Osaka – Saturday, March 20, 2010
March 22, Spring Equinox Day, is National Holiday in Japan and therefore today is the start of our extended weekend. The next National Holiday/long holiday is Golden Week Holiday in May. Japanese government is planning to decentralize Golden Week Long Holiday, usually set May 3 – 5 (with April 29 as a National Holiday, weekend and strategic office shut down, some companies make a long holiday of April 29 – May), but most Japanese citizens seem to be against the idea, according to a recent TV news in Japan. In this article, the author would like to explain the objective and overview of the government’s plan and introduce different views of the citizens from different standpoint.
1. What is the objective/background of the plan?
The government came up with the plan as an action plan of the fourth field of focus of the growth strategy, which is tourism and local community, mentioned in the previous article How Japan's Growth Strategy Shoud Be? They believe that this plan would improve tourism to boost the economy, and make Japan a Tourism-Oriented Country.
2. What is the plan?
The plan is to decentralize Golden Week long holiday usually set May 3 (Mon) – 5 (Wed). With weekend, this would make 5 day holiday. They plan to divide Japan into 5 regions, and set GW holiday of each region separately, in different week. For example, GW long holiday for region 1 is May 3 (Mon) – 5 (Wed), region 2 is May 10 (Mon) – 12 (Wed), and so forth.
GW long holiday in good climate is one of the best seasons of the year to going on a vacation and sightseeing, and a result, GW holiday is notorious for crowdedness. With the plan, the government believes that people going to on a vacation and sightseeing will not be concentrated in a particular period but will be dispersed meaning less crowdedness. They believe this would encourage more people to go on holiday and sightseeing on accumulated basis, leading to greater consumer spending in total.
3. How each segment Japanese citizens view the plan?
When the broadcasting company asked 200 citizens whether they are in favour or against the play, only 58 people answered that they are in favour and the remaining 132 answered that they are against the plan.
According to the interviews conducted to major segments, the result was the same. Although sightseeing and accommodation industry segment are mostly in favour, other segments are against the plan.
1) Sightseeing spots and hotels are mostly in favour.
Major and popular sightseeing spots and hotels are in favour. This is because they believe that decentralization of the long holiday meaning less crowdedness would attract more tourists in total and therefore would be a big advantage for their business.
However, minor, less popular sightseeing spots and hotels are against the plan. This is because tourists that would visit them to avoid crowdedness of the popular sightseeing spots and hotels would not need to avoid the crowdedness, so they may well be attracted to popular places and hotels. And therefore, they believe that the plan would have negative impact on their business.
Travel agencies and souvenior shop owners are in favour, for the same reason with major and popular sightseeing spots and hotels.
2) Companies are mostly against.
Companies are mostly against the plan, whether they are operating nationwide or locally.
Companies operating nationwide are strongly against the plan. This is because one branch of a region would be off when all other branches in other regions are operating, and this would cause many problems, especially in logistics and (online) accounting.
Quite a few companies operating locally (exclusively in one region) are also against the plan. This is because the influence they have from the market and business partners operating in other regions of different GW holiday would cause many problems to their operation.
A food company making and supplying lunch to schools insist that they would not be able to obtain necessary ingredients. This means they would not be able to operate smoothly, therefore, they would not be able to meet their customer needs and thus give negative impact on their business.
A fish wholesaler insists that the plan would decrease their business opportunity. This is because its means no business if their market (Tokyo, Osaka etc.) is closed when they are operating.
Other factories are against because decentralized long holiday makes them difficult for them to set their own holiday, i.e. the time to shut their plant down, for the same reason.
3) Households and individuals are mostly against.
Individuals and households are against the plan, excluding a few.
Although a female in 20s are in favour, because sightseeing spots and hotels would not be so crowded, another female is against because she would not be able to go on a holiday, sightseeing or do other things with her parents. This is because her parents and she lives apart in different regions of different GW holiday timing.
A family living together was strongly against the plan for the same reason. Location of the father’s workplace, children’s school and their house happen to be of different timing of the GW holiday so the family would not be able to enjoy holiday together.
4) Education industry is against.
Education industry is against the plan because they feel the plan would have negative effect on children. The representative interviewed did not specify reason in detail; however, he may well be thinking of possible cases such as of the household mentioned above.
4. How does the government view to the reaction of the citizen?
When the broadcasting company reporter briefly explained the above views of the citizens, the government representative replied that the concept of the plan is boosting tourism to make Japan a Tourism-Oriented Country.
The objective and concept is fully understandable and it is indeed one way of boosting the economy; however, it is a question whether this plan really is a good solution to achieve the goal. What do you think?
2010年3月20日土曜日
2010年1月17日日曜日
Can JAL Succeed In Turnaround?
Sunday, January 17, 2010 – Osaka, Japan
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported January 13 through 15 2009 that long-discussed turnaround of JAL (Japan Air Line) is finally to start. On condition that Corporate Reorganization Act is to be adopted, hurdles to accept support from public institution of “Company Turnaround Aid Institution” have been finally overcome, and the new CEO is appointed. JAL, which had tried to reinvent before in vain, will try again with full support from the government as its last chance.
1. What has been happening until now？
JAL’s turnaround has been under discussion for a long time and it was decided to be done under the Japanese government’s control as explained in the previous article JAL to be GM of Japan – Turnaround under Government’s Control. However, stakeholders (financial institutions, government, JAL employees retired and currently working, etc.) could not come to a consensus the methodology of the turnaround, especially financing, and revision of turnaround plan and negotiation had been ongoing even after the policy of government’s interference was announced on October 24.
2. What had been the hurdles to proceed with the turnaround?
In short, there were the following 4 topics that had been under discussion.
1) What the framework of turnaround methodology to be?
There are a number of methodologies of turnaround of a company, including usage of Chapter 11 equivalent law/Corporate Reorganization Act, or other options, which would determine action plan. It took a while to finalize this point.
Stakeholders finally agreed to adopt Corporate Reorganization Act, which is to be the perquisite to gain support from public institution of “Company Turnaround Aid Institution”.
2) Which turnaround strategy/option to adopt?
3 turnaround strategies/options were proposed, each with different amount or capital needed for turnaround depending on the degree and details of restructuring. The biggest issue under discussion was review of unprofitable international flights. The most drastic option was integrating international flight with ANA (All Nippon Airways), which required minimum capital investment for turnaround.
JAL having been the primary international flight company of Japan, the most drastic option was neglected and was agreed to minimize investment for turnaround by improving cost structure with measures including cutting some affiliates, flights, jobs and pensions, and replacing half the jumbo jet engine airplanes with smaller, more energy-saving airplanes.
3) Will employees, retired and currently working, agree to reduction in pension benefit?
Reduction in pension has been another hot topic for discussion. Reserved amount of JAL’s corporate pension (including post-receipt of retirement allowance by installation, interest rate much higher than average bank interest rate) is insufficient by approximately 450 billion yen at present, and has been requesting 15,700 employees and 8,900 retired employees to accept reduction in pension. If they agree to accept the reduction, the reduction of pension benefit would be 30% in average for retired employees and 50% in average for current employees. And if two-thirds or more of them do not agree, the pension system could not be revised and the reduction of pension benefit would be much greater.
Despite the critical management situation of the company, many retired employees in particular were reluctant to agree to reduction in pension benefit. This probably attributes mainly to their old, conservative mindset, believing that JAL will never go bankrupt, cannot forget the good old days of JAL and not really aware of the hard reality of today’s struggling JAL, and also how corporate pension is managed. Since corporate pension includes retirement benefit to be paid by installation, reduction in corporate pension means reduction in retirement allowance, and retired employees may well need to drastically change their family financing plan.
Employees currently working accepted the reduction relatively straightforwardly, then they made maximum efforts in persuading the retired employees to accept the reduction until the last minutes of deadline of January 11. They finally managed to win the minimum two-thirds of agreement.
4) How to overcome financing and avoid shortage of working capital?
To overcome financing (i.e. avoiding shortage of working capital), the government asked financial institutions to write-off the debts similarly to previous turnarounds initiated by IRCJ (Industrial Revitalization Corporation of Japan) and to assist in bridge financing. It was natural for the financial institutions not to easily agree on this point when the satisfactory turnaround plan had not been presented to them.
On January 12, the 3 major financial institutions (The Bank of Tokyo-Mitsubishi UFJ, Mizuho Corporate Bank and Sumitomo Mitsui Banking Corporation) finally changed their stance/policy and agreed to accept the support from public institution of “Company Turnaround Aid Institution” on condition that Corporate Reorganization Act is to be adopted, after Mr. Maehara, Minister of Land, Infrastructure, Transport and Tourism presented them with the government’s policy of supporting turnaround methodology of pre-package (coordinated beforehand).
And the government is to provide JAL of capital support, which was finalized as much as 1 trillion yen.
3. What is the business restructure framework/plan of JAL?
JAL is to accelerate developing revival action plan based on the following business restructure framework.
1) Apply Corporate Reorganization Act simultaneously with 2 affiliate business companies.
Apply for adoption of Corporate Reorganization Act simultaneously with JALI (Japan Air Lines International) and JAL Capital. The three companies will be integrated immediately after the application and other procedures for reorganization are complete and make back office etc. streamlined.
2) Request banks to support financing for refunding refinanced loans etc. that are to accrue from autumn 2010.
This is in addition to DBJ (Development Bank of Japan) is to loan 200 billion yen on January 15 in order to stop capital outflow from credit uncertainty of JAL. (With a rumour of delisting of JAL, JAL’s stock price had dropped drastically by 30 JPY from 37 JPY in a day, which recovered a little after the government announced the policy that shareholder special benefit plan and frequent flyer programme will be valid for a certain period after the application of the act).
After application of Corporate Reorganization Act、JAL is to gain bridge financing of total of 600 billion yen from the assisting organizations etc. And if the revival plan is approved, JAL is to request total of 50.6 billion yen to DBJ and the 3 major banks as capital used to refunding of refinanced loans of bridge financing. JAL also would like to raise capital of 21 billion yen in 5 years to purchase airplanes for the plan mentioned in 3) below.
3) Accelerate replacement of half the jumbo jet airplanes with smaller energy-saving airplanes.
By the end of 2012, JAL aims to own 46 jumbo jet planes, 76 middle size planes and 107 small size planes.
4) Reduce 53 affiliate companies from current 110 companies.
This includes selling out and/or liquidation of 24 affiliates.
5) Cut additional domestic and international flights, 25 in total.
13 international flights and 12 domestic flights will be additionally reduced.
6) Review of cargo flight business will include studying of closure
The operation deficit of cargo flight business is estimated to expand to 23.3 billion yen by the end of current fiscal year ending March 2010 and therefore is reviewed including option of closure of the business.
A part of affiliates that have domestic flights to isolated islands have already finalized its policy of terminating such business.
7) Cut 15,000 jobs.
This is equivalent to one-thirds of the total current employees.
8) Amortize pension liability of 100 billion yen over 5 years.
Since more than two-third of employees, retired and currently working, agreed to accept reduction in pension benefit, continuation of pension fund will be specified in the revival plan. Approximately 100 billion yen of serve for pension fund will be minus but JAL is to amortize over 5 years.
9) Turn back into black in 2011.
With drastic loss of passanges, revenue for current fiscal year is estimated to be 1.4 trillion yen, which is -27% from the previous year, with operation loss of 32.91 billion yen. However, with extreme restructuring, 2 years later (i.e. by the end of fiscal year ending March 2012), JAL aims to return to black by 23.4 billion yen and 3 years later by 85.2 billion yen.
4. Who will be driving the JAL turnaround?
Mr. Kazuo Inamori, founder and chairperson emeritus of Kyocera （77 year old）, was requested to be the new CEO of JAL from the government and Company Turnaround Aid Institution, and he accepted on January 13. Having reached advanced age and being responsible for other roles, he will be working 3 or 4 days a week with no rewards. He is expected to initiate restructuring and then the key coordinator with internal and external stakeholders. He will soon choose COO from short-listed internal candidates of 45-55 years old, to lead operation, supporting Mr. Inamoti.
Mr. Inamori has no experience in transportation business but was appointed with his management ability of having founded and made Kyocera into a global company, and entered telecommunication business by starting up another company (now KDDI）, himself balancing the two businesses to be successful in both.
Mr. Inamori has been supporting the DPJ long before it won the general election on August 30 2009 and has strong ties with key politician of the DPJ including Mr. Maehara, Minister of Land, Infrastructure, Transport and Tourism and Mr. Ozawa, Secretary-General of the DPJ.
Some experts say that Mr. Inamori is the ideal person to drive the turnaround but some others say that he is not because he has no experience of turnaround. Mr. Inamori believes that turnaround is quite possible as long as the revival plan is executed steadily. The key for execution is clarification of CEO’s authority and responsibility, and supporting organization/environment. And last but not least, change in culture, and mindset and behaviour (action) of employees determine whether JAL will succeed in its turnaround.
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported January 13 through 15 2009 that long-discussed turnaround of JAL (Japan Air Line) is finally to start. On condition that Corporate Reorganization Act is to be adopted, hurdles to accept support from public institution of “Company Turnaround Aid Institution” have been finally overcome, and the new CEO is appointed. JAL, which had tried to reinvent before in vain, will try again with full support from the government as its last chance.
1. What has been happening until now？
JAL’s turnaround has been under discussion for a long time and it was decided to be done under the Japanese government’s control as explained in the previous article JAL to be GM of Japan – Turnaround under Government’s Control. However, stakeholders (financial institutions, government, JAL employees retired and currently working, etc.) could not come to a consensus the methodology of the turnaround, especially financing, and revision of turnaround plan and negotiation had been ongoing even after the policy of government’s interference was announced on October 24.
2. What had been the hurdles to proceed with the turnaround?
In short, there were the following 4 topics that had been under discussion.
1) What the framework of turnaround methodology to be?
There are a number of methodologies of turnaround of a company, including usage of Chapter 11 equivalent law/Corporate Reorganization Act, or other options, which would determine action plan. It took a while to finalize this point.
Stakeholders finally agreed to adopt Corporate Reorganization Act, which is to be the perquisite to gain support from public institution of “Company Turnaround Aid Institution”.
2) Which turnaround strategy/option to adopt?
3 turnaround strategies/options were proposed, each with different amount or capital needed for turnaround depending on the degree and details of restructuring. The biggest issue under discussion was review of unprofitable international flights. The most drastic option was integrating international flight with ANA (All Nippon Airways), which required minimum capital investment for turnaround.
JAL having been the primary international flight company of Japan, the most drastic option was neglected and was agreed to minimize investment for turnaround by improving cost structure with measures including cutting some affiliates, flights, jobs and pensions, and replacing half the jumbo jet engine airplanes with smaller, more energy-saving airplanes.
3) Will employees, retired and currently working, agree to reduction in pension benefit?
Reduction in pension has been another hot topic for discussion. Reserved amount of JAL’s corporate pension (including post-receipt of retirement allowance by installation, interest rate much higher than average bank interest rate) is insufficient by approximately 450 billion yen at present, and has been requesting 15,700 employees and 8,900 retired employees to accept reduction in pension. If they agree to accept the reduction, the reduction of pension benefit would be 30% in average for retired employees and 50% in average for current employees. And if two-thirds or more of them do not agree, the pension system could not be revised and the reduction of pension benefit would be much greater.
Despite the critical management situation of the company, many retired employees in particular were reluctant to agree to reduction in pension benefit. This probably attributes mainly to their old, conservative mindset, believing that JAL will never go bankrupt, cannot forget the good old days of JAL and not really aware of the hard reality of today’s struggling JAL, and also how corporate pension is managed. Since corporate pension includes retirement benefit to be paid by installation, reduction in corporate pension means reduction in retirement allowance, and retired employees may well need to drastically change their family financing plan.
Employees currently working accepted the reduction relatively straightforwardly, then they made maximum efforts in persuading the retired employees to accept the reduction until the last minutes of deadline of January 11. They finally managed to win the minimum two-thirds of agreement.
4) How to overcome financing and avoid shortage of working capital?
To overcome financing (i.e. avoiding shortage of working capital), the government asked financial institutions to write-off the debts similarly to previous turnarounds initiated by IRCJ (Industrial Revitalization Corporation of Japan) and to assist in bridge financing. It was natural for the financial institutions not to easily agree on this point when the satisfactory turnaround plan had not been presented to them.
On January 12, the 3 major financial institutions (The Bank of Tokyo-Mitsubishi UFJ, Mizuho Corporate Bank and Sumitomo Mitsui Banking Corporation) finally changed their stance/policy and agreed to accept the support from public institution of “Company Turnaround Aid Institution” on condition that Corporate Reorganization Act is to be adopted, after Mr. Maehara, Minister of Land, Infrastructure, Transport and Tourism presented them with the government’s policy of supporting turnaround methodology of pre-package (coordinated beforehand).
And the government is to provide JAL of capital support, which was finalized as much as 1 trillion yen.
3. What is the business restructure framework/plan of JAL?
JAL is to accelerate developing revival action plan based on the following business restructure framework.
1) Apply Corporate Reorganization Act simultaneously with 2 affiliate business companies.
Apply for adoption of Corporate Reorganization Act simultaneously with JALI (Japan Air Lines International) and JAL Capital. The three companies will be integrated immediately after the application and other procedures for reorganization are complete and make back office etc. streamlined.
2) Request banks to support financing for refunding refinanced loans etc. that are to accrue from autumn 2010.
This is in addition to DBJ (Development Bank of Japan) is to loan 200 billion yen on January 15 in order to stop capital outflow from credit uncertainty of JAL. (With a rumour of delisting of JAL, JAL’s stock price had dropped drastically by 30 JPY from 37 JPY in a day, which recovered a little after the government announced the policy that shareholder special benefit plan and frequent flyer programme will be valid for a certain period after the application of the act).
