Yen for Living

If you go to the University of Tokyo, you not only are more likely to receive an interest-free loan, but you'll probably get a job that will allow you to pay back the loan more readily.

As we explained in an earlier post, university-level scholarships, meaning grants, are pretty hard to come by in Japan. Though the term shogakukin is usually translated as “scholarship,” it’s really a student loan, administered by the publicly funded Nihon Gakusei Shien Kiko, or Japan Student Services Association (JASSO). We’ve already talked about how JASSO has increasingly cracked down on graduates who are slow in paying back these loans. According to the Asahi Shimbun, the number of lawsuits the association has brought against debtors increased ninefold over the past five years, owing mainly to the fact that graduates have not been able to find gainful employment.

The newspaper illustrates the problem with the story of a young man in Kitakyushu who last summer was instructed by JASSO to pay the entire remaining balance of his ¥2.2 million student loan. After graduating from a private university in 2006, he found a job selling kimono and started paying back the loan at a rate of ¥13,000 a month. Five months after starting the job the company went out of business. He took a job in a restaurant, but it only paid ¥140,000 a month and he was unable to keep up payments. He asked for and was granted an extension. In 2007 he got married and started making the payments again, but after a year and the arrival of a baby the burden became too much, so he asked for another extension. He quit the restaurant in June 2010 and supported his family with temporary jobs. He started making payments again but last spring JASSO asked him to settle the loan and pay back the entire balance, which amounted to ¥1.9 million. When he didn’t respond, JASSO threatened him with a lawsuit. Eventually, he refinanced the loan, which now included a penalty, agreeing to pay ¥15,000 a month until 2023.

JASSO offers two types of student loans. The first type (dai-isshu), which carries no interest, is approved for students whose grade-point average in high school is at least 3.5 (out of a possible 5.0) and whose household income is less than ¥10 million a year. The second type (dai-nishu) carries an interest rate of up to 3 percent and, according to the Wikipedia entry on shogakukin, is given to anyone who applies for it and, presumably, doesn’t qualify for the first type. A lawyer interviewed by the Asahi points out that the majority of people threatened with lawsuits by JASSO are type-two loan recipients, who typically go to non-elite schools and have trouble finding steady employment after they graduate. The gap between their expectations of what a university degree will provide and the reality of the job market can be inferred by the statistics. In 2006, JASSO sued 547 former students. Last year they sued 4,832.

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One of the most contentious issues to be argued in the next U.S. presidential election is whether or not to tax wealth. President Barack Obama believes the rich aren’t paying their fair share while Republicans are against any increase in taxes (with certain exceptions). Since Japan’s budget deficit is even worse than America’s, levying higher taxes on the rich would seem to be up for discussion here as well, but all we hear about is the consumption tax. Nevertheless, a number of Japanese economists have proposed a fuyuzei, or wealth tax, modeled on a similar idea that’s been used in Europe. The way the tax has been proposed makes its purpose twofold: while it should be able to generate lots of revenue for the government, it may also have the effect of getting dormant savings into circulation, which is just as important as reducing the national debt.

Even Mickey isn't safe

The proposal was recently explained in Tokyo Shimbun by Hiromichi Shirakawa, the chief economist for Credit Suisse. The basic idea is to tax the money in savings accounts and treasury bonds on an annual basis. Based on surveys conducted by the Financial Information Center, the total amount of money in savings accounts and treasury bonds is about ¥854 trillion, so if the wealth tax rate were set at 1 percent, the government could collect ¥8.5 trillion a year. In 2010, the amount of revenue generated by the consumption tax was ¥10.2 trillion.

Other economists have suggested variations on this theme, such as a graduated tax bracket system, meaning the more money you save, the higher the percentage of tax you would pay. Or, in order to really make it a tax on the rich, set a bottom limit for how much money is being saved, so that only people who fall above those lines pay the wealth tax. Of the ¥854 trillion mentioned above, 52 percent is controlled by persons with cash assets of ¥30 million or more.

