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Noriyuki Morimoto's Blog

Philosophers of Investment Should Reside in This Area in Tokyo

Feb 13, 2018
byNoriyuki Morimoto

Jimbocho is a district in central Tokyo. It is just north of Otemachi, a beautiful area with many high-rise office buildings facing the imperial palace: scenery that can be proudly presented to the world. No wonder that it fetches the highest rents in Tokyo. Meanwhile, Jimbocho is known for streets full of used bookstores. It looks like the type of commercial district that exists all over Japan: many small, low buildings remain in the area, with only a few large office buildings. However, the district is in central Tokyo all the same, offering very convenient transportation, including access to subway lines. Moreover, or despite of those facts, rents are low: not in absolute terms, but relative to the value it offers. How can that be said? Starting from Otemachi and heading north to and beyond Jimbocho, the farther you go from the center of Tokyo, the lower rents become. But the decline is not directly proportional to the distance. While there is a large gap in the rents in Otemachi and Jimbocho, the decline is much smaller even if you go much farther up north from Jimbocho. When you depict the changes in a graph, a steep cliff appears between Otemachi and Jimbocho, and from the bottom of the cliff, there is only a gradual downward slope. While Otemachi and Jimbocho have little difference in terms of convenience, rents are much lower in the latter. Farther up north from Jimbocho, while rents do not differ much, the level of convenience declines dramatically. Therefore, judging from the relation of price and quality, we can say that Jimbocho is a bargain—high quality and low price—as opposed to the area north of Jimbocho, where lower prices only match the quality of what you get. The basics of investment is to grasp the value of what you invest in: to find what is underpriced. A company that runs an investment business should follow that principle and base itself in such a location. That’s why our office is located in Jimbocho.

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A Price-less Rarity of a Book

Jan 29, 2018
byNoriyuki Morimoto

Books with historic value, an extremely small number of existing volumes, and very low chances of being found in used bookstores are classified as rare books. Whenever they happen to appear on the market, they are likely to be traded at extremely high prices—or are they? There is a book written by Takashi Negishi, a renowned economist and honorary professor of the University of Tokyo who was awarded the Order of Culture, titled The Time Tunnel of Economics (1984). This is an exciting collection of reviews on 24 selected classic works in economics, although the book itself is not rare. One of the books introduced in the above book is “seldom found in the lists of used bookstores, and doesn’t fetch a price because the volume is so rare”. It is Hiroshi Kawaguchi’s Study on Keynesian Economics (1953). Dr. Negishi described this book as “one of the earliest works in Japan featuring a full-fledged academic study on Keynesian economics: it is not only a good guide with excellent interpretations, but one of the best in terms of raising questions,” adding “I think I have been affected greatly by this book, at least at a subconscious level”. Since it was such a good book, a new edition was published in 1999 after Dr. Negishi wrote about it. Becoming a rare book means there is a strong demand for it among economic scholars, so from the publisher’s point of view, a new edition likely had prospects to sell. When a new edition is published, it seems that the price of the original edition is likely to fall, but what actually happens is not clear. As Dr. Negishi mentions, it is so rare that the book isn’t even properly priced. Put simply, without a book there is no transaction, without a transaction there is no price, and without a price, there is no way of knowing the price changes. Actually, I am the owner of this extremely rare Study on Keynesian Economics. I didn’t buy it expensively: instead I picked it up very cheaply from a box in which the used bookstore had thrown all kinds of worthless books. It was a moment of joy and excitement as a book lover. When Dr. Negishi says the book is so rare that it doesn’t fetch a price, it is only a presumption to interpret it as being extremely expensive. The reality of being price-less may be that it is totally forgotten and therefore available for almost nothing.

