Archive for the ‘Banking & Investment’ Category

Aging boomers may prove to be just as tight with savings

Tuesday, September 17th, 2013

Praying is free (but the incense will cost you)

Praying is free (but the incense will cost you)

The media has been all over the new figures related to seniors that were released by the Ministry of Internal Affairs and Communications to coincide with Respect for the Aged Day. To recap, the number of Japanese people over 65 increased by 1.12 million from the previous year, which marks a 0.95 percent rise.

The big news is that this brings the total number of seniors to about 32 million, or one-fourth of the entire population. This was expected since the huge cohort of baby boomers — which in Japan refers only to people born during a brief period in the late 1940s — is now passing the 65-year mark, and the projection is that seniors will make up a third of the population by 2035. To break down these portions even further, 18 percent of the population is over 70, 12 percent over 75 and 7 percent over 80.

What hasn’t been discussed as widely is the economic ramifications of these developments. In 2012 there were 5.95 million people over 65 who were still in the work force, or 9.5 percent of all workers over the age of 15. The average amount of savings — whether bank accounts, annuities or securities — of households with more than one person where the householder is at least 65 is ¥22.57 million. The average savings of all households is ¥16.64 million. Also, 16 percent of over-65 households have savings of more than ¥40 million, while only 10 percent of all households have saved that much.

The hope has been that once they retire boomers will spend their savings more readily than did previous generations, but so far that doesn’t seem to be the case. The ministry’s statistics indicate that more money is being spent by seniors who are still working. Those who aren’t working, meaning they are on fixed incomes provided by government or company pensions, are spending much less.

In either case, working or not, the seniors are not touching their savings. They are only spending their income. In the parlance of economists, they are asset rich but cash poor. The average income of an over-65 household is ¥2.96 million (that of an average household in general is ¥5.8 million), but the median income of an over-65 household is ¥2.29 million, meaning the majority of these households are within the ¥1 to ¥3 million income range, and that’s what they are living on.

A Cabinet Office survey conducted in 2011 asked seniors what the purpose of their savings was. About 62 percent said it was for sudden illnesses and future care and 20 percent said it was for “maintaining existence” in case of an unexpected financial problem. Only 5 percent said they would spend it on leisure, and a mere 1.6 percent wanted to use it for travel. It should be noted that 90 percent of these respondents owned their own homes or did not pay rent, so housing, at least, was not a primary concern. However, given the cost of private nursing homes, which charge upwards of ¥20 million just to move in, it’s perfectly reasonable to think that seniors believe they have to save for those final years. Until that sort of anxiety is addressed, it will always be difficult to get seniors to part with their savings.

New tax-free investment scheme not likely to increase investment

Thursday, August 8th, 2013

The acronym NISA has a checkered image in Japan. To most people it stands for Nuclear and Industrial Safety Agency, the now discredited government organ that did such an ineffectual job of policing nuclear power plants prior to the Fukushima accident of March 2011. On Jan. 1, 2014, the acronym will take on a different meaning as the Japan (Nippon) equivalent of the U.K.’s Individual Savings Account system, under which individual investors in stocks or mutual funds will not have to pay taxes on dividends and capital gains. It sounds simple and irresistible, but according to Tokyo Shimbun it may prove to be as resistible as that other more toxic NISA.

NISA application

NISA application

At present, dividends and capital gains are taxed at a flat rate of 10 percent on personal income as part of a government incentive program to boost stock investment that will end this year. Originally, the taxation rate was going to return to 20 percent, the rate levied on regular savings accounts, which is what the finace ministry wants. However, the Financial Services Agency (FSA) thinks that more average people should be encouraged to invest in stocks and helped pass the NISA law, which was modeled after Britain’s.

On the surface, the system seems easy. Anyone 20 years of age or older can open a NISA account with a financial institution, but is limited to only one, and for four years the individual cannot switch his or her account to another institution. The account holder can put up to ¥1 million a year into the account for five years, which means the maximum amount of non-taxable investment at any given time is ¥5 million. The tax-free system itself is limited to ten years, meaning no investments in NISA can be made after 2023.

Unfortunately, there are other conditions that experts are saying may scare average people away. During a given year, the individual can redeem any dividends or capital gains that are earned but he cannot reinvest that money back into the account during that year. He can, however, reinvest it the next year as part of the ¥1 million maximum input allowed during a single year. Also, at the end of five years he can roll over the ¥1 million he invested the first year, and the next year roll over the ¥1 million he invested the second year, thus maintaining a ¥5 million maximum account over time. However, once ¥5 million is reached, he cannot make any “new” investments.