According to the Bank of Japan, as of December 2011, individual cash assets in Japan amounted to ¥1,471 trillion, at least half of which is money in near zero-interest savings accounts. The wealth tax would not be levied on money invested in securities or insurance. As it stands, the government levies a flat 10 percent tax on capital gains from stocks, while it withholds 20 percent from interest income. Stock profits used to be taxed at 20 percent as well, but the government reduced it to spur investment with the aim of eventually returning it to 20 percent. The increase has been continually postponed, however, presumably because people still aren’t buying enough stock.

Shirakawa has advanced his idea on several TV shows and received numerous complaints from older people, whom the wealth tax would affect more since they have more savings than do younger people. In Tokyo Shimbun he said older people should think of their grandchildren, who will inherit this massive debt. But the main hurdle to introducing such a tax is lack of bureaucratic resources rather than political will. Because so many individuals keep the money in various accounts and/or invest them in various instruments, it is difficult for the Tax Bureau to determine exactly how much each citizen has in terms of assets. In fact, one of the arguments in favor of the controversial taxpayer ID number system currently under discussion is that it would make such calculations much easier, since all accounts and investments would be tied together through a personal ID number. (In fact, the government introduced the same sort of tax in 1950 but cancelled it after three years because it couldn’t get a bead on people’s assets.)

But what about so-called tansu yokin (savings in the wardrobe), meaning cash that is simply stuffed under a mattress or crammed behind the cookie jar, without any record that it even exists? No one has ever estimated how much cash is held secretly in Japan, though every once in a while you get some idea when an old house is torn down and a worker finds a stash of ¥10,000 bills; or an elderly person is swindled over the telephone by someone pretending to be his or her relative needing money right away to solve a problem. Last week, an old woman in Gifu handed over ¥60 million in cash to someone who said he was representing her son. Apparently, she had most if not all of this money on hand.

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Make mine Porsche

The European debt crisis has pushed the value of the yen up in relation to the euro in ways that are making a lot of Japanese exporters anxious. As one industrialist told NHK the other night, it isn’t the same as the yen’s rise against the dollar, a development they can counteract at least partially by increasing production in the U.S. There’s relatively little Japanese production capacity in Europe.

Tokyo Shimbun wonders why the drop in the euro hasn’t helped Japanese buyers of European cars. While some other European products have dropped in price over the last year due to the exchange rate, cars have stayed the same. The given reason is that manufacturers decide on prices only once a year, so short-term currency rate fluctuations aren’t necessarily reflected on sticker prices. However, another reason came from an anonymous industry insider who told the newspaper that makers of European automobiles “have a responsibility to maintain brand value” to customers who pay more under the assumption that when they trade in the car down the line they’ll get more money for it. Given that trade-in values of automobiles in Japan are quite low to begin with, this explanation sounds only half right.

To put things into perspective, the value of the euro against the yen has decreased 40 percent since 2007, when it was more than ¥160. During the 2011 calendar year it lost ¥8, which means a windfall of ¥370,000 to makers for a car priced at ¥5 million. And despite the ongoing recession, the number of imports sold in November was 30 percent higher than the number sold in November 2010. According to analysts interviewed by Tokyo Shimbun, Japanese car buyers preferred European cars for their “energy saving qualities and performance.” Certain models, in fact, are so popular they’re on back order. Consequently, there is absolutely no incentive to reduce prices, and Japanese customers don’t really expect it the way they expect Japanese makers to lower prices in order to be competitive.

The fact is, the high yen gets a lot of press in Japan because Japanese manufacturers count so much on overseas sales. Market share in the U.S. and other regions is extremely important. In contrast, the Japan market is a relatively small one for European carmakers. And since many of them have over the past decade bypassed local importers and set up their own dealerships, they can more or less do what they want, and that includes ignoring the social pressure of reflecting the high yen in their prices.

Yet another reason for good sales is the March disaster, which disrupted supply chains for Japanese cars. Foreign car supply was unaffected, resulting in a 7 percent increase in sales (95,452 total sold) for the first half of 2011 alone. BMW, which now sells the Mini, enjoyed an 8.7 percent increase. Interestingly enough, out of all the exporters Volkswagen sold the most and yet saw a decrease of 3.2 percent over the previous year.

