year since the middle of 1990s but for 2009 it has shrunk to approximately 480 billion yen.
This is because of the increase in purchasing power of China accompanied by economic growth. There are also qualitative changes in trade such as automobile trade started to drive export from Japan to China. These indicate that China is transforming from “factory of the world” to “market of the world”, and China’s presence as both production site and consumption market is drastically increasing.
If Japanese companies succeed to penetrate Chinese consumption market, it may not only contribute to abolishing trade deficit with China making it trade surplus but also to optimizing total trade imbalance.
1. What is the recent trend of Japan’s trade with China?
1) Analysis and estimation by Barclays Capital
Balance of trade with China for January – March 2010 was surplus, excluding seasonal factors, is the conclusion of their analysis. When they estimated by adding their original adjustment of seasonal factors to trade statistic data issued by Ministry of Finance, trade balance with China is 740 billion yen per year in surplus, although it had been in deficit for the past 21 years since October – December 1988.
2) Indication of data issued by Ministry of Finance, the primary source of Barclay Capital’s analysis
Data issued by Ministry of Finance also reveals changes in Japan’s trade with China. In 2009 with worldwide economy recession triggered by Lehman's fall, import from China to Japan decreased by 16% from 2008, when export to China from Japan decreased only by 4% from 2008.
There are 2 points that needs to be taken into note of. One is that China’s recovery which was earlier than developed countries minimized the trade decreased. The other is that trade of finished products such as automobile and high tech equipments increased prominently.
Percentage of export of transportation equipments (passenger cars, trucks etc.) increased by 3% from 2008 to 10.12% in 2009. This is about double from 5.15% in 2004 when it was at one of the lowest level because of local production by Japanese companies (in the midst when China was called “factory of the world”).
Similarly, for January – March 2010, export of video equipments such as video cameras were 1.6 times of January – March 2009, and export of digital cameras especially of high end products increased by approximately 80%.
2. Why Japan’s trade with China had been in deficit for a long time?
Primary reason why Japan’s trade with China had been in red for a long time is the fact that Japanese companies positioned China as production country/site instead of consumption market with its low labour cost. Japan’s key industry had been clothes until 1990s and shifted to electronics after 2000; however, their business flow had remained the same. Raw materials and components were exported to China from Japan and finished products produced were imported from China to Japan. This means that the value added in China by production equals trade deficit.
3. How has Japan’s trade with China changed (or started to change) today?
However, finished product drives export from Japan to China today. According to JANA (Japan Automobile Manufacturers Association, Inc.), approximately 96,400 cars were exported January – May 2010, which is 50% increase from January – May 2009. Passenger cars including Toyota’s LEXUS constitute approximately 89,600 of them. Japanese companies had been preserving domestic production for these kinds of high end, value-added products and Chinese consumers are aggressive in buying such products today.
This is because China’s purchasing power has been increasing with high economic growth when Japan’s purchasing power has been decreasing with low birthrate combined with aging population and low growth in average income. With disparity in economic growth of the two countries, it is quite possible that scenario of Japan’s trade with China turning from deficit to surplus becomes a reality.
4. How has China’s purchasing power been drastically increasing? How is it estimated to continue increasing and why?
Consumer spending amount of China has been drastically increasing and it is estimated be more than that of Japan in 2020. According to the white paper of international trade and industry for 2010, China’s consumer spending is only 1.53 trillion USD for 2008, which is less than that of 60% of Japan’s. However, in 2010 it is estimated to drastically increase to 5.570 billion USD, which is 3.6 times that of 2008. This is incredible because this surpasses Japan’s consumer spending which is 3.61 billion USD.
China’s consumption market is estimated to continue increasing drastically even with decrease in population similarly to Japan, supported by increase in middle income households. China’s middle income households whose annual income is between 5,000 and 35,000 USD is estimated to almost double from 500 million people in 2010 to 9700 million people in 2020.
An expert in international trade views on recent trends that seem negative factors for employers support such estimation and outlook that China’s import from Japan is likely to continue to increase. He views that the recent repeated labour disputes and increase in labour cost are in fact increase in income for employees, meaning increase in purchasing power of consumers (= employees). Therefore he concludes that exports of finished products from Japan to China would continue to increase despite decrease in total population.
5. What are upcoming challenges and risks for Japanese companies?
On-the-spot challenge and risk for Japanese companies is increase in labour cost of China, but their primary upcoming challenge would be to find new business opportunites in China. Also, in leveraging China’s internal demand, it is quite possible that local production in China becomes more active meaning stable export of raw materials and components from Japan to China is also inevitable.
Leveraging Chinese consumption market is a common challenge for all developed countries of matured economy. This means that global competitiveness and speed of Japanese companies would be vital to expand export to China. This is why a consultant of BCG (Boston Consulting Group) says that Japanese companies would not succeed entering and penetrating Chinese market unless they increase market share in China at an early stage.
On the other hand, if Japan’s trade with China becomes in surplus, it is possible that a new view in foreign currency exchange might emerge, which is a risk for Japanese companies. Developed countries that have been requesting revaluation of RMB market with the objective of taking corrective action imbalanced global economy but they may regard RMB appropriate against yen as it is.
Nikkei, Japanese newspaper specialized in business and economy, reported today that Japan’s trade with China is at the verge of turning point and may even abolish trade deficit with China to make it trade surplus. With low cost made in China products imported to Japan, trade deficit with China had been around 2 to 3 trillion per year since the middle of 1990s but for 2009 it has shrunk to approximately 480 billion yen.
This is because of the increase in purchasing power of China accompanied by economic growth. There are also qualitative changes in trade such as automobile trade started to drive export from Japan to China. These indicate that China is transforming from “factory of the world” to “market of the world”, and China’s presence as both production site and consumption market is drastically increasing.
