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Opinion

IMF Urges Japan to Reload Abenomics and Speed Up Structural Reforms

Nov 02, 2015
byJeff Allan

  In July, the International Monetary Fund (IMF) released a report that called on Japan to move away from its reliance on the weak yen, while it continues its quest to boost inflation and growth. The monetary fund said Japan should roll out long-awaited structural reforms with greater speed and be prepared for additional monetary easing.  While this sounds like pragmatic advice, the reality has been far more difficult for Japan to achieve several of its economic reform goals. The first and second arrow of Abenomics started out with a lot of promise. The Bank of Japan’s monetary policies saw success with bringing inflation to 1.5 percent by mid-2014, just shy of the administration’s 2 percent target. Since that high point, however, inflation has been on a downward trend, hovering near zero since February 2015.

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Opinion

Japanese Companies Offer New Streaming Services ~Industry Hopeful that Streaming will Offset Declining Revenues~

Oct 19, 2015
byJeff Allan

  Generally, Japanese consumers have a reputation for their early adoption of the latest technology and gadget trends. For example, many of the advances within mobile devices that have taken place over the last several years already existed within Japan’s domestic keitai market. Analysts within the online services sector often attribute Japan’s slow adoption of desktop internet in the early 2000s to the Japanese preference for mobile devices and services.  Given the above, however, many people are surprised to learn that Japan lags so far behind with streaming music and video content and services. While markets like the United States have seen rapid advancements with services that include Netflix, Spotify, and Pandora, the Japanese consumer has preferred to stick with physical media, such as CDs and DVDs. Several factors have contributed to this trend, but a combination of pricing controls from the distribution side together with a consumer preference for physical goods has likely been the major driving force. Current industry figures have Japan alone accounting for 30 percent of total music CD sales globally.  These trends might appear favorable if the physical distribution of music was not in a severe, protracted decline. Sales of music content in Japan for 2014 were just under US $2 billion, which is roughly half of what the industry was earning in the early 2000s. Music industry executives are aware of the problem’s scope, but solutions have proven difficult. For several years, Western players like Hulu and Spotify have tried to enter Japan’s streaming market and been met with limited success. Japan’s complex rights holder issues and a lack of access to Japanese artist catalogs have made it especially difficult for these companies to get into the Japanese market.

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Opinion

Revised Q1 Data Shows Impressive Growth for Japan’s Economy                                   ~Business Spending Provided Major Boost~

Oct 05, 2015
byJeff Allan

 In early June, the Wall Street Journal—among many others in the financial press—covered Japan’s remarkable economic growth, based on revised data for the first quarter of this year. While most analysts and economists had predicted a respectable 2.4 percent growth for the quarter, the revised figures showed that the Japanese economy actually grew by an annualized pace of 3.9 percent between January and March of this year. The WSJ noted that the biggest part of that growth came from business investment. Instead of the expected 1.4 percent, Japan’s service industries ramped up capital spending by 11 percent for the quarter, following the example set by the country’s exporting industries. This is Japan’s second straight quarter of expansion. These two consecutive expansions come in the wake of the consumption tax hike, which was largely blamed for triggering the contraction at the end of last year.

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Opinion

Tourism to Japan is Booming but Growth Exposes New Challenges

Sep 14, 2015
byJeff Allan

  In June, the Japan Times ran an article about the impressive growth happening within Japan’s tourism sector. Growth has far exceeded even the most optimistic projections, and it continues to do so with each passing month. The focus of the article was the new challenges that Japan is facing, as tourism continues to grow at such an unprecedented rate. Near the end of last year, we also wrote about Japan’s tourism growth, and the Japanese companies leveraging the situation to stimulate sales, even as Japan’s domestic market continues to shrink.  In our article, we noted how these Japanese companies were taking advantage of the influx of foreign cash by offering products and services specifically aimed at visitors. Japanese retail chain Don Quijote was leading the push to make it easier for foreign tourists to spend money while visiting Japan. In just the short time since writing that, the sector’s vibrant growth has brought to light several other challenges and opportunities that corporate Japan needs to face as more visitors are expected, leading up to the 2020 Tokyo Olympics.

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Opinion

Japan increasingly Turning to Women and Seniors to Fill Workforce

Aug 31, 2015
byJeff Allan

 Continuing its downward trend, Japan’s June unemployment rate stood at 3.3 percent. That is the lowest it has been since early 1997 when unemployment was at 3.2 percent and Japan had yet to descend into deflation. The Nikkei Asian Review notes that in April, the job offer to applicant ratio was at 1.17, representing a 23-year high. For most countries, this would be welcome news, but the situation in Japan, however, is not so simple. The issue of Japan’s shrinking population is fairly common knowledge. The impact that population decline is having on the available workforce, though, is one of the most damaging aspects of Japan’s demographic shift. Now in its fourth year of decline, Japan’s population as of October 2014 was back to its year 2000 levels. Of those people, 26 percent are aged 65 or older. At the current rate, experts predict the Japanese population will shrink to below 90 million by 2060. This population decline is putting pressure on Japanese businesses as they attempt to increase staff numbers. Due to the limited availability of working age Japanese males, companies are increasingly turning to women and seniors to fill their ranks. This simultaneously helps tackle the Abe administration’s objective of getting more women and older people into the Japanese workforce.

