Terrie's Take 644 -- Six Predictions for Japan in 2012, ebiz news from Japan

[Terrie's Take]

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, January 08, 2012, Issue No. 644

+++ INDEX

- What's New -- Predictions for 2012
- News -- Japan secures LNG supply
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback -- More on birthrate problem
- News Credits

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+++ WHAT'S NEW

Welcome back to Terrie's Take for 2012, our 15th year of
publishing -- seems like just yesterday when we sent the
first one out. Per "tradition", we make some predictions
about what we think will happen on a macro level here in
Japan or globally that will affect Japan.

Overall, we think that 2012 will be a year that emphasizes
to the world that Japan is not a basket case, but in fact
as a global trader, investor, and innovator, is able to
keep its collective head above the choppy waters
confronting some other economies.

****************

1. Baby Boomer Retirements Take Effect

Do you remember back in 2005 everyone talking about the
"Dankai" generation, where 6.7m baby boomers would retire
and cause all kinds of havoc both in the employment and
investment sectors? Employment was a concern because
that number is 10% of Japan's skilled work force retiring in
a 3-year timeframe, and investment because these people
were due to get massive retirement payouts, but how would
they spend the? Well, it didn't happen, largely due to a
2006 labor law change which raised the retirement age in
private companies to 65. However, we're now 5 years further
on, and the first of the Dankai generation really will start
retiring this year.

The impact on the economy should be highly beneficial,
since indeed, the retirement bonuses these millions will
receive will be plowed into various long-term
income-yielding investments. "Income" is the operative
word and is why domestic real estate and foreign
investment funds will continue to be popular. We predict,
too, that there will be a surge in high-end digital
cameras, as the wives kick their hitherto unseen
newly-retired hubbies out the door! Buy Nikon shares.

2. Iran Conflict and Oil Prices

With all the focus by the media on natural disasters and
the Eurozone, it's easy to forget other potential disasters
waiting just around the corner. Iran announced at the
beginning of the year that it has produced its first
nuclear fuel rod. That is double speak for "we have
fuel for a plutonium bomb". We think it is only a matter of
time before Israel and/or the USA is forced into a direct
confrontation with Iran over their nuclear technology.
Until now we've heard of viruses, scientist assassinations,
and facility bombings -- but the Iranian authorities are
determined to have their bomb and have diversified their
resources sufficiently that they are still able to produce
fissionable material.

Our guess is that there will be a massive air strike
against Iran later this year, and this will either be
successful, with both the nuclear facilities and the senior
leadership being removed -- or it will rouse a hornet's
nest. The risks are huge, but not to take action is
probably going to be worse.

The net effect of any confrontation will be that supplies
of oil from that area will dry up for a while, and the
world will be forced into shortages once again. Oil prices
will sky rocket and here in Japan we will probably wind up
having power cuts since almost no nuclear power means that
most power these days is coming from oil-fired generators.
As a result, the government to "temporarily" back track on
the shutting of nuclear power stations. Buy Nissan and GS
Yuasa shares.

[Continued below...]

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3. Yen Strength to Continue

If there isn't a Middle East crisis, though, then we see
nothing to cause the Yen to fall much beyond where it is
today. The simple fact is that Japan still has plenty of
cash to cover its public deficit spending and it is
otherwise stable in an unstable world. In particular, we
feel particularly sorry for major firms in the US and
Europe who are being loaded up with all kinds of tax,
environmental, and other regulations. Japan is known as a
highly regulated business environment, but in fact it
basically leaves its major companies alone, preferring
instead to let private industry find its own way forward.
That's why corporate governance can be such a problem
here.

In terms of public spending, if the Consumption Tax rises
to 10%, as the DPJ is determined to do, then the country
can run at least another 10 years at the current negative
income levels -- plenty of time for the next economic cycle
to roll around. The supposed "rebellion" by internal DPJ
factions and the opposition LDP over consumption tax is, we
think, just posturing, and that in the end PM Noda and the
DPJ will get their way.

Actually, if the Consumption Tax rose to 17%-20%, then the
resulting income would effectively cover all the
government's foreseeable commitments, and leave the
governemnt in a basic state of fiscal balance. Yes, there
would be a disruption to domestic GDP as people got used
to each tax increase, but as has been proven overseas, the
general public quickly adjusts to the higher goods and
services taxes and gets on with living. So there is plenty of
wiggle room for Japan yet. Hold yen assets.

4. M&A Continues Apace

It's pretty obvious by now that cash flow-rich acquisitions
abroad are within the sights of most well-run Japanese
firms, and with the soft money now available for such
transactions, are an easy way of dodging the shrinking
domestic economy bullet. Indeed, Japanese M&A of foreign
firms rose more than 100% over 2010, to US$86bn. At the same
time, domestic deals were worth US$125bn, up 28%. By any
measure these numbers comprise a frothy market for
takeovers, and we can't see this ending in 2012. This is
great news for international law and accounting firms.

Indeed, we predict stronger action by smaller and mid-size
firms, who may not being doing billion dollar deals, but
whose actions will be far-reaching in terms of the jobs
market and Japan's connectedness with the outside world.
Currently there are two formats for post-merger operations:
a) let the acquired company management continue running the
business, thus saving the need for a whole cadre of
bilingual trusted Japanese overseers, or, b) put someone
from Tokyo in charge.

Both modes of operation offer strong opportunities for
those of us servicing the international market, whether in
recruiting, training, IT, or other sectors. The key is
"bilingual". Because of this, we think that the English
language teaching sector will experience a resurgence of
popularity, and there will be the signs of a recovery in
the number of young Japanese studying abroad. It would help
if the Japanese government offered some kind of
study-abroad student loans, and we wouldn't be surprised if
something like this emerges. Buy small-cap pharmaceutical
stocks expressing an interest in foreign M&A.