After application of Corporate Reorganization Act、JAL is to gain bridge financing of total of 600 billion yen from the assisting organizations etc. And if the revival plan is approved, JAL is to request total of 50.6 billion yen to DBJ and the 3 major banks as capital used to refunding of refinanced loans of bridge financing. JAL also would like to raise capital of 21 billion yen in 5 years to purchase airplanes for the plan mentioned in 3) below.
3) Accelerate replacement of half the jumbo jet airplanes with smaller energy-saving airplanes.
By the end of 2012, JAL aims to own 46 jumbo jet planes, 76 middle size planes and 107 small size planes.
4) Reduce 53 affiliate companies from current 110 companies.
This includes selling out and/or liquidation of 24 affiliates.
5) Cut additional domestic and international flights, 25 in total.
13 international flights and 12 domestic flights will be additionally reduced.
6) Review of cargo flight business will include studying of closure
The operation deficit of cargo flight business is estimated to expand to 23.3 billion yen by the end of current fiscal year ending March 2010 and therefore is reviewed including option of closure of the business.
A part of affiliates that have domestic flights to isolated islands have already finalized its policy of terminating such business.
7) Cut 15,000 jobs.
This is equivalent to one-thirds of the total current employees.
8) Amortize pension liability of 100 billion yen over 5 years.
Since more than two-third of employees, retired and currently working, agreed to accept reduction in pension benefit, continuation of pension fund will be specified in the revival plan. Approximately 100 billion yen of serve for pension fund will be minus but JAL is to amortize over 5 years.
9) Turn back into black in 2011.
With drastic loss of passanges, revenue for current fiscal year is estimated to be 1.4 trillion yen, which is -27% from the previous year, with operation loss of 32.91 billion yen. However, with extreme restructuring, 2 years later (i.e. by the end of fiscal year ending March 2012), JAL aims to return to black by 23.4 billion yen and 3 years later by 85.2 billion yen.
4. Who will be driving the JAL turnaround?
Mr. Kazuo Inamori, founder and chairperson emeritus of Kyocera （77 year old）, was requested to be the new CEO of JAL from the government and Company Turnaround Aid Institution, and he accepted on January 13. Having reached advanced age and being responsible for other roles, he will be working 3 or 4 days a week with no rewards. He is expected to initiate restructuring and then the key coordinator with internal and external stakeholders. He will soon choose COO from short-listed internal candidates of 45-55 years old, to lead operation, supporting Mr. Inamoti.
Mr. Inamori has no experience in transportation business but was appointed with his management ability of having founded and made Kyocera into a global company, and entered telecommunication business by starting up another company (now KDDI）, himself balancing the two businesses to be successful in both.
Mr. Inamori has been supporting the DPJ long before it won the general election on August 30 2009 and has strong ties with key politician of the DPJ including Mr. Maehara, Minister of Land, Infrastructure, Transport and Tourism and Mr. Ozawa, Secretary-General of the DPJ.
Some experts say that Mr. Inamori is the ideal person to drive the turnaround but some others say that he is not because he has no experience of turnaround. Mr. Inamori believes that turnaround is quite possible as long as the revival plan is executed steadily. The key for execution is clarification of CEO’s authority and responsibility, and supporting organization/environment. And last but not least, change in culture, and mindset and behaviour (action) of employees determine whether JAL will succeed in its turnaround.
2010年1月3日日曜日
How Japan’s Growth Strategy Should Be?
Sunday, January 3, 2010 – Osaka, Japan
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on December 31 2009 that on December 30 the Japanese government defined basic policy new growth strategy for sustainable economic growth. “Economic management is to be performed, positioning achievement of nominal growth rate* as the most important challenge” is specified. Targets including “By 2010 average nominal growth rate of 3% and bigger growth than actual growth rate of 2%” with engines of industries including environment, healthcare and tourism, and “nominal GDP (Gross Domestic Product) of 650 trillion yen for 2020” were specified. However, according to an article reported today by Nikkei, approximately 60% of 17 economy experts are dissatisfied with the government’s economic policy and estimate that it takes a few years for the economy to recover.
1. Why “nominal“ instead of “actual” is used to define growth target?
It is unusual for the government to define growth target in “nominal” instead of “actual” excluding effects of price fluctuation. “Nominal“ is used from the sense of urgency of the current economic situation; deflation mentioned in the previous article "How Japan Can Get Out From 10 Year Deflation?" and its negative effect on family budget and company business.
2. How has Japan’s nominal GDP been until today? What are the upcoming plans?
For nearly 20 years since 1990, Japan’s nominal GDP has been hovering at the low level of 500 trillion yen, and therefore 650 trillion yen level is increase by +30% vs. 2008. Growth of nominal growth rate of +3% has not been achieved since 1991.
In order to achieve both nominal growth rate of 3% and actual growth rate of 2%, first, deflation needs to be overcome then control inflation rate under 1%/year. Mr. Naoto Kan, Vice Prime Minister and Head of National Strategy emphasized in the press conference held on December 30 that “these targets are sufficiently achievable”; however, experts feel that it is difficult to achieve the targets, considering the past Japanese economy performances and financial policies.
Prime Minister Mr. Yukio Hatoyama expressed in the press conference on December 30 his determination to achieve the target, saying that he is fully aware that the effectiveness of his administration really counts. The government is to develop growth strategy action plan (roadmap/timeline) for the time span until 2020 by June.
3. Which fields are to be focused to achieve growth strategy?
The following 6 fields are specified as focuses for growth strategy.
1) Environment and energy
Expand environment related market from 70 trillion yen to 120 trillion yen. Create 1.4 million jobs. Leverage Japan’s technologies to contribute to cutting 1.3 billion ton worldwide GHG, equivalent to Japan’s emission volume. Leverage IT to make next generation transmission network pervasive to control electricity supply. Make pervasive eco-friendly housing and expand natural energy use, and LED and other energy saving lighting.
2) Healthcare
Create healthcare, nursing and medical market of 45 trillion yen and 280 jobs by leveraging technologies to create internal and external demand. Initiate R&D of innovative medical and nursing technologies such as regenerative medicine, telemedicine system, nursing robots etc. and provide healthcare related services to Asian markets expected to experience aging society. Strengthen infrastructure supporting aging society such as medical, nursing and housing to eliminate anxieties for the future to promote consumption by elders.
3) Asia
Create demand together with Asia, “the growth centre of the world”, positioning formulation of EFAAP covering 21 countries and regions that are currently members of APEC as its foundation. Develop infrastructure demand of Asia such as transportation, water and energy.
4) Tourism and revitalizing local community
Achieve in line with 1)-3)
5) Science and technologies
Achieve in line with 1)-3)
6) Employment and human resources
Achieve in line with 1)-3)
4. How effective is the growth strategy?
The author basically agrees with views of majority of experts; measures for achievement are not clear and need to focus more on motivating companies and other private sector to invest in growth sectors such as deregulation, tangible growth strategy development and execution, and develop mid-term financial policy outlook/plan. Focusing on assisting family budget, the biggest anxiety lies in whether the Hatoyama administration can educe vitality of companies, the source/engine of economic growth.
Reasons for such evaluation from experts include lack of explanation of concrete policies, and lack of perspective that main player (source/engine) of economic growth is companies. The latter is more critical.
Drivers and engines of economic growth are R&D of companies and equipment investment. It is unlikely to achieve high growth driven by inefficient public sector, and sufficient financial resource cannot be acquired, neither. In fact, in 2008, value added (personnel cost, profit, corporate tax etc.) generated by companies excluding financial institutes reached 26.4 trillion yen. This means that more than 50% of nominal GDP is generated by companies.
5. What is the ideal scenario for economic recovery and achieving the target?
The government is supposed to buy over companies and market, and give incentives and motivation, creating favourable environment for companies and other private sectors to proactively invest in growth sectors. That is the solution to solve the root cause of the ongoing economic plunge. Also minimizing interference of government is necessary and public institutions not to get in the way of private sectors making decisions.
However, from the growth strategy reported, such message is not sufficiently delivered. It does not remove anxieties mentioned in the previous articles "How Japan Can Get Out From 10 Year Deflation?", "Japanese Companies Refraining from Equipment Investmen", "Service Price Drop in Japan Prominent: The Biggest Among 10 Major Countries" and "Japan's Debt to Drastically Increase - What is the Effect on Economy?"
Mentality of “Economy for human being based on friendship and love” alone is not sufficient to achieve the economic growth. Nikkei introduces varieties of innovative technologies of all sectors and industries (environment and energy, healthcare, IT etc.) in their special reports on January 1 2010. It is with tangible growth strategy, tactics and action plan leveraging such technologies, that create new demand and market in sectors and industries where needs exist in aging society with low birthrate, ubiquitous networking society. And it is with appropriate economic policies mentioned by the economists in Nikkei’s report on January 3 such as deregulation, tangible mid-term financial policy outlook, reduction in corporate tax rate (currently 40%), concluding EPA/FTA with Asian countries/regions, and pension system reform that create favourable environment for the growth strategy to be actually executed.
It is only when companies invest in such growth sectors, (many of them contributing to improving social infrastructure and systems), collaborate with academia and other public sectors in R&D in particular, and operate efficiently with high productivity, that they would be able to generate revenue to improve their financial performance. It is with good financial performance of companies that leads to new job creation, higher salaries for their employees, pensions guarantee etc., which contributes to minimizing anxieties of citizens making their own living and live happily after retirement as well as providing citizens with better lives and society, based on the mentality of “friendship and love”. It is by eliminating their anxieties that citizens utilize allowances for consumer spending instead of setting aside for saving, meaning the government’s economy boosting measures become successful, and as a result Japan will be able to get out of deflation, its economy recovered, and achieve the target.
We would need to wait and see what kind of roadmap and action plan the government will develop and announce in June.
* Nominal Growth Rate (Source: Nikkei, edited and translated by the author)
Nominal growth rate is GDP growth rate including effects of price fluctuation. Almost equals to sum of after-tax pay of workers and profits generated by companies. In general, changes in GDP are measured by actual growth rate (excluding effects of price fluctuation) but nominal growth rate can be said to precisely reflect the actual sensation of business and economy because income and profits are all of nominal value.
Average economic growth rate by decades since 1980
Decades / Nominal Growth Rate (%) / Actual Growth Rate (%)
1980s / 6.1 / 3.8
1990s / 2.0 / 1.4
2000s / -0.5 / 0.7
Rise in nominal growth rate leads to both getting out of deflation and economic growth. In 2000s, actual growth rate was +0.7% but nominal growth rate was -0.5%, which implies that long term economic recovery was achieved but lacked in actual sensation. This was because nominal growth rate was minus.
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on December 31 2009 that on December 30 the Japanese government defined basic policy new growth strategy for sustainable economic growth. “Economic management is to be performed, positioning achievement of nominal growth rate* as the most important challenge” is specified. Targets including “By 2010 average nominal growth rate of 3% and bigger growth than actual growth rate of 2%” with engines of industries including environment, healthcare and tourism, and “nominal GDP (Gross Domestic Product) of 650 trillion yen for 2020” were specified. However, according to an article reported today by Nikkei, approximately 60% of 17 economy experts are dissatisfied with the government’s economic policy and estimate that it takes a few years for the economy to recover.
1. Why “nominal“ instead of “actual” is used to define growth target?
It is unusual for the government to define growth target in “nominal” instead of “actual” excluding effects of price fluctuation. “Nominal“ is used from the sense of urgency of the current economic situation; deflation mentioned in the previous article "How Japan Can Get Out From 10 Year Deflation?" and its negative effect on family budget and company business.
2. How has Japan’s nominal GDP been until today? What are the upcoming plans?
For nearly 20 years since 1990, Japan’s nominal GDP has been hovering at the low level of 500 trillion yen, and therefore 650 trillion yen level is increase by +30% vs. 2008. Growth of nominal growth rate of +3% has not been achieved since 1991.
In order to achieve both nominal growth rate of 3% and actual growth rate of 2%, first, deflation needs to be overcome then control inflation rate under 1%/year. Mr. Naoto Kan, Vice Prime Minister and Head of National Strategy emphasized in the press conference held on December 30 that “these targets are sufficiently achievable”; however, experts feel that it is difficult to achieve the targets, considering the past Japanese economy performances and financial policies.
Prime Minister Mr. Yukio Hatoyama expressed in the press conference on December 30 his determination to achieve the target, saying that he is fully aware that the effectiveness of his administration really counts. The government is to develop growth strategy action plan (roadmap/timeline) for the time span until 2020 by June.
3. Which fields are to be focused to achieve growth strategy?
The following 6 fields are specified as focuses for growth strategy.
1) Environment and energy
Expand environment related market from 70 trillion yen to 120 trillion yen. Create 1.4 million jobs. Leverage Japan’s technologies to contribute to cutting 1.3 billion ton worldwide GHG, equivalent to Japan’s emission volume. Leverage IT to make next generation transmission network pervasive to control electricity supply. Make pervasive eco-friendly housing and expand natural energy use, and LED and other energy saving lighting.
2) Healthcare
Create healthcare, nursing and medical market of 45 trillion yen and 280 jobs by leveraging technologies to create internal and external demand. Initiate R&D of innovative medical and nursing technologies such as regenerative medicine, telemedicine system, nursing robots etc. and provide healthcare related services to Asian markets expected to experience aging society. Strengthen infrastructure supporting aging society such as medical, nursing and housing to eliminate anxieties for the future to promote consumption by elders.
3) Asia
Create demand together with Asia, “the growth centre of the world”, positioning formulation of EFAAP covering 21 countries and regions that are currently members of APEC as its foundation. Develop infrastructure demand of Asia such as transportation, water and energy.
4) Tourism and revitalizing local community
Achieve in line with 1)-3)
5) Science and technologies
Achieve in line with 1)-3)
6) Employment and human resources
Achieve in line with 1)-3)
4. How effective is the growth strategy?
The author basically agrees with views of majority of experts; measures for achievement are not clear and need to focus more on motivating companies and other private sector to invest in growth sectors such as deregulation, tangible growth strategy development and execution, and develop mid-term financial policy outlook/plan. Focusing on assisting family budget, the biggest anxiety lies in whether the Hatoyama administration can educe vitality of companies, the source/engine of economic growth.
Reasons for such evaluation from experts include lack of explanation of concrete policies, and lack of perspective that main player (source/engine) of economic growth is companies. The latter is more critical.
Drivers and engines of economic growth are R&D of companies and equipment investment. It is unlikely to achieve high growth driven by inefficient public sector, and sufficient financial resource cannot be acquired, neither. In fact, in 2008, value added (personnel cost, profit, corporate tax etc.) generated by companies excluding financial institutes reached 26.4 trillion yen. This means that more than 50% of nominal GDP is generated by companies.
5. What is the ideal scenario for economic recovery and achieving the target?
The government is supposed to buy over companies and market, and give incentives and motivation, creating favourable environment for companies and other private sectors to proactively invest in growth sectors. That is the solution to solve the root cause of the ongoing economic plunge. Also minimizing interference of government is necessary and public institutions not to get in the way of private sectors making decisions.
However, from the growth strategy reported, such message is not sufficiently delivered. It does not remove anxieties mentioned in the previous articles "How Japan Can Get Out From 10 Year Deflation?", "Japanese Companies Refraining from Equipment Investmen", "Service Price Drop in Japan Prominent: The Biggest Among 10 Major Countries" and "Japan's Debt to Drastically Increase - What is the Effect on Economy?"
Mentality of “Economy for human being based on friendship and love” alone is not sufficient to achieve the economic growth. Nikkei introduces varieties of innovative technologies of all sectors and industries (environment and energy, healthcare, IT etc.) in their special reports on January 1 2010. It is with tangible growth strategy, tactics and action plan leveraging such technologies, that create new demand and market in sectors and industries where needs exist in aging society with low birthrate, ubiquitous networking society. And it is with appropriate economic policies mentioned by the economists in Nikkei’s report on January 3 such as deregulation, tangible mid-term financial policy outlook, reduction in corporate tax rate (currently 40%), concluding EPA/FTA with Asian countries/regions, and pension system reform that create favourable environment for the growth strategy to be actually executed.
It is only when companies invest in such growth sectors, (many of them contributing to improving social infrastructure and systems), collaborate with academia and other public sectors in R&D in particular, and operate efficiently with high productivity, that they would be able to generate revenue to improve their financial performance. It is with good financial performance of companies that leads to new job creation, higher salaries for their employees, pensions guarantee etc., which contributes to minimizing anxieties of citizens making their own living and live happily after retirement as well as providing citizens with better lives and society, based on the mentality of “friendship and love”. It is by eliminating their anxieties that citizens utilize allowances for consumer spending instead of setting aside for saving, meaning the government’s economy boosting measures become successful, and as a result Japan will be able to get out of deflation, its economy recovered, and achieve the target.
We would need to wait and see what kind of roadmap and action plan the government will develop and announce in June.
* Nominal Growth Rate (Source: Nikkei, edited and translated by the author)
Nominal growth rate is GDP growth rate including effects of price fluctuation. Almost equals to sum of after-tax pay of workers and profits generated by companies. In general, changes in GDP are measured by actual growth rate (excluding effects of price fluctuation) but nominal growth rate can be said to precisely reflect the actual sensation of business and economy because income and profits are all of nominal value.
Average economic growth rate by decades since 1980
Decades / Nominal Growth Rate (%) / Actual Growth Rate (%)
1980s / 6.1 / 3.8
1990s / 2.0 / 1.4
2000s / -0.5 / 0.7
Rise in nominal growth rate leads to both getting out of deflation and economic growth. In 2000s, actual growth rate was +0.7% but nominal growth rate was -0.5%, which implies that long term economic recovery was achieved but lacked in actual sensation. This was because nominal growth rate was minus.