Banks and securities companies will start accepting applications for NISA on October 1, and competition for customers is already heated. The Japan Securities Dealers Association is airing commercials for NISA featuring idol Ayame Goriki, and most companies are offering ¥2,000 cash premiums as an incentive to sign up. The stated target of the FSA is first-time investors and young people, but Tokyo Shimbun doesn’t think the message will get through. Financial journalist Minako Takekawa told the newspaper that she believes the new system will only appeal to people who are already investing, and that it needs to be simplified greatly if it’s to appeal to a wider consumer base. She says Britain’s system is easy and popular, with 40 percent of the population signed up. Like Japan’s, the U.K.’s ISA system was originally only meant to last 10 years, but it has since been made permanent, with financial services companies devising lots of products that take advantage of ISA, including regular savings accounts. Takekawa went to London earlier this year to study the system and found that “even people who don’t have a lot of money find it easy to use.”

Popular economist and TV personality Takuro Morinaga told Tokyo Shimbun that the reason NISA is so convoluted is that the finance ministry made it so. He says the ministry is “greedy” for more taxes and so have sabotaged NISA by making it too difficult for the average person to understand. The ministry was counting on a return to the 20 percent rate at the end of this year, and suddenly they’re getting nothing.

Of course, one aspect of NISA that most experts overlook is that it’s risky. Unlike regular savings accounts, an investor’s principal is not guaranteed or insured. Consequently, even if the system is simplified, older people will be reluctant to join. And as for young people, they don’t have any money to invest in the first place, at least not until their wages are increased.

Anticipation: How high will mortgage interest go?

Tuesday, May 7th, 2013

Of course, you can always pay cash

Of course, you can always pay cash

Just as deposit interest rates have remained near zero for the past 20 years in Japan, housing mortgage interest rates have been lower here than almost anywhere else in the world. The effect of the latter has been almost counter-intuitive. Low interest usually spurs investment in real estate and home sales but Japan’s economic situation, not to mention its housing environment, is so odd to begin with that this hasn’t proved to be the case. Younger people thinking about buying homes have lived with low interest rates for so long that they think it’s the norm.

Last week interest rates for housing loans increased by 0.05 percent, the first rise in three months. Interest rates for loans are based on 10-year-bond interest rates. The Bank of Japan, on behalf of the prime minister, is gunning for a two percent inflation rate, and in order to achieve that goal it announced plans to buy government bonds from banks. Anticipating the BOJ’s move, investors have started to sell their bonds. When the price of bonds goes down the interest they pay goes up. More people sold bonds than the BOJ projected, which may not make the government happy since in the long run it will have to pay that interest to bondholders. If consumer prices and, in turn, salaries go up, that won’t be a problem since the government can collect more taxes as a result, but if inflation doesn’t kick in then it just means even more government debt.

Consumers are more concerned with how the change in interest rates will affect them directly. A recent article in Aera profiled a working couple in their 30s who have decided to buy a condominium in Tokyo right away in anticipation of the consumption tax rise next year. Because they both want to be near their workplaces, they settled on an area where the price of a condo that fits their lifestyle is about ¥50 million. They only have ¥3 million for a down payment, and they chose a variable interest rate because it’s lower than a fixed rate right now. Aera asked a financial planner about their situation and the planner seemed dubious.

Continue reading rising interest rate →

In Japan it’s never too late to get in on the ground floor with stocks

Thursday, December 27th, 2012

Stock up: Mizuho’s board in Yaesu

New prime minister Shinzo Abe would like you to believe that the recent rise in prices on the Tokyo Stock Exchange are his doing, and the start of the rise did coincide with his election as president of the resurgent Liberal Democratic Party. Some economists have dismissed this theory, saying the stock market was due for a cyclical upturn anyway, but we’re willing to give Abe the benefit of the doubt if only because stock markets are so fickle and sensitive that the TSE would probably change if Bank of Japan governor Masaaki Shirakawa announced he was only going to wear green ties from now on.

