Archive for the ‘Economy’ Category

How economically effective are the Olympics?

Monday, September 2nd, 2013

Group effort: Poster promoting Tokyo's bid for the 2020 Olympics at a mall in Chiba Prefecture

Group effort: Poster promoting Tokyo’s bid for the 2020 Olympics at a mall in Chiba Prefecture

The Asahi Shimbun recently reported that one of the reasons the Japanese government has been slow to tackle the water leak crisis at the crippled Fukushima Daiichi Nuclear Power Plant is that it doesn’t want to draw attention to the problem while Tokyo remains a candidate for the 2020 Olympic Games. Despite the fact that the Olympics are supposed to be hosted by cities not countries, Japan’s central government is counting on the games to boost its overall economy, and Asahi also reports that the decision, which will be determined on Sept. 7, will have a very strong bearing on whether or not the consumption tax increase will take place in April. If Tokyo is the winner, the tax will go ahead as planned.

The Japan Olympic Committee is predicting a long-term economic boost of ¥3 trillion if Tokyo gets the games. That’s a lot of money, but while it may offset the negative effects of the consumption tax increase temporarily it’s hardly enough to kick start the entire Japanese economy. In any case, how exactly would the Olympics bring about this financial miracle? After the games last year, the city of London and the U.K. government jointly announced that the event benefited the British economy by almost £10 billion (¥1.5 trillion). However, the BBC questioned just how much of this “impact” could be directly attributed to the Olympics. In addition, the Financial Times wondered about the government’s calculation that the Olympics would have a secondary effect on the British economy that would amount to between £28 billion and £41 billion (¥4.2 trillion-¥6.0 trillion) until the year 2020. A financial expert interviewed by the FT said he had no idea how the government arrived at this figure.

To get some idea of how this “economic effectiveness” (keizai koka) is calculated, the Nihon Keizai Shimbun evaluated the figures submitted by the Tokyo Bid Committee for the 2016 Olympic Games, which Tokyo lost to Rio (page 5). Included in the ¥2.94 trillion that was to be added to the Japanese economy by the games was ¥332 billion in the form of construction outlays, ¥175 billion to be spent by “guests,” ¥356 billion in sales of official merchandise and “related purchases” (like TV sets that people bought to watch the games), and ¥86 billion from tourists who would visit Tokyo before the games, presumably drawn to the city because of the Olympics though they would not actually attend them.

Moreover, the JOC predicted a “ripple effect” of ¥990 billion in related “demand” after the Olympics ended, and then a secondary effect of ¥650 billion from the higher salaries and added jobs that this ripple effect would engender. Except for the construction costs and revenues for restaurants and hotels during the actual two-week Olympic period, all these figures are speculative and based on phenonema that are difficult to measure. For instance, isn’t there a lot of overlap between the spending of tourists and the purchase of merchandise related to the Olympics?

The point is, when the media says that the 2020 Olympics will boost the Japanese economy by ¥3 billion people think that means ¥3 billion will be added to the economy, but actually most of that money is simply being redistributed. Tokyo, for instance, says it will spend ¥1 trillion on the 2020 Olympics, and according to the JOC the city has ¥400 billion “saved” in what it calls junbikin (preparation money), which is cash that the prefectural government has accumulated at a rate of ¥100 billion a year. However, it is all from taxes, which means that the money that goes to construction came from residents.

Moreover, the central government has pledged to cover any shortfall in operating expenses for the Olympics, so presumably that means it will provide the remaining ¥600 billion (or more), which also comes from tax money. Since most of the work that is created directly for the Olympic Games is done by volunteers, this money is not necessarily going to people in the form of employment and wages. The assumption, or at least the hope, is that Olympic money that goes to big corporations will eventually trickle down to people in the form of the aforementioned ripple and secondary effects, but, as the FT expert implied, there’s no way you can confirm this until it actually happens.

Hot biz: stocks that climb with the temperature

Tuesday, August 20th, 2013

You can never have too few air conditioners

You can never have too few air conditioners.

The extremely hot weather that has covered Japan since late July has had a multiplying effect on the country’s economy. Though it isn’t going to solve all the government’s fiscal problems, the heat has temporarily revitalized some retail and service sectors and, in turn, driven up related stock prices.

Some are obvious. Makers of air conditioners, particularly Fujitsu General and Daikin, have seen their share prices rise markedly in recent weeks. Meiji Holdings’ stock has increased by 20 percent since the middle of June thanks mainly to their ice cream division. Other makers of cold treats, like Ezaki Glico and Morinaga, are also enjoying high stock prices. Beverage makers can always look forward to good sales in summer, but this year in particular breweries are having their best season in 2 years. Shares for convenience stores have also risen steadily since the middle of July, based on strong retail sales as a result of the hot weather.