2009年12月28日月曜日
Japan’s Debt to Drastically Increase – What is the Effect on Economy?
Monday, December 28, 2009 – Osaka, Japan
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on Saturday 26th the Japanese government’s finalized 2010 budget plan, from which it became quite prominent that realizing the DPJ (Democratic Party of Japan) Manifest and acquiring its financial resources is incompatible. The government is to solve by issuing new government bond meaning drastically increasing the debt, but this is likely to have negative impact on the overall economy. It is high time for the government to develop and execute growth strategy, aligning with the Japan and worldwide current trend, and the high time for all parties (politicians and bureaucrats, academic world and all other public sector, companies and all other private sector and citizens) to change their mindset and tackle the problem of recovering the economy together.
1. What is the big picture of the finalized 2010 budget plan and how unsound is the financial condition?
General accounts totaled 9.2 trillion yen (+4.2% vs. PY), which is the biggest in the history. Looking in details, general expenditure increased from 51.7trillion yen to 53.5 trillion yen, local allocation tax etc. increased from 16.5 trillion yen to 17.5 trillion yen, and debt servicing cost increased from 20.2 trillion yen to 20.6%. Moreover, adjustment cost for settlement of 0.7 trillion yen was added.
With budgeting policy emphasizing local and family budget, the total expenditure expanded. Public projects was cut 1.3 trillion yen (-18%) and reviewing respective business and budget by task force members which was a first trial in Hatoyama administration contributed to cost reduction of 1 trillion yen. However, local tax allocation increased by 1 trillion yen, social security cost increased by 10% due to aging society, and 3 trillion yen was added as costs to realize major measures of DPJ (Democratic Party of Japan)’s Manifest such as family budget assistance*.
Regarding budget revenue, tax revenue is expected to decrease from 46.1 trillion yen to 37.4 trillion yen, so although non-tax revenue is expected to increase from 9.1 trillion yen to 10.6 trillion yen, the government decided to increase government bond from 33.3 trillion yen to 44.3 trillion yen to cover-up the insufficient financial resources. This means that dependence of the national budget on government bonds will be extremely high, almost 50%.
Major Expenditure Items by Ministries
(Source: Nikkei, translated by the author)
Ministry Name / Budget (trillion yen) / Increase/Decrease (vs PY) / Concept of Budgeting
MHLW (Ministry of Health, Labour and Welfare) / 27.56 / Increase / Drastic increase with “family budget assistance” Increase by 2.4 trillion yen attributing to “family budget assistance” including allowance for children, lower medical expense and assistance of household with single parent.
MLIT (Ministry of Land, Infrastructure, Transport and Tourism) / 5.61 / Decrease / Expenditure for FOC motorways shrunk to 0.1 trillion yen. Public projects expenditure decreased drastically. Expenditure for FOC motorways cut from original request of 0.6 trillion yen to 0.1 trillion yen.
MIC (Ministry of Internal Affairs and Communications) / 18.60 / Increase / Tax allocation increased by 1.1 trillion yen. Increase in local tax allocation received by local governments by 1.1 trillion yen, first time in 11 years. IT related budget focuses on promoting IT use.
METI (Ministry of Economy, Trade and Industry) / 0.99 / Decrease / Focuses on supporting financing of SMB businesses. Focuses on supporting financing of SMB businesses. Increase in budget for supporting technical development for global warming countermeasures.
MAFF (Ministry of Agriculture, Forestry and Fisheries of Japan) / 2.28 / Decrease / Drastic decrease in land improvement business. Full requested expenditures related to the Manifest including system to assist rice farmer households were booked. Drastic cut in expenditure for land improvement business supported by LDP.
MOFA (Ministry of Foreign Affairs of Japan) / 0.66 / Decrease / Increase in supporting Afghanistan etc. Drastic increase in supporting Afghanistan and Pakistan. Cut in grant aid for third sector facilities.
MEXT (Ministry of Education, Culture, Sports, Science and Technology) / 5.60 / Increase / To free tuition fee for public senior high school students. To free tuition fee for public senior high school students. Assist 120 thousand yen/child for private senior high schools. Increase students benefiting from interest-free scholarship by 5000. Decrease outlays for promoting science and technology for the first time.
DA (Ministry of Defense) / 4.79 / No change / To defer Futemma base relocation related cost. Drastic increase in expenditures related to realignment of U.S. forces in Japan. To defer Futemma base relocation related cost. Implement new naval escort.
MOE (Ministry of the Environment) / 0.21 / Decrease / Focus on biodiversity conference.
Focus on biodiversity conference to be held in Nagoya City in October 2010 and on natural energy proliferation.
With efforts to minimize annual spending by freezing a few minor Manifest items, major items of the DPJ’s Manifest will be implemented from 2010, but with current financial resource outlook, whether the government would be able to continue the implementation 2011 onwards is a question. Primary balance**, a barometer for soundness of the country’s financial condition, is expected to reach minus 23.65 trillion yen for 2010, with the biggest increase in deficit from the previous year in history. Combined total of outstanding debt for both central and local governments is expected to reach the biggest in history of 862 trillion yen at the end of 2010. Hatoyama administration needs to immediately get the balance sheet of annual spending and revenue in shape.
2. What is the possible effect on the economy?
The author views that the finalized budget is unlikely to contribute to improving the economy as expected, and the government’s economic policy management may well needs to be improved to meet the expectation of the citizens, economic and industry experts and the stock market.
1) 10 economy experts view differently but in general they are rather pessimistic.
According to Nikkei’s interviews to 10 economy experts, although their views varied, they agreed on the fact that the actual rate of GDP’s growth is expected to remain low. Their average outlook was 1.2%, which is below the government’s outlook of 1.4%. Effect on the economy ranged from +0.4% to -0.3%. 4 people said that there would be some positive effects because “family budget assistance” stimulates the economy, 3 people said that the total effect will be zero, and the remaining 3 people said that there would be negative effects because of the reduction of public projects.
With low GDP growth outlook and deflation to continue as mentioned in the previous article How Japan Can Get Out From 10 Year Deflation?, strong growth strategy to drive investment and stimulate consumer spending is inevitable, which requires economic policy management aligning with to the current global economy environment and Japanese competitiveness. However, many experts seem to feel that the current economic policy management is not up to date, based on the concept that was valid 20 years ago before the burst of the bubble economy (i.e. when the economy and domestic demand continued to grow), to which the author agrees.
2) The government is not taking appropriate and sufficient actions to make Japan strong and its economy grow.
Today, Japan is suffering from low GDP growth and deflation, and its financial status is one of the worst among developed countries, so what really should be focused on is, similarly to turnaround of ailing companies, eradicate unnecessary cost and debt, improve global competitiveness, and develop and execute growth strategy. However, the message of the finalized budgeting is NOT putting priority on improving environment for companies to compete in the global economy, and consequently to pass the burden to succeeding generations by issue of government bonds. The government intends to stimulate consumer spending but measures and actions to eliminate from citizens anxieties of their after-retirement life, the perquisites to stimulate consumer spending, are insufficient. The government needs to focus on expanding the total pie of the economy, i.e. growth, in order to create employment and establish sustainable social security systems.
Domestic demand expansion needs regulation revolution to promote entering industries with great needs such as healthcare, nursing care and child-care, which requires tough national coordination. Tough national coordination is also required for FTA conclusion meaning opening of agriculture market and so forth. However, with, the House of Councilors election coming up in summer 2010, it is highly unlikely that the government would take actions in these kinds of issues.
In the current economic environment in which Japan cannot possibly expect growth in domestic demand, Japan would need to rely on external demand, expanding business in emerging markets, and the prerequisites would be to create the environment in which Japanese companies improve competitiveness in the global market so that they can compete with their global counterparts. Such possible measures include decreasing corporate tax rate (currently 40%), which is far greater than other countries, and concluding FTA (Free Trade Agreement) with EU and other regions/countries similarly to what Korea is trying to do. Such measures had always been advocated by Japan Business Federation (Nippon Keidanren) and other experts but the government does not seem to take actions.
What the government needs to do is take measures strategically to attract talents, technologies, capital, information and so forth from around the globe just like what Singapore is doing, as well as taking measures to create environment and systems mentioned above and focus on education to level up the skills and competencies of its citizens to make them competitive in the global economy. Unless the government first acknowledge that the world is flat as Thomas L. Friedman depicts in his book “The World Is Flat 3.0: A Brief History of the Twenty-first Century" and change mindset to take actions accordingly, it is unlikely that the citizens acknowledge the reality and change their mindset.
3) Japanese companies and TSE started to take actions for survival at last. Are other players to follow?
Of course, Japanese companies also need to change their mindset; they seem to lack in “hungry and fighting spirit” unlike Korean counterparts who are fully aware that they need to win in the global market to survive with the small economy size of Korea. This may well be because as Mr. Toshihiko Fukui, the former Bank of Japan Governor, says in the interview with Nikkei according to the article of the newspaper dated December 27, that Japan has been enjoying the position of the second largest economy. The author fully understands what Mr. Fukui says and agrees; she worked in a Japanese electronics giant for many years until 2006 and during that time the Korean counterpart actually became more competitive in the global market, as company ranking of Forbes clearly indicated for example as well as other signs of defeat. But the position is soon likely to be replaced by China, and the global battle for survival is becoming tougher and tougher. Therefore, companies need to revive their fighting spirit to go back to the basics and strengthen product development and marketing (including branding) meeting customer needs and generate business by step by step sales, similarly to what they have done in the recovery period after the World War II.
The initiatives of Japanese FMCG (Fast Moving Consumer Good) companies mentioned in the previous article "Japanese Food and FMCG Giants to Foster "Global Brands"is a sign that they are changing their mindset and starting to take actions. TSE (Tokyo Stock Exchange) to revise listing regulation as mentioned in the previous article "With Slow Japanese Stock Market Recovery TSE to Revise Listing Regulation" is a sign that TSE also started to take their action. In order for such initiatives to bear fruit, optimum environment needs to be created by all public sector players as well as mindset change and actions from all parties including the community and citizens. They all need to acknowledge the reality, and all players, public and private, need to tackle the problem together, from total optimization perspective.
* DPJ’s “Family Budget Assistance” (Source: Nikkei, edited and translated by the author)
Key economy boosting measures that the DPJ promised as their Manifest to win the General Election held on August 30 2009. The scenario is to increase disposable income by directly providing benefits to family budget etc. and stimulate consumer spending. The DPJ intends to change from the LDP’s economic policy focusing on supporting companies to realize economic growth driven by domestic demand.
Main items of “family budget assistance” include providing allowances for children, freeing tuition fee for senior high school students, freeing motorways, abolishing temporary tariff rate etc. Their positive effects may well be converted to savings instead of being consumed unless anxieties for post-retirement lives and distrust of social security system are eliminated from citizens.
Items of “family budget assistance” / Measures to be implemented from 2010
Allowance for children / 13,000 yen/child per month to be provided.
Free tuition fee for senior high school students / Tuition fee for public senior high school students to be made free. Assistance to private senior high school students to be provided as well.
Income indemnity for farmer households / To be executed to nationwide rice farmer households.
Free motorways / Test demonstration for pilot regions.
** Primary Balance (Source: Nikkei, translated by the author)
Balance of payments calculated by subtracting new government issuance (new debt) from debt service cost (nation’s debt). If the calculation is in black (i.e. positive), fiscal condition is good, and if it is in red (i.e. negative), fiscal condition is bad. Japan has always been negative and its big challenge had always been to make a balance mid/long-term.
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on Saturday 26th the Japanese government’s finalized 2010 budget plan, from which it became quite prominent that realizing the DPJ (Democratic Party of Japan) Manifest and acquiring its financial resources is incompatible. The government is to solve by issuing new government bond meaning drastically increasing the debt, but this is likely to have negative impact on the overall economy. It is high time for the government to develop and execute growth strategy, aligning with the Japan and worldwide current trend, and the high time for all parties (politicians and bureaucrats, academic world and all other public sector, companies and all other private sector and citizens) to change their mindset and tackle the problem of recovering the economy together.
1. What is the big picture of the finalized 2010 budget plan and how unsound is the financial condition?
General accounts totaled 9.2 trillion yen (+4.2% vs. PY), which is the biggest in the history. Looking in details, general expenditure increased from 51.7trillion yen to 53.5 trillion yen, local allocation tax etc. increased from 16.5 trillion yen to 17.5 trillion yen, and debt servicing cost increased from 20.2 trillion yen to 20.6%. Moreover, adjustment cost for settlement of 0.7 trillion yen was added.
With budgeting policy emphasizing local and family budget, the total expenditure expanded. Public projects was cut 1.3 trillion yen (-18%) and reviewing respective business and budget by task force members which was a first trial in Hatoyama administration contributed to cost reduction of 1 trillion yen. However, local tax allocation increased by 1 trillion yen, social security cost increased by 10% due to aging society, and 3 trillion yen was added as costs to realize major measures of DPJ (Democratic Party of Japan)’s Manifest such as family budget assistance*.
Regarding budget revenue, tax revenue is expected to decrease from 46.1 trillion yen to 37.4 trillion yen, so although non-tax revenue is expected to increase from 9.1 trillion yen to 10.6 trillion yen, the government decided to increase government bond from 33.3 trillion yen to 44.3 trillion yen to cover-up the insufficient financial resources. This means that dependence of the national budget on government bonds will be extremely high, almost 50%.
Major Expenditure Items by Ministries
(Source: Nikkei, translated by the author)
Ministry Name / Budget (trillion yen) / Increase/Decrease (vs PY) / Concept of Budgeting
MHLW (Ministry of Health, Labour and Welfare) / 27.56 / Increase / Drastic increase with “family budget assistance” Increase by 2.4 trillion yen attributing to “family budget assistance” including allowance for children, lower medical expense and assistance of household with single parent.
MLIT (Ministry of Land, Infrastructure, Transport and Tourism) / 5.61 / Decrease / Expenditure for FOC motorways shrunk to 0.1 trillion yen. Public projects expenditure decreased drastically. Expenditure for FOC motorways cut from original request of 0.6 trillion yen to 0.1 trillion yen.
MIC (Ministry of Internal Affairs and Communications) / 18.60 / Increase / Tax allocation increased by 1.1 trillion yen. Increase in local tax allocation received by local governments by 1.1 trillion yen, first time in 11 years. IT related budget focuses on promoting IT use.
METI (Ministry of Economy, Trade and Industry) / 0.99 / Decrease / Focuses on supporting financing of SMB businesses. Focuses on supporting financing of SMB businesses. Increase in budget for supporting technical development for global warming countermeasures.
MAFF (Ministry of Agriculture, Forestry and Fisheries of Japan) / 2.28 / Decrease / Drastic decrease in land improvement business. Full requested expenditures related to the Manifest including system to assist rice farmer households were booked. Drastic cut in expenditure for land improvement business supported by LDP.
MOFA (Ministry of Foreign Affairs of Japan) / 0.66 / Decrease / Increase in supporting Afghanistan etc. Drastic increase in supporting Afghanistan and Pakistan. Cut in grant aid for third sector facilities.
MEXT (Ministry of Education, Culture, Sports, Science and Technology) / 5.60 / Increase / To free tuition fee for public senior high school students. To free tuition fee for public senior high school students. Assist 120 thousand yen/child for private senior high schools. Increase students benefiting from interest-free scholarship by 5000. Decrease outlays for promoting science and technology for the first time.
DA (Ministry of Defense) / 4.79 / No change / To defer Futemma base relocation related cost. Drastic increase in expenditures related to realignment of U.S. forces in Japan. To defer Futemma base relocation related cost. Implement new naval escort.
MOE (Ministry of the Environment) / 0.21 / Decrease / Focus on biodiversity conference.
Focus on biodiversity conference to be held in Nagoya City in October 2010 and on natural energy proliferation.
With efforts to minimize annual spending by freezing a few minor Manifest items, major items of the DPJ’s Manifest will be implemented from 2010, but with current financial resource outlook, whether the government would be able to continue the implementation 2011 onwards is a question. Primary balance**, a barometer for soundness of the country’s financial condition, is expected to reach minus 23.65 trillion yen for 2010, with the biggest increase in deficit from the previous year in history. Combined total of outstanding debt for both central and local governments is expected to reach the biggest in history of 862 trillion yen at the end of 2010. Hatoyama administration needs to immediately get the balance sheet of annual spending and revenue in shape.
2. What is the possible effect on the economy?
The author views that the finalized budget is unlikely to contribute to improving the economy as expected, and the government’s economic policy management may well needs to be improved to meet the expectation of the citizens, economic and industry experts and the stock market.
1) 10 economy experts view differently but in general they are rather pessimistic.
According to Nikkei’s interviews to 10 economy experts, although their views varied, they agreed on the fact that the actual rate of GDP’s growth is expected to remain low. Their average outlook was 1.2%, which is below the government’s outlook of 1.4%. Effect on the economy ranged from +0.4% to -0.3%. 4 people said that there would be some positive effects because “family budget assistance” stimulates the economy, 3 people said that the total effect will be zero, and the remaining 3 people said that there would be negative effects because of the reduction of public projects.
With low GDP growth outlook and deflation to continue as mentioned in the previous article How Japan Can Get Out From 10 Year Deflation?, strong growth strategy to drive investment and stimulate consumer spending is inevitable, which requires economic policy management aligning with to the current global economy environment and Japanese competitiveness. However, many experts seem to feel that the current economic policy management is not up to date, based on the concept that was valid 20 years ago before the burst of the bubble economy (i.e. when the economy and domestic demand continued to grow), to which the author agrees.