Media focus on stock prices has revived the call to get the average person involved in the game. Everyone agrees that if the market improves steadily the general economy will, too. Since the crash of 2008, sparked by the failure of the Lehman Brothers investment house, all the world’s stock markets have gradually regained their footing except for Tokyo’s, which is dominated by foreign investors. The TSE has improved but at a much slower rate, and experts agree it has a lot to do with the fact that the vast majority of Japanese are still wary of stocks as a personal investment. One of the primary reasons for Japan’s long-standing deflationary trend is the huge personal savings stash of ¥1,400 trillion, half of which is estimated to be “dead,” meaning it isn’t even in a bank account. If only 1 percent of this money were invested in stocks, Japan’s fiscal problems would be solved. There would be more money in general circulation, and banks would then relax their loan criteria, allowing more companies to borrow money in response to perceived demand. Atsuto Sawakami of Sawakami Fund, one of Japan’s leading mutual funds, has been traveling the country encouraging retirees to buy stock by pointing out that traditionally company stocks in Japan have been owned by other companies, which are always under pressure to sell, thus stifling the market as a whole. If more individuals bought stocks and kept those stocks for the long-term, prices would automatically go up. The response, according to the Asahi Shimbun, has been positive. Business magazine Diamond Online reports that only 6.6 percent of individual financial assets in Japan are invested in stocks, while in the U.S. the equivalent portion is 30.6 percent. More individuals are gravitating toward mutual funds, but the portion of assets invested in them in Japan is only 3.4 percent, while in the U.S. it’s 11.8 percent. Meanwhile, 55.8 percent of individual assets in Japan are in non-performing bank accounts. The equivalent in the U.S. is 14.7 percent. Continue reading about rising stock prices in Japan →

Backsliding Japan Post broadens its horizons on all fronts

Tuesday, September 25th, 2012

While you’re out, drop by the post office to pick up some stamps . . . and a mortgage

On Oct. 1, two divisions of the Nihon Yusei Group, in English known as Japan Post Holdings, or JP, will consolidate. If you were never aware that four separate companies make up the post office service — Yubin Kyoku, Nihon Yubin Jigyo, Yucho Ginko and Kampo Seimei — then you shouldn’t feel embarrassed. The vast majority of Japanese don’t know about it either, so the merger of the two postal-related services, Yubin Kyoku, which manages the post office system, and Nihon Yubin Jigyo, which manages mail delivery, into one entity called Nihon Yubin may hardly qualify as news to most people.

In fact, most people will wonder what actually distinguishes these two entities. Aren’t the business of managing post offices and the business of delivering mail part and parcel of the same general enterprise? Apparently not, though you’d have to actually work in either of those companies to understand why. Perhaps the best way to explain this conundrum is to look at one of the new services that will be offered after the consolidation takes place, something called tsucho azukari.

With this service, a person who has a savings account at Yucho Ginko (Japan Post Bank) can entrust (azukari) his or her passbook (tsucho) to a regular delivery person, who brings it to the bank so that an employee can carry out a desired transaction on the person’s behalf. Logic would say this sounds like a cooperative service between Nihon Yubin Jigyo, the delivery arm of JP, and Yucho Ginko, the banking arm of JP, but all Yucho Ginko are located in JP post offices, which means it’s really a cooperative service betweeh Nihon Yubin and Yubin Kyoku.

Tsucho azukari is actually a traditional service, especially for the elderly in rural areas where it is sometimes difficult to make it to the post office. But in the past, it was an informal service, simply something that a delivery person did for someone on his route as a personal favor. The new service will be implemented initially on a trial basis at only 52 of JP’s 24,000 post offices. The service itself is less important than what it represents, a reversal of the postal decentralization that former Prime Minister Junichiro Koizumi made his life’s work and which started in 2007.

Continue reading about the birth of Nihon Yubin →

Electronics makers lead the way in killing off lifetime employment system

Tuesday, August 7th, 2012

The big domestic economic news this week is the steep slide in stock prices for Sharp Corporation. Japan’s leading liquid crystal display manufacturer has seen its shares fall 73 percent since the beginning of the year due to an oversupply of television sets in a world that no longer thinks Japanese home electronics are the best that money can buy.

If you’re not Takashi Okuda, president of Sharp Corp., you probably don’t have lifetime employment. (Kyoto photo)

The only thing keeping Sharp going at this point is its parts supply business, especially the deal it has with Taiwan-based company Foxconn, which assembles iPhones and iPads for Apple and uses Sharp-manufactured liquid crystal displays. Last week, Sharp announced it was eliminating 5,000 jobs from its worldwide 56,000-person workforce, the biggest employment cut in the company’s history. It is also going to slash management salaries, including the president’s, by 50 percent. Originally, it was only going to be 20 percent.

