Archive for September, 2010

No need to feel sorry for the Incubator babies

Friday, September 24th, 2010

That's all, folks!

That’s all, folks!

When Nihon Shinko Ginko filed for bankruptcy on Sept. 10 the media reacted predictably with alarm. Any bank that fails is bound to send shivers through the population, even those who don’t have accounts with the institution in question. Incubator Bank of Japan, as it’s called in English, had debts that exceeded its assets by more than ¥180 billion, incurred through making loans to small businesses. Exactly 126,779 people had time deposits in the bank.

What makes the story especially notable is that this is the first instance of a bank failure in which the government will limit “payoffs” (deposit guarantees) to ¥10 million per account (plus interest earned) since the deposit guarantee program was begun in 1971. Between 1996 and 2005, the cap was suspended to prevent runs on banks that were hard hit by the post-bubble recession. The cap was reinstated as part of the financial reforms undertaken by former prime minister Junichiro Koizumi (Incubator, in fact, was started in 2004 by Takeshi Kimura, a pal of Koizumi’s financial services minister, Heizo Takenaka). For Incubator customers with more than ¥10 million in their accounts, there is no guarantee they will get it all back.

As it turns out, only 3,423 of Incubator’s depositors had more than that amount, and their total at-risk deposits — meaning the money in excess of the ¥10 million limit — only came to ¥11 billion of the total ¥582 billion in time deposits. The reason for this low amount is simple: Incubator took advantage of the payoff system by telling potential customers that there was no risk if they deposited less than ¥10 million, and then offered much higher interest on time deposits than any other bank, a cool 1.9 percent for five-year accounts. Consequently, they got lots of customers. They could offer this high rate because they do not offer regular savings accounts, which require lots of resources and personnel to maintain.

And the rest of the banks, or, more precisely, those banks’ depositors, provided the refunds to the Incubator depositors. Every bank has to pay the Deposit Insurance Corp. of Japan 0.084 percent of its total deposits as insurance premiums. And if that amount isn’t enough to do the job when the occasion arises, the government will step in with tax money.

But it sounds as if they aren’t going to need all that money anyway. On the first day refunds were made available, only ¥5 billion was removed, equivalent to 0.9 percent of the relevant deposits. One week later, the total amount so far taken out was only ¥29 billion. Apparently, most of the depositors who showed up to claim their money changed their mind once things were explained to them. While the DIC sorted out the bank’s affairs, time deposits would continue to accrue their 1.9 percent annual interest for up to eight months, at which point it is projected that a “reconstruction sponsor,” or replacement bank, will step in to take over these accounts. Then, most likely, the interest rates will drop to whatever that bank offers. But in any case, there’s no danger of losing money or interest, so depositors might as well keep their money there. In a sense, it’s important that they do, since the more money that’s taken out of Incubator, the more difficult it will be to find a replacement bank. If you do take your money out and the account has not reached its five-year maturity, your interest rate will drop to a fraction of the original 1.9 percent rate.

If the Incubator bankruptcy isn’t as dire as it was reported to be, it does, however, provide a modest illustration to average people of what “high risk-high return” means, and thus may have an even more flattening effect on investments. The amount of household assets that are now in cash and savings is ¥806 trillion, the highest it’s been since 1997. Japanese people are already afraid wary of stocks, mutual funds and other investment instruments, and the Incubator story isn’t going to make them any more willing to try something new. The people who put their money into Incubator are considered, relative to the average Japanese consumer, risky investors, which is why it is so easy to talk them into keeping their money there even as the media continues to report on its insolvency. The vast majority of Japanese put their money in the bank, even if it just sits there doing nothing.

Is one subway system better than two?