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Opinion

Japan’s Baby Products Seeing Growth in Asia         -Nonwoven Materials Tech Providing Competitive Boost-

Aug 17, 2015
byJeff Allan

  Daio Paper, a Japanese company best known for its manufacture of various paper products, has been the focus of a two Nikkei Asian Review articles in recent months. Last March, the publication explored Daio’s success in China’s baby care products market. Daio’s premium line of GOO.N disposable diapers has been a major hit, despite prices higher than many other competing import brands.  Chinese parents have been so impressed with the product’s quality and innovative features that even prices five times higher than domestic products have not deterred sales. Daio’s success with the premium GOO.N line in China has been substantial enough that it helped triple their overall sales of disposable diapers in China for fiscal 2014.  Next, in May the Nikkei Asian Review published a second article concerning Daio’s use of earnings from its diaper business to lower debt. Daio hopes to lower its interest-bearing debt by 17 percent through fiscal 2017. The company will continue to cut costs of under-performing product divisions, increase diaper production capacity in China, and pay down debt from diaper profits. Daio’s household products unit—responsible for its diaper business—has been a bright spot that has helped the company recover from a 2010 scandal involving its former chairman. The company expects a debt-to-equity ratio of 1.9 by 2017.

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Opinion

Japanese Companies’ Reshoring Plans Take Shape

Aug 03, 2015
byJeff Allan

 The Japanese economy continues to move past the recession that ended in the fourth quarter of last year. The first quarter of this year saw 2.4 percent economic growth, which surpassed economist estimates of 1.5 percent. There is little doubt that the economic growth has been helped along by increased domestic spending and manufacturing by Japanese companies. To that end, the first quarter yielded a 0.4 percent increase in capital spending. While not huge, it is the first growth registered in four quarters, according to data from the Kyodo news agency. These results tie in nicely with the Abenomics economic agenda. One of the biggest benefits—if not a central goal—to emerge from the monetary policies of Abenomics is the reshoring of Japanese manufacturing. Aside from strengthening the competitiveness of export-oriented industries, the weaker yen has made manufacturing in Japan far more feasible from a cost perspective, when compared to offshoring. As with the recovery to exports, reshoring of Japanese manufacturing has, likewise, taken some time to gain momentum.

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Opinion

Shareholder Meeting Season Marks New Era for Many Japanese Companies

Jul 21, 2015
byJeff Allan

  The annual shareholder meeting season is just wrapping up for many listed companies in Japan. The season is typically known as either overly uneventful or full of drama, depending on which company or group of shareholders you ask.  In the past, the involvement of activist investors has often set the stage for a more entertaining meeting. Take Koito’s 1990 shareholder meeting with T Boone Pickens in attendance, as an example of how explosive these meetings can become. Most companies, however, never reach that level of drama or animosity.  This year though, many companies anticipated and encountered a different atmosphere than the shareholder meetings of years past. Corporate Japan has undergone many significant changes since the start of Abenomics, and this year marked the implementation of several initiatives aimed at overhauling the fundamental nature of shareholder culture in Japan. Various companies included on the newly created JPX-Nikkei 400 were able to tout their various accomplishments, while others that did not make that list faced greater accountability from more empowered and emboldened shareholders.

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Opinion

Funds Targeting Tokyo Real Estate

Jul 06, 2015
byJeff Allan

 Last summer, we wrote about a resurgence in Tokyo’s commercial property sector. It was exactly a year ago that the Wall Street Journal had proclaimed that Tokyo’s property market was back “on top of the world,” having surged 71 percent compared with a year earlier. The buoyant optimism around Tokyo’s commercial property market continues, and both private equity and sovereign funds are taking advantage of the growth. Bloomberg notes that land prices in Tokyo’s three largest metropolitan areas have gained for the second consecutive year. Increases in property prices have coincided with monetary stimulus from the Bank of Japan, which has lowered borrowing costs to record levels. Likewise, investors are seeking better yields on investments, while many funds have had a shortfall of Japanese real estate in their global portfolios. Cumulatively, this has created a very favorable environment for Japanese commercial real estate, with Tokyo reaping the bulk of the activity.

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Opinion

Japan Continues Massive Overseas M&A Efforts

Jun 22, 2015
byJeff Allan

 Continuing the trend started last year, Japanese companies have embarked on a record outbound M&A binge through the first half of 2015. By May, Japanese companies had snapped up overseas deals worth more than US $37 billion, according to data from Dealogic.  That figure is the highest since 1995 and double the total from the same period a year earlier. This is considerably more remarkable given the current state of the yen against the dollar. As of this writing, the yen is hovering right around 124 to the dollar. Compared with lows of around 80 yen to the dollar a few years back, the cost of overseas acquisitions have gone up around 55 percent for Japanese companies. This has done little to deter corporate Japan’s overseas spending spree.

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Opinion

Japan’s Online Shopping Boom

Jun 08, 2015
byJeff Allan

  Talk of a boom in online commerce seems like an article that should have come somewhere around the turn of the last millennium. After all, companies have come and gone since then. The sector has consolidated and Amazon has emerged as the dominant player in the space. At least that is the case in the United States. In Japan, the situation has played out far differently.   Although Japanese consumers are renowned for their quick adoption of the latest gadgets and technologies, online shopping in Japan has struggled to gain traction in the past. Several factors have likely contributed to the lackluster growth of online commerce in Japan. The last few years, however, have seen changes on several fronts that have provided greater opportunities in the online retail space.

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Opinion

Japan’s Small Companies Tapping JBIC Loans as They Expand Outward

May 25, 2015
byJeff Allan

 Japanese small and medium-sized companies are increasing their pace of borrowing in an effort to expand to markets outside of Japan. As the Japanese market faces pressures from a shrinking population, which will limit future potential demand, these companies are looking to the Japan Bank of International Cooperation (JBIC) as a source for funding to seek new markets overseas.  JBIC chief Hiroshi Watanabe told Bloomberg that he believes there is a strong impetus by small to medium-size Japanese companies to not just follow the lead of their larger business partners. Instead, he sees the need for these companies to diversify the locations in which they do business outside of Japan.

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