2) The government is not taking appropriate and sufficient actions to make Japan strong and its economy grow.
Today, Japan is suffering from low GDP growth and deflation, and its financial status is one of the worst among developed countries, so what really should be focused on is, similarly to turnaround of ailing companies, eradicate unnecessary cost and debt, improve global competitiveness, and develop and execute growth strategy. However, the message of the finalized budgeting is NOT putting priority on improving environment for companies to compete in the global economy, and consequently to pass the burden to succeeding generations by issue of government bonds. The government intends to stimulate consumer spending but measures and actions to eliminate from citizens anxieties of their after-retirement life, the perquisites to stimulate consumer spending, are insufficient. The government needs to focus on expanding the total pie of the economy, i.e. growth, in order to create employment and establish sustainable social security systems.
Domestic demand expansion needs regulation revolution to promote entering industries with great needs such as healthcare, nursing care and child-care, which requires tough national coordination. Tough national coordination is also required for FTA conclusion meaning opening of agriculture market and so forth. However, with, the House of Councilors election coming up in summer 2010, it is highly unlikely that the government would take actions in these kinds of issues.
In the current economic environment in which Japan cannot possibly expect growth in domestic demand, Japan would need to rely on external demand, expanding business in emerging markets, and the prerequisites would be to create the environment in which Japanese companies improve competitiveness in the global market so that they can compete with their global counterparts. Such possible measures include decreasing corporate tax rate (currently 40%), which is far greater than other countries, and concluding FTA (Free Trade Agreement) with EU and other regions/countries similarly to what Korea is trying to do. Such measures had always been advocated by Japan Business Federation (Nippon Keidanren) and other experts but the government does not seem to take actions.
What the government needs to do is take measures strategically to attract talents, technologies, capital, information and so forth from around the globe just like what Singapore is doing, as well as taking measures to create environment and systems mentioned above and focus on education to level up the skills and competencies of its citizens to make them competitive in the global economy. Unless the government first acknowledge that the world is flat as Thomas L. Friedman depicts in his book “The World Is Flat 3.0: A Brief History of the Twenty-first Century" and change mindset to take actions accordingly, it is unlikely that the citizens acknowledge the reality and change their mindset.
3) Japanese companies and TSE started to take actions for survival at last. Are other players to follow?
Of course, Japanese companies also need to change their mindset; they seem to lack in “hungry and fighting spirit” unlike Korean counterparts who are fully aware that they need to win in the global market to survive with the small economy size of Korea. This may well be because as Mr. Toshihiko Fukui, the former Bank of Japan Governor, says in the interview with Nikkei according to the article of the newspaper dated December 27, that Japan has been enjoying the position of the second largest economy. The author fully understands what Mr. Fukui says and agrees; she worked in a Japanese electronics giant for many years until 2006 and during that time the Korean counterpart actually became more competitive in the global market, as company ranking of Forbes clearly indicated for example as well as other signs of defeat. But the position is soon likely to be replaced by China, and the global battle for survival is becoming tougher and tougher. Therefore, companies need to revive their fighting spirit to go back to the basics and strengthen product development and marketing (including branding) meeting customer needs and generate business by step by step sales, similarly to what they have done in the recovery period after the World War II.
The initiatives of Japanese FMCG (Fast Moving Consumer Good) companies mentioned in the previous article "Japanese Food and FMCG Giants to Foster "Global Brands"is a sign that they are changing their mindset and starting to take actions. TSE (Tokyo Stock Exchange) to revise listing regulation as mentioned in the previous article "With Slow Japanese Stock Market Recovery TSE to Revise Listing Regulation" is a sign that TSE also started to take their action. In order for such initiatives to bear fruit, optimum environment needs to be created by all public sector players as well as mindset change and actions from all parties including the community and citizens. They all need to acknowledge the reality, and all players, public and private, need to tackle the problem together, from total optimization perspective.
* DPJ’s “Family Budget Assistance” (Source: Nikkei, edited and translated by the author)
Key economy boosting measures that the DPJ promised as their Manifest to win the General Election held on August 30 2009. The scenario is to increase disposable income by directly providing benefits to family budget etc. and stimulate consumer spending. The DPJ intends to change from the LDP’s economic policy focusing on supporting companies to realize economic growth driven by domestic demand.
Main items of “family budget assistance” include providing allowances for children, freeing tuition fee for senior high school students, freeing motorways, abolishing temporary tariff rate etc. Their positive effects may well be converted to savings instead of being consumed unless anxieties for post-retirement lives and distrust of social security system are eliminated from citizens.
Items of “family budget assistance” / Measures to be implemented from 2010
Allowance for children / 13,000 yen/child per month to be provided.
Free tuition fee for senior high school students / Tuition fee for public senior high school students to be made free. Assistance to private senior high school students to be provided as well.
Income indemnity for farmer households / To be executed to nationwide rice farmer households.
Free motorways / Test demonstration for pilot regions.
** Primary Balance (Source: Nikkei, translated by the author)
Balance of payments calculated by subtracting new government issuance (new debt) from debt service cost (nation’s debt). If the calculation is in black (i.e. positive), fiscal condition is good, and if it is in red (i.e. negative), fiscal condition is bad. Japan has always been negative and its big challenge had always been to make a balance mid/long-term.
2009年12月13日日曜日
Japanese Tax Haven Application Rule to Change
Sunday, December 13, 2009 – Osaka, Japan
Yesterday on December 12, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that the Japanese government has set policy of reviewing corporate tax system to change application rule of tax haven* with the objectives of eliminating tax dodge 2010 onwards. The government will lower the criteria of corporate tax burden of the regions and countries that the tax haven system is applicable for the first time, from the current 25% to just over 20%. Exceptions of the tax system will be more widely applied after the revision. These are all because emerging countries have been lowering corporate tax rate. This means bigger burden of corporate tax for Japanese companies, which could may well refrain them from starting and expanding their business in emerging countries. By reviewing the system, the Japanese government is to support Japanese companies starting and expanding business in growing markets.
1. Primary objective of changing the current tax haven application rule is to ease burden of Japanese companies.
Primary objective of the Japanese government reviewing the current corporate tax system is ease the burden of tax practices of Japanese companies. In a situation in which emerging countries have been aggressively lowering their corporate tax rate, it is not rationale to set the criteria of corporate rate tax rate for tax haven system application at 25%. And Ministry of Finance estimates that the decrease in corporate tax income by the corporate tax change is not critical.
2. Background of reviewing to change the system is the fact that corporate tax of Japan is the highest among developed countries.
Corporate tax of Japan is 40%, which is the highest among developed countries. And currently in principle, tax haven system is applicable to overseas affiliate companies located in regions and countries whose corporate tax rate is below 25%. When it is applied, a part of profit generated by the overseas affiliates is added to Japan HQ’s domestic income and the 40% of the sum is imposed as corporate tax. Under current criteria, it is quite possible that countries such as China, Korea, Vietnam and Russia, which Japanese companies are aggressive to enter and expand their business, are regarded as tax haven countries.
According to overseas business survey executed by METI (Ministry of Economy, Trade and Industry), out of overseas affiliates and subsidiaries (approximately 17,000 companies) of Japanese companies, half of them are located in tax haven countries under the current system. With problems of a Japanese company being imposed additionally for its affiliate located in Hong Kong which led to court case, Nippon Keidanren (Japan Business Federation) etc. have been requesting the government to review the current system. Therefore, the government has started to study to revise the criteria to just over 20%.
3. Currently there are exceptions to applying tax haven rule.
Under the current corporate tax system, there are exceptions to applying tax haven rule; i.e. there are some cases in which the rule mentioned above is not applied even if the corporate tax rate of countries and regions in which overseas affiliates are located is below 25%. Many companies leverage exceptions when, for example, more than half the trade of overseas affiliate is with non-affiliate companies.
Being exceptions, there are demerits such as companies bearing cost trading with non-affiliate companies. The government is to take this into account as well in reviewing the system. For example, they are to study to review the system so that the regional (e.g. Asia and Europe) HQs of Japanese manufacturers will not need to apply tax haven system even if their trade with non-affiliates is less than half the total trade.
4. The government will study and implement regulation to eliminate tax dodging of companies.
Taking the opportunity of changing the application of tax haven rule, the government will also set regulation to eliminate tax dodge of Japanese companies. The government will study to imposing corporate tax exclusively on incomes from assets such as interest and dividends for exceptions of tax haven system overseas affiliates. This is designed to eliminate tax dodge by Japanese parent company that has earned dividend by investing to overseas companies establishing substantive paper company in a third country. The U.S. has already transferred to this kind of system.
In fact, at the G20 (Pittsburgh) Summit held in September in which 20 regions/countries participated, the participants agreed to strengthen monitoring tax dodge of investors using tax haven system. The Japanese government is to closely collaborate to exchange information with respective countries about tax dodge while strengthening regulation of tax dodge from financial trade.
* Tax Haven
(Source: Nikkei, edited and translated by the author)
Tax haven is country or region whose corporate tax rate and/or tax of interest and/or dividend is zero or extremely low. Well known are Cayman Islands and multi-national companies and financial institutions, hedge funds etc. have been applying tax haven countries in order to making escape from being imposed of corporate tax.
Japanese tax haven system is applicable to countries and regions whose corporate tax is below 25%, thus many people have been pointing out that this system have been applied to regions and countries which cannot be said that it is sufficiently at a low level. In fact, it is possible that this system is applied to countries such as China and Vietnam in which many Japanese companies have started business. The Japanese government has set exceptions but the criteria are too high and Japanese business world has been requesting for review.
Major exceptions for tax haven are as below.
1) Business criteria: Major business is not owning stocks and debts
2) Reality criteria: Offices exists at head office address.
3) Administration and control criteria: Administration and control of business is performed at head office address.
4) Non-affiliate criteria: Business is mainly done with non-affiliate companies.
Yesterday on December 12, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that the Japanese government has set policy of reviewing corporate tax system to change application rule of tax haven* with the objectives of eliminating tax dodge 2010 onwards. The government will lower the criteria of corporate tax burden of the regions and countries that the tax haven system is applicable for the first time, from the current 25% to just over 20%. Exceptions of the tax system will be more widely applied after the revision. These are all because emerging countries have been lowering corporate tax rate. This means bigger burden of corporate tax for Japanese companies, which could may well refrain them from starting and expanding their business in emerging countries. By reviewing the system, the Japanese government is to support Japanese companies starting and expanding business in growing markets.
1. Primary objective of changing the current tax haven application rule is to ease burden of Japanese companies.
Primary objective of the Japanese government reviewing the current corporate tax system is ease the burden of tax practices of Japanese companies. In a situation in which emerging countries have been aggressively lowering their corporate tax rate, it is not rationale to set the criteria of corporate rate tax rate for tax haven system application at 25%. And Ministry of Finance estimates that the decrease in corporate tax income by the corporate tax change is not critical.
2. Background of reviewing to change the system is the fact that corporate tax of Japan is the highest among developed countries.
Corporate tax of Japan is 40%, which is the highest among developed countries. And currently in principle, tax haven system is applicable to overseas affiliate companies located in regions and countries whose corporate tax rate is below 25%. When it is applied, a part of profit generated by the overseas affiliates is added to Japan HQ’s domestic income and the 40% of the sum is imposed as corporate tax. Under current criteria, it is quite possible that countries such as China, Korea, Vietnam and Russia, which Japanese companies are aggressive to enter and expand their business, are regarded as tax haven countries.
According to overseas business survey executed by METI (Ministry of Economy, Trade and Industry), out of overseas affiliates and subsidiaries (approximately 17,000 companies) of Japanese companies, half of them are located in tax haven countries under the current system. With problems of a Japanese company being imposed additionally for its affiliate located in Hong Kong which led to court case, Nippon Keidanren (Japan Business Federation) etc. have been requesting the government to review the current system. Therefore, the government has started to study to revise the criteria to just over 20%.
3. Currently there are exceptions to applying tax haven rule.
Under the current corporate tax system, there are exceptions to applying tax haven rule; i.e. there are some cases in which the rule mentioned above is not applied even if the corporate tax rate of countries and regions in which overseas affiliates are located is below 25%. Many companies leverage exceptions when, for example, more than half the trade of overseas affiliate is with non-affiliate companies.
Being exceptions, there are demerits such as companies bearing cost trading with non-affiliate companies. The government is to take this into account as well in reviewing the system. For example, they are to study to review the system so that the regional (e.g. Asia and Europe) HQs of Japanese manufacturers will not need to apply tax haven system even if their trade with non-affiliates is less than half the total trade.
4. The government will study and implement regulation to eliminate tax dodging of companies.
Taking the opportunity of changing the application of tax haven rule, the government will also set regulation to eliminate tax dodge of Japanese companies. The government will study to imposing corporate tax exclusively on incomes from assets such as interest and dividends for exceptions of tax haven system overseas affiliates. This is designed to eliminate tax dodge by Japanese parent company that has earned dividend by investing to overseas companies establishing substantive paper company in a third country. The U.S. has already transferred to this kind of system.
In fact, at the G20 (Pittsburgh) Summit held in September in which 20 regions/countries participated, the participants agreed to strengthen monitoring tax dodge of investors using tax haven system. The Japanese government is to closely collaborate to exchange information with respective countries about tax dodge while strengthening regulation of tax dodge from financial trade.
* Tax Haven
(Source: Nikkei, edited and translated by the author)
Tax haven is country or region whose corporate tax rate and/or tax of interest and/or dividend is zero or extremely low. Well known are Cayman Islands and multi-national companies and financial institutions, hedge funds etc. have been applying tax haven countries in order to making escape from being imposed of corporate tax.
Japanese tax haven system is applicable to countries and regions whose corporate tax is below 25%, thus many people have been pointing out that this system have been applied to regions and countries which cannot be said that it is sufficiently at a low level. In fact, it is possible that this system is applied to countries such as China and Vietnam in which many Japanese companies have started business. The Japanese government has set exceptions but the criteria are too high and Japanese business world has been requesting for review.
Major exceptions for tax haven are as below.
1) Business criteria: Major business is not owning stocks and debts
2) Reality criteria: Offices exists at head office address.
3) Administration and control criteria: Administration and control of business is performed at head office address.
4) Non-affiliate criteria: Business is mainly done with non-affiliate companies.
2009年12月6日日曜日
GHG Emission Reduction Outlook of Japanese Manufacturers (13.9%) vs. Government’s Target (25%)
Saturday, December 5, 2009 – Osaka, Japan
On December 3, Nikkei, Japan’s leading newspaper specialized in economy/business and news, reported that according to their survey result of Environment Management, outlook of total GHG (Global Greenhouse Gas) reduction by primary Japanese companies by 2010 is 13.9% vs. 1990. Prime Minister Hatayama had set an extremely aggressive target of 25% and made a speech on it in the at the United Nation’s Climate Change Summit held on September 22 in New York, as mentioned in the previous article Japan Takes Lead in GHG Emission Reduction in the UN’s Climate Change Summit, and therefore there is a big gap between the target and the outlook. If the companies are to achieve the target, it is possible that they are forced to bear heavy burden such as purchasing emission allocation from overseas and therefore they cannot continue production in Japan.
The survey was executed in the beginning of November to which 835 companies including non-manufacturers answered. To the question regarding the degree of GHG emission reduction by 2020 by introducing energy saving equipments etc., 160 manufacturers answered and the weighted average was 13.9% vs. 1990. Industry section including manufacturers covers 37% of total Japan domestic GHG emission. 183 non-manufacturers (excluding electricity and gas companies) answered and their weighted average was 14.3% vs. 1990.
Mid-term target set under the previous Aso administration was 15% reduction vs. 2005, which is equivalent to 8% vs. 1990 and this target can be achieved without problem, but not the target set by the Hatoyama administration. Looking the outlook by industry, the drivers of GHG emission reduction are electronics that expects demand increase of solar batteries and EV cars is 33.1%, and automobile and components is 28.1%. Indeed, companies in such industries are the main players in top 20 of the Environment Management Ranking.
Environment Management Ranking
(Source: Nikkei, translated by the author)
Ranking(2009) / Ranking(2008) / Company Name / Score (500 = max)
1 / 4 / Panasonic / 490
2 / 17 / Sharp / 487
3 / 14 / Mitsubishi Electric / 485
4 / 5 / NEC / 483
5 / 1 / Toyota / 482
6 / 2 / Toshiba / 478
7 / 9 / Kyocera / 474
7 / 11 / Canon / 474
9 / 6 / Fuji Film Holdings / 473
9 / 22 / Nissan / 473
9 / 30 / Canon Electronics / 473
12 / 6 / Denso / 470
13 / 34 / Toyota Boshoku / 469
13 / 29 / Sumitomo Rubber Industries / 469
13 / 12 / Ricoh / 469
16 / 40 / TDK / 467
16 / 13 / Sanyo / 467
18 / 86 / NEC Tokin / 466
19 / 14 / Toyota Gosei / 465
19 / 24 / Dainippon Printing / 465
Scores were calculated in 5 fields: global warming countermeasure, product countermeasure, resource recycling, environment management organization, and countermeasures in contamination and biological diversity. Manufacturers were ranked by total scores of the 5 fields across the industry, and non-manufacturers were ranked by their own industry.
Panasonic, ranked #4 last year, was #1 this year, with highest score in environment management organization, and countermeasures in contamination and biological diversity, and with second highest score in global warming countermeasure. Department specialized in environment management strategy has been established which is directly controlled by the CEO, which has been promoting company-wide purchasing, equipment investment and development. As a result, they succeeded in promoting natural energy equipment installation such as natural gas implementation and use of solar energy to generate electricity to achieve their own GHG emission reduction mid-term target of minus 510 ton vs. 2006 in 2008, 1 year ahead of the original plan. Increasing energy saving products, that are the #1 in energy saving in its product category at the point of launch, totaled 233 in 2008, which was 3 times that of 2007, and Mr. Ohtsubo, the CEO, says that this will be further promoted when the acquisition of Sanyo is complete.