If Japanese companies succeed to penetrate Chinese consumption market, it may not only contribute to abolishing trade deficit with China making it trade surplus but also to optimizing total trade imbalance.
1. What is the recent trend of Japan’s trade with China?
1) Analysis and estimation by Barclays Capital
Balance of trade with China for January – March 2010 was surplus, excluding seasonal factors, is the conclusion of their analysis. When they estimated by adding their original adjustment of seasonal factors to trade statistic data issued by Ministry of Finance, trade balance with China is 740 billion yen per year in surplus, although it had been in deficit for the past 21 years since October – December 1988.
2) Indication of data issued by Ministry of Finance, the primary source of Barclay Capital’s analysis
Data issued by Ministry of Finance also reveals changes in Japan’s trade with China. In 2009 with worldwide economy recession triggered by Lehman's fall, import from China to Japan decreased by 16% from 2008, when export to China from Japan decreased only by 4% from 2008.
There are 2 points that needs to be taken into note of. One is that China’s recovery which was earlier than developed countries minimized the trade decreased. The other is that trade of finished products such as automobile and high tech equipments increased prominently.
Percentage of export of transportation equipments (passenger cars, trucks etc.) increased by 3% from 2008 to 10.12% in 2009. This is about double from 5.15% in 2004 when it was at one of the lowest level because of local production by Japanese companies (in the midst when China was called “factory of the world”).
Similarly, for January – March 2010, export of video equipments such as video cameras were 1.6 times of January – March 2009, and export of digital cameras especially of high end products increased by approximately 80%.
2. Why Japan’s trade with China had been in deficit for a long time?
Primary reason why Japan’s trade with China had been in red for a long time is the fact that Japanese companies positioned China as production country/site instead of consumption market with its low labour cost. Japan’s key industry had been clothes until 1990s and shifted to electronics after 2000; however, their business flow had remained the same. Raw materials and components were exported to China from Japan and finished products produced were imported from China to Japan. This means that the value added in China by production equals trade deficit.
3. How has Japan’s trade with China changed (or started to change) today?
However, finished product drives export from Japan to China today. According to JANA (Japan Automobile Manufacturers Association, Inc.), approximately 96,400 cars were exported January – May 2010, which is 50% increase from January – May 2009. Passenger cars including Toyota’s LEXUS constitute approximately 89,600 of them. Japanese companies had been preserving domestic production for these kinds of high end, value-added products and Chinese consumers are aggressive in buying such products today.
This is because China’s purchasing power has been increasing with high economic growth when Japan’s purchasing power has been decreasing with low birthrate combined with aging population and low growth in average income. With disparity in economic growth of the two countries, it is quite possible that scenario of Japan’s trade with China turning from deficit to surplus becomes a reality.
4. How has China’s purchasing power been drastically increasing? How is it estimated to continue increasing and why?
Consumer spending amount of China has been drastically increasing and it is estimated be more than that of Japan in 2020. According to the white paper of international trade and industry for 2010, China’s consumer spending is only 1.53 trillion USD for 2008, which is less than that of 60% of Japan’s. However, in 2010 it is estimated to drastically increase to 5.570 billion USD, which is 3.6 times that of 2008. This is incredible because this surpasses Japan’s consumer spending which is 3.61 billion USD.
China’s consumption market is estimated to continue increasing drastically even with decrease in population similarly to Japan, supported by increase in middle income households. China’s middle income households whose annual income is between 5,000 and 35,000 USD is estimated to almost double from 500 million people in 2010 to 9700 million people in 2020.
An expert in international trade views on recent trends that seem negative factors for employers support such estimation and outlook that China’s import from Japan is likely to continue to increase. He views that the recent repeated labour disputes and increase in labour cost are in fact increase in income for employees, meaning increase in purchasing power of consumers (= employees). Therefore he concludes that exports of finished products from Japan to China would continue to increase despite decrease in total population.
5. What are upcoming challenges and risks for Japanese companies?
On-the-spot challenge and risk for Japanese companies is increase in labour cost of China, but their primary upcoming challenge would be to find new business opportunites in China. Also, in leveraging China’s internal demand, it is quite possible that local production in China becomes more active meaning stable export of raw materials and components from Japan to China is also inevitable.
Leveraging Chinese consumption market is a common challenge for all developed countries of matured economy. This means that global competitiveness and speed of Japanese companies would be vital to expand export to China. This is why a consultant of BCG (Boston Consulting Group) says that Japanese companies would not succeed entering and penetrating Chinese market unless they increase market share in China at an early stage.
On the other hand, if Japan’s trade with China becomes in surplus, it is possible that a new view in foreign currency exchange might emerge, which is a risk for Japanese companies. Developed countries that have been requesting revaluation of RMB market with the objective of taking corrective action imbalanced global economy but they may regard RMB appropriate against yen as it is.
2010年7月4日日曜日
Quantitative and Qualitative Effects of the 2010 World Cup
Osaka – Sunday, July 4, 2010
Big event such as the World Cup has positive effect on the economy and the society, both quantitative and qualitative, although the quantitative effect on the economy solely is usually discussed. In the case of the 2010 World Cup, it is estimated that it has positive effect on the Japanese economy equivalent to 300 billion yen.
The author has no comment to the rationale of the valuation of 300 billion yen. To her, the positive effect is beyond value of 300 billion yen; there are far more positive effects that cannot be valuated. In this article, the author would like to discuss both the quantitative and qualitative positive effects of the 2010 World Cup to Japan.
