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Noriyuki Morimoto's Blog

Japanese companies used to sing company songs

Jan 15, 2019
byNoriyuki Morimoto

In the past, Japanese companies tended to have some extent of a religious atmosphere, singing company songs or chanting business philosophies like mantras. And actually, not only in the good-old days of Japan but also in the modern global economy, a symbol of communal belief is needed for the existence and growth of companies, regardless of whether it seems religious or not. Today, the proper name for that symbol would be brand. Customer reputation is the very value of a company, and it is represented in its brand. That is true even while the reputation of customers is actually largely unfounded, and is something that can be called a myth. The company’s ability to create such myths makes its brand function to support corporate value. And more importantly, myths must be believed within the company as well, as spreading an unbelieved myth to the customer is a fraudulent and insincere act to its customers. A myth can pass as such to outside the company because it is believed internally. Outside the company, the myth is a symbol of customer's trust in the company's products and services. Inside the company, it is a symbol of pride for the company’s products and services. When that pride develops into a responsibility to never betray the customer's trust, it is established as a brand and corporate value. Therefore, brands cannot be maintained without daily innovation and creation within the company. Given the speed of change in contemporary society, as soon as a brand becomes complacent, it will betray customers' trust, and corporate value will collapse. The commitment to never betray customer trust should inevitably lead companies to daily innovation and creation. Faith is faith because it is deepened by a new sense of devotion every single day. Brands retain their myths because they keep advancing and developing through daily corporate efforts. Myths are recalled every day, and their meaning has to be reconfirmed every day. As faith has daily prayers, myths also need daily rituals. Therefore in the past, people in Japanese companies sang company songs like singing an ode.

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Price of a Japanese gourd surging by 6000 times

Dec 17, 2018
byNoriyuki Morimoto

“Seibei and the gourd” is a short story written by Shiga Naoya in 1913. The protagonist of this story is Seibei, a 12-year-old elementary school student who is a big fan of gourds. He obtains a gourd with a good shape for 10 sen, and carefully polishes it. But this gourd is taken away from him when he is found polishing it at school. The teacher gives the gourd to an old janitor. The janitor sells it to an antique shop for 50 yen. The antique shop then sells it at a whooping price of 600 yen to a rich person. This story tells you that something can raise its price exponentially from 10 sen to 600 yen, a 6000 times difference. The biggest contribution to this 6000 times price hike is the excellent trading skill of the antique shop. The shop owner correctly understood the value of the gourd, knew of rich collectors who would willingly pay money to obtain such a good product, and was financially capable of paying 50 yen to the old janitor to obtain the gourd. At the time of buying the gourd at 50 yen, there is no guarantee on how much it would sell for. Nevertheless, the courage to go forward to pay 50 yen based on one’s eye for value is what ultimately led to a successful transaction. Essentially, what led to the antique shop’s great investment was the combination of four strengths: each for valuation, information, finance, and courage. Historical figures who rose to the top in a single generation seem to have had these strengths without exception. However, the price of 600 yen was not created just with the antique shop’s skill. At the very beginning was Seibei, who discovered a good-shaped material and put in the effort to polish it to perfection, creating the gourd’s value. The 600 yen can be broken down into the value of the gourd created by Seibei and the price exceeding its value based on the trading skill of the antique shop, which captured the created opportunity. It was Seibei who had created a valuable gourd. However, without the antique shop, the value created by Seibei would not have been realized in society in the form of a price. The economy is made from the creation and distribution of value: in the course of distribution, value leaves a trail in the form of price. By the way, how was the 600 yen distributed? 550 yen to the antique shop, 50 yen to the janitor, and zero to Seibei, who is actually at a 0.1 yen loss. Although it was probably not Shiga Naoya’s intention to accuse the injustice of this distribution structure.

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Keynes in 13th Century Japan