Sharp, ranked #17 last year, was #2 this year, with highest score in environment management organization together with Panasonic. Long term target is set in which by 2020 GHG emission reduction is to be tripled from original plan with new energy saving products by such measures as leveraging solar batteries.
Mitsubishi Electric, ranked #3 this year, has set the target of GHG emission upon production by 2021 by 30% vs. 1990. Representatives for this task have already been located in worldwide production sites and environmental experts from Global & Group HQ have been visiting the sites once every two years. NEC, ranked #4 this year, scored the highest in global warming countermeasures and products.
Toyota, that had been #1 for three consecutive years, was #5 this year. They have been aggressively launching EV cars, accumulating total reaching 2 million cars at the end of August this year. Nissan, which has also been aggressively promoting eco-car strategy, improved its ranking from #22 to #9.
The gap between gap between the outlook from the survey result of 13.9% for manufactures and the aggressive target of 25% set by the government and the current outlook of 13.9% is large and eliminating the gap is extremely tough. However, the author believes that the companies are capable of further driving innovation to drastically decrease GHG emission, eliminating the gap in the end.
On December 3, Nikkei, Japan’s leading newspaper specialized in economy/business and news, reported that according to their survey result of Environment Management, outlook of total GHG (Global Greenhouse Gas) reduction by primary Japanese companies by 2010 is 13.9% vs. 1990. Prime Minister Hatayama had set an extremely aggressive target of 25% and made a speech on it in the at the United Nation’s Climate Change Summit held on September 22 in New York, as mentioned in the previous article Japan Takes Lead in GHG Emission Reduction in the UN’s Climate Change Summit, and therefore there is a big gap between the target and the outlook. If the companies are to achieve the target, it is possible that they are forced to bear heavy burden such as purchasing emission allocation from overseas and therefore they cannot continue production in Japan.
The survey was executed in the beginning of November to which 835 companies including non-manufacturers answered. To the question regarding the degree of GHG emission reduction by 2020 by introducing energy saving equipments etc., 160 manufacturers answered and the weighted average was 13.9% vs. 1990. Industry section including manufacturers covers 37% of total Japan domestic GHG emission. 183 non-manufacturers (excluding electricity and gas companies) answered and their weighted average was 14.3% vs. 1990.
Mid-term target set under the previous Aso administration was 15% reduction vs. 2005, which is equivalent to 8% vs. 1990 and this target can be achieved without problem, but not the target set by the Hatoyama administration. Looking the outlook by industry, the drivers of GHG emission reduction are electronics that expects demand increase of solar batteries and EV cars is 33.1%, and automobile and components is 28.1%. Indeed, companies in such industries are the main players in top 20 of the Environment Management Ranking.
Environment Management Ranking
(Source: Nikkei, translated by the author)
Ranking(2009) / Ranking(2008) / Company Name / Score (500 = max)
1 / 4 / Panasonic / 490
2 / 17 / Sharp / 487
3 / 14 / Mitsubishi Electric / 485
4 / 5 / NEC / 483
5 / 1 / Toyota / 482
6 / 2 / Toshiba / 478
7 / 9 / Kyocera / 474
7 / 11 / Canon / 474
9 / 6 / Fuji Film Holdings / 473
9 / 22 / Nissan / 473
9 / 30 / Canon Electronics / 473
12 / 6 / Denso / 470
13 / 34 / Toyota Boshoku / 469
13 / 29 / Sumitomo Rubber Industries / 469
13 / 12 / Ricoh / 469
16 / 40 / TDK / 467
16 / 13 / Sanyo / 467
18 / 86 / NEC Tokin / 466
19 / 14 / Toyota Gosei / 465
19 / 24 / Dainippon Printing / 465
Scores were calculated in 5 fields: global warming countermeasure, product countermeasure, resource recycling, environment management organization, and countermeasures in contamination and biological diversity. Manufacturers were ranked by total scores of the 5 fields across the industry, and non-manufacturers were ranked by their own industry.
Panasonic, ranked #4 last year, was #1 this year, with highest score in environment management organization, and countermeasures in contamination and biological diversity, and with second highest score in global warming countermeasure. Department specialized in environment management strategy has been established which is directly controlled by the CEO, which has been promoting company-wide purchasing, equipment investment and development. As a result, they succeeded in promoting natural energy equipment installation such as natural gas implementation and use of solar energy to generate electricity to achieve their own GHG emission reduction mid-term target of minus 510 ton vs. 2006 in 2008, 1 year ahead of the original plan. Increasing energy saving products, that are the #1 in energy saving in its product category at the point of launch, totaled 233 in 2008, which was 3 times that of 2007, and Mr. Ohtsubo, the CEO, says that this will be further promoted when the acquisition of Sanyo is complete.
Sharp, ranked #17 last year, was #2 this year, with highest score in environment management organization together with Panasonic. Long term target is set in which by 2020 GHG emission reduction is to be tripled from original plan with new energy saving products by such measures as leveraging solar batteries.
Mitsubishi Electric, ranked #3 this year, has set the target of GHG emission upon production by 2021 by 30% vs. 1990. Representatives for this task have already been located in worldwide production sites and environmental experts from Global & Group HQ have been visiting the sites once every two years. NEC, ranked #4 this year, scored the highest in global warming countermeasures and products.
Toyota, that had been #1 for three consecutive years, was #5 this year. They have been aggressively launching EV cars, accumulating total reaching 2 million cars at the end of August this year. Nissan, which has also been aggressively promoting eco-car strategy, improved its ranking from #22 to #9.
The gap between gap between the outlook from the survey result of 13.9% for manufactures and the aggressive target of 25% set by the government and the current outlook of 13.9% is large and eliminating the gap is extremely tough. However, the author believes that the companies are capable of further driving innovation to drastically decrease GHG emission, eliminating the gap in the end.
2009年11月15日日曜日
Japan-US Summit – A Step to a New Japan-U.S. Relationship?
November 15, 2009 – Osaka, Japan
On November 14, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on Japan-U.S. summit and on joint press conference of Prime Minister Yukio Hatoyama and U.S. President Barack Obama sharing a firm handshake in front of the cameras at their bilateral meeting, held on Friday evening of November 13. It was the first time for Mr. Obama to visit Japan, and second time for the two leaders to meet since September in New York. The summit was held for 1-1/2 hours, and after dinner, the two leaders had an exclusive discussion for 15 minutes.
The two leaders affirmed the importance of further deepening and developing the Japan-U.S. alliance and agreed on starting discussion between the two governments towards 50th anniversary of the Japan-US Security Treaty Amendment in 2010. Also, they agreed on making efforts to solve the issue quickly of relocation of U.S. Marine Corps Air Station Futenma in Okinawa Prefecture, which was agreed to by Tokyo and Washington in a 2006 accord, and confirmed on collaboration in aiding Afghanistan and solving nuclear issue of North Korea and Iran. The main points discussed by the two leaders are as below.
Main Points Discussed by the Two Leaders
(Source: Nikkei, translated by the author)
1. Affirmed the importance of further deepening and developing the Japan-U.S. alliance.
2. Discuss for a year between the two governments towards 50th anniversary of the Japan-US Security Treaty Amendment in 2010, and draw out a conclusion.
3. Agreed on making efforts to solve quickly relocation of U.S. Marine Corps Air Station Futenma in Okinawa Prefecture.
4. Mr. Hatoyama expressed maximum 5 year aid of 5 billion USD to Afghanistan, to which Mr. Obama expressed gratitude.
5. Cooperation on nuclear issue of North Korea and Iran.
6. Agreed on 80% GHG reduction by 2050, and on collaboration to succeed COP 15.
After the discussion, joint press conferment was held, in which, regarding the new discussion between the two governments on the Japan-US Security Treaty, Mr. Hatoyama expressed, “I would like to create future-focused and constructive new alliance” and Mr. Obama added, “I would like to look back on past achievements and proceed the next step.” Mr. Hatoyama also emphasized that “the Japan-U.S. alliance is the fundamental of everything”, and regarding concept of “East Asia Community” that he advocates, expressed that the U.S.’s involvement is inevitable by saying “It is with the firm Japan-U.S. alliance that I advocate this concept.”
It is only once that the Japan- US Summit ended without any agreement. That was in 1994 when President Clinton requested starting discussion on trade framework, to which Prime Minister Hosokawa refused. The U.S. immediately countercharged by such measures as navigating to high yen.
This summit was full of smile, and such issues as elimination of nuclear weapons and global environment were documented; however, inner workings are more serious than 15 years ago. It is highly desired that blue print for each issue is drafted and executed immediately, which requires strong leadership of the two leaders.
On November 14, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on Japan-U.S. summit and on joint press conference of Prime Minister Yukio Hatoyama and U.S. President Barack Obama sharing a firm handshake in front of the cameras at their bilateral meeting, held on Friday evening of November 13. It was the first time for Mr. Obama to visit Japan, and second time for the two leaders to meet since September in New York. The summit was held for 1-1/2 hours, and after dinner, the two leaders had an exclusive discussion for 15 minutes.
The two leaders affirmed the importance of further deepening and developing the Japan-U.S. alliance and agreed on starting discussion between the two governments towards 50th anniversary of the Japan-US Security Treaty Amendment in 2010. Also, they agreed on making efforts to solve the issue quickly of relocation of U.S. Marine Corps Air Station Futenma in Okinawa Prefecture, which was agreed to by Tokyo and Washington in a 2006 accord, and confirmed on collaboration in aiding Afghanistan and solving nuclear issue of North Korea and Iran. The main points discussed by the two leaders are as below.
Main Points Discussed by the Two Leaders
(Source: Nikkei, translated by the author)
1. Affirmed the importance of further deepening and developing the Japan-U.S. alliance.
2. Discuss for a year between the two governments towards 50th anniversary of the Japan-US Security Treaty Amendment in 2010, and draw out a conclusion.
3. Agreed on making efforts to solve quickly relocation of U.S. Marine Corps Air Station Futenma in Okinawa Prefecture.
4. Mr. Hatoyama expressed maximum 5 year aid of 5 billion USD to Afghanistan, to which Mr. Obama expressed gratitude.
5. Cooperation on nuclear issue of North Korea and Iran.
6. Agreed on 80% GHG reduction by 2050, and on collaboration to succeed COP 15.
After the discussion, joint press conferment was held, in which, regarding the new discussion between the two governments on the Japan-US Security Treaty, Mr. Hatoyama expressed, “I would like to create future-focused and constructive new alliance” and Mr. Obama added, “I would like to look back on past achievements and proceed the next step.” Mr. Hatoyama also emphasized that “the Japan-U.S. alliance is the fundamental of everything”, and regarding concept of “East Asia Community” that he advocates, expressed that the U.S.’s involvement is inevitable by saying “It is with the firm Japan-U.S. alliance that I advocate this concept.”
It is only once that the Japan- US Summit ended without any agreement. That was in 1994 when President Clinton requested starting discussion on trade framework, to which Prime Minister Hosokawa refused. The U.S. immediately countercharged by such measures as navigating to high yen.
This summit was full of smile, and such issues as elimination of nuclear weapons and global environment were documented; however, inner workings are more serious than 15 years ago. It is highly desired that blue print for each issue is drafted and executed immediately, which requires strong leadership of the two leaders.
2009年11月7日土曜日
Japanese Companies to Bottom-Out Fiscal Year Ending March 2010, but Demands Caution
November 7, 2009 – Osaka, Japan
Today, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that financial performance of Japanese listed companies in total to bottom-out by the end of the fiscal year (FY) ending March 2010, according to estimation of head quarters of the companies. Consolidated profit for FY ending March 2010 is estimated to be +0.7% vs. previous year, although the estimation in August was -9%. This is because of reduction in fixed cost* and economy-boosting measures of governments of various countries, which led to drastic improvement in profit and loss (P/L) of consumer electronics and automobiles. However, there are anxieties such as ongoing high yen situation and improvement of business climate likely to terminate after January 2010. Therefore, some experts view that outlook demands caution.
Increase/Decrease of Consolidated Profit by Industry: Consumer Electronics and Automobile are the Drivers of Recovery
Source: Nikkei (translated by the author)
Increase From Previous Year
Electronics / 1 .484 trillion yen
Oil / 734 billion yen
Automobile and Components / 50.63 billion yen
Electricity etc. / 1.263 trillion yen
Decrease From Previous Year
Steel / -1.2145 trillion yen
Trading / -61.84 billion yen
Machinery / -36.91 billion yen
Marine Transportation etc. / -1.478 trillion yen
Nikkei reports that the data used are of 940 companies who have finished making financial announcement for first half of 2009 (April-September 2009) by November 6, 2009 (excluding financial institutions). These companies cover 78% of total market value.
According to the current analysis, consolidated profit for FY ending March 2010 is expected to be +0.7% from previous year, which is 9.8 trillion yen. Some experts view that the speed of recovery is more than anticipated and it is possible that the final performance achievement would be better than this. Consolidated profit of listed companies was directly and negatively impacted by the worldwide economic crisis, resulting in decrease in profit first time in 7 quarters, by more than 60%.
Improvement in revenue by quarter has been evident since January this year. January-March in loss was the bottom, and it went back in black in total for April-June, and the profit increased for July-September, meaning consecutive improvement. This is the reason for the favourable outlook for the total FY year ending March 2010.
The driver for the performance improvement is reduction in fixed cost. Sales are estimated to be approximately 343 trillion yen which is -13% from previous year but the profit is estimated to be about the same with previous year because cost reduction by companies is ongoing with the greater speed than originally assumed. For example, Komatsu is to double the amount of fixed cost reduction to 50 billion yen. Thus, profit ratio of listed companies in general is to improve, highlighting the recovery driven by rationalization.
Economy-boosting measures by the government played as a driver for the performance improvement as well. Consumer electronics that posted large amount of loss benefited from eco-point system, an economy-boosting measure implemented by the Japanese government, and their sales (e.g. TV) increased, leading to increase in profit by almost 1.5 trillion yen. Automobiles and components are also estimated to increase their profit by approximately 500 billion yen, going back to black. For example, Nissan is benefiting from positive effect of government’s economy-boosting measures designed to promote buying new cars to replace old ones, to revise its original outlook of increasing loss to 20 billion yen in profit. Improvements in oil attributing to increase in resource price are also evident.
On the other hand, financial performance of steels and machinery are deteriorating. This is because their primary customers of automobile and electronics are still cautious of facility investment and production increase. Trading companies are also to decrease their profit because their automobile and steel businesses are struggling.
The outlook for the future remains uncertain. There are many companies that out-perform vs. original plan for April-September but estimation for total year remains the same. For example, VP of JFE Holdings comments that it is doubtful whether the improvement in steel stock demand continues, and that high yen is also an anxiety factor. Many management executives are not confident in sustainable business improvement because of doldrums of consumer spending and employment.
* Brief Explanation on Fixed Cost (source: Nikkei, edited and translated by the author）
Fixed Cost is the cost that is constant regardless of fluctuation in sales of a company such as employment cost of back office department and depreciation cost of plant and equipment. On the other hand, cost that fluctuates linking with by production volume and sales such as raw material cost and operating labour cost are called “variable cost”. Many companies cut fixed cost to quickly recover their profitability when they face drop in sales.
Sales equaling total of fixed and variable cost is called break even point. Dividing this by sales is break even point ratio. According to Nikkei’s analysis of 1633 listed companies (non-consolidated), this ratio was about 80% before 2007 but for 2008 it increased to more than 89% because the reduction in fixed cost was not in par with drastic drop in sales and revenue.
Today, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that financial performance of Japanese listed companies in total to bottom-out by the end of the fiscal year (FY) ending March 2010, according to estimation of head quarters of the companies. Consolidated profit for FY ending March 2010 is estimated to be +0.7% vs. previous year, although the estimation in August was -9%. This is because of reduction in fixed cost* and economy-boosting measures of governments of various countries, which led to drastic improvement in profit and loss (P/L) of consumer electronics and automobiles. However, there are anxieties such as ongoing high yen situation and improvement of business climate likely to terminate after January 2010. Therefore, some experts view that outlook demands caution.
Increase/Decrease of Consolidated Profit by Industry: Consumer Electronics and Automobile are the Drivers of Recovery
Source: Nikkei (translated by the author)
Increase From Previous Year
Electronics / 1 .484 trillion yen
Oil / 734 billion yen
Automobile and Components / 50.63 billion yen
Electricity etc. / 1.263 trillion yen
Decrease From Previous Year
Steel / -1.2145 trillion yen
Trading / -61.84 billion yen
Machinery / -36.91 billion yen
Marine Transportation etc. / -1.478 trillion yen
Nikkei reports that the data used are of 940 companies who have finished making financial announcement for first half of 2009 (April-September 2009) by November 6, 2009 (excluding financial institutions). These companies cover 78% of total market value.
According to the current analysis, consolidated profit for FY ending March 2010 is expected to be +0.7% from previous year, which is 9.8 trillion yen. Some experts view that the speed of recovery is more than anticipated and it is possible that the final performance achievement would be better than this. Consolidated profit of listed companies was directly and negatively impacted by the worldwide economic crisis, resulting in decrease in profit first time in 7 quarters, by more than 60%.
Improvement in revenue by quarter has been evident since January this year. January-March in loss was the bottom, and it went back in black in total for April-June, and the profit increased for July-September, meaning consecutive improvement. This is the reason for the favourable outlook for the total FY year ending March 2010.