Another sector that’s benefited is Internet retailers. Yumenomachi Sozo Iinkai, a web supermarket, posted record high stock prices on Aug. 8 because of its special delivery system. People just don’t want to go outside in this heat, so they even order their groceries online and have them delivered. The nation’s biggest supermarket chain, Aeon, has said in terms of volume, deliveries have increased by 50 percent since the hot weather started. Even Tsutaya, Japan’s main rental video service, has seen its deliveries of DVDs double over last year’s.

Tokyo Shimbun reports that department stores, which deliver goods but count more on customers actually showing up at their stores, have initiated special events to get bodies out of the house and into their air-conditioned spaces. Shinjuku’s Takashimaya, for instance, has an unusual policy. The first 40 patrons who visit the food fair in the store’s basement between 2 and 5 p.m. on days where the temperature hits 35 degrees get free watermelon or a free extra scoop of gelato if they buy a single scoop.

A representative of a securities company told Asahi Shimbun that another reason for the sudden jump in stock prices was the Upper House election, which essentially pushed economic news aside. Investors had little information with which to make decisions, so when the hot weather became a topic they immediately went to companies that they thought would benefit.

Pity the driver: Cabbie salaries much lower than average

Friday, August 2nd, 2013

Hurry up and wait

Hurry up and wait

Though customers aren’t expected to tip here, Japanese taxis are among the most expensive in the world, and next year rides will probably cost even more since the transportation ministry is considering removing the cap on fares and allowing a 2.86 percent rise to help taxi companies adjust to the consumption tax increase. That would boost the base taxi fare to ¥730 in Tokyo.

Before you start complaining think about the drivers. In 1995 the average salary of a Japanese cabbie was ¥4.03 million. In 2005 it was ¥3 million. And since the recession started in 2008 salaries have hovered between ¥2 and ¥3 million. There are various reasons for this loss of income, the main one being deregulation.

In 2002, the administration of privatizing Prime Minister Junichiro Koizumi allowed taxi companies to increase their vehicle pools. Between 2001 and 2007, the number of taxis nationwide increased by 15,000, driving up competition and driving down the amount of revenue per cab. In 2009, the government re-regulated the industry in an attempt to cut the number of cabs in 156 cities where it was deemed there were too many. Since then salaries haven’t gone down but they haven’t gone up either. Now taxi drivers and taxi companies are afraid because one of the pillars of “Abenomics” is, again, deregulation.

Though cabbie salaries compare to those of entry level jobs, most of the drivers are not entry-level workers. The average age is 56.8, and many have families to support. Moreover, the average number of years worked is 9.3, which implies that many cabbies started driving later in life, after they worked somewhere else and lost their jobs. There are very few taxi drivers in their 30s, even less in their 20s. Some older cabbies drive to supplement their social security.

In the July 4 issue of the Asahi Shimbun there was a profile of one male cabbie, 44, who has been driving since 2009, when he was laid off by a small company. The taxi company he works for has a sales quota. Each driver has to bring in ¥480,000 in fares a month. If the driver makes more than that, he gets to keep 53 percent as his commission. If he makes less, he only keeps 40 percent. The driver says he needs ¥250,000 a month to survive so he figures he needs to bring in ¥40,000 per shift, and it’s difficult. Apparently, some drivers supplement their revenues with their own money if they don’t earn their quota because they think it’s worth it in the long run.

Another taxi driver interviewed by the Asahi is 60 and has been a driver in Tokyo all his life. He supports a wife and grown son on ¥4 million a year and used to make ¥6 million. His normal work day is from 8 in the morning until 4 the next morning. The competition in Tokyo is so fierce that it’s sometimes impossible to find a place to wait for fares since so many other cabs are waiting. He tells the newspaper that some companies reduce their fares to be more competitive, which is illegal. Another common employer practice that may not be illegal but certainly seems unfair is subtracting the 4.8 percent handling fee from a cabby’s salary whenever a customer uses a credit card.

According to the Japan Federation of Hire-Taxi Associations, as of March 2010 there were 371,000 taxi drivers in Japan working for companies and 46,000 private taxi drivers. Of the former, 7,700 were women. The average number of hours for a cabbie is 193 a month. The average for all jobs is 183 a month. Revenues in 2010 nationwide amounted to ¥1.78 trillion. According to the labor ministry the average annual salary for a driver in 2011 was ¥2.9 million. The average for all industries is ¥5.26 million.