Dec 03, 2018
byNoriyuki Morimoto

One autumn night in 13th century Japan, a samurai named Aoto Fujitsuna was crossing a river when he dropped about 10 sen worth of coins. Fujitsuna summoned laborers and offered them 3 kanmon — about 1000 times worth what was dropped — to look for the coins, which one of them eventually found. Fujitsuna rewarded this man separately and said before leaving, “If the dropped money is left there, the country’s assets are lost by that amount, but the 3 kanmon paid to the laborers will circulate in society and would not be wasted.” People laughed at his idiocy of searching for the dropped coins by paying about 1000 times the loss. The laborers, excited with the unexpected gain, held a party. The man who discovered the coins boasted that it was actually a lie: he just handed over the coins he already had and pretended that he had found it. One of the laborers who were listening stood up and left, refusing to approve of the misconduct. After the incident, the news of what had actually happened eventually reached Fujitsuna. Fujitsuna found the man who fooled him and under strict surveillance, took away all his clothes and forced him to keep searching the coins. The season turned from autumn to winter, and on the 97th day from beginning the search, all coins were discovered. The righteous man who left the party was also found: he turned out to be of samurai origin but had been living as a commoner due to a certain reason. On this occasion, he was given back an official samurai position. The above is a story in Buke giri monogatari (Stories of samurai faith), which is said to have been written by Ihara Saikaku in 17th century Japan. This story features an advanced theory of capital circulation, as well as an active fiscal policy similar to that of Keynes’. Actually, a significant portion of public investments in Japan lacked clear necessity. However, apart from their direct effect or meaning, the huge amount of money put in the projects were assumed to lead to expansive reproduction of the economy. In that sense, their cause is nothing different from the logic Fujitsuna expressed. The 3 kanmon which entered the consumer economy through the party may have served to boost the economy. But the reproduction in Fujitsuna’s act was not that of capital but that of the class system supporting the rule of samurai. It is very symbolic that the samurai who had been downgraded to a laborer was assigned again to an official samurai position. In reality, the public investments in Japan were also something similar. It cannot be denied that there was certain economic effect as the result of leaving a massive public debt. However, what was the purpose of those countless roads questionable of their utility left alongside those debts? It may have been that their purpose was to protect the old-fashioned ruling system.

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In the past, money had a say in Japanese companies.

Nov 19, 2018
byNoriyuki Morimoto

Money can have more influence than its actual amount. A key practice of the HR department in traditional Japanese companies was to make small amounts meaningful. In other words, by devising various ways of payment based on expense items (e.g. allowances), timing (e.g. advance payment, belayed payment), method (e.g. directly handing cash), form (e.g. provision of environment, provision in kind, treasury stock), they could expect to generate an oversized or additional effect. In hardboiled novels, when a detective pulls out information from someone like a bartender, he would often flicker bank notes while skillfully playing the phycology of his counterpart. This method would definitely not work with just the promise of paying. It is essential to show the cash for it to work. What moves people is not the amount, but the bank notes in front of them. This is a typical case in which money has a say. In the past, there was the case of paying bonuses in cash. There was the idea that even when monthly salaries were paid via bank transfer, bonuses have to be handed in cash for them to bear meaning. Moreover, companies would gather all of their employees and hand the cash over to each person, in front of everyone. It is clear that this ceremony carried more meaning than the actual amount. Apart from money, there was the case of apartments for government employees. They still exist, and are probably called civil servant housing nowadays. The apartments are quite stately, and moreover, despite being in a good location, the rent is inexplicably cheap: it was a very advantageous in-kind benefit. This was possibly due to the special nature of the bureaucratic career, where workers could be relocated to anywhere in the country at short intervals, and also circumstances of housing in the past. But it seems that an even stronger aspect was to symbolize the prestigious position of bureaucrats. For bureaucrats working in Hokkaido, cold weather allowances were provided. I do not know whether it still exists. This allowance was intended to compensate for increased heating expenses, but it seems to have represented a feeling of consolation for hard circumstances. Speaking of comfort, there might be the same aspect in severance pay. In modern enterprises in the global economy, will money not say things as well? Maybe we should give money a say.

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Okinawa and Stamp Speculation