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As a disreputable pastime, mahjong doesn’t draw as much attention as racing sports or pachinko probably because as a game it’s relatively low key and whatever gambling goes on is between friends. In Japan, mahjong traditionally has been played by male college students and salarymen in smoke-filled “parlors” where participants rent tables by the hour and send out for food and alcohol. Like a lot of things that depend on disposable income, Japan’s mahjong industry has been hurting lately. Not only did the lingering recession eat away at the game’s clientele, but anyone with a mahjong jones can get their fix with computer and mobile phone applications. According to the National Mahjong Union, there were about 36,000 parlors nationwide in 1978, a number that remained fairly constant until the bubble burst at the end of the 1980s. By 2000, the number had dwindled to 20,000, and in 2010 there were only 12,700 mahjong parlors in Japan.

Against the wind: Entrance to mahjong parlor in Hama-cho, Tokyo

The Asahi Shimbun recently reported that many remaining parlors are desperately trying to attract new customers in order to stay in business and that some of these schemes have led to police crackdowns. The paper covered one struggling parlor in Osaka where it costs ¥1,800 to rent a four-person table for one hour, and most days the manager says they only manage to rent out about two tables. Another parlor in the vicinity has actually set up a no-smoking section behind glass in hopes that women and non-smokers will come. Still other parlors have set up bigger kitchens so as to offer a more diverse dining experience. There’s even a movement called “healthy mahjong” aimed at older and younger people that emphasizes daytime playing with no alcohol or betting, as well as the supposed brain-fortifying qualities of the game. Some parlors offer “classes” in how to play mahjong more enjoyably and effectively.

Traditional mahjong enthusiasts, however, will likely look askance at these developments, since without the drink and the smoke and the gambling mahjong holds little interest to them. The main problem is that a mahjong game requires four people, so some parlors have devised “free mahjong,” which means you can show up at a parlor by yourself and the manager will set you up in a game with employees. Instead of charging by the table and the hour, free mahjong parlors charge by the game., and since mahjong games can be relatively quick affairs, the profit rate is theoretically higher.

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Smoke 'em if you got 'em: JT HQ in Toranomon, Tokyo

As every smoker in Japan knows, the cigarette tax was raised in the fall of 2010. With ¥3.5 added to each cigarette, it means a pack suddenly cost at least ¥70 more, and as a result sales have dropped by about 20 percent. So-called sin taxes are double-barrelled: They have a behavior modification purpose of discouraging users from over-indulging, and they’re an easy political sell since the consumers (and maker/providers) usually aren’t considered a sympathetic or powerful constituency by the general public. Consequently, the government is thinking of adding another ¥2 per cigarette tax levy to help pay for reconstruction.

The suggestion has been tabled for the time being, though it will likely be revived. The main reason for the postponement isn’t so much Japan Tobacco, which has a monopoly on tobacco sales in Japan, but rather the farmers who supply JT. There are approximately 10,000 households that make a living from growing tobacco, and about 40 percent have said that they plan to quit since they see no future in the crop. The presumed reason is the tax and the trend for quitting, but many farmers say they are getting out of tobacco because JT asked them to. Since JT is obliged to buy all their product, these farmers no longer have a guaranteed future, and with the Trans-Pacific Partnership possibly looming on the horizon, there’s even less of an incentive to stick it out.

Tobacco, like salt and rice, used to be a government monopoly. That changed in 1985 when the monopolies were abolished and Japan Tobacco was established. Despite the change in nomenclature, JT pretty much continued to operate as a monopoly, since it had to buy all the tobacco produced and controlled all sales of cigarettes. JT determined the price of tobacco before each growing season, meaning there was never a market for the crop. This worked fine while sales were strong, but after they peaked in the mid-90s revenues steadily decreased. Starting in 2004, JT solicited tobacco farmers to retire, and about 20 percent did exactly that. The amount of farmland dedicated to tobacco decreased by about 10 percent. Last year, JT asked more farmers to quit the game, and the decrease in farmland was 30 percent.