Golf courses adjust to harsher economics and changing demographics

Monday, July 22nd, 2013

A fairway of your own

A fairway of your own

Of all the cultural phenomena that marked the bubble era of 1980s Japan, none was more economically significant than the rise of golf. Despite its relatively small land area, Japan boasts the third largest number of golf courses in the world — 2,442 as of 2008, which accounts for 7 percent of the earth’s total (the U.S., number one, has 50 percent, with the U.K. a distant second with 8 percent).

The majority of these courses were built before 1990, when land prices were at their highest. However, what really demonstrated the profligacy of the time wasn’t so much the insane number of courses in a country where 70 percent of the land is mountainous, but the practice of investing in golf memberships. The “bubble,” of course, refers to the artificially high valuation of real estate and securities during this time, a situation that extended to almost anything that attracted investment, including golf memberships, which could be brokered as if they were stocks or bonds. Many people who had no interest at all in golf as a pastime bought golf club memberships simply as an investment.

As with all investments made during a bubble period, people who bought them got burned. According to the Kanto Golf Membership Trading Industry Association, the average price of a golf club membership in the seven prefectures that make up the greater metropolitan area in and around Tokyo rose from ¥5 million in 1980 to almost ¥50 million in 1990 and then dropped to ¥2.5 million in 2003. The price spiked briefly in 2006 at ¥5 million before plummeting to ¥1.45 in early 2012. However, it has risen slightly since then and is now around ¥1.8 million.

Continue reading about the dropping prices golf memberships →

Deflation watch: Kabocha

Monday, July 1st, 2013

Japanese pumpkin, raw and prepared

Japanese pumpkin, raw and prepared

The main story at the heart of Abenomics as far as the Japanese media is concerned is that Japanese exporters are making more money since the Liberal Democratic Party regained power. Secondarily, energy costs are rising thanks to a related increase in the dollar against the yen, not to mention imported wheat prices, which affect all sorts of processed foods in Japan. Many food-related manufacturers started raising prices on July 1 as a result.

So far, the price of imported fresh produce hasn’t been affected that much. Last year we reported on the very low price of bananas due to specific circumstances, and since then the price has gone up quite a bit owing to a typhoon that destroyed much of the Philippines’ crop. However, the prices of other fruits and vegetables that tend to be imported in large amounts haven’t changed significantly. If anything, some local produce may have come down in price and thus become more competitive, notably kabocha, the Japanese style of pumpkin, often called buttercup squash in English.

Kabocha is grown in Japan but is mainly available in the fall and early winter. During the rest of the year it is imported mainly Mexico and New Zealand, but also from New Caledonia and South Korea. Demand is so strong that Japanese companies have been running farms in these countries for almost 20 years to grow kabocha exclusively. New Zealand first started exporting the vegetable to Japan in 1988. Actually, China, India and Russia produce much more pumpkin and other types of squash but the kind they grow is not necessarily popular here. (Also, there seems to be some issue with China’s use of agrichemicals.) Japanese prefer a strain referred to as kuri-kabocha, which is drier.

Normally, the price of Japanese kabocha is two to three times that of the imported kind. In April at the Tokyo Central Produce Market, domestic kabocha was going for ¥356 per kg, while foreign kabocha was only about ¥97. However, lately the price of Japanese kabocha has come down to almost even with foreign kabocha, which is a remarkable drop. Last week at our local supermarket kabocha from Mexico was only a little less expensive than kabocha grown in Ibaraki Prefecture. It’s not clear if this is due to higher import prices because of the rising dollar or just that the domestic product is suddenly cheaper. It’s probably both, since Japanese farmers have to contend with Mexican kabocha almost year-round now that there are two growing seasons for kabocha in Mexico.

Also, kabocha, once a standard item in the Japanese diet, lost popularity some years ago and seems to be making a big comeback now among health-conscious families — kabocha contains more calcium than milk does — so farmers are producing as much as they can, thus bringing the price down.

Should healthy people pay less for health insurance?

Saturday, April 27th, 2013

Finance Minister Taro Aso has been shooting his mouth off again. Tokyo Shimbun reports that at a recent “meeting” he said it “wasn’t fair” that the country had to pay for the medical costs of people who “eat as much as they want and drink as much as they want and then end up with diabetes.”

Japan’s national health insurance does not discriminate between people who maintain good health and those who don’t. You pay according to your income. “Of course, if you have an inherent weakness, that’s another story,” Aso added, obviously recognizing that some people will take offense at his opinion.