Nov 05, 2018
byNoriyuki Morimoto

There is a strange book with the title meaning The Guide to Make Money with Stamps. It was issued on November 1, 1964 by a company called Kitte Keizaisha (the Stamp Economy Company). The content is nothing of significance. If this book is to be meaningful today, it is not in the content, but in the issue year of 1964. Needless to say, this was the year of the Tokyo Olympic Games. This book opens from both sides. Opening from the back cover, there is the "1965 version stamp investment catalog", with photos of stamps and their prices. For example, the Ukiyo-e series "Mikaeri " is 2000 yen. 2000 yen in 1964 is extremely expensive. This part is called the investment catalog because of its evaluation of "investment value" for each stamp. The investment value of “Mikaeri” ranks the highest, with "triple circles", something like a three-star evaluation. Its definition is "Active buying, high popularity, shortage of stock, price has been rising but will definitely keep going up, should purchase even when found higher than the market price.” Now, when you look at online sites that sell stamps, apparently "Mikaeri" costs about 10,000 yen if it is in good condition. It seems that it was right to give it a three-star. However, looking at the whole picture, while there have been some price increases, others including Olympic stamps are lowering their value significantly. It seems that “Mikaeri” was rather an exception. Actually, in the period from the 1964 Olympic year to the 1972 return of Okinawa to Japan, there was what can be called a stamp boom, stamp bubble, or stamp speculation, which chased the price increase of commemorative stamps. This is the background of the publication of The Guide to Make Money with Stamps. And after the return of Okinawa, the bubble burst. Why did the return of Okinawa matter to stamps? Due to its return to the mainland, the Ryukyus government postal authority was to discontinue the issuance of stamps. This perceived rarity of Okinawan stamps was the reason for the inflow of speculative funds, which caused the Okinawa stamp bubble. One interesting thing is that one of the speculators that set up Okinawa stamp buyers was Kitte Keizaisha, the publisher of The Guide to Make Money with Stamps. This company apparently went bankrupt in June 1973 when the bubble burst.

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Japanese casino legalization and finance

Oct 22, 2018
byNoriyuki Morimoto

It looks like casinos are finally becoming legal in Japan. Casino legalization is a controversial issue with strong arguments on both sides. Supporters argue that developing integrated resort (IR) facilities including casinos would become one of the pillars in Japan’s growth strategy, as it will generate large consumption demand, particularly by increasing inbound visitors. On the other hand, opponents point to social problems such as gambling addiction. Gambling can cause outcomes that run against customers’ benefits, such as addiction and loss of huge amounts of money. Therefore, it is a crime. But even when the act is a crime, if there is a social benefit like financing local governments through public gambling, special laws can be made to decriminalize the act. With the same reasoning, casino legalization is being discussed. The assumption in legalization of gambling is that it produces remarkably high customer satisfaction. That is the source of strong demand, and supporters are attempting to realize social benefits by using that demand. Similar things can be said for tobacco and liquor: considering their health impacts, we cannot deny their aspect of running against customers' real gains, but there exists a very strong demand based on customer satisfaction. Therefore, they can sell even when high tax rates are imposed, which in turn creates a stream of tax revenue. In addition, it is extremely difficult to distinguish between fraud and fraud-like activities. For example, if you believe that a duvet is being sold at a price significantly exceeding its real value, even if you suspect it to be a fraud, there is nothing to be done if the person who purchased it believes the product is high quality because it is expensive. Such shady schemes also work based on their creation of high customer satisfaction. Also, in areas that support modern consumption, such as fashion, food and drinks, entertainment, and so forth, customer satisfaction is formed at a level that far exceeds their critical functions and bare necessities of clothing, shelter and living. Put bluntly, the pathology of wasteful overconsumption has become a driving force for economic growth. However, there are also established areas in this ailing modern society where it is crucial to consider the customers’ true benefit based on necessity, even against customer satisfaction. These are regulated industries including medicine, education, and finance.

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The crisis of Japan's financial industry without risk taking

Oct 09, 2018
byNoriyuki Morimoto

In finance, risk taking is easily confused with risk management. Looking at the actual business of financial institutions, the risks they take are within the scope set by regulations as banking businesses, to the extent that such risks can be taken - rather than should be taken - under such regulations, in a passive, or - by a stronger expression - unaware manner, often merely as an extension from the past. Finance is also a business, and as common business sense, financial institutions should have to determine the unique differentiated scope of their business, identify priority customers, and take the risks that should be taken to create value from the customer's point of view. Such risks have to be strictly defined, and risk-taking must be carried out with awareness. The confusion between risk-taking and risk management is particularly noticeable in Japan. It may be a result of the fact that full-scale financial regulation reform was late to be implemented. Unfortunately, there are no financial institutions that conduct risk-taking with full awareness. However, the Japanese financial industry is now at its ultimate crisis. Moreover, the crisis was not caused by external factors such as negative interest rates. As a result of fruitless interest rate competition, sales of investment trusts and insurance diverged from the customer's point of view, and cost reduction without strategy, their capability of fundamental risk-taking declined consistently. When the results materialized, it had just been a matter of time, although the external environment did certainly accelerate the crisis. Therefore, in recent years, the Financial Services Agency has been strongly demanding financial institutions to take risks with awareness. Certainly, the FSA’ sense of urgency should have been deeply and quietly penetrating the financial world, but on the surface, it seems that the financial industry is hardly aware of this crisis. It’s not easy to provide an answer on how to get out of the crisis. Because it is not easy, financial institutions have not been able to take concrete actions, and look like they have no idea of what should be done. That is the current state of Japanese finance.