The driver for the performance improvement is reduction in fixed cost. Sales are estimated to be approximately 343 trillion yen which is -13% from previous year but the profit is estimated to be about the same with previous year because cost reduction by companies is ongoing with the greater speed than originally assumed. For example, Komatsu is to double the amount of fixed cost reduction to 50 billion yen. Thus, profit ratio of listed companies in general is to improve, highlighting the recovery driven by rationalization.
Economy-boosting measures by the government played as a driver for the performance improvement as well. Consumer electronics that posted large amount of loss benefited from eco-point system, an economy-boosting measure implemented by the Japanese government, and their sales (e.g. TV) increased, leading to increase in profit by almost 1.5 trillion yen. Automobiles and components are also estimated to increase their profit by approximately 500 billion yen, going back to black. For example, Nissan is benefiting from positive effect of government’s economy-boosting measures designed to promote buying new cars to replace old ones, to revise its original outlook of increasing loss to 20 billion yen in profit. Improvements in oil attributing to increase in resource price are also evident.
On the other hand, financial performance of steels and machinery are deteriorating. This is because their primary customers of automobile and electronics are still cautious of facility investment and production increase. Trading companies are also to decrease their profit because their automobile and steel businesses are struggling.
The outlook for the future remains uncertain. There are many companies that out-perform vs. original plan for April-September but estimation for total year remains the same. For example, VP of JFE Holdings comments that it is doubtful whether the improvement in steel stock demand continues, and that high yen is also an anxiety factor. Many management executives are not confident in sustainable business improvement because of doldrums of consumer spending and employment.
* Brief Explanation on Fixed Cost (source: Nikkei, edited and translated by the author）
Fixed Cost is the cost that is constant regardless of fluctuation in sales of a company such as employment cost of back office department and depreciation cost of plant and equipment. On the other hand, cost that fluctuates linking with by production volume and sales such as raw material cost and operating labour cost are called “variable cost”. Many companies cut fixed cost to quickly recover their profitability when they face drop in sales.
Sales equaling total of fixed and variable cost is called break even point. Dividing this by sales is break even point ratio. According to Nikkei’s analysis of 1633 listed companies (non-consolidated), this ratio was about 80% before 2007 but for 2008 it increased to more than 89% because the reduction in fixed cost was not in par with drastic drop in sales and revenue.
2009年11月1日日曜日
Financial Improvement in Japanese Listed Companies
November 1, 2009 – Osaka, Japan
Today, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that in general financial performance of Japanese listed companies has been continuously improving for two consecutive quarters. Nikkei analyzed financial performance of listed companies for July-September 2009, and the result was that the total consolidated profit was 2.3 times that of April-June 2009, meaning improvement for two consecutive quarters. The improvement is because of rationalization/cost reduction efforts especially of manufacturers and termination of sales drop attributing to economy-boosting measures* by the government of respective countries. Having said that, whether the performance improvement continues is a question because the positive effect of government policies has taken a round and the high yen still continues.
Consolidated Profits of Major Companies (100 million yen)
Source: Nikkei (translated by the author)
Company Name / July-September / April-June
Increase in Black Companies
Honda / 661 / 54
Mitsubishi Corporation / 831 / 619
Komatsu / 97 / 87
Returning to Black Companies
Panasonic / 253 / -517
JFE / 98 / -672
Mitsui OSK Lines / 14 / -114
Decrease in Red Companies
Hitachi / -293 / -808
Nippon Steel / -302 / -556
Sony / -170 / -329
Deterioration in Performance Companies
Nintendo / 457 / 648
Japan Tabacco / 563 / 788
Kawasaki Kinsen / -271 / -227
Notes: EBIT (Earnings before Income Tax) for companies using GAAP, profit in Japan auditing principle for others
Nikkei reports that the data used for analysis is of 527 companies that have finished making financial announcement for 2009 Q3 by October 30, 2009 (excluding financial institutions). These companies cover 63% of total market value industry-wide.
Their performance was negatively impacted by the worldwide economic crisis and went to red January-March. It went back to black in total April-June (97.49 million yen in black) with rationalization but manufacturers remained in red in total by 25.47 billion yen. And for July-September their performance in total was in black by 2.2021 trillion yen, and manufacturers in total also returned to black after three quarters by 81.58 billion yen. 68% of companies have improved from April-June.
Increase in sales was the driver for performance improvement. Consolidated sales for July-September increased by 10% from April-June, marking the first sales increase of a quarter (vs. previous quarter) after four quarters. Revenue of manufacturing companies increased by 12% from the previous quarter.
Favourable Japan domestic market sales also contributed to performance improvement. This was driven by economy-boosting measures designed to promote consumer purchase of environmentally-friendly products. Honda increased its sales by 3% and Mazuda by 31% from previous quarter with the economy-boosting measures, leading to favourable sales of fuel-efficient cars benefiting from tax reduction of eco-friendly cars (eco = ecology & economy). Panasonic also benefited from economy-boosting measures and its domestic sales/revenue of TV and washing machine increased by 9%. Steel giants that supply materials including Nippon Steel and other three companies increased their sales/revenue.
Aggressive demand of China and other emerging countries also contributed to performance improvement. LCD sales of Sharp for July-September were 22.23 billion yen which was 26% increase from the previous quarter. This highly attributes to Chinese government’s measures designed to promote penetration of consumer electronics in which 13% cash back is given as subsidy to consumers who purchase consumer electronics.
Further rationalization efforts by manufacturers also greatly contributed to performance improvement. Fujitsu reduced cost by 40 billion yen which led to returning to black for July-September. Toshiba originally planned to cut fixed cost by 67 billion yen but increased the amount of fixed cost cut to 200 billion yen for April-September.
Although the performance has been improving, performance for 2009 for total industry is still at low level compared with previous year of 2008 and there are still concerns; therefore, the outlook is not necessarily bright. 2009 sales is 23% and profit is 42% of 2008. Demand recovery of developed countries is still ongoing, and Sony’s CFO comments that Christmas season also needs to be promoted with cautiousness. Senescence of economy-boosting measures and high yen are also concerns. Since incentives of respective countries designed to promote buying new cars to replace old ones is to end soon, it is quite possible that there comes a “rebound” after April 2010, as Honda’s VP comments. Three ship giants including NYK Logistics made downward revision of their performance outlook for fiscal year ending March 2010, but they may need to further make downward revision because of high yen.
*Brief Explanation on Economy-Boosting Measures
(source: Nikkei, edited and translated by the author）
This is policies by the government including financial policy with the objectives of stabilizing economic situation. With worldwide economic crisis, government of respective countries one after another adopted policies to stimulate consumer spending, leading to economic recovery. In Japan, incentives to promote consumers purchasing environmentally-friendly products were given for 2009 (due to end March 2010). Tax reduction and subsidies were given for consumers buying eco-friendly cars. Also in Japan, eco-point system in which points achieved by purchasing energy-saving consumer electronics can be changed with local specialty products. In the U.S, subsidy for buying fuel-efficient cars to replace old ones was provided (ended August 2009). Germany also adopted the same incentive (ended September 2009). And China adopted a tax incentive measure for consumers buying small cars (due until end of 2009) and a subsidy incentive for consumers buying consumer electronics (due until 2012).
Today, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that in general financial performance of Japanese listed companies has been continuously improving for two consecutive quarters. Nikkei analyzed financial performance of listed companies for July-September 2009, and the result was that the total consolidated profit was 2.3 times that of April-June 2009, meaning improvement for two consecutive quarters. The improvement is because of rationalization/cost reduction efforts especially of manufacturers and termination of sales drop attributing to economy-boosting measures* by the government of respective countries. Having said that, whether the performance improvement continues is a question because the positive effect of government policies has taken a round and the high yen still continues.
Consolidated Profits of Major Companies (100 million yen)
Source: Nikkei (translated by the author)
Company Name / July-September / April-June
Increase in Black Companies
Honda / 661 / 54
Mitsubishi Corporation / 831 / 619
Komatsu / 97 / 87
Returning to Black Companies
Panasonic / 253 / -517
JFE / 98 / -672
Mitsui OSK Lines / 14 / -114
Decrease in Red Companies
Hitachi / -293 / -808
Nippon Steel / -302 / -556
Sony / -170 / -329
Deterioration in Performance Companies
Nintendo / 457 / 648
Japan Tabacco / 563 / 788
Kawasaki Kinsen / -271 / -227
Notes: EBIT (Earnings before Income Tax) for companies using GAAP, profit in Japan auditing principle for others
Nikkei reports that the data used for analysis is of 527 companies that have finished making financial announcement for 2009 Q3 by October 30, 2009 (excluding financial institutions). These companies cover 63% of total market value industry-wide.
Their performance was negatively impacted by the worldwide economic crisis and went to red January-March. It went back to black in total April-June (97.49 million yen in black) with rationalization but manufacturers remained in red in total by 25.47 billion yen. And for July-September their performance in total was in black by 2.2021 trillion yen, and manufacturers in total also returned to black after three quarters by 81.58 billion yen. 68% of companies have improved from April-June.
Increase in sales was the driver for performance improvement. Consolidated sales for July-September increased by 10% from April-June, marking the first sales increase of a quarter (vs. previous quarter) after four quarters. Revenue of manufacturing companies increased by 12% from the previous quarter.
Favourable Japan domestic market sales also contributed to performance improvement. This was driven by economy-boosting measures designed to promote consumer purchase of environmentally-friendly products. Honda increased its sales by 3% and Mazuda by 31% from previous quarter with the economy-boosting measures, leading to favourable sales of fuel-efficient cars benefiting from tax reduction of eco-friendly cars (eco = ecology & economy). Panasonic also benefited from economy-boosting measures and its domestic sales/revenue of TV and washing machine increased by 9%. Steel giants that supply materials including Nippon Steel and other three companies increased their sales/revenue.
Aggressive demand of China and other emerging countries also contributed to performance improvement. LCD sales of Sharp for July-September were 22.23 billion yen which was 26% increase from the previous quarter. This highly attributes to Chinese government’s measures designed to promote penetration of consumer electronics in which 13% cash back is given as subsidy to consumers who purchase consumer electronics.
Further rationalization efforts by manufacturers also greatly contributed to performance improvement. Fujitsu reduced cost by 40 billion yen which led to returning to black for July-September. Toshiba originally planned to cut fixed cost by 67 billion yen but increased the amount of fixed cost cut to 200 billion yen for April-September.
Although the performance has been improving, performance for 2009 for total industry is still at low level compared with previous year of 2008 and there are still concerns; therefore, the outlook is not necessarily bright. 2009 sales is 23% and profit is 42% of 2008. Demand recovery of developed countries is still ongoing, and Sony’s CFO comments that Christmas season also needs to be promoted with cautiousness. Senescence of economy-boosting measures and high yen are also concerns. Since incentives of respective countries designed to promote buying new cars to replace old ones is to end soon, it is quite possible that there comes a “rebound” after April 2010, as Honda’s VP comments. Three ship giants including NYK Logistics made downward revision of their performance outlook for fiscal year ending March 2010, but they may need to further make downward revision because of high yen.
*Brief Explanation on Economy-Boosting Measures
(source: Nikkei, edited and translated by the author）
This is policies by the government including financial policy with the objectives of stabilizing economic situation. With worldwide economic crisis, government of respective countries one after another adopted policies to stimulate consumer spending, leading to economic recovery. In Japan, incentives to promote consumers purchasing environmentally-friendly products were given for 2009 (due to end March 2010). Tax reduction and subsidies were given for consumers buying eco-friendly cars. Also in Japan, eco-point system in which points achieved by purchasing energy-saving consumer electronics can be changed with local specialty products. In the U.S, subsidy for buying fuel-efficient cars to replace old ones was provided (ended August 2009). Germany also adopted the same incentive (ended September 2009). And China adopted a tax incentive measure for consumers buying small cars (due until end of 2009) and a subsidy incentive for consumers buying consumer electronics (due until 2012).
2009年10月25日日曜日
JAL to be GM of Japan – Turnaround under Government’s Control
October 25, 2009 – Osaka, Japan
Today Nikkei, Japan’s leading newspaper specialized in economy and politics, reported that on October 24, the Japanese government finalized the policy of aiding turnaround of JAL (Japan Air Lines) by making JAL leverage public institution of “Company Turnaround Aid Institution”. Related ministers will discuss this issue and officially announce the policy by the end of this month, with the objective of reducing excess debt under the government’s control and develop drastic restructuring plan. The institution will execute bridge financing etc. to abolish credit uneasiness of JAL. The government will wait for the restructuring plan then study increase capital by public funding as a last resort. More drastic solution is to be studied and developed for pension debt reduction which is currently very slow in progress. Restructuring plan development under strong government’s control is to start at last.
According to Nikkei, the outlook of the JAL turnaround is as below.
Capital increase: Current restructuring plan is 300 billon yen including public funding. The government’s policy includes leveraging Company Turnaround Aid Institution to insert capital by the end of 2009.
Debt write-off: Current plan is 220 billion yen. The government’s policy is to convincing syndicates of banks to accept debt write-offs, on condition that JAL will drastically restructure with public funding.
Debt-for-equity swap: Current plan is 30 billion yen. The government’s policy is to convincing syndicates of banks to accept debt-for-equity swap, on condition that JAL will drastically restructure with public funding.
Bridge financing: Current plan is 200 billion yen. The government’s policy is to execute this by the end of November 2009.
Pension debt reduction: Current plan is reducing insufficient accumulation to 100 billion yen from 330 billion yen. The government’s policy is change to more drastic plan.
Restructuring: Current plan includes cutting almost 9000 jobs and abolishing 45-50 routes by 2014.
Capital deficit: Current estimation is up to 270 billion yen.
JAL’s turnaround has been going through a trial and error process as below.
June 30: 100 billion yen financing agreement with Development Bank of Japan etc. froze.
August 7: April-June consolidated financial result was in red by 99 billion yen.
August 21: Starting negotiation of integrating air cargo business with NYK (Nippon Yusen Kaisha) Line.
Beginning of September: Alliance negotiation with Delta and American Airlines including financing came to light.
September 15: Draft of management improvement plan with pillars of cutting 68000 jobs and abolishing total of domestic and international 50 routes proposed at blue-ribbon panel.
September 25: A task force directly controlled by Mr. Maehara, Minister of Land, Infrastructure, Transport and Tourism established, marking the start of reviewing the current turnaround plan.
October 13: The task force proposed a turnaround plan draft to financial institutes etc. requesting them to accept debt write-offs of 300 billion yen in total.
October 20: The task force made the revised draft including increase of capital of 300 billion yen by public funding etc.
The Japanese government finalized the policy of aiding turnaround of JAL (Japan Air Lines) by making JAL leverage public funding by Company Turnaround Aid Institution because of the tough reality that they would not be able to win understanding and support from syndicates of banks without strong control and interference from the government. Under a situation of extreme funding difficulties, the government decided to back-up in full scale. Hatoyama administration cannot fail this turnaround with wall at their back; as Mr. Maehara states, we cannot have a situation in which we do not have flights and allow inconvenience to travellers. However, there are many hurdles and obstacles to overcome and the outlook is not necessarily bright.
The turnaround is not only about financing and debt write-offs. It is really all about whether the mindset of current JAL employees and retired workers, and the whether the system and culture of the entire company change from the current “the government will foot the bill” culture. It is only when the company totally change from inside to an organization that it will start creating value to generate revenue with optimum cost so that financing/cash flow management will be a sound one.
Today Nikkei, Japan’s leading newspaper specialized in economy and politics, reported that on October 24, the Japanese government finalized the policy of aiding turnaround of JAL (Japan Air Lines) by making JAL leverage public institution of “Company Turnaround Aid Institution”. Related ministers will discuss this issue and officially announce the policy by the end of this month, with the objective of reducing excess debt under the government’s control and develop drastic restructuring plan. The institution will execute bridge financing etc. to abolish credit uneasiness of JAL. The government will wait for the restructuring plan then study increase capital by public funding as a last resort. More drastic solution is to be studied and developed for pension debt reduction which is currently very slow in progress. Restructuring plan development under strong government’s control is to start at last.
According to Nikkei, the outlook of the JAL turnaround is as below.
Capital increase: Current restructuring plan is 300 billon yen including public funding. The government’s policy includes leveraging Company Turnaround Aid Institution to insert capital by the end of 2009.
Debt write-off: Current plan is 220 billion yen. The government’s policy is to convincing syndicates of banks to accept debt write-offs, on condition that JAL will drastically restructure with public funding.
Debt-for-equity swap: Current plan is 30 billion yen. The government’s policy is to convincing syndicates of banks to accept debt-for-equity swap, on condition that JAL will drastically restructure with public funding.
Bridge financing: Current plan is 200 billion yen. The government’s policy is to execute this by the end of November 2009.
Pension debt reduction: Current plan is reducing insufficient accumulation to 100 billion yen from 330 billion yen. The government’s policy is change to more drastic plan.
Restructuring: Current plan includes cutting almost 9000 jobs and abolishing 45-50 routes by 2014.
Capital deficit: Current estimation is up to 270 billion yen.
JAL’s turnaround has been going through a trial and error process as below.
June 30: 100 billion yen financing agreement with Development Bank of Japan etc. froze.
August 7: April-June consolidated financial result was in red by 99 billion yen.
August 21: Starting negotiation of integrating air cargo business with NYK (Nippon Yusen Kaisha) Line.
Beginning of September: Alliance negotiation with Delta and American Airlines including financing came to light.
September 15: Draft of management improvement plan with pillars of cutting 68000 jobs and abolishing total of domestic and international 50 routes proposed at blue-ribbon panel.
September 25: A task force directly controlled by Mr. Maehara, Minister of Land, Infrastructure, Transport and Tourism established, marking the start of reviewing the current turnaround plan.