Saturday, September 18th, 2010

The Toei subway system

The Toei subway system

The subway system now known as Tokyo Metro began as a private entity in 1927, when it was just one line between Ueno and Asakusa. It eventually morphed into the Eidan subway system, which was a public company. Then it went back to being private in 2004, though 53.4 percent of its stock was held by the central government and 46.6 percent by Tokyo Prefecture. Tokyo Metro’s management had originally hoped to list the company on the Tokyo Stock Exchange sometime between 2007 and 2009, but according to the business magazine Toyo Keizai, they put it off due to the recession, thinking they could raise more money if they waited until the economy picked up.

Now maybe they’re wondering if they should have gone for it. At the most recent shareholders meeting in the Tokyo metropolitan government, vice governor Naoki Inose proposed that Tokyo Metro merge with the city’s other subway system, Toei, to form one big underground railway. Toei is completely public and owned by Tokyo. It is a much newer system than Tokyo Metro and still carries a cumulative debt of ¥443 billion, which is why the management of Tokyo Metro balked at Inose’s suggestion. Toei finally started showing a pretax profit in 2006 and finished all construction in 2008, but that amount of red ink makes for some heavy depreciation, and if the two subways merged the joint stock price would be much lower than what Tokyo Metro could expect on its own, which is estimated to be about ¥600 billion. Consequently, Metro wants to list before any possible merger in order to make as much money as possible.

A delay would be better for Metro’s stockholders, but Inose is saying that a merger is better for patrons. Because of its debts, Toei’s fare schedule is higher than Metro’s. The “entry fare” (hatsunori) is ¥170 for Toei and ¥160 for Metro, and though it’s only a ¥10 difference, Toei’s entry fare only lasts up to 4 km, while Metro’s is good for up to 6 km. These ratios apply up the line, and by the time you get to the top fares, Toei’s is ¥110 more than Metro’s. Inose says that if the two systems were merged, their fares would automatically “unify,” meaning Metro’s would stay the same and Toei’s would actually drop.

Inose, who many believe has his eye on the Tokyo governorship once Shintaro Ishihara eventually steps down, is counting on Tokyo Metro to do the right thing for the people of Tokyo. Though as a private company Metro has a responsibility toward its stockholders, half of those stockholders comprise the government of Tokyo, which runs Toei. And as some analysts say, after they merged it would only be a matter of time before the stock rose to very high level, since no more construction is planned for the next 10 years. All they have to do is run trains, pay off their debt and make lots of money.

Government organ sets sights on student-loan scofflaws

Thursday, September 16th, 2010

Abandon all financial hope ye who enter here: Tokyo Univ. of Fine Arts

Abandon all financial hope ye who enter here: Tokyo University of Fine Arts

Education is big business in Japan, and as with all big businesses there are lots of government agencies and organizations who make money from it. In turn, these public organs can find themselves in just as much financial trouble as private companies, what with the continuing economic downturn.

Take the Nihon Gakusei Shien Kiko, or, in English, Japan Student Services Association (JASSO), which is mainly responsible for distributing university scholarships to qualifying students. Before we go any further, these scholarships are not what you might expect them to be if you went to school in the West. For some reason the word shogakukin is translated in English as “scholarship,” which in America, at least, describes grants given to students with extraordinary abilities, special needs or both. In Japan, shogakukin are essentially student loans. Except for some special programs carried out by individual universities, there are no grants.

JASSO is finding itself in a pickle thanks to the recession. According to the association’s statistics, only about 60 percent of university graduates in 2009 have found regular full-time employment so far. This portion, however, marks an increase over recent years. In 2004, the percentage was 53 percent for men and 59 percent for women. Since then the portion has risen slightly for men, but has dropped to about 35 percent for women. During the bubble era of the 1980s, about 80 percent of college grads found regular full-time jobs. The portion peaked in 1991 at 81.3 percent, and has declined ever since.