Hospital bill for specified elderly patient (over 75), who only pays 10 percent out of pocket.

Hospital bill for specified elderly patient (over 75), who only pays 10 percent out of pocket.

But apparently it’s something he’s thought about a lot. The Asahi Shimbun reports that during opening remarks at a Lower House “party” of some kind Aso said, “I think we should make an incentive for people who are making an effort to stay healthy.”

The government is trying to reduce medical costs, and he believes if someone over, say, 70 continually foregoes treatment for minor complaints that person should be rewarded. “Maybe give them ¥100,000 in cash,” Aso suggested. Then, those people who think they might as well go to the hospital for something small will think twice.

This idea has been floated before, but doctors’ groups, which would suffer financially from such a change in the public mindset, have protested, saying that discouraging people from seeking medical advice for anything is tantamount to killing them.

Aso claims that the average medical cost for a person over 70 is a million yen a year. We couldn’t corroborate that statistic, but fellow Liberal Democratic Party lawmaker Taro Kono, in his email newsletter, said that the average Japanese person costs the government ¥24 million in health care during his/her lifetime — paid for through both insurance premiums and taxes — and that 49 percent of all medical outlays are spent on persons 70 and over.

Then we thought of our own situation. We’ve been paying into the national health insurance scheme for 26 years and reckon we’ve spent almost ¥10 million. We can also count on the fingers of one hand how many times we’ve actually gone to the doctor in those 26 years for something that falls under our coverage, so obviously we aren’t getting our money’s worth — so far.

Deflation watch: gyudon

Monday, April 15th, 2013

Before the fall

Before the fall

Good news for beef lovers. On April 10 gyudon (beef bowl) chain Yoshinoya announced it would cut the price of its standard namimori serving by ¥100 to ¥280 starting April 18. Sukiya, the No. 1 gyudon chain, was selling its namimori version for ¥250 until April 12, and No. 3 in the race, Matsuya, was doing the same thing until April 15.

At the press conference where Yoshinoya made the announcement, company president Shuji Abe told reporters that Yoshinoya felt it could not reach its desired sales target “with prices as they are,” and since “price is the biggest factor affecting sales,” they decided to cut it by more than a fourth. Though Yoshinoya’s two rivals are ending their own price-cut campaigns this week, they carry them out on a fairly regular basis, so it’s likely they will react in kind to the announcement.

In reporting the announcement, the Asahi Shimbun reporter remarked that, although consumers will certainly appreciate the lower price, how can Yoshinoya hope to make a profit after such a drastic cut? Moreover, what does the move say about the government’s strategy of boosting inflation? Yoshinoya’s Abe stressed that the business environment has become “even more difficult” owing to the decrease in the yen’s value, which makes importing beef more expensive. But he also said that the company will still be able to turn a profit because it plans to import even more beef and thus can expect cheaper wholesale prices now that the regulations with regard to beef imports have changed.

In 2004, imports were restricted due to the BSE scare, but those restrictions have now been lifted, and beef from older animals can be sold in Japan. In addition, Yoshinoya plans to cut its retail personnel by “making the work routine in restaurants more efficient.” So even if the prices for the main product drop by 25 percent, according to company projections based on past experience the number of customers should increase by 30 percent, and if that happens sales will increase 15 to 20 percent.

A food industry analyst pointed out something else to the Asahi: Fast food in general has become cheaper in the past 10 years or so, and consumers have just become accustomed to the fact. There seems to be an upper limit to what they will pay, and chain businesses know this. What that means is that these businesses will fall into a permanent state of price competition, even as the cost of ingredients goes up. That means personnel costs will not rise; if anything they’ll have to be cut. And restaurants that don’t belong to chains will be squeezed out. For a while Yoshinoya tried to compete in terms of quality and selection by adding new products to their line, but obviously they’ve abandoned that strategy and returned to price competition.

This is not the kind of outcome the government wants, but consumers have become so used to lower prices they probably won’t spend more except for basic necessities, and the retailers who can keep their prices down will make profits through volume. Much has been made in the media of how department stores are suddenly enjoying better sales, but their customers tend to be people with larger amounts of discretionary income through investments in stocks and foreign currencies, both of which are going up. Such people spend their windfalls on expensive watches. They are not representative of the general public, much of which still decide their spending regimens based on wages and salaries, and despite the government’s hopes and efforts those aren’t likely to rise any time soon.

Japan has become a nation of coupon clippers and bargain hunters. It’s a hard habit to break.

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