1. What is the quantitative positive effect of the 2010 World Cup?
The Yahoo! Japan news reported on June 30 that the Japan Soccer Team of the World Cup 2010 had positive effect on the Japanese economy equivalent to 300 billion yen, according to an estimation of an expert.
1) The constituent of the positive effect equivalent to 300 billion yen
On June 29, an expert in this field said in an interview of a newspaper that, according to his personal analysis and estimation the positive effect on the economy is equivalent to 290 billion yen for everything until the soccer team won the ticket to play in the final tournament and additional 10 billion yen for the final tournament game, totaling 300 billion yen.
300 billion yen does not include that of digital consumer electronics. What is included are mainly eating and drinking, World Cup goods, businesses related to watching and enjoying the soccer games, and DVDs and gaming that are to be launched later this year.
2) 300 billion compared with positive effect on the economy of other sport games
300 billion is smaller than that of the previous World Cup games but is far greater than that of WBC (World Baseball Classics) of March 2009 when Japan won the first prize to achieve second successive victory, which was estimated as approximately 55 billion yen.
Simple comparison of the two sport games (the World Cup and WBC) is impossible because of the difference in their history and size. However, it goes without saying that the “power” of the World Cup is enormous.
3) 300 billion yen compared to the previous World Cup games
300 billion yen for the 2010 World Cup is smaller that that of previous World Cup games. The positive effect on the Japanese economy for the 2002 World Cup, co-hosted by Japan and South Korea, was estimated as 2 trillion yen, from construction of new stadiums to overseas supporters visiting Japan. And for the 2006 World Cup held in Germany it was estimated as over 400 billion yen.
Big events such as the World Cup games are expected to give positive economic effect and usually private research companies officially estimate and announce. However, they decided not to do so for the 2010 World Cup held in South Africa. The reason they say is that precise estimation of positive effect solely of the World Cup is extremely difficult.
The over 400 billion yen for the 2006 World Cup is mostly of digital consumer electronics, and incentives and consumer spending stimulation measures are taken by the Japanese government for digital consumer electronics. Also, the fact that digital broadcasting is to start in July 2011 also is a stimulant for consumers to purchase new digital consumer electronics. Therefore, they refrained from official estimation and announcement for the 2010 World Cup.
2. What is the qualitative positive effect of the 2010 World Cup?
The author would say inspiration and learning are other positive effects on Japan and its people that cannot necessarily be valuated but are extremely important.
1) Inspiration from the Japan Soccer Team
The whole nation was inspired by the Japan soccer team when there were many depressing news elsewhere, and were united.
Frankly speaking, the advance review of the Japan soccer team was not good, which is another reason why private research companies did not officially estimate and announce the positive effect on the Japanese economy for 2010 World Cup. The mass media did not broadcast much about the team as previous World Cup. When the team left Japan at night, there were only 70 or so supporters at the airport to see them off, when 4200 people were at the Kansai International Airport to welcome the team back to Japan on July 1. And only the passionate soccer fans watched the first 2010 World Cup game that the Japan team played, which was with Cameroon.
Although the team had lost all 4 official games they played just before the World Cup but they won the first game with Cameroon by 1-0. Mass media and the general public were fascinated by the victory. Many people including those people who were not so interested in soccer (including the author) watched the games later played, which were with Denmark (won 3-1) and Holland (lost 1-0). Many TV programmes featuring the World Cup and the Japan soccer team went on the air after the victory over Cameroon. And the whole nation supported the first final tournament game with Paraguay and cried to the defeat, after playing extra time and then lost in penalty kicks.
2) Lesson learned from the Japan Soccer Team
What we learned from the Japan soccer team includes “teamwork (and leadership)” and “never give up”. In fact, the message from Mr. Okada, the coach, is about the two, which were delivered in the press conference held in a hotel in Osaka on July 1. To the author, the 2 lessons cannot be valuated but extremely precious, which are universal regardless of the country, industry, organization, era etc.
(1) Teamwork and leadership
At the press conference, Mr. Okada, looking back at the past 2-1/2 years, said that team building did not proceed as anticipated but made the team concept unchanged. There were ups and downs and the team did have hard times; however, they continuously worked hard without changing their vision and goal.
Teamwork is what has been introduced in many TV programmes lately as the key for the victory when, as experts point out which team members (players) also are fully aware off, the skill of each players are inferior compared with players in previous World Cup and needs much work to be done to catch up the world class level. Great teamwork of the Japan soccer teams was prominent from how the players behaved in the World Cup games and from the press conference as well. Mr. Okada let some team member did performances at the press conference, such as imitation and singing an African song.
In the press conference and in other interviews that went on the air, all team members emphasized the importance of the teamwork. They said that the Japan soccer team was superb and that they are so proud of being a member of the team. In addition, they were thankful for Mr. Okada who led them until that day, who said that the team members were all superb, wanted to make them play once more in the 2010 World Cup, and it is his inadequacy that they could not get into top 8.
It is clear that Mr. Okada’s was successful to lead and build an excellent team to maximize the team power. Each team members unleashed their potential and complemented one another to make synergy, i.e. making 1+1 bigger than 2.
(2) Never give up
In the press conference Mr. Okada also said not to give up even at hard times, as a message to children. He said that he was happy to see shining eyes of many young people welcoming him and the team at the airport. Then he delivered a message to children “I have been saying this to the team members as well. There are good and bad times in soccer and life, but the bad time is an opportunity for us to grow. The Japan soccer team members demonstrated through the World Cup 2010 games the courage to face up with difficulty when faced with obstacles. Never give up even in tough times”.
Big event such as the World Cup has positive effect on the economy and the society, both quantitative and qualitative, although the quantitative effect on the economy solely is usually discussed. In the case of the 2010 World Cup, it is estimated that it has positive effect on the Japanese economy equivalent to 300 billion yen.