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Cool Japan and Cool Regions

Jan 15, 2018
byNoriyuki Morimoto

Cool Japan is to create additional values unique to Japan. In the global economy, Japan has to be Cool Japan. In the same way, in the Japanese economy, domestic regions have to create authentic values to become Cool Regions. Vitalization of regions is to make them cool. Wherever you go in Japan, stores and signs of the same retail and restaurant chains and identical ready-made houses line up alongside new, straight roads. This landscape is forming alongside desolate districts with narrow, winding roads and historical towns. It is not cool at all. Moreover, celebrating the opening of factories of major companies and mourning over their closure is an attitude that represents of the subordinate position of regions. It is not cool at all, either. Meanwhile, strong local characteristics are nowadays just a remainder of history. Even if they give people a sense of nostalgia, the potential for economic growth cannot be seen. Therefore, the fantasy of the old-time countryside is not cool, either. Cool Japan cannot be the extension of ”Fujiyama, sukiyaki, geisha” images. It cannot be a trivialized, distorted fantasy of Japan only appreciated by antique collectors and Japanophiles. Similarly, Cool Regions cannot mean the nostalgic feel of rural areas. It’s not that traditional pottery is cool: what’s cool is the advanced ceramics technology that evolved from the long history of pottery in Japan. It’s not that Ukiyo-e prints are cool: what’s cool is what evolved from its unique method of expression, like manga and art works of Takashi Murakami. It’s not that traditional features of local regions are cool: we have to go beyond them to create cool, new things. That’s what it means to revitalize regions. So then, regional vitalization will no longer involve mascot characters, theme parks, roads, airports, factories of big companies, sports centers, or public halls. It would no longer involve local produce, hot springs, or reconstruction of castles. Because none of them have creative aspects, and they are not cool at all. Cool has to be the creation of value.

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A Sad Little Tale in Pre-War Japan

Dec 18, 2017
byNoriyuki Morimoto

Denji Kuroshima is a now-forgotten writer who died during World War II. One of his notable short stories is The Two-Cent Coin (1925), a simple story in which a poor farmer’s son is tending the family’s cow when the cow steps on his head and kills him. When the boy was stepped on, he was pulling the string of a spinning top across a pillar of the cow shed, when his hand slipped and he fell over. The reason he was pulling on the string was to make it longer, since it was a bit short. The string for the top was a bit short because the mother had held back 2 cents when buying it. The proper length had cost 10 cents, but there was one string that was shorter than the others, so the shopkeeper said 8 cents would do for it. The mother handed over 10 cents and received a 2-cent coin in change. The title of the story comes from that 2-cent coin. There is another underlying plot to this story: the day the boy died, a travelling sumo event came to the neighboring village, to which all the other children went together to watch. The boy had also wanted to go, but the mother did not allow him to, saying, “Poor people like us can’t afford to do such a thing!” Three years after the incident, the mother still regrets: she shouldn’t have bought the shorter string just to save 2 cents; she should have let the boy go watch sumo. ”That is how she still sheds tears......” The writer’s emotion is fully expressed in how the story trails off at the end. While it is only natural that a mother regrets and mourns over the death of her son, her sparing 2 cents and keeping the boy from watching sumo don’t have a direct correlation with his death. To find a kind of correlation, you have to go one step higher: poverty forcing the mother to exclaim: “Poor people like us can’t afford to do such a thing!” and the social structure that creates such poverty. If the core factor of the incident was the fact that the young child was forced to work, if the real problem was poverty forcing labor onto the young child, the government should be held responsible for neglecting measures to save such people in poverty. If that is the case, the mother has to fight. The accumulation of the small fights of many such mothers would have caused a social reform. However, needless to say, the story ends with ”......” out of consideration for strict restrictions against expression in pre-war Japan.

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Japanese People Love to Gamble

Dec 04, 2017
byNoriyuki Morimoto

Whether or not casinos should be approved has been a political issue over many years. Gambling is illegal, so a special policy objective is needed to legalize it. Now that the official objective for casinos has become to attract foreign tourists, the discussion is heating up towards actual implementation. Actually, quite a number of gambling activities are legalized in Japan already. For example, horse racing basically falls under the crime of gambling under article 185 of the Criminal Code. However, article 35 of the Criminal Code states that ”An act performed in accordance with laws and regulations or in the pursuit of lawful business is not punishable,” and Article 1 of the Horse-Racing Act states that the Japan Racing Association and prefectural governments are authorized to operate horse racing. Therefore, it is a legal form of gambling. In the same way, lotteries are basically a crime according to article 187 of the Criminal Code, but it is legalized by the Lottery Ticket Act. This act limits sellers to local governments, and its purpose to fundraising for local administration (Article 1). Horse racing and lotteries are legalized forms of basically illegal activities for the purpose of fundraising, mainly of local governments. Therefore, for the operators to secure income, it goes without saying that the gamblers are at a disadvantage. It is an extremely unfair economic transaction, given that the income of the operators is very large. This extreme unfairness is a fundamental factor of gambling: gamblers are in pursuit of pleasure that does not make economic sense. Whether the pursuit of such pleasures should be liberalized is a matter of advanced legal discussions, also related to regulations around drugs. Horse racing and lotteries are legalized based on a comprehensive decision, considering that they are historically and socially established forms of public entertainment, that problems of addiction and other issues are not too severe, and that they serve public benefit as a source of funds for local governments. And the fact is that horse racing and lotteries are popular: Japanese people love to gamble. Racing and lottery tickets sell well because of their popularity, which is why local governments can raise funds from them. The Japanese government might have legalized and monopolized gambling for public-sector fundraising based on the Japanese people’s love for gambling. Casinos cannot be legalized under the same logic. Perhaps that is why the debate has not reached a conclusion.