October 13: The task force proposed a turnaround plan draft to financial institutes etc. requesting them to accept debt write-offs of 300 billion yen in total.
October 20: The task force made the revised draft including increase of capital of 300 billion yen by public funding etc.
The Japanese government finalized the policy of aiding turnaround of JAL (Japan Air Lines) by making JAL leverage public funding by Company Turnaround Aid Institution because of the tough reality that they would not be able to win understanding and support from syndicates of banks without strong control and interference from the government. Under a situation of extreme funding difficulties, the government decided to back-up in full scale. Hatoyama administration cannot fail this turnaround with wall at their back; as Mr. Maehara states, we cannot have a situation in which we do not have flights and allow inconvenience to travellers. However, there are many hurdles and obstacles to overcome and the outlook is not necessarily bright.
The turnaround is not only about financing and debt write-offs. It is really all about whether the mindset of current JAL employees and retired workers, and the whether the system and culture of the entire company change from the current “the government will foot the bill” culture. It is only when the company totally change from inside to an organization that it will start creating value to generate revenue with optimum cost so that financing/cash flow management will be a sound one.
2009年9月23日水曜日
Japan Takes Lead in GHG Emission Reduction in the UN’s Climate Change Summit
Wednesday, September 23, 2009 – Osaka, Japan
Mr. Hatoyama, the new Japanese Prime Minister, made a speech pledging Japan’s mid-term target of 25% GHG (global greenhouse gas = CO2) emission reduction vs.1990 by 2020 at the United Nation’s Climate Change Summit held on September 22 in New York, his debut to the diplomatic setting. He also advocated his initiative of providing to developing and emerging countries Japan’s energy saving technologies and capital aid to help them drive global warming countermeasures. His speech in English won great applause and appreciation in the summit, and it is probably the first time that a speech made by a Japanese Prime Minister won such an applause. However, his aggressive target has not been provoking positive reactions back in Japan.
1. Facts On GHG Emission Reduction Mid-Term Target
Mid-term target of reducing GHG emission is the primary focus of the negotiation among participant countries on post Kyoto Protocol (COP3) after 2013, United Nations Framework Convention on Climate Change / UNFCCC, FCCC. The deadline of the negotiation is COP15 United Nations Climate Change Conference Copenhagen 2009 to be held in Denmark this year.
2. Background of Prime Minister Mr. Hatoyama’s Speech
The target set by the former Prime Minister, Mr. Aso, was 15% reduction vs.2005 (8% reduction vs. 1990); therefore, it is evident that Mr. Hatoyama’s target is extremely aggressive (equivalent to 30% reduction vs. 2005). He had set this target as his policy, mentioned in his speeches in Tokyo earlier this month, and announced to Japanese media on 20th this month, although he may well have been aware that there would be resistances from Japan domestic (industries and economy opinion leaders). His intention is to take the initiative in the upcoming international negotiation settings by advocating aggressive target and supporting measures in his debut diplomacy setting in his own words. (First policy he set was taking the initiative from bureaucrats in making speeches at press conferences etc. so that politicians will be delivering their message in their own words). Such a “performance” in the international community conference symbolizes and delivers strong message on the change in political administration and of his style of politics, which is “politician taking the initiative”.
- 25% Reduction of CO2, Message to be Delivered in Upcoming Diplomatic Settings by Prime Minister Mr.Hatoyama
http://megoyanagi.blogspot.com/2009/09/new-japanese-government-officially.html
- How Japanese Government to Develop New Information Disclosure System with Media, Achieving Objectives & Promoting Interactive Communication with Media
http://megoyanagi.blogspot.com/2009/09/how-japanese-government-ti-develop-new.html
The new target announced is the most aggressive among all participant countries, as is shown from the table below. (Source: September 23 Japanese article from Nikkei, Japan’s leading newspaper specialized in economy and politics; translated by the author).
GHG Emission Reduction Target by 2020 of Developed Countries
(The reason that some target is not specific is that the target is specified under specific condition such as “in the case which other countries advocate sufficient reduction target”)
Country Name / Reduction Rate (%) / Standard Year / Availability of Purchasing Emission Quotas
Japan / 25 / 1990 / yes
The U.S. / 14 / 2005 -
EU / 20 - 30 / 1990 / yes
Canada / 20 / 2006 / -
Russia / 10 - 15 / 1990 / -
Switzerland / 20 - 30 / 1990 / yes
Australia / 5 - 25 / 2000 / yes
* Composed by Nikkei based on documents on framework of the U.N. climate change agreement owned by the agreement offices
3. How Mr. Hatoyama Was Careful In Making His Speech
Prime Minister Mr. Hatoyama was careful in making his speech, not forgetting to be considerate in presenting such an aggressive target. His speech included concrete measures compared with his previous speeches made in Tokyo, Japan, but he deliberately made the expression regarding “reduction compared with which year“ not to be too specific, using the expression such as “if I would state comparing with 1990” instead of “vs. 1990”, taking into consideration of the U.S. who had set the 2005 as the standard year in setting the target. He also was careful to avoid misunderstanding from other countries that Japan is prominent in presenting such an aggressive target. He did so by encouraging major GHG emission countries including the U.S., China and India to actively join in his initiative, advocating his Hatoyama initiatives including the principles below.
Hatoyama Initiatives
1) Public and private sectors of developed countries will contribute to additional capital aid.
2) Rules for measuring the effectiveness of aid will be developed.
3) Co-existence of capital aid and preservation of intellectual property right will be fulfilled.
4. Positive Reactions From The International Community
The speech was highly evaluated, with positive comments from participants. The overall reaction from the international community is positive from each standpoint.
The U.S. gave positive reaction backed up by President Obama’s positive speech in the summit, who said that countermeasure for global warming is the U.S. focus and is resolved to take actions. Regarding the reduction target he emphasized that both developed and developing countries need to take responsibility to achieve the target. He also showed his intention of reaching international consensus on this issue at CPO15 to be held in December in Copenhagen, Denmark. He advocated the need of making consensus among all countries including emerging countries, stating hat the only solution is all major countries collaborate to take measures, while developing countries (that had been emitting global warming gasses) have responsibilities to initiate the discussion.
EU evaluated the Japanese aggressive target. EU had been positive in activating trading CO2 emission quotas among countries with the objective of reducing CO2 emission globally, and therefore they would like to deepen collaboration with Japan and lead debate on this issue in the international community. Mr. Okada, the new Minister of Foreign Affairs, had meetings with Ministers of Foreign Affairs of Sweden, the current chairperson of EU, and Spain. The EU side agreed on the importance of solving climate change issue and highly evaluated Japan’s mid-term target of 25% reduction of CO2 emission vs.1990. In addition, the Minister of Climate Change and Energy of Denmark also evaluated the aggressive target of Japan.
Reactions from developing and emerging countries are subtle but not negative at all. Emerging countries including China and India have been strengthening initiatives to reduce global warming gasses in individual sectors such as generation of electricity. One point to note is that their consistent stance is that it is the developed countries responsible for the past global warming that should commit to the aggressive reduction target to be achieved by 2020.
5. Negative Reactions from Japan Domestic Opinion Leaders
It is true that aggressive target has been triggering technological innovation and creation of new industry and employment, but the reaction from Japan so far has been rather negative. This is because Mr. Hatoyama has not yet sufficiently explained to industries and related opinion leaders that are to bear the burden in accomplishing the target. Another reason is that whether emerging countries such as China would really participate in this international initiative of GHG emission reduction is still under question.
To achieve the target, industries would need to reduce 20-30% GHG emission from manufacturing plants, which would be a big burden. It is possible that industries whose GHG emission is large such as iron and steel would be forced to reduce its production, which could lead to drastic production shift from Japan to overseas. And if sufficient CO2 emission reduction is not achieved, they would need to purchase GHG emission quotas from overseas. This is estimated to cost more than 1 trillion yen, according to a government official.
Reaction from economy and commerce associations is quite negative because the target would clearly mean increase in cost. There have been critical comments, requesting the new government to set target taking into consideration both fairness among the international community and reasonability of Japanese citizen’s burden. In fact, there are series of evidences that many Japanese industries/companies are still suffering from high cost and are negatively impacted by new government’s policy, so it is more than natural that the industry and other opinion leaders would react negatively. The break even point of many manufacturing companies has been deteriorating drastically which means that their cost competitiveness under current circumstances is tough. And the recent stock pricing trend of Japan imply that Japanese companies are already negatively impacted by new government’s policy, and it is natural that they would give negative reaction.
- Drastic Deterioration in Break Even Point Ratio of Japanese Manufacturers May Well Indicate Further Tough Job Market in Japan
http://megoyanagi.blogspot.com/2009/09/drastic-deterioration-in-break-even.html
- New Coalition Government Policy, High Yen and Supply & Demand Oppressing Japanese Companies, Being Behind Worldwide Stock Prices Trend
http://megoyanagi.blogspot.com/2009/09/new-coalition-government-policy-high.html
6. Upcoming Challenges For The New Hatoyama Administration To Overcome
Having succeeded in debut the highest-level international conference advocating an aggressive target, a practical “international commitment”, Prime Minister Hatoyama needs to tackle tough challenges upon returning to Japan. He would need to minimize domestic resistances, and draft and execute action plans to achieve the target, taking initiative of post COP3 debate in the international community.
Achieving the target is not easy even if the international community’s reaction is positive, because even internationally, the entire environment is quite tough. It was when Mr. Obama changed the U.S. policy on this issue of proactively reducing GHG emission to cooperate and make harmony with the international community that the international negotiation for GHG emission reduction started to drive. However, Mr. Obama also has health care reform issue to handle and the U.S. Diet is now focusing on this issue, so the deliberation in the Diet of bill regarding GHG is behind schedule. If there is no concrete progress in the G20 summit started 24th this month, it is quite possible that the targeted consensus to be made in December becomes rather difficult.
The feasibility of capital aid execution by developed countries is still a question. EU would like to make consensus of reduction target leveraging capital aid of a tens of billions of dollars. However, discussions among developed countries, that are to raise funds for the capital aid, are still ongoing, far behind the original timeline.
And, even if Mr. Hatoyama manages to convince Japanese industries, related associations, opinion leaders and citizens, the hurdle is still quite high. According to the estimation developed during the former Aso administration, it is vital to increase the solar cell implementation by 5500% (55 times the current implementation) and shift 90% of new car sales to EV cars in order to achieve 25% reduction in GHG emission vs.1990.
Achieving an extremely aggressive target would require something very drastic, some kind of breakthrough. It is passive and conservative target that people tend to agree to easily but they are usually not so much energized by such target, not coming up with innovative ideas, thus often failing to achieve the target. But history teaches us that although at first people are negative at first because it seems absolutely unrealistic, they finally agree and support extremely aggressive target set under tough environment. Such a target delivered by a leader with passion energizes and wins support from followers and related stakeholders. They will then get united to exert maximum effort, leading to creation of innovation and break through, and as a result being successful in achieving the target.
Reduction in GHG emission is an issue that each one of us on this planet is required to take action for the sustainability of human kind, and it is possible to convert this issue to business opportunities as well. It has potential to drive innovations and creation of new industry and employment, meaning growth in world economy and sustainable growth. It is highly hoped that the international community and all stakeholders in each country come in consensus and take their own responsibility to achieve their respective goal.
* The information on the summit is based on series of articles in Nikkei, Japanese leading newspaper specialized in economy and politics, dated September 23, 2009.
Mr. Hatoyama, the new Japanese Prime Minister, made a speech pledging Japan’s mid-term target of 25% GHG (global greenhouse gas = CO2) emission reduction vs.1990 by 2020 at the United Nation’s Climate Change Summit held on September 22 in New York, his debut to the diplomatic setting. He also advocated his initiative of providing to developing and emerging countries Japan’s energy saving technologies and capital aid to help them drive global warming countermeasures. His speech in English won great applause and appreciation in the summit, and it is probably the first time that a speech made by a Japanese Prime Minister won such an applause. However, his aggressive target has not been provoking positive reactions back in Japan.
1. Facts On GHG Emission Reduction Mid-Term Target
Mid-term target of reducing GHG emission is the primary focus of the negotiation among participant countries on post Kyoto Protocol (COP3) after 2013, United Nations Framework Convention on Climate Change / UNFCCC, FCCC. The deadline of the negotiation is COP15 United Nations Climate Change Conference Copenhagen 2009 to be held in Denmark this year.
2. Background of Prime Minister Mr. Hatoyama’s Speech
The target set by the former Prime Minister, Mr. Aso, was 15% reduction vs.2005 (8% reduction vs. 1990); therefore, it is evident that Mr. Hatoyama’s target is extremely aggressive (equivalent to 30% reduction vs. 2005). He had set this target as his policy, mentioned in his speeches in Tokyo earlier this month, and announced to Japanese media on 20th this month, although he may well have been aware that there would be resistances from Japan domestic (industries and economy opinion leaders). His intention is to take the initiative in the upcoming international negotiation settings by advocating aggressive target and supporting measures in his debut diplomacy setting in his own words. (First policy he set was taking the initiative from bureaucrats in making speeches at press conferences etc. so that politicians will be delivering their message in their own words). Such a “performance” in the international community conference symbolizes and delivers strong message on the change in political administration and of his style of politics, which is “politician taking the initiative”.
- 25% Reduction of CO2, Message to be Delivered in Upcoming Diplomatic Settings by Prime Minister Mr.Hatoyama
http://megoyanagi.blogspot.com/2009/09/new-japanese-government-officially.html
- How Japanese Government to Develop New Information Disclosure System with Media, Achieving Objectives & Promoting Interactive Communication with Media
http://megoyanagi.blogspot.com/2009/09/how-japanese-government-ti-develop-new.html
The new target announced is the most aggressive among all participant countries, as is shown from the table below. (Source: September 23 Japanese article from Nikkei, Japan’s leading newspaper specialized in economy and politics; translated by the author).
GHG Emission Reduction Target by 2020 of Developed Countries
(The reason that some target is not specific is that the target is specified under specific condition such as “in the case which other countries advocate sufficient reduction target”)
Country Name / Reduction Rate (%) / Standard Year / Availability of Purchasing Emission Quotas
Japan / 25 / 1990 / yes
The U.S. / 14 / 2005 -
EU / 20 - 30 / 1990 / yes
Canada / 20 / 2006 / -
Russia / 10 - 15 / 1990 / -
Switzerland / 20 - 30 / 1990 / yes
Australia / 5 - 25 / 2000 / yes
* Composed by Nikkei based on documents on framework of the U.N. climate change agreement owned by the agreement offices
3. How Mr. Hatoyama Was Careful In Making His Speech
Prime Minister Mr. Hatoyama was careful in making his speech, not forgetting to be considerate in presenting such an aggressive target. His speech included concrete measures compared with his previous speeches made in Tokyo, Japan, but he deliberately made the expression regarding “reduction compared with which year“ not to be too specific, using the expression such as “if I would state comparing with 1990” instead of “vs. 1990”, taking into consideration of the U.S. who had set the 2005 as the standard year in setting the target. He also was careful to avoid misunderstanding from other countries that Japan is prominent in presenting such an aggressive target. He did so by encouraging major GHG emission countries including the U.S., China and India to actively join in his initiative, advocating his Hatoyama initiatives including the principles below.
Hatoyama Initiatives
1) Public and private sectors of developed countries will contribute to additional capital aid.
2) Rules for measuring the effectiveness of aid will be developed.
3) Co-existence of capital aid and preservation of intellectual property right will be fulfilled.
4. Positive Reactions From The International Community
The speech was highly evaluated, with positive comments from participants. The overall reaction from the international community is positive from each standpoint.
The U.S. gave positive reaction backed up by President Obama’s positive speech in the summit, who said that countermeasure for global warming is the U.S. focus and is resolved to take actions. Regarding the reduction target he emphasized that both developed and developing countries need to take responsibility to achieve the target. He also showed his intention of reaching international consensus on this issue at CPO15 to be held in December in Copenhagen, Denmark. He advocated the need of making consensus among all countries including emerging countries, stating hat the only solution is all major countries collaborate to take measures, while developing countries (that had been emitting global warming gasses) have responsibilities to initiate the discussion.
EU evaluated the Japanese aggressive target. EU had been positive in activating trading CO2 emission quotas among countries with the objective of reducing CO2 emission globally, and therefore they would like to deepen collaboration with Japan and lead debate on this issue in the international community. Mr. Okada, the new Minister of Foreign Affairs, had meetings with Ministers of Foreign Affairs of Sweden, the current chairperson of EU, and Spain. The EU side agreed on the importance of solving climate change issue and highly evaluated Japan’s mid-term target of 25% reduction of CO2 emission vs.1990. In addition, the Minister of Climate Change and Energy of Denmark also evaluated the aggressive target of Japan.
Reactions from developing and emerging countries are subtle but not negative at all. Emerging countries including China and India have been strengthening initiatives to reduce global warming gasses in individual sectors such as generation of electricity. One point to note is that their consistent stance is that it is the developed countries responsible for the past global warming that should commit to the aggressive reduction target to be achieved by 2020.
5. Negative Reactions from Japan Domestic Opinion Leaders
It is true that aggressive target has been triggering technological innovation and creation of new industry and employment, but the reaction from Japan so far has been rather negative. This is because Mr. Hatoyama has not yet sufficiently explained to industries and related opinion leaders that are to bear the burden in accomplishing the target. Another reason is that whether emerging countries such as China would really participate in this international initiative of GHG emission reduction is still under question.
To achieve the target, industries would need to reduce 20-30% GHG emission from manufacturing plants, which would be a big burden. It is possible that industries whose GHG emission is large such as iron and steel would be forced to reduce its production, which could lead to drastic production shift from Japan to overseas. And if sufficient CO2 emission reduction is not achieved, they would need to purchase GHG emission quotas from overseas. This is estimated to cost more than 1 trillion yen, according to a government official.