The author has no comment to the rationale of the valuation of 300 billion yen. To her, the positive effect is beyond value of 300 billion yen; there are far more positive effects that cannot be valuated. In this article, the author would like to discuss both the quantitative and qualitative positive effects of the 2010 World Cup to Japan.
1. What is the quantitative positive effect of the 2010 World Cup?
The Yahoo! Japan news reported on June 30 that the Japan Soccer Team of the World Cup 2010 had positive effect on the Japanese economy equivalent to 300 billion yen, according to an estimation of an expert.
1) The constituent of the positive effect equivalent to 300 billion yen
On June 29, an expert in this field said in an interview of a newspaper that, according to his personal analysis and estimation the positive effect on the economy is equivalent to 290 billion yen for everything until the soccer team won the ticket to play in the final tournament and additional 10 billion yen for the final tournament game, totaling 300 billion yen.
300 billion yen does not include that of digital consumer electronics. What is included are mainly eating and drinking, World Cup goods, businesses related to watching and enjoying the soccer games, and DVDs and gaming that are to be launched later this year.
2) 300 billion compared with positive effect on the economy of other sport games
300 billion is smaller than that of the previous World Cup games but is far greater than that of WBC (World Baseball Classics) of March 2009 when Japan won the first prize to achieve second successive victory, which was estimated as approximately 55 billion yen.
Simple comparison of the two sport games (the World Cup and WBC) is impossible because of the difference in their history and size. However, it goes without saying that the “power” of the World Cup is enormous.
3) 300 billion yen compared to the previous World Cup games
300 billion yen for the 2010 World Cup is smaller that that of previous World Cup games. The positive effect on the Japanese economy for the 2002 World Cup, co-hosted by Japan and South Korea, was estimated as 2 trillion yen, from construction of new stadiums to overseas supporters visiting Japan. And for the 2006 World Cup held in Germany it was estimated as over 400 billion yen.
Big events such as the World Cup games are expected to give positive economic effect and usually private research companies officially estimate and announce. However, they decided not to do so for the 2010 World Cup held in South Africa. The reason they say is that precise estimation of positive effect solely of the World Cup is extremely difficult.
The over 400 billion yen for the 2006 World Cup is mostly of digital consumer electronics, and incentives and consumer spending stimulation measures are taken by the Japanese government for digital consumer electronics. Also, the fact that digital broadcasting is to start in July 2011 also is a stimulant for consumers to purchase new digital consumer electronics. Therefore, they refrained from official estimation and announcement for the 2010 World Cup.
2. What is the qualitative positive effect of the 2010 World Cup?
The author would say inspiration and learning are other positive effects on Japan and its people that cannot necessarily be valuated but are extremely important.
1) Inspiration from the Japan Soccer Team
The whole nation was inspired by the Japan soccer team when there were many depressing news elsewhere, and were united.
Frankly speaking, the advance review of the Japan soccer team was not good, which is another reason why private research companies did not officially estimate and announce the positive effect on the Japanese economy for 2010 World Cup. The mass media did not broadcast much about the team as previous World Cup. When the team left Japan at night, there were only 70 or so supporters at the airport to see them off, when 4200 people were at the Kansai International Airport to welcome the team back to Japan on July 1. And only the passionate soccer fans watched the first 2010 World Cup game that the Japan team played, which was with Cameroon.
Although the team had lost all 4 official games they played just before the World Cup but they won the first game with Cameroon by 1-0. Mass media and the general public were fascinated by the victory. Many people including those people who were not so interested in soccer (including the author) watched the games later played, which were with Denmark (won 3-1) and Holland (lost 1-0). Many TV programmes featuring the World Cup and the Japan soccer team went on the air after the victory over Cameroon. And the whole nation supported the first final tournament game with Paraguay and cried to the defeat, after playing extra time and then lost in penalty kicks.
2) Lesson learned from the Japan Soccer Team
What we learned from the Japan soccer team includes “teamwork (and leadership)” and “never give up”. In fact, the message from Mr. Okada, the coach, is about the two, which were delivered in the press conference held in a hotel in Osaka on July 1. To the author, the 2 lessons cannot be valuated but extremely precious, which are universal regardless of the country, industry, organization, era etc.
(1) Teamwork and leadership
At the press conference, Mr. Okada, looking back at the past 2-1/2 years, said that team building did not proceed as anticipated but made the team concept unchanged. There were ups and downs and the team did have hard times; however, they continuously worked hard without changing their vision and goal.
Teamwork is what has been introduced in many TV programmes lately as the key for the victory when, as experts point out which team members (players) also are fully aware off, the skill of each players are inferior compared with players in previous World Cup and needs much work to be done to catch up the world class level. Great teamwork of the Japan soccer teams was prominent from how the players behaved in the World Cup games and from the press conference as well. Mr. Okada let some team member did performances at the press conference, such as imitation and singing an African song.
In the press conference and in other interviews that went on the air, all team members emphasized the importance of the teamwork. They said that the Japan soccer team was superb and that they are so proud of being a member of the team. In addition, they were thankful for Mr. Okada who led them until that day, who said that the team members were all superb, wanted to make them play once more in the 2010 World Cup, and it is his inadequacy that they could not get into top 8.
It is clear that Mr. Okada’s was successful to lead and build an excellent team to maximize the team power. Each team members unleashed their potential and complemented one another to make synergy, i.e. making 1+1 bigger than 2.