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The disease of Japanese banks

Nov 20, 2017
byNoriyuki Morimoto

The Japanese have a way of assuming the other person’s intentions. Although this is no longer as prevalent as it had been in the past, it is deeply rooted in the Japanese society as a chronic and malignant disease. There is no growth without reform, and no reform if we are caught in over-assumption. Is it possible to overcome this disease? Banks seem to be suffering especially severe symptoms. From the past, banks have considered it an extremely important job to assume the intention of governing authorities. This has not changed even after the FSA became independent from the Ministry of Finance and underwent a major overhaul led by commissioner Mori. A typical case is that banks do not respond straightforwardly to inquiries and requests for information from the FSA, but always make assumptions on what is happening in the background. As a result, they usually identify the intention to restrict activities. For instance, when they are asked to submit information on the balance of card loans, they assume at that point that the FSA has a negative view on the expansion of card loans. The assumption made in the case of card loans happens to be correct, but this is not always the case. For example, the FSA is frequently commenting on sales commissions of investment trusts, and the banking industry holds a general assumption that they are not supposed to charge sales commissions. However, the FSA is not denying sales commissions as a legitimate payment for service: it is just asking for their logical basis. Probably the Ministry of Finance, as well as the FSA in the past, held the assumption that the banks would make a correct assumption when they negotiated inquiries and requests for information. Seen from the outside, it was an extremely unclear and incomprehensible situation, but it should have worked as an extremely sophisticated and technical method of administration among the parties involved. Nevertheless, the current FSA led by commissioner Mori has completely abandoned this old-school administration method, so banks no longer have to be capable of such assumptions. A grave problem is that banks still use their now worthless ability of assumption in totally pointless ways. The current FSA positions itself not as a supervisor but as a counterpart of dialogue with banks. It is pointless to assume hidden intentions when open dialogue is taking place. It should not be called a dialogue in the first place if both sides talk based on assumptions of the other side’s intentions. And because the banks do just that, the intentions of the FSA do not reach them in a straightforward manner, but are misunderstood and interpreted in a distorted way. This is a regrettable situation.

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Which company is Nomura Holdings Going to Sell?

Nov 06, 2017
byNoriyuki Morimoto

Nomura Securities responded to the Financial Services Agency’s (FSA) policies and set out new management principles that strengthen control over conflict of interest. This has great significance for Nomura Holdings, the parent company of Nomura Securities, because it seems to lose rationale for holding both Nomura Securities and Nomura Asset Management as core businesses. Between Nomura Securities and Nomura Asset Management, there is a risk of conflict of interest for all operations related to asset management. In eliminating all risks of conflict of interest under the new management principles, the two companies should sever all ties in the forms of business philosophy, human resources, sales support, information exchange, and so on. For Nomura Securities, Nomura Asset Management is now merely one of many managers of investment trusts, and for Nomura Asset Management, Nomura Securities is just one of many companies that sell its products. Now that their brotherhood has completely lost its meaning, Nomura Holdings would be questioned of the logic behind holding two unrelated companies, as such a structure cannot completely get rid of the potential risk of conflict of interest. It is likely that some members of the investment community immediately thought of the difficulty the two companies would face in coexisting. That was what actually came to my mind, and I was also asked very candidly by the representative of a renowned foreign management firm about which of the two companies I thought would be sold off by Nomura Holdings. Of course, Nomura Holdings can expect to raise overall efficiency by holding multiple unrelated businesses with different revenue structures, based on portfolio theory or financial conglomerate strategy. As a financial group, conglomerate strategies are also under the restriction of business scope, so investment management seems to be an attractive business which only requires small equity capital. Then, how is the situation outside of Japan? When a financial group holds an investment management business, the only feasible way is rationalization based on portfolio theory. It is also rare to share trade names within the group: companies in the same group usually have unrelated names. There are also quite a few financial groups which do not hold investment management businesses. This is because investment management is basically an independent and specialized business in the first place.

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Can Nomura Asset Management Let Go of Nomura’s Name?