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Japanese banks cannot decide what they want to eat

Sep 25, 2018
byNoriyuki Morimoto

In November 2013, the Financial Stability Board issued the Principles for an Effective Risk Appetite Framework. According to the Financial Services Agency, this is a management framework to be used as an internal common language that covers the whole range of risk-taking policies, including capital allocation and maximization of profit, with “risk appetite” defined as the types and total amount of risk that each institution actively takes in order to achieve its business plan, based on its specific business model. Japanese banks are also building RAFs, but it is no exaggeration to say that it is just form without substance. The core of the RAF, as the FSA states, is the definition of risks that the bank actively takes in order to achieve its business plan, based on its specific business model. The active appetite for risks is an important issue precisely because the risks are to be actively taken. However, as far as the disclosed descriptions of the Japanese banks’ RAFs are concerned, they lack any concrete description of "risks to actively take". What is written there is merely how to manage the risks that are currently passively accepted. Even if RAF terms are used to describe the management system as reinforcing risk culture, it is at best just a technical improvement, not fundamental governance reform. In the case of Japanese banks, is it not even possible to consider the specific business models, that is, differentiation in business objectives? Can’t they decide what they want to eat based on their own will and desire? Then, will they eat whatever is around them? A creature that eats anything with a strong appetite seems to be a bit dangerous.

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Osekkai Japanese Finance

Sep 10, 2018
byNoriyuki Morimoto

If you look up the word “osekkai” in the dictionary, it is defined as unnecessarily interfering with people’s matters. But whether any act is unnecessary or not depends on the subjective view of the recipient of osekkai: for the person who carried out the osekkai act, it is done because it is necessary. Tetsugoro Obara, who was a leading figure in the Japanese financial industry, is quoted as saying "not lending is also kindness". He meant that when considering a loan application based on the customer's true benefit, there are cases where refusing the loan may be beneficial to the customer, depending on factors like the purpose of the money. Tetsugoro Obara was adamant in refusing loans, even with sufficient collateral, when their intended use was something like real estate speculation. He reasoned that it would ultimately prove to hurt the customer. Whoever was refused a loan in this manner must have been very frustrated. By contrast, those who took out loans to buy real estate during the Showa bubble period must have felt very satisfied at the moment. However, given that many of them were economically destroyed, such actions of the financial industry had been proven to run against the true interests of their customers, and the financial community itself suffered a huge loss as well. If the financial community had been faithful to Tetsugoro Obara’s philosophy, the Showa bubble could have been prevented. Tetsugoro Obara believed that it is kindness to consider the real benefit of the customer. Therefore, as long as one maintains kindness, he believed that he could not lend what he could not lend, even if it damaged customer satisfaction. And he was convinced that maintaining that kindness would prove beneficial for the financial community. Actually, Tetsugoro Obara referred to financing a customer as "worrying for” a customer. That is a totally osekkai attitude.

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The Ideal Global Civil Society Beyond Japan

Aug 27, 2018
byNoriyuki Morimoto

The history of mankind is the history of dominance by violence. The formation of modern society is defined by the formation of the nation state. While the establishment of the national state at least establishes the rule of reason within the country, it in turn justifies the exercise of violence among nations in the name of war. Globalization involves the progress of history, advancement of human wisdom, and creative development of reason. The progress of globalization shall eventually overcome the limitations of the nation state and ultimately establish rule of reason on the earth as one global civil society. No matter how far it may seem, the direction of mankind being set, that day will definitely arrive. Globalization is at the horizon of social philosophy. However, this in turn tells how the real society is far from global. A prime example is the Olympic Games. Although it is supposed to be a truly global celebration of the sports, it actually represents the competition among nations, from the structure of each sport to host city selection. Rather than the Olympic Games, global economic activities may be actually supported by truly global coordination and mutual understanding. Perhaps that is due to the underlying universal principle of economic rationality within economic activities. Since Japan exists on the earth, it is in a sense global. As far as the economic field is concerned, Japan is a very big part of the global economy. The global economy is not the external environment surrounding Japan, but one that contains Japan as a major element. As Japan is a part of the earth, denying Japanese elements and eliminating uniquely Japanese features are not acts of globalization. Globalization is not to be integrated into any one thing. Besides reason, human beings do not have anything in common in the first place. Everything is unique. Globalization is not only the rule of reason but also the coexistence of diverse tastes, mentalities, values, languages, food, clothes and everything else that is unique. Therefore, another important concept along with globalization is diversity. Global becomes meaningful only in combination with diversity. Diverse elements remain diverse as they respect, stimulate, absorb, and interact with each other to create new things. That is what it means by the progress of human beings, creative innovation of world culture, and growth of economic society.