(2) Never give up
In the press conference Mr. Okada also said not to give up even at hard times, as a message to children. He said that he was happy to see shining eyes of many young people welcoming him and the team at the airport. Then he delivered a message to children “I have been saying this to the team members as well. There are good and bad times in soccer and life, but the bad time is an opportunity for us to grow. The Japan soccer team members demonstrated through the World Cup 2010 games the courage to face up with difficulty when faced with obstacles. Never give up even in tough times”.
2010年6月20日日曜日
Japan’s New Growth Strategy Approved – What Is It?
Osaka – Sunday, June 20, 2010
Nikkei, Japanese newspaper specialized in economy/business and politics, reported through June 17 to 19 about the New Growth Strategy of Japan under the new leadership of the Kan Administration, which was announced on June 17 and was approved in a Cabinet meeting on June 18.
The objective of the strategy is to realize “strong Japanese economy” advocated by the new Prime Minister Naoto Kan by creating new demand in 4 sectors of environment, healthcare, tourism and Asia to create total of 5 million jobs by 2010. The target economy growth is to mark real GDP (taking inflation into account) growth at 2% and GDP growth not taking inflation into account at 3% in average over the next 11 years. And the policy is to turn rate of increase in consumer price index from negative to positive in 2011 and get out from deflation.
1. Summary of the New Growth Strategy
Chapter 1: Objectives of the New Growth Strategy
Realize strong economy, finance and social security
Chapter 2: Policy of the New Growth Strategy
Consolidated reorganization of economy, finance and social security
Chapter 3: Policy of the 7 strategic fields/focuses and target outcome
Details explained later in the article.
1) Target 2020
(1) Growth to achieve at least GDP of 2% (taking inflation into account) and of 3% (not taking inflation into account).
(2) Turn rate of increase in consumer price index from negative to positive by the end of 2011 (to terminate deflation)
(3) Decrease unemployment rate below 4% at an early stage.
2) Measures to achieve Target 2020
The Government Strategy Projects consist from 7 fields. The 7 fields are the 6 major fields (focuses) from the growth strategy announce in December 2009 as mentioned in the previous article How Japan's Growth Strategy Should Be? including environment/energy, healthcare, Asia, tourism/local community activation, science/technology, employment/human resources, plus newly added “finance”.
(1) Gradually lower corporate tax (effective tax rate) to the level of other major countries.
(2) Establish medical stay visa.
(3) Promote infrastructure export targeting mainly Asia by collaboration between public and private.
(4) Decentralization of people having holidays (execution from 2012 if possible).
(5) Create “Integrated Exchange” by 2013 that trades deals bonds & securities, finances and products.
3) Targets to achieve
Create new demand and jobs
Sector / Demand (trillion yen) / Jobs (million)
Environment / 5 / 14
Healthcare / 5 / 28.4
Asia / 1.2 / 0.19
Tourism / 1.1 / 0.56
Total / 12.3 / 4.99
2. Summary of the Government Strategy Projects consisting from 7 fields
1) Environment / Energy
(1) Accelerate expansion of regenerable energy: to expand the market size to 10 trillion yen
Implement a system purchasing all regenerable energy such as wind & water power and biomass, implement smart grid (next generation transmission network); promote construction of wind power and geothermal generation.
(2) Create “Environmental Future City”: to expand environment/energy market to more than 50 trillion yen and create 1.4 million new jobs
Establish new law necessary for deregulation and tax measures; export know-how of urban development to overseas such as China.
(3) Revitalize forest / forestry: to establish foundation competitive against imported timber within 10 years, and make self-sufficiency ratio of timber over 50%.
Implement new “Forestry Management Plan” and support management strengthening attributing to upsizing; strategically allocate budget for woods and fiends management, and implement a system directly supporting forest management / environmental preservation.
2) Healthcare (Medical, Nursing etc.)
(1) Expand proliferation of advanced medical: to expand new medical equipments/pharmaceuticals and regeneration medicine, to generate positive economic effect of 700 billion yen/year.
Build consortium including medical organizations and administrations in the fields of cancer and dementia, and invest strategically research cost and talent; simplify evaluation procedure of advanced medical; abolish “drug lag” (new drugs launched in Japan after approved in western countries).
(2) International medical exchange: to have 500,000 people equivalent to 10% of Asia demand visit Japan, to generate positive economic effect of 1 trillion yen/year.
Accept more patients from abroad; implement new “medical stay visa”; enable medical treatment by non-Japanese doctors and nurses in Japan.
3) Leveraging economic growth of Asia
(1) Expand overseas business of infrastructure industry: to sign orders for overseas plant of 7000 billion USD to create 19.7 trillion yen market.
Establish Government Strategy Project Committee and strengthen top sales; expand function of public finance such as JBIC (Japan Bank for International Cooperation)
(2) Lower effective corporate tax rate and promote Japan as hub of Asia: to double interaction of resources between Japan and other Asian countries.
Lower effective corporate tax rate to the level of major countries; pay attention to obtaining tax revenue source including increasing/expanding taxation base; develop tax measures etc. as incentives in attracting foreign capitals; all to be implemented from 2011.
(3) Promote and increase development of global talent and acceptance of advanced talents: to accept 300,000 foreign students.
Implement “Point System” covering western and Asian countries; treat immigration control favourably depending on work history and achievements; support so that more Japanese students would have international experience.
(4) Develop and execute intellectual property strategy / Cool Japan overseas roll out: to acquire content revenue of 1 trillion yen from Asia.
Establish a strategic organization of science, technology and innovation to drive standardization of Japanese technology; strengthen digital distribution of Japanese software; prevent proliferation of pirated copy in overseas market.
(5) Establish Free Trade Zone for Asia Pacific: to double interaction of resources between Japan and other Asian countries.