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Hirohisa Fujii, head of the Democratic Party of Japan's tax panel, listens to recent panel deliberations about a proposed tax hike to pay for reconstruction. (Kyodo photo)

In October we talked about how national assembly members’ pay was going back to normal after six months of pay cuts in the wake of the March disaster. At the same time, the administration of Prime Minister Yoshihiko Noda failed in its attempt to cut civil servant pay by 7.8 percent because Rengo, the union federation that represents government workers, demanded reinstatement of collective bargaining rights as a concession, which the opposition Liberal Democratic Party wouldn’t go for, so the measure was defeated in the Diet. Because Noda’s ruling Democratic Party of Japan was pushing for the 7.8 percent cut it postponed the voluntary 0.23 percent cut proposed by the National Personnel Authority, so in the end bureaucrats are getting paid the same amount they’ve always been paid. Actually, they’re getting even more since last week they received bonuses that on average are 4.1 percent higher than they were last year.

The government pay situation is a huge PR problem for the administration, since it’s about to ask the public to accept a tax increase to pay for reconstruction. To put things in the proper perspective, the basic monthly salary for a Diet member is ¥1,294,000 and his/her yearly bonus amounts to ¥5,530,000. According to the national tax agency, the average salaryman working for a private company in Japan earned ¥295,000 a month in 2010, and received yearly bonuses of ¥580,000. So on an annual basis, a national politician receives more than ¥21 million and a salaryman a little more than ¥4 million.

But there’s more. Each lawmaker is allowed ¥1 million a month for tsushin kotsu taizai-hi (communications, transportation and lodging expenses). This allowance is supposed to be spent on anything having to do with sending documents to or communicating with constituents on matters of a “public nature,” which basically describes anything a politician does. However, lawmakers are not required to submit receipts showing how they spent this money, so that’s an extra ¥12 million a year, tax-free.

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Old or new, buy later and save!

When you buy an automobile in Japan you pay a bunch of taxes. And when you own an automobile in Japan, you pay a bunch even more taxes on a yearly or biannual basis. Since car sales are considered an engine of the economy second only to home purchases in terms of consumer spending, the government wants more people to buy cars and is thinking about slashing these related taxes.

A tax study group is now discussing the abolition of the jidosha shutokuzei (car purchase tax), which currently amounts to 5 percent of the price paid for a regular automobile and 3 percent for a “mini” (kei) car whose engine displacement is 660 cc or less. This tax is levied on all car sales, new or used, of over ¥500,000 and goes to local governments. Since it’s estimated that car purchase tax revenues for fiscal 2011 will amount to ¥200 billion, it’s quite a sacrifice, but the auto industry has taken a pounding since the March 11 disaster and taxes constitute a fairly large portion of the outlay for a car purchase.

However, there’s more. The Ministry of Economy, Trade and Industry, as well as the various related industry associations, are pushing for eliminating or reducing other auto-related taxes, in particular the annual automobile tax, which is ¥39,000 for passenger cars and ¥7,200 for kei cars. Then there’s the juryozei (weight tax), which is levied at the time of purchase and then every time the automobile is brought in for its mandatory vehicle inspection (shaken) and brings in about ¥700 billion for the central government. That’s ¥37,000 for a vehicle of less than one ton, ¥56,000 for vehicles between 1 and 1.5 tons, etc. Then there’s also a special tax just for kei cars, and, of course, don’t forget that consumption taxes apply to all purchases of cars and parts, not to mention gasoline taxes.

Local governments will probably have something to say about the reduction of all these taxes since they are the main beneficiary. The provisional tax reduction for automobiles designated as being environmentally friendly (eco cars) is scheduled to end on April 30 of next year, and the study group is thinking of eliminating or at least greatly reducing both the car purchase tax and the weight taxes for eco cars in order to promote their sale. In any event, if and when the reductions are approved, they won’t go into effect until fiscal 2012.

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