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Will the Japanese Court Rule in English?

Aug 13, 2018
byNoriyuki Morimoto

There is a concept to make Tokyo the largest international financial center in Asia, although experts who know more about Japan's financial situation tend to dismiss it as an unrealistic delusion. The first challenge is English. English, not just as a language problem, but the need to establish the common law system in the same way as the US and UK in legal culture. An international financial center would need to be regulated by an internationally accepted legal system, and in the current world of international finance, the common law system has an overwhelming advantage. This is not about translating Japanese law into English. Translation would be confusing rather than useless. For example, considering that trusts under the U.S. law are quite different from Japanese trusts, simply translating the word is a source of misunderstanding. It is necessary not to translate but to make Japanese trusts the same as trusts under common law. Of course, we cannot change Japan’s entire legal system, so we need technical arrangements. One of such arrangements is the concept of ​​national strategic special zones. The purpose of such zones has to be to create a special legal space within domestic law, allowing for exceptional treatment not only for legal affairs related to international finance, but also for a variety of legal fields including tax treatments, land use, and employment. Then, in these special zones, will the court make decisions based on common law as a means to ensure legal effect? Special judicial systems operate in some specialized fields, such as marine accident inquiries. Given the high expertise required in financial transactions, shouldn’t there be consideration for establishing an independent special court in special fields such as cross border transactions, if not the entire financial system? Anyway, since laws work as laws only when their effect is ensured, the establishment of the judicial system is a critical element. Then, will the trials be done in English? Setting aside lawyers, it’s hard to imagine judges speaking English under the present circumstances. However, assuming that non-Japanese parties will be involved in the litigations, to become a truly international financial center, it will have to be an English trial. In any case, there is a serious issue of jurisdictional arrangements in contracts. Given the current situation of Japan, overseas participants in transactions are likely to be reluctant to set the jurisdiction in Japan. If the Japanese side makes a compromise and recognizes jurisdiction overseas, it becomes significantly disadvantageous to Japan. Again, if it is necessary to set the same conditions for litigation in Japan and litigation abroad, we need to change the judicial practice in Japan.

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The Economics of Japanese sake

Jul 30, 2018
byNoriyuki Morimoto

Kagoshima is an area whose land is covered in volcanic ash. Sweet potato was chosen as a suitable produce that grows in the poor soil, and this led to the creation of Kagoshima’s unique shochu culture. The world has an extremely diverse range of traditional alcoholic beverages, as the result of people developing ways to produce alcohol with whatever was locally available. This is also why the fact that beer and whiskey can now be produced in Japan, at world-class quality, is a symbol of the nation’s industrial development since Meiji era and a source of pride. Now, although Japanese cuisine has spread throughout the world, Japanese sake has not. In Japan, imports of French and Italian wine probably grew together with the rising popularity of French and Italian cuisine. For France and Italy, wine has become an important industry, because it was backed by a comprehensive strategy to export food culture. For Japanese sake, that strategy was missing. While wine in France and Italy became major regional industries and also global ones at the same time, Japanese sake, which lacked a food culture strategy, seems to have dwindled into regional industries that are not even very big, let alone global. In Okinawa, people basically drink awamori. That’s because awamori is strongly integrated in its distinct food culture. Without this established food culture, there is no tourism industry or penetration of Okinawan cuisine and awamori outside of Okinawa. It’s not clear whether economic domains created cultural domains, or the other way round: it may have been simultaneous, and the order does not matter. Then, given Japan’s current situation, some fundamental development should be needed, where the revitalization of regional cultures leads to the revitalization of regional economies. Initiatives to create regional industrial clusters that accommodate the full process from R&D to production activities for advanced fields, such as advanced medicine, international finance, or life science, also have to overcome the traditional framework of attracting facilities. They have to go all the way to creating a new cultural zone extending to education, with people taking initiative in putting medicine at the core. Or we may have to go back in history. The old realm of cultural exchange back in the Edo era was naturally overlapped with the economic realm built upon a logistics network centering on waterways. By looking back at old layers of industrial clusters, we might be able to find an outlook for building a new economic realm. An economy has to be a cultural foundation that people create. A rich economy is nothing else than a rich culture.

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