Develop basic policy regarding comprehensive economic alliance/collaboration such as EPA (Economic Partnership Agreement) by the autumn of 2010; promote accepting talents in medical and nursing fields by embedding system of accepting nurse and care worker candidates to Japan from abroad based on EPA.
4) Tourism oriented country / Activating community
(1) Create “General Special Zone System” and promote Open Sky: to increase foreigners in Japan to 25 million, to generate positive economic effect or 10 trillion yen and create 560,000 new jobs.
Create International Strategic General Special Zone targeting urban development of certain cities that will be the economic growth engine; special treatment in deregulation and tax in improving infrastructure; make Haneda Airport “International Airport that operates 24 hours”.
(2) Increase foreigners staying in Japan and decentralize people having holidays: to achieve target of 2.5 million foreigners staying in Japan and then increase to 30 million.
Speed up procedures to issue visa for foreign tourists; study to revise law related to public holidays such as decentralizing holidays by region; all to be implemented from 2012.
(3) Expand used housing and reform market: to double to 20 trillion yen.
Establish synthetic plan including construction inspection/assurance, proliferation of housing history information; set new energy saving standard for housing.
(4) Open public facilities to private: to expand business size of disposal business management right by PFI to 10 trillion yen.
Open to private construction management by public sector; dispose of business management right by PFI (Private Finance Initiative) system leveraging private capital.
5) Science / Technology
(1) Strengthen global competitiveness and develop talent: to increase to over 100 research centres ranked top 50 globally in each fields.
Improve “leading post graduate schools” responsible for advanced researches; leverage talents such as post doctorates.
(2) Leverage information communication technologies: to realize “FTTH (Fibre To The Home” that makes all households able to benefit from broad band services.
Improve electronic administration enabling one stop use of information communication technologies at any time; utilize information communication in medical, nursing and education.
(3) Expand R&D (Research & Development): by expanding total R&D cost of public and private to over 4% of GDP.
Strategic organization responsible for science, technology and innovation will develop cross functional execution plan.
6) Employment / Human resource
(1) Unify kindergarten and nursing schools etc.: to eradicate by 2017 children waiting to enter nursing schools regardless of how their parents work.
Abolish requirements to enter nursing schools; establish service supply system such as users being able to freely choose facilities and business owners freely can set prices.
(2) Implement “Career Rank” system and support work-force etc.: to optimize employment rate to 80% and decrease part-time jobber to 1.24 million which is minus 40% from the peak.
Create system of evaluating vocational capability in growth fields of nursing and environment; strengthen support to people who have been unemployed for a long time.
(3) “New Public”: to make 50% of the citizen to participate in “new public” such s volunteer of their community and workplace.
Design tax system from which citizens benefit from public policy; review financial system for small organizations that support NPOs.
7) Finance
Create Integrated Exchange: to assure presence of Japan market in Asia.
Create Integrated Exchange that can trade bonds & securities, finances and products altogether by 2013.
3. Comments and evaluations from experts
There are so my challenges to overcome. Roadmap to achieve over 300 policies by 2020 has not yet been clarified. Many issues/obstacles remain such as breaking barriers among ministries, filling insufficient measures for deregulation, acquiring financial resources etc. Concrete processes are set only for 2010 – 2013 and no specific targets are set at milestones. Processes to achieve the targets are left to each ministry; therefore, many experts point out it is quite possible that policies that truly need to be executed will remain unexecuted. It is not easy to realize GDP growth of 3% (not taking inflation into consideration) while increasing consumption tax that Prime Minister Mr. Kan clearly implied to study to implement on June 17.
Comments and evaluation from 5 experts are as below.
1) First commentator / evaluator (Economist)
Focusing on environment and healthcare is good. Making Haneda Airport international that operates 24 hours is something that could not have been challenged when LDP was the ruling party.
2) Second commentator / evaluator (Economist)
Productivity improvement is vital for an economy when population is decreasing. Deregulation in healthcare and nursing is insufficient.
3) Third commentator / evaluator (Economist)
Stance of overcoming deflation by collaboration with the BOJ (Bank of Japan) is good. Policy from the supply side such as deregulation is desirable from the perspective of achieving both growth and sound financial status.
4) Forth commentator / evaluator (Professor)
Balancing of the policies has been improved but feasibility is a question. Blueprint for restructuring finance and social security is necessary.
5) Fifth commentator / evaluator (Professor)
Target of overcoming deflation by collaboration of the government and BOJ can be evaluated but lacks detail or specifics excluding lowering corporate tax. GDP growth of 3% (not taking inflation into consideration) is insufficient.
4. The author’s thought
Comments and evaluations from the 5 experts are all valid. The DPJ, the current ruling party, would need time to restructure and reorganize to realize strong economy, finance and social security, after LDP had ruled for 50 years making Japan as it is today. Although it might lack in details or specifics, roadmap and milestone targets, the new Kan administration did announced clearly the policy. Having said that, the situation is extremely urgent and if it should take too much time Japan would end up like Greece, as many experts point out, and therefore it is highly more concrete roadmap, milestone targets etc. are expected to follow soon.
Breaking various barriers and financial resources are the two major challenges.
The former is about game/power change and change in culture. Prime Minister Mr. Kan is from a family of non-politician (unlike many other politicians in Japan who become prime ministers) and has made an apology statement against bureaucrats when he was the Minister of Health and Welfare, so if he cannot achieve, it is probably that no one else can achieve.
The latter can only be achieved by increasing revenue (i.e. tax) and/or decreasing annual expenditure (i.e. cost). On June 17 Prime Minister Kan clearly implied that he is thinking of increasing (doubling) the consumption tax. It is understandable but other measures should be taken before increasing consumption tax such as eradicating practice of high-level government officials taking jobs in the private sector, slashing number / salary etc. of people in the Congress, and initiate further screening process that started last year. Otherwise, Japanese citizens would not be convinced.