Many college students take out student loans from JASSO, and because fewer and fewer are finding gainful employment, the number who are delinquent with loan payments is increasing. Last year, the number of people who were more than three months behind on their payments was 2.6 times the number in 1999. These delinquent payments — not the balance or money already paid, only the money that is late so far — amounts to a hefty ¥263 billion. About 2,370,000 former students are behind in their payments, and JASSO is having a difficult time tracking them down. That’s because the association assumed the function of a different government organ called Nihon Iku Eikai in 2004 without updating its system, and they can’t keep up with the sudden increase in loan scofflaws. This is a big problem because the money they receive from former students is used to fund the “scholarships” they give to new students. This year the amount of money they will lend to university students is a little more than ¥1 trillion. That’s 2.4 times the amount they lent in 2000.

JASSO offers two types of loans, one with a maximum interest rate of 3 percent, and one that is interest-free. About half of Japanese high school graduates go on to four-year universities (the same as in the U.S., but much less than South Korea, where the matriculation rate is 89 percent), and one of the myths is that public universities are free. Actually, they are only slightly cheaper than private ones. The Tokyo University of Fine Arts, a public institution, requires ¥817,000 for the first year and then about ¥535,000 tuition each year thereafter. Waseda, the country’s premier private school, costs ¥1.2 million the first year and ¥752,000 every year after that for a liberal arts degree. That doesn’t include books, room & board and the many supplementary fees that universities require depending on your major.

So getting a good job after graduation is essential, in more ways than one. JASSO says it will start cracking down on scofflaws by sending notices to 2,360 of them at first, informing them that if they do not catch up with their payments by a certain date, they may be placed on a blacklist that will make it difficult for them to secure credit in the future.

Wedding planners make killing despite recession, population drop

Wednesday, September 15th, 2010

Now where did I put that prenuptial agreement?

Now where did I put that prenuptial agreement?

According to the Teikoku Databank Service, the number of total marriages has been dropping steadily year-by-year for a while now, the result of the population decline and the trend for getting married later. Nevertheless, wedding planning companies are doing better business than ever. Teikoku found that the top 69 companies in the so-called bridal industry made altogether ¥361 billion in 2009, a 3.6 percent average increase over 2008, which saw a 4.7 percent average increase over sales for 2007. Thirty-eight of the companies in this group told Teikoku that they have enjoyed two straight years of profit increases.

Why such good business, especially since there were fewer marriages (710,000) in 2009 than there were in 2008 (730,000)? The reason is that, while couples are waiting longer to get hitched, when they finally do they tend to be more financially comfortable. Most of these companies’ revenues are coming from couples in their 30s getting married for the first time. These people have likely already been employed for a while and have two incomes. They want “the real thing” (honmono) when it comes to a wedding, and are happy to splurge for it. The big bridal industry trends now are big house weddings and restaurant receptions, rather than hotel weddings or special “bridal hall” package deals. The average starting cost of a wedding (before the many add-ons) has stayed mostly stable for a decade, at about ¥3 million, but big house weddings, where couples rent large luxury homes for their receptions and maybe even the ceremonies, start at about ¥4.5 million. For comparison, hotel weddings start at about ¥4 million.

Autumn is wedding season in Japan, and a lot of bridal companies are now taking advantage of the high yen and offering discount wedding packages overseas. NHK recently visited the wedding planning company Watabe Wedding, who said that their business for weddings in Guam and Saipan has already increased 14 percent over last year. They can even offer a basic ceremony in Hawaii for only ¥100,000, about half what it would normally be. A young couple who were studying wedding and reception plans at Watabe told NHK they would like to have their wedding overseas, but that they won’t get married until fall of 2011. “I hope the yen is still high,” the bride-to-be said, “so I can go shopping afterward.”

Car makers try to stave off the inevitable

Thursday, September 9th, 2010

Don't miss Audi!

Don’t miss Audi!

Though the tax cut (genzei) for automobile acquisition and weight will continue to be in effect for so-called “eco cars” until at least the spring of 2012, on Sept. 30 the eco car rebate (hojokin) officially ends after having been extended once. The government had allocated more than ¥580 billion for the rebate program, ostensibly to promote the sale of fuel-efficient vehicles, though everybody understands it had more to do with helping car manufacturers and stimulating the economy.