Oct 23, 2017
byNoriyuki Morimoto

As a response to new policies set by the Financial Services Agency (FSA), Nomura Securities disclosed its new management principles. In it, the company announced that it would no longer give special treatment to Nomura Asset Management under the same holding company. It also stated that the selection process of investment trust products would be improved to utilize research and analysis results of rating agencies, and high-quality products would be selected from a wide range of options. It is not just Nomura, but all financial groups in Japan that prioritize relationships within the same corporate group, allowing for conflict of interest. Needless to wait for the FSA’s comments, that has been a common understanding in the financial industry. Nomura’s decision to change this situation would likely hold significant meaning in the history of finance in Japan. Between Nomura Securities and Nomura Asset Management, the risk of conflict of interest exists not only around investment trusts, but in all types of asset management businesses. The idea of Nomura’s management principles should not be limited to sales of investment trusts. When attempting to remove all risks of conflict of interest, the relationship between the two companies would be severed in every way, including shared management philosophy, exchange of personnel, cooperation in sales activities, and exchange of information. Since Nomura Securities has a strong client base, expanding its reach of product procurement would only have positive impact. However, Nomura Asset Management has now become one of many management companies for Nomura Securities. Without Nomura Securities’ support, is it able to survive as a truly independent investment management business, purely by its own management skills? Of course, it is not a question of whether Nomura Asset Management can survive. There is no other choice for it other than to part ways with Nomura Securities and establish itself as a completely new company, and improve true skills of asset management. Ultimately, it should become independent enough that its trade name Nomura would get in the way, urging the company to be determined to get rid of it. So, would Nomura Asset Management be able to let go of its Nomura trade name? If it can, would that happen in the near future?

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The Impact of Nomura’s Reform Announcement

Oct 10, 2017
byNoriyuki Morimoto

On April 14, Nomura Securities announced its new management principles regarding sales of investment trusts. It was a response to policies disclosed by the Financial Services Agency (FSA) on March 30, but its quick reaction and contents that deeply reflect the intentions of the FSA made a strong impression on the financial industry. In its principles, Nomura stated that when selecting its lineup of investment trust products, it would pick high quality products from a wide range of options not restricted to those of group companies. It would also refer to research and analysis by rating agencies and choose products that are evaluated above a certain level. And by “group companies”, it is referring to Nomura Asset Management. This announcement suggests that up to now, Nomura had been treating Nomura Asset Management in a special way, essentially allowing a situation risking conflict of interest. Despite such a risk, it had been shrugging off the doubt claiming that there was no proof of active damage to the clients. However, based on the new management principles, Nomura Asset Management would become just one of many management companies. The significance of this new management principle is in the strengthened management of conflict of interest. But not only that: Nomura reviewed its process of selecting investment trusts and went another step to improve the quality of its product lineup. This dramatic change of Nomura Securities, more than being a serious response to the FSA’s policies, is likely evidence of its attempt to overhaul its business model. It is an expression of the company’s sense of urgency that there is no future in keeping the existing way of doing things. This change would probably be a fundamental and substantial one that would alter the course of Nomura’s history. Clearly, this reform would change the profit structure including dependency on sales commissions: in the short term, a decrease in revenue and profits is probably inevitable. Nevertheless, Nomura took a mid- to long- term view to improve its profit structure by increasing its compensation according to the amount of client assets, thereby increasing its corporate value. This is a great development. I wish for Nomura’s success, also for the future of Japan’s financial industry.

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Artist Takashi Murakami’s Management Strategy

Sep 25, 2017
byNoriyuki Morimoto

Takashi Murakami’s book “Art Entrepreneurship” (Gentosha) is a work of art in prose by a representative Japanese modern artist. I call it art because of its depth that allows it to be read in any way. The book is a long prose poem about the artist himself, and coming from deep insight into the social relevance of creative activity from a historical context, it is something close to a book of philosophy. It is also an excellent book of entrepreneurship based on thorough market analysis. On its cover are the words “super business book” in small print. Given that these words appear nowhere in the book’s pages, it must have been added by the publisher Gentosha. This little twist is also a nice part of this art piece. A well known statement of Murakami is that the modern art market is established with wealthy people in western countries as the main buyers, and art pieces do not sell well unless they match their preferences. As for the expectations of such buyers, Murakami presents the following three elements: whether it involves a suggestion of a new game, whether it involves a new interpretation of western art history, and whether it comes with a violation of rules with conviction. I think his second point is especially poignant: this was exactly the case for ukiyo-e prints. The value of ukiyo-e was discovered by foreigners. In isolated Japan, it was naturally impossible to position the homebred ukiyo-e tradition within the context of western art history. By coincidence, ukiyo-e flowed out of Japan and gained a position in western art history, resulting in the birth of ukiyo-e as an art form. Therefore, modern-day appreciation of ukiyo-e is not for ukiyo-e as Japanese art. It is an appreciation within the context of western art history. What Murakami did as an artist was to change the happenstance of ukiyo-e to a necessity. By studying western art history at an advanced and strategic level, and positioning his own art in its context, he succeeded in gaining a position at the cutting edge of the buyers’ collections. That’s why Murakami’s works sell at hefty prices. A simple extension of western art history does not sell expensively. Suggestion of a new game, a new interpretation, and violation of rules with conviction is needed. Murakami incorporated such drastic elements drawing from Japanese manga culture and otaku culture, bringing them together under his “Superflat” concept. He is an artist with a command of astonishingly deep strategy and highly technical tactics. Truly amazing.