We all hope strong leadership from Prime Minister Kan, and support from public and private sectors, with minimum resistance.
Nikkei, Japanese newspaper specialized in economy/business and politics, reported through June 17 to 19 about the New Growth Strategy of Japan under the new leadership of the Kan Administration, which was announced on June 17 and was approved in a Cabinet meeting on June 18.
The objective of the strategy is to realize “strong Japanese economy” advocated by the new Prime Minister Naoto Kan by creating new demand in 4 sectors of environment, healthcare, tourism and Asia to create total of 5 million jobs by 2010. The target economy growth is to mark real GDP (taking inflation into account) growth at 2% and GDP growth not taking inflation into account at 3% in average over the next 11 years. And the policy is to turn rate of increase in consumer price index from negative to positive in 2011 and get out from deflation.
1. Summary of the New Growth Strategy
Chapter 1: Objectives of the New Growth Strategy
Realize strong economy, finance and social security
Chapter 2: Policy of the New Growth Strategy
Consolidated reorganization of economy, finance and social security
Chapter 3: Policy of the 7 strategic fields/focuses and target outcome
Details explained later in the article.
1) Target 2020
(1) Growth to achieve at least GDP of 2% (taking inflation into account) and of 3% (not taking inflation into account).
(2) Turn rate of increase in consumer price index from negative to positive by the end of 2011 (to terminate deflation)
(3) Decrease unemployment rate below 4% at an early stage.
2) Measures to achieve Target 2020
The Government Strategy Projects consist from 7 fields. The 7 fields are the 6 major fields (focuses) from the growth strategy announce in December 2009 as mentioned in the previous article How Japan's Growth Strategy Should Be? including environment/energy, healthcare, Asia, tourism/local community activation, science/technology, employment/human resources, plus newly added “finance”.
(1) Gradually lower corporate tax (effective tax rate) to the level of other major countries.
(2) Establish medical stay visa.
(3) Promote infrastructure export targeting mainly Asia by collaboration between public and private.
(4) Decentralization of people having holidays (execution from 2012 if possible).
(5) Create “Integrated Exchange” by 2013 that trades deals bonds & securities, finances and products.
3) Targets to achieve
Create new demand and jobs
Sector / Demand (trillion yen) / Jobs (million)
Environment / 5 / 14
Healthcare / 5 / 28.4
Asia / 1.2 / 0.19
Tourism / 1.1 / 0.56
Total / 12.3 / 4.99
2. Summary of the Government Strategy Projects consisting from 7 fields
1) Environment / Energy
(1) Accelerate expansion of regenerable energy: to expand the market size to 10 trillion yen
Implement a system purchasing all regenerable energy such as wind & water power and biomass, implement smart grid (next generation transmission network); promote construction of wind power and geothermal generation.
(2) Create “Environmental Future City”: to expand environment/energy market to more than 50 trillion yen and create 1.4 million new jobs
Establish new law necessary for deregulation and tax measures; export know-how of urban development to overseas such as China.
(3) Revitalize forest / forestry: to establish foundation competitive against imported timber within 10 years, and make self-sufficiency ratio of timber over 50%.
Implement new “Forestry Management Plan” and support management strengthening attributing to upsizing; strategically allocate budget for woods and fiends management, and implement a system directly supporting forest management / environmental preservation.
2) Healthcare (Medical, Nursing etc.)
(1) Expand proliferation of advanced medical: to expand new medical equipments/pharmaceuticals and regeneration medicine, to generate positive economic effect of 700 billion yen/year.
Build consortium including medical organizations and administrations in the fields of cancer and dementia, and invest strategically research cost and talent; simplify evaluation procedure of advanced medical; abolish “drug lag” (new drugs launched in Japan after approved in western countries).
(2) International medical exchange: to have 500,000 people equivalent to 10% of Asia demand visit Japan, to generate positive economic effect of 1 trillion yen/year.
Accept more patients from abroad; implement new “medical stay visa”; enable medical treatment by non-Japanese doctors and nurses in Japan.
3) Leveraging economic growth of Asia
(1) Expand overseas business of infrastructure industry: to sign orders for overseas plant of 7000 billion USD to create 19.7 trillion yen market.
Establish Government Strategy Project Committee and strengthen top sales; expand function of public finance such as JBIC (Japan Bank for International Cooperation)
(2) Lower effective corporate tax rate and promote Japan as hub of Asia: to double interaction of resources between Japan and other Asian countries.
Lower effective corporate tax rate to the level of major countries; pay attention to obtaining tax revenue source including increasing/expanding taxation base; develop tax measures etc. as incentives in attracting foreign capitals; all to be implemented from 2011.
(3) Promote and increase development of global talent and acceptance of advanced talents: to accept 300,000 foreign students.
Implement “Point System” covering western and Asian countries; treat immigration control favourably depending on work history and achievements; support so that more Japanese students would have international experience.
(4) Develop and execute intellectual property strategy / Cool Japan overseas roll out: to acquire content revenue of 1 trillion yen from Asia.
Establish a strategic organization of science, technology and innovation to drive standardization of Japanese technology; strengthen digital distribution of Japanese software; prevent proliferation of pirated copy in overseas market.
(5) Establish Free Trade Zone for Asia Pacific: to double interaction of resources between Japan and other Asian countries.
Develop basic policy regarding comprehensive economic alliance/collaboration such as EPA (Economic Partnership Agreement) by the autumn of 2010; promote accepting talents in medical and nursing fields by embedding system of accepting nurse and care worker candidates to Japan from abroad based on EPA.