And it worked. More than 4.5 million vehicles were sold under the rebate program. Sales were particularly good during the last month as the program wound down. Applications for rebates from new car buyers on Sept. 6 accounted for ¥11.6 billion in subsidies, the highest one-day amount since the program started more than a year ago. The reason is that people knew the program was about to end and wanted to get in on the deal before it did. The rebate amounts for applications on Sept. 7 could have been even higher except that there was only ¥10.2 billion left in the government rebate fund.

What this means is that some new car buyers, expecting to get in on the rebate, missed it. During the summer the government told car makers and dealerships to notify potential buyers that once the rebate money ran out the program would end, regardless of the original Sept. 30 cutoff date. Also, since the procedure for receiving the rebates requires paperwork, buyers had to take this lead time into consideration.

Consequently, car makers are now offering their own discounts to people who tried to get in on the rebate but failed. Fuji Juko, which makes Subaru cars, is offering up to ¥100,000 off any of its designated eco cars if the sales contract is signed between Sept. 6 and Sept. 23. Nissan is offering the same discount amount to purchasers of eight models as long as the sale is finalized within the month of September. Toyota hasn’t offered any discount but says it may offer rebates of its own to dealerships in October, depending on sales, which are expected to drop steeply now that the rebate program has finished. Studies of similar programs carried out in Germany and Korea found that sales dropped by 20 percent once government subsidies dried up.

What one needs to understand is that Japanese taxpayers were basically subsidizing Japanese auto makers’ recovery from the recession. But they were (and still are, with the tax cut) subsidizing foreign auto makers, too, and Audi, for one, isn’t ready to let go. Audi dealerships are offering a “bold bargain” for several of its fuel efficient models. If a buyer signs a contract before the end of Sept. and misses out on the government rebate, Audi will knock ¥100,000 off the price. This is on top of an even larger discount for the current “Eco Support” campaign, which ends Sept. 30, offering ¥200,000 off the price of four of its models. It sounds like a lot, but Audi can afford it thanks to the high yen.

Tower of Power: Record stores aren’t dead yet

Monday, September 6th, 2010

Tower Records exclusive Bill Evans compilation album

Tower Records exclusive Bill Evans compilation album

When HMV’s flagship Shibuya store closed last month, the media were out in force grieving over the end of yet another era and sensibility. This was just not a nail in the coffin of the record business, but something like a catered funeral, with entertainment and plenty of speeches about what the store meant not only to the area (the storied “Shibuya-kei” indie movement reportedly sprang from HMV) but to the industry.

As everyone knows, online record sales and downloading, both legal and illegal, killed the record store. But don’t blow taps just yet. A few blocks away, Tower Records is still open for business. In fact, while HMV and Shinseido, another major record chain, are losing outlets, Tower is actually planning to open new ones. It’s not as if Tower is selling CDs while other stores aren’t, but rather that Tower has decided to change its business model and believes that in order to survive it has to be aggressive. Management of HMV and Shinseido, it should be noted, were in recent years taken over by a Daiwa Securities fund, which is more interested in the bottom line than in the survival of physical delivery devices for music. Closing outlets is merely a sound business decision.

Tower Japan, however, is still managed by Tower Japan. In fact, Tower Japan is one of the last remaining vestiges of the worldwide Tower Records family, which used to be the biggest record chain in America, where there are no Towers any more. Tower Japan has decided not to go gently into that good night, and it’s main means for staving off the Grim Reaper is record production and A&R. In July, the company started a project to seek out new artists, and will be accepting audition recordings until Sept. 15. From these recordings Tower will select 10 songs and turn each one into a CD single that they will sell for a mere ¥100. These CDs will only be available in Tower stores, and those artists who sell the most CDs will be offered the chance to make a full album that will also be marketed and sold by Tower.