Reaction from economy and commerce associations is quite negative because the target would clearly mean increase in cost. There have been critical comments, requesting the new government to set target taking into consideration both fairness among the international community and reasonability of Japanese citizen’s burden. In fact, there are series of evidences that many Japanese industries/companies are still suffering from high cost and are negatively impacted by new government’s policy, so it is more than natural that the industry and other opinion leaders would react negatively. The break even point of many manufacturing companies has been deteriorating drastically which means that their cost competitiveness under current circumstances is tough. And the recent stock pricing trend of Japan imply that Japanese companies are already negatively impacted by new government’s policy, and it is natural that they would give negative reaction.
- Drastic Deterioration in Break Even Point Ratio of Japanese Manufacturers May Well Indicate Further Tough Job Market in Japan
http://megoyanagi.blogspot.com/2009/09/drastic-deterioration-in-break-even.html
- New Coalition Government Policy, High Yen and Supply & Demand Oppressing Japanese Companies, Being Behind Worldwide Stock Prices Trend
http://megoyanagi.blogspot.com/2009/09/new-coalition-government-policy-high.html
6. Upcoming Challenges For The New Hatoyama Administration To Overcome
Having succeeded in debut the highest-level international conference advocating an aggressive target, a practical “international commitment”, Prime Minister Hatoyama needs to tackle tough challenges upon returning to Japan. He would need to minimize domestic resistances, and draft and execute action plans to achieve the target, taking initiative of post COP3 debate in the international community.
Achieving the target is not easy even if the international community’s reaction is positive, because even internationally, the entire environment is quite tough. It was when Mr. Obama changed the U.S. policy on this issue of proactively reducing GHG emission to cooperate and make harmony with the international community that the international negotiation for GHG emission reduction started to drive. However, Mr. Obama also has health care reform issue to handle and the U.S. Diet is now focusing on this issue, so the deliberation in the Diet of bill regarding GHG is behind schedule. If there is no concrete progress in the G20 summit started 24th this month, it is quite possible that the targeted consensus to be made in December becomes rather difficult.
The feasibility of capital aid execution by developed countries is still a question. EU would like to make consensus of reduction target leveraging capital aid of a tens of billions of dollars. However, discussions among developed countries, that are to raise funds for the capital aid, are still ongoing, far behind the original timeline.
And, even if Mr. Hatoyama manages to convince Japanese industries, related associations, opinion leaders and citizens, the hurdle is still quite high. According to the estimation developed during the former Aso administration, it is vital to increase the solar cell implementation by 5500% (55 times the current implementation) and shift 90% of new car sales to EV cars in order to achieve 25% reduction in GHG emission vs.1990.
Achieving an extremely aggressive target would require something very drastic, some kind of breakthrough. It is passive and conservative target that people tend to agree to easily but they are usually not so much energized by such target, not coming up with innovative ideas, thus often failing to achieve the target. But history teaches us that although at first people are negative at first because it seems absolutely unrealistic, they finally agree and support extremely aggressive target set under tough environment. Such a target delivered by a leader with passion energizes and wins support from followers and related stakeholders. They will then get united to exert maximum effort, leading to creation of innovation and break through, and as a result being successful in achieving the target.
Reduction in GHG emission is an issue that each one of us on this planet is required to take action for the sustainability of human kind, and it is possible to convert this issue to business opportunities as well. It has potential to drive innovations and creation of new industry and employment, meaning growth in world economy and sustainable growth. It is highly hoped that the international community and all stakeholders in each country come in consensus and take their own responsibility to achieve their respective goal.
* The information on the summit is based on series of articles in Nikkei, Japanese leading newspaper specialized in economy and politics, dated September 23, 2009.
New Press Conference Policy of Japanese Government
Wednesday, September 23, 2009 – Osaka, Japan
The first issue tackled by the new Japanese government led by new Prime Minister, Mr. Hatoyama, upon kick-off his new administration, was announcing the change in press announcement policy at the night of September 16, the first day of the new administration. The objective is to take initiatives from the bureaucrats. This has provoked hot debate among journalists and media.
1. How the press announcement was done and how government information used to be delivered to media
Press conference spoken by the head of ministries are held regularly and ad-hoc basis (e.g. emergency announcement), and it was bureaucrats that composed speeches; the spokespersons simply read the script. Also, major ministries had been regularly holding press conferences, speakers being administrative vice minister, assistant vice minister and chief of bureau, i.e. bureaucrats. Such press conferences can be covered specifying the speaker. Major ministries had also been regularly holding round-table conference by the same speakers. With this system, the news is covered by not specifying the speaker so usually such expression as “executive of so so ministry” as the speaker is used.
In addition, that some reporters regularly rode with administrative vice minister on his way to work to “communicate” and inform the essence to other reporters because they cannot possibly have enough time to communicate with administrative vice ministers even though they visit their house before going to work.
This system may seem “collusion” between the bureaucrats and the media, but it is true that this system was established as a result of long-year coordination of public (i.e. government) and media. Government has accountability and responsibility of information disclosure. Media has responsibility of answering to citizen’s right to know about the government. And “press club” exists as the interaction of the responsibility of the two parties.
The existence of press club is valid even though there has been some criticism, and what is critical question was bureaucrats had 100% control over information disclosure to the media and citizens.
2. The objective of new policy of press announcement and communication with media is to exclude bureaucrats
In the night of September 16, Mr. Hirano, the Chief Secretary Cabinet, announced the policy that “under the new government, no more press conferences by bureaucrats will be held”. This means that in the future, press conference will be only by politicians, i.e. ministers, deputy ministers and ministerial aids, with the objective of the new press conference policy is to take initiative from the bureaucrats. Briefing such as background explanation will not be included in this regulation. With this announcement, some ministries actually decided to abolish regular press conference spoken by the minister. Media’s reaction to the policy was negative, with such comments as “news control”.
The biggest merit of the policy is fulfillment of the objective, i.e. politicians taking the initiative to change Japan. Japanese government faced this challenge for many years and had been one of the biggest issues and therefore the new policy can be highly evaluated and appreciated. In addition, the politicians will be speaking in their own words to deliver their own strong message with passion. Speech in the speaker’s own words would also enhance speaker’s ownership, accountability and commitment. So speeches would surely be convincing, unlike most previous speakers of the press conference who read the script in monotone, even incorrectly in a few cases.
The demerits of the policy are the increase in the workload of politicians (speakers), question of whether they are capable of explaining details the bureaucrats had been explaining to the media, and communication to the media being non-interactive and less intensive compared to what it had been. Bureaucrats had been communicating intensively on the daily basis, so too much control of communication between bureaucrats and media could refrain two parties from communicating frankly, interactively and intensively. This could lead to between the two parties may well lead to possible decrease in the quantity and quality (including background and nuance) of information disclosed to the media compared to what it had been.
3. Ideal information disclosure system is expected to be created and developed by both the new government and media
Strategic and effective information disclosure of the government to communicate interactively with the media and citizens would greatly contribute to driving change, the objective and mission of the new government. From that perspective, it seems evident that the old press conference system needs review and improvement, and it is quite logical that this issue of press announcement policy, one of the most important and symbolic issue, was handled first.
There is no “the only correct solution” as in all issues, and it is highly desired that the new government and media collaborate to develop an ideal total information closure system including official press conference and unofficial settings on the daily basis. Such a new system would fulfill the responsibilities of both two parties (government and media), and achieve the new government’s objectives of the new policy announcement while accepting maximum freedom of research, reporting and expressing oneself of media.
* Information on the past press announcement and how the government communicated with the media is from a Japanese column which was posted on Nikkei PB web site on September 17
http://www.nikkeibp.co.jp/article/column/20090917/182230/
The first issue tackled by the new Japanese government led by new Prime Minister, Mr. Hatoyama, upon kick-off his new administration, was announcing the change in press announcement policy at the night of September 16, the first day of the new administration. The objective is to take initiatives from the bureaucrats. This has provoked hot debate among journalists and media.
1. How the press announcement was done and how government information used to be delivered to media
Press conference spoken by the head of ministries are held regularly and ad-hoc basis (e.g. emergency announcement), and it was bureaucrats that composed speeches; the spokespersons simply read the script. Also, major ministries had been regularly holding press conferences, speakers being administrative vice minister, assistant vice minister and chief of bureau, i.e. bureaucrats. Such press conferences can be covered specifying the speaker. Major ministries had also been regularly holding round-table conference by the same speakers. With this system, the news is covered by not specifying the speaker so usually such expression as “executive of so so ministry” as the speaker is used.
In addition, that some reporters regularly rode with administrative vice minister on his way to work to “communicate” and inform the essence to other reporters because they cannot possibly have enough time to communicate with administrative vice ministers even though they visit their house before going to work.
This system may seem “collusion” between the bureaucrats and the media, but it is true that this system was established as a result of long-year coordination of public (i.e. government) and media. Government has accountability and responsibility of information disclosure. Media has responsibility of answering to citizen’s right to know about the government. And “press club” exists as the interaction of the responsibility of the two parties.
The existence of press club is valid even though there has been some criticism, and what is critical question was bureaucrats had 100% control over information disclosure to the media and citizens.
2. The objective of new policy of press announcement and communication with media is to exclude bureaucrats
In the night of September 16, Mr. Hirano, the Chief Secretary Cabinet, announced the policy that “under the new government, no more press conferences by bureaucrats will be held”. This means that in the future, press conference will be only by politicians, i.e. ministers, deputy ministers and ministerial aids, with the objective of the new press conference policy is to take initiative from the bureaucrats. Briefing such as background explanation will not be included in this regulation. With this announcement, some ministries actually decided to abolish regular press conference spoken by the minister. Media’s reaction to the policy was negative, with such comments as “news control”.
The biggest merit of the policy is fulfillment of the objective, i.e. politicians taking the initiative to change Japan. Japanese government faced this challenge for many years and had been one of the biggest issues and therefore the new policy can be highly evaluated and appreciated. In addition, the politicians will be speaking in their own words to deliver their own strong message with passion. Speech in the speaker’s own words would also enhance speaker’s ownership, accountability and commitment. So speeches would surely be convincing, unlike most previous speakers of the press conference who read the script in monotone, even incorrectly in a few cases.
The demerits of the policy are the increase in the workload of politicians (speakers), question of whether they are capable of explaining details the bureaucrats had been explaining to the media, and communication to the media being non-interactive and less intensive compared to what it had been. Bureaucrats had been communicating intensively on the daily basis, so too much control of communication between bureaucrats and media could refrain two parties from communicating frankly, interactively and intensively. This could lead to between the two parties may well lead to possible decrease in the quantity and quality (including background and nuance) of information disclosed to the media compared to what it had been.
3. Ideal information disclosure system is expected to be created and developed by both the new government and media
Strategic and effective information disclosure of the government to communicate interactively with the media and citizens would greatly contribute to driving change, the objective and mission of the new government. From that perspective, it seems evident that the old press conference system needs review and improvement, and it is quite logical that this issue of press announcement policy, one of the most important and symbolic issue, was handled first.
There is no “the only correct solution” as in all issues, and it is highly desired that the new government and media collaborate to develop an ideal total information closure system including official press conference and unofficial settings on the daily basis. Such a new system would fulfill the responsibilities of both two parties (government and media), and achieve the new government’s objectives of the new policy announcement while accepting maximum freedom of research, reporting and expressing oneself of media.
* Information on the past press announcement and how the government communicated with the media is from a Japanese column which was posted on Nikkei PB web site on September 17
http://www.nikkeibp.co.jp/article/column/20090917/182230/
2009年9月22日火曜日
New Budgeting Policy of Japanese Government
Tuesday, September 22, 2009 – Osaka, Japan
Nikkei, Japan’s leading newspaper specialized in economy and politics, reported on September 21 that the new Japanese government established a new budgeting policy of practically implementing multiple-year appropriation from 2010. The framework of the policy will be developed by a committed to be established within the National Strategy Bureau headed by Mr. Kan, and is planned to be submitted in the middle or end of October. There would be no legislative problem in “practical” implementation of the new budgeting system. There are three main budgeting revisions, all of which are designed to improve the effective use of budget.
First revision is practical implementation of multiple-year appropriation. The long custom has been forcing to use up the budget for the fiscal year because of one-fiscal year budget system. This system led to long-year custom of unnecessary road work performed only to use up the fiscal year budget so that the budget can be acquired the following fiscal year. What the government is trying to do is implementing a multiple-year appropriation concept and framework of the U.K., that enables the remaining fiscal budget to be carried over to the following year. In line with this, the government is also planning to establish a foundation and/or revising law(s).
Second revision is abolition of “ceiling” system that started in 1961 as budget request framework. Currently each ministry requests budget by each related expenses such as public work projects and social security according to budgetary request guideline. Instead, the National Strategy Bureau is to prioritize business. The Bureau will compose revenue framework from sources including the government’s economic forecast, and business whose budget exceed this framework could be carried over to the following year.
Third revision is improving budget inspection system. Currently Ministries of Finance and General Affairs and Board of Audit inspect the waste and validity of budget. The inspection will be changed to politics-driven, and achievement progress of the numbers based on the policy set at the beginning of the fiscal year will be monitored. And in the future, the government is to study to implement a system linking this inspection and monitoring with personnel evaluation of government officials. An example is comparing number of prospect users of airport and roads before construction and the actual number of users after the construction, and should a big gap between the two be found, it would be reflected to the personnel evaluation of government officials concerned.
To the author, in short, the three revisions are implementing systems proliferating in many private companies. In many companies, Corporate Planning or Business Plan Analysis department (equivalent to the National Strategy Bureau in the new government) prioritizes business and leads budgeting, although how the top-down and bottom-up are mixed depends on the company.
Mid-term and/or long-term strategy, road map and plan is developed first aligning with the company’s mission and vision, which is then broken down to annual business plan, and quarterly/monthly plan. Performance is monitored regularly and together with the latest forecast, adjustment is made flexibly. And usually MBO (Management by Objectives) is used, linking the goal of company/organization and individual, and reviewing what extent the team and individual target is achieved as well as processes (value & behaviour) of achievement.
The new budgeting system is a solving problem of root cause of such issue as the recent interdiction of additional appropriation for 2009 that do not contribute to business environment improvement. The interdiction has triggered big debate and confusion which is not a surprise and its feasibility is question. With the new revised budgeting system, this kind of issue should not occur.
The long-year systems and customs of public sector are unbelievable for people in the private sector. The new policy and system may have negative impact on some industries and companies such as construction, but in general, it should have positive impact from total optimization perspective. It is highly desired that the new policy is implemented without fail for effective use of budget and higher productivity of the government, meaning growth of the nation and better life of all citizens.
Nikkei, Japan’s leading newspaper specialized in economy and politics, reported on September 21 that the new Japanese government established a new budgeting policy of practically implementing multiple-year appropriation from 2010. The framework of the policy will be developed by a committed to be established within the National Strategy Bureau headed by Mr. Kan, and is planned to be submitted in the middle or end of October. There would be no legislative problem in “practical” implementation of the new budgeting system. There are three main budgeting revisions, all of which are designed to improve the effective use of budget.
First revision is practical implementation of multiple-year appropriation. The long custom has been forcing to use up the budget for the fiscal year because of one-fiscal year budget system. This system led to long-year custom of unnecessary road work performed only to use up the fiscal year budget so that the budget can be acquired the following fiscal year. What the government is trying to do is implementing a multiple-year appropriation concept and framework of the U.K., that enables the remaining fiscal budget to be carried over to the following year. In line with this, the government is also planning to establish a foundation and/or revising law(s).
Second revision is abolition of “ceiling” system that started in 1961 as budget request framework. Currently each ministry requests budget by each related expenses such as public work projects and social security according to budgetary request guideline. Instead, the National Strategy Bureau is to prioritize business. The Bureau will compose revenue framework from sources including the government’s economic forecast, and business whose budget exceed this framework could be carried over to the following year.
Third revision is improving budget inspection system. Currently Ministries of Finance and General Affairs and Board of Audit inspect the waste and validity of budget. The inspection will be changed to politics-driven, and achievement progress of the numbers based on the policy set at the beginning of the fiscal year will be monitored. And in the future, the government is to study to implement a system linking this inspection and monitoring with personnel evaluation of government officials. An example is comparing number of prospect users of airport and roads before construction and the actual number of users after the construction, and should a big gap between the two be found, it would be reflected to the personnel evaluation of government officials concerned.
To the author, in short, the three revisions are implementing systems proliferating in many private companies. In many companies, Corporate Planning or Business Plan Analysis department (equivalent to the National Strategy Bureau in the new government) prioritizes business and leads budgeting, although how the top-down and bottom-up are mixed depends on the company.
Mid-term and/or long-term strategy, road map and plan is developed first aligning with the company’s mission and vision, which is then broken down to annual business plan, and quarterly/monthly plan. Performance is monitored regularly and together with the latest forecast, adjustment is made flexibly. And usually MBO (Management by Objectives) is used, linking the goal of company/organization and individual, and reviewing what extent the team and individual target is achieved as well as processes (value & behaviour) of achievement.
The new budgeting system is a solving problem of root cause of such issue as the recent interdiction of additional appropriation for 2009 that do not contribute to business environment improvement. The interdiction has triggered big debate and confusion which is not a surprise and its feasibility is question. With the new revised budgeting system, this kind of issue should not occur.
The long-year systems and customs of public sector are unbelievable for people in the private sector. The new policy and system may have negative impact on some industries and companies such as construction, but in general, it should have positive impact from total optimization perspective. It is highly desired that the new policy is implemented without fail for effective use of budget and higher productivity of the government, meaning growth of the nation and better life of all citizens.
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