In terms of pure numbers, Sharp’s cuts are actually modest compared to other electronics makers. Last January, NEC announced it was eliminating 10,000 jobs. Sony also said it would cut 10,000 employees in April. Panasonic, which employs more than 360,000 worldwide, has said it has “targeted” 7,000 positions in its headquarters alone working in office services, R&D and production technology. They will either be transferred to other divisions or subsidiaries, or pressured to take early retirement. And as these companies scale back, affiliated businesses will have to do the same. Renesas, one of Japan’s leading semiconductor makers, which mainly supplied NEC, will have to cut 30 percent of its workforce, the equivalent of 12,000 jobs.

Even the electronics companies that are stable right now, like Toshiba and Hitachi, haven’t escaped the downsizing trend; they just carried out their massive job cutting a few years ago, which is one of the reasons they’re doing relatively well right now and aren’t in the news as much. Another reason is that they’ve moved away from consumer electronics, where the competition is just too fierce.

Not surprisingly, home electronics is no longer a field that young university graduates are interested in. Ten years ago, Sony, Panasonic and others of their size were at the top of the wish lists of college seniors, but according to the online version of the business magazine Diamond, all new graduates care about now is getting a position in the public sector. Though the official unemployment rate in Japan is only 4.5 percent, young people know that securing work does not mean security, at least not in the classic sense, so even getting a job with an “excellent company” doesn’t guarantee a job for life. Only the civil service does. The government never restructures.

A survey was carried out by the employment consulting firm, Leggenda Corp., of students who will enter the workforce in 2013. More than 50 percent say their first choice is to work for the government. The Japan Institute for Labor Policy and Training gets more specific. In a survey of 4,000 20-year-old men and women, they found that 87.5 percent will prioritize lifetime employment (shushin koyo) when they look for their first job. These respondents also look forward to “age-based promotions and raises,” another attribute of the old Japanese employment system that has gone the way of the dodo, at least in the private sector. This is the highest percentage on record, which just goes to prove that people really don’t miss their water until the well goes dry.

Banks get tax cut and finally decide to pay up

Thursday, May 24th, 2012

League of Extraordinarily Happy Gentlemen: entrance to Tokyo Bankers Association

On May 15 several major banks announced they would start paying corporate taxes. Mizuho Corporate Bank said it would start paying this year, while Mizuho Bank, Mitsui Sumitomo Bank and Resona Holdings will start next year. According to the Asahi Shimbun, it will be the first time in 15 years that Mitsui Sumitomo will pay any taxes. For Resona, a consolidation of Daiwa Bank, Kinki Osaka Bank, Nara Bank and, later, Asahi Bank, it’s the first time in 18 years.

The Tokyo-Mitsubishi UFJ financial group started paying corporate taxes last year. Despite the Lehman Brothers-triggered recession, all these banks have been in the black since at latest 2006. However, by law they can carry over cumulative losses from previous years on their books. All the banks suffered huge losses in the 1990s due to bad loans. At its worst point, Mizuho was in the hole by as much as ¥5 trillion; Mitsui Sumitomo ¥2.7 trillion. The three top banks’ total profits for fiscal 2012 is estimated to be ¥1.9 trillion, a 35 percent increase over 2011, even though they don’t lend money any more. All these banks received government bailouts and Resona was actually nationalized for a while. Of the total ¥3.1 trillion that was injected into the banking system by the government, ¥2.3 trillion has been paid back, and it’s assumed that the rest will be reimbursed earlier than originally planned.

Until the cut that went into effect April 1, Japanese companies always complained that corporate tax rates were higher here than in other countries, but 70 percent of them never pay any, including listed companies that pay dividends. More than 80 percent of companies listed on the Tokyo Stock Exchange paid dividends last year. Moreover, before the Diet approved the 5 percent corporate tax reduction (from 40 to 35 percent for the biggest companies), the Japan Communist Party, which opposed any cuts to the corporate tax, revealed that “internal reserves” (naibu ryuho) of Japanese companies amounted to ¥266 trillion. At any rate, the special taxes enacted to pay for reconstruction have reduced the cut slightly, but companies still have a smaller rate than they did last year.

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