The distribution manager of Tower told Asahi Shimbun that the purpose of this gambit is to show music lovers that Tower is not just a place that sells records. It is also a place that has “good music sense” and so will attract people looking for something new or different. Promotion used to be the bailiwick of record companies, and in the past by the time consumers walked into a record store they had some idea what they wanted to buy, but while they were there they usually picked up something else they found interesting. Tower wants to revive this spirit of discovery in a more direct manner.

In addition, Tower Japan is celebrating its 30th anniversary this year, and to commemorate the event it is producing and selling a special compilation CD by 19 noted Japanese artists who each contributed an original song; much like the original CDs exclusively donated to record stores by indie artists in the U.S. to promote Record Store Day. Most of the contributors are major label artists who started out as indies and believe they owe their popularity to Tower Japan. Moreover, Tower is releasing its own imprint of classical music — 400 titles in six years — and making compilations of established jazz artists. According to the Asahi, other stores are taking note. The rental chain Tsutaya plans to release its own set of compilation CDs, and even Shinseido is tapping its personnel for input into how to make the remaining outlets more attractive.

The upside and downside of the heat wave, fruit-wise

Thursday, September 2nd, 2010

Hot stuff: Reasonably priced Philippine mangoes and pineapples share space with Mexican avocadoes

Hot stuff: Reasonably priced Philippine mangoes and pineapples share space with Mexican avocados

Compared to other developed countries, Japan doesn’t consume that much fruit. For proof, all you have to do is go to your local supermarket, where the selection is more meager than what you’d find in American or European stores. The main reason is that fruit is still considered something of a luxury in Japan. The Western idea (or, at least, American) of grabbing an apple for a quick snack or energy boost is practically unheard of here. You buy an apple, bring it home, most likely peel it, cut it into sections, and consume it with great appreciation, usually with the aid of toothpicks. And then, of course, there’s the practice of giving fruits as gifts, which brings up the proverbial ¥10,000 musk melon.

Because of this attitude, fruit prices in general are relatively high, with the possible exception of bananas. Growers make sure their produce is uniform in quality and, most importantly, size. The reason for uniformity is pricing. Retailers don’t sell by the kilogram, they sell by the unit, which means each piece of fruit has to be the same size and shape as the next one. In recent years, consumers have started to buy “irregular” vegetables because they are cheaper, but “irregular” fruit are a different story. What this means is that farmers concentrate on one type of apple or peach or whatever and, in order to keep the price high, make them as large as possible. You’ll never see an apple for less than ¥100, and you’ll usually only find one or two types in a store, whereas in the U.S. there are usually five or six types. Unfortunately for fruit lovers, fruit farmers are pretty powerful, so the amount of imported — and cheaper — fruit is relatively small and limited to produce that isn’t grown here much: grapefruit from South Africa, navel oranges from California, pineapples and bananas from the Philippines, avocados from Mexico, kiwi fruit from New Zealand.

Because of this year’s hot weather, fruit prices have been even higher than they normally are since most locally grown fruits need a certain amount of cool or even cold weather to develop properly. Also demand seems to go up when the temperature climbs. Prices for the traditional summer fruit, suika (watermelon), is running up to 40 percent higher than normal: ¥500 for those small, handball-shaped melons, and ¥300-¥400 for one-eighth portions of the larger, oblong watermelons.

That’s the downside of the heat wave. The upside is that tropical fruits, which tend to be extremely expensive in Japan when they’re available at all, are coming down in price. One of the reasons is that tropical fruits thrive in hot weather, so it’s now possible for local farmers to grow them more easily and abundantly. A farmer in Saitama has had great success growing mangos this summer, which he usually can only grow in limited numbers in a greenhouse. Saitama sounds pretty far north for mango-growing, and in the past, the only places in Japan where you could grow mangos were Okinawa and parts of Kyushu. But the hot weather also means that imported mangos, papayas and other tropical fruits have come down a bit in price. We’re not going to say it’s a silver lining of global warming, but mangos are pretty tasty as long as you know how to cut them.

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