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Entrepreneurship of the artist Takashi Murakami

Sep 11, 2017
byNoriyuki Morimoto

For the artist Takashi Murakami, the art market is a game structured by strict rules. Moreover, it is a game with a long history and depth which cannot be changed overnight. Since it is a game, cheating is not allowed. But by knowing and complying with the rules while incorporating intentional violation of the rules, he offers new rules to the game. Such tough effort is essential to gain acceptance in the market. An artist is worthless unless he adds new elements to the market. But newness exists only beyond strict observation of the rules of the market. Simple violation of the rules is nothing new: it is just a violation to be denied. It is not even art. There should be a profound meaning behind the title “Art Entrepreneurship” when Murakami discusses his art. Some people apparently take it as his attempt to make money out of art, which is a ridiculous misunderstanding. The form of art itself is the fundamental form of entrepreneurship in the business world. Entrepreneurship is art. Actually, if you take Murakami’s logic and apply what he says about the art market to the business market in general, the book stands as an excellent book of entrepreneurship in business. Many people aspire to start a business. Regardless of which field that business would be in, entrepreneurship should attempt to bring something new in the existing market. Meanwhile, every market has rules established through a long history. Visible and invisible rules make up a complicated network. Usually a new business starts with a critical perspective to the existing norm, but if it is just a violation of existing rules, it is simply denied. The startup ends a failure. A new business would not succeed without a new element that is accepted by the market: to borrow Murakami’s words, suggestion of a new game, new interpretation of history, and violation of the rules with conviction. It is a matter of fact that a robust business design which grasps the structural change of society is essential for the success of a business; it should be meaningful to clarify the actual contents through the three aspects Murakami presents.

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Wagyu, Manga, Nippon

Aug 28, 2017
byNoriyuki Morimoto

As English becomes a global language, it has to transform itself from the original form by obtaining new expressions and words from various other languages. However awkward the language may be, what matters is whether it can be understood. Spreading the acceptance of English with Japanese features has more value than learning authentic English. So what is wrong with Japanglish? Values that are uniquely Japanese may not always be translatable to English. As Japanese culture finds its way into the global environment, Japanese words naturally become embedded in the English language. Wagyu means Japanese beef, but since it is a special kind of beef only available in Japan, the word has been transplanted directly into English. Wagyu became a globally renowned food ingredient as a result of strenuously keeping its high Japanese quality. But on the other hand, its global appreciation is based on the status of beef as a signature ingredient in western cuisine. It might not have been globally recognized if it was simply something original to Japan. So-called “cool Japan” is not global if it is just about Japanese appeal. Thinking cool Japan from a global perspective, it should aspire to create something new by combining Japanese and non-Japanese features, rather than introducing existing Japanese things to other countries. Even if Japanese manga culture is introduced overseas from a Japanese perspective, it is not enough to spark the creative evolution of manga as global culture. Japanese manga culture can make a global contribution when it resonates with all areas of modern art outside of Japan and creatively interacts with them to deliver something new. The position of Japan in the global environment is comparable to the position of local regions within Japan. In the past, regional growth meant to bring locally unavailable things from Tokyo. This is parallel to how Japan’s development took place by absorbing the achievements of western culture. As a result, regions became increasingly dependent on Tokyo, causing local sources of growth to dry up. With the inability to give a cultural blow to western culture, Japan seems to have been backed into a corner, rapidly being caught up by emerging countries taking the same growth strategy.Efforts to revitalize regions are shifting gear to enhance locally unique qualities. Regional revitalization is the domestic source of growth, and the globalization of uniquely Japanese qualities is the international source of growth for Japan’s future.

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