4) Tourism oriented country / Activating community
(1) Create “General Special Zone System” and promote Open Sky: to increase foreigners in Japan to 25 million, to generate positive economic effect or 10 trillion yen and create 560,000 new jobs.
Create International Strategic General Special Zone targeting urban development of certain cities that will be the economic growth engine; special treatment in deregulation and tax in improving infrastructure; make Haneda Airport “International Airport that operates 24 hours”.
(2) Increase foreigners staying in Japan and decentralize people having holidays: to achieve target of 2.5 million foreigners staying in Japan and then increase to 30 million.
Speed up procedures to issue visa for foreign tourists; study to revise law related to public holidays such as decentralizing holidays by region; all to be implemented from 2012.
(3) Expand used housing and reform market: to double to 20 trillion yen.
Establish synthetic plan including construction inspection/assurance, proliferation of housing history information; set new energy saving standard for housing.
(4) Open public facilities to private: to expand business size of disposal business management right by PFI to 10 trillion yen.
Open to private construction management by public sector; dispose of business management right by PFI (Private Finance Initiative) system leveraging private capital.
5) Science / Technology
(1) Strengthen global competitiveness and develop talent: to increase to over 100 research centres ranked top 50 globally in each fields.
Improve “leading post graduate schools” responsible for advanced researches; leverage talents such as post doctorates.
(2) Leverage information communication technologies: to realize “FTTH (Fibre To The Home” that makes all households able to benefit from broad band services.
Improve electronic administration enabling one stop use of information communication technologies at any time; utilize information communication in medical, nursing and education.
(3) Expand R&D (Research & Development): by expanding total R&D cost of public and private to over 4% of GDP.
Strategic organization responsible for science, technology and innovation will develop cross functional execution plan.
6) Employment / Human resource
(1) Unify kindergarten and nursing schools etc.: to eradicate by 2017 children waiting to enter nursing schools regardless of how their parents work.
Abolish requirements to enter nursing schools; establish service supply system such as users being able to freely choose facilities and business owners freely can set prices.
(2) Implement “Career Rank” system and support work-force etc.: to optimize employment rate to 80% and decrease part-time jobber to 1.24 million which is minus 40% from the peak.
Create system of evaluating vocational capability in growth fields of nursing and environment; strengthen support to people who have been unemployed for a long time.
(3) “New Public”: to make 50% of the citizen to participate in “new public” such s volunteer of their community and workplace.
Design tax system from which citizens benefit from public policy; review financial system for small organizations that support NPOs.
7) Finance
Create Integrated Exchange: to assure presence of Japan market in Asia.
Create Integrated Exchange that can trade bonds & securities, finances and products altogether by 2013.
3. Comments and evaluations from experts
There are so my challenges to overcome. Roadmap to achieve over 300 policies by 2020 has not yet been clarified. Many issues/obstacles remain such as breaking barriers among ministries, filling insufficient measures for deregulation, acquiring financial resources etc. Concrete processes are set only for 2010 – 2013 and no specific targets are set at milestones. Processes to achieve the targets are left to each ministry; therefore, many experts point out it is quite possible that policies that truly need to be executed will remain unexecuted. It is not easy to realize GDP growth of 3% (not taking inflation into consideration) while increasing consumption tax that Prime Minister Mr. Kan clearly implied to study to implement on June 17.
Comments and evaluation from 5 experts are as below.
1) First commentator / evaluator (Economist)
Focusing on environment and healthcare is good. Making Haneda Airport international that operates 24 hours is something that could not have been challenged when LDP was the ruling party.
2) Second commentator / evaluator (Economist)
Productivity improvement is vital for an economy when population is decreasing. Deregulation in healthcare and nursing is insufficient.
3) Third commentator / evaluator (Economist)
Stance of overcoming deflation by collaboration with the BOJ (Bank of Japan) is good. Policy from the supply side such as deregulation is desirable from the perspective of achieving both growth and sound financial status.
4) Forth commentator / evaluator (Professor)
Balancing of the policies has been improved but feasibility is a question. Blueprint for restructuring finance and social security is necessary.
5) Fifth commentator / evaluator (Professor)
Target of overcoming deflation by collaboration of the government and BOJ can be evaluated but lacks detail or specifics excluding lowering corporate tax. GDP growth of 3% (not taking inflation into consideration) is insufficient.
4. The author’s thought
Comments and evaluations from the 5 experts are all valid. The DPJ, the current ruling party, would need time to restructure and reorganize to realize strong economy, finance and social security, after LDP had ruled for 50 years making Japan as it is today. Although it might lack in details or specifics, roadmap and milestone targets, the new Kan administration did announced clearly the policy. Having said that, the situation is extremely urgent and if it should take too much time Japan would end up like Greece, as many experts point out, and therefore it is highly more concrete roadmap, milestone targets etc. are expected to follow soon.
Breaking various barriers and financial resources are the two major challenges.
The former is about game/power change and change in culture. Prime Minister Mr. Kan is from a family of non-politician (unlike many other politicians in Japan who become prime ministers) and has made an apology statement against bureaucrats when he was the Minister of Health and Welfare, so if he cannot achieve, it is probably that no one else can achieve.
The latter can only be achieved by increasing revenue (i.e. tax) and/or decreasing annual expenditure (i.e. cost). On June 17 Prime Minister Kan clearly implied that he is thinking of increasing (doubling) the consumption tax. It is understandable but other measures should be taken before increasing consumption tax such as eradicating practice of high-level government officials taking jobs in the private sector, slashing number / salary etc. of people in the Congress, and initiate further screening process that started last year. Otherwise, Japanese citizens would not be convinced.
We all hope strong leadership from Prime Minister Kan, and support from public and private sectors, with minimum resistance.
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