5. More Radioactivity Scares

One thing you can be sure of with the Fukushima Daiichi
power plant is that we haven't heard the last of the
accident nor its consequences. In December, TEPCO blithely
announced that they had achieved cold shut down of the No.
1, 2, and 3 reactors, and that they were stable. There was
a collective breath of relief by the public, and TEPCO said
it was moving to the "next stage of maintaining the safety
of the plant".

The problem is that there is a continual flow of
inconvenient news about fresh high readings of Cesium-137
and Iodine-131 in the soils and groundwaters around Fukushima.
Those of us learning about nuclear materials over the last 9
months will know that you're not supposed to see increasing
levels of such materials, because they have a relatively short
half life and should have largely cleared from the
Fukushima biosystem by now. But instead, a report from MEXT
as recently as December 26th said that well water surveys
done in October resulted in 11.4l/kg-14.7l/kg of cesium
being found in in 3 locations. At the same time, in
Shinchi, near Soma City, the Fukushima Prefectural
government reported finding 15Bq/kg of Iodine-131 in well
water on December 21st.

So something is going on... Internet comments are that at
least one of the reactor's coriums has probably melted clean
through the containment vessel and is now percolating in
the earth under the power station. If that's the case, then
we can assume that the groundwater all around Fukushima is
becoming poisonous. Not good. Buy CocaCola and other
bottled water producer shares.

6. La Nina Weather Disruptions

With the occurrence of the 3/11 earthquake and tsunami, it
was easy to miss the other natural disasters that happened
here in Japan and elsewhere in the world. It is clear
that we had a particularly bad year for weather in 2011,
with severe droughts in China and the USA and
record-breaking flooding in Pakistan, Thailand,
Philippines, Australia, and South America. These events
have been laid at the feet of the La Nina cycle, which in
spring and fall creates colder weather and generally drier
conditions in the Northern Hemisphere and generally
wetter conditions in the South.

Apparently late 2011 was the peak of La Nina, and is
expected to run another 4-6 months. So we will probably see
a relatively dry winter, and an early start to spring. More
importantly, though, the areas that have been affected by
La Nina include major crop/livestock export regions in the
USA and elsewhere, and the general expectation is that
there will be a shortage of soybeans, cereals, livestock,
and other foods. We can therefore expect prices to rise
again, and for there to be substantial competition amongst
the food importing nations of the world, of which Japan is
the largest. We'd stock up on flour, frozen meat, and other
foreign-sourced staples, at least through to mid-2012. Some
extra cans of sardines or tuna in the cupboard won't go
astray, either. Buy Kirin, Asahi, and other Japanese food
shares.

****************

Lastly, one of the major events of last year was Olympus
scandal and how it highlighted the need for Japan to get
serious about corporate governance. If you scroll further
down this newsletter, you will find a short ad appealing
for donors to the "Board Director Training Institute of
Japan" (BDTI). This organization is run by a group of
prominent local foreign and Japanese business people and
has the express purpose of improving corporate governance
through education and certification. We wholly support it.
BDTI is trying to get a special tax status as an NPO, and
needs a certain number of genuine donations to achieve this
status. We already donated JPY3,000 -- a painless
procedure, and encourage readers to do the same. This is
one organization that will produce real benefits for Japan
as the concept takes hold.


...The information janitors/

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+++ NEWS

- Japan secures LNG supply
- Double murder in Tokyo exposes extradition issues
- Panasonic home vege grower on sale
- Domestic outsourcing market consolidating
- Nexon IPO misfires


-> Japan secures LNG supply

According to sources quoted by the Yomiuri Shimbun,
Russia's Gazprom and a Japanese consortium that includes
Itochu, JAPEX, and others, have reached agreement to build
a huge LNG plant in Vladivostok. The plant will require a
JPY1trn investment and should start producing in 2020. It
is expected to produce 10m tons of LNG annually, about 14%
of Japan's yearly requirement. ***Ed: Japan made the right
call about 15 years ago in deciding to bet on LNG, and now
with so much of their infrastructure set up for it, they
are taking appropriate steps in Australia, the Middle East,
and now Russia, to ensure steady and redundant supply
lines. Strategic planning at its best.** (Source: TT
commentary from yomiuri.co.jp, Jan 7, 2012)

http://bit.ly/ya9AiC

-> Double murder in Tokyo exposes extradition issues

A double murder of two Taiwanese female students by a third
Taiwanese male student, who is still on the run, exposes
the fact that there is still no extradition treaty between
Japan and Taiwan, meaning that any punishment will be meted
out per Japanese standards only. The murders were extremely
violent and the police say they are assigning 70 people to
the case. They will be particularly eager to catch him,
especially since they nabbed the wrong guy yesterday. ***Ed:
We find it surprising that there still no extradition arrangement
between Taiwan and Japan given the amity between the two
countries. Yes, Japan may not be able to officially
recognize Taiwan, but surely there must be some kind of
semi-official means of creating an accord? That said, the
perp will probably get equally harsh treatment here in
Japan anyhow, so maybe there is no need for extradition
in the first place.** (Source: TT commentary from
asiaone.com, Jan 7, 2012)

http://bit.ly/AgZG5W

-> Panasonic home vege grower on sale

Panasonic is releasing a new vege growing system that can
be installed in apartment kitchens and grow things
year-round. What's great about the system, apart from its
built in "sunshine" -- LEDs, is that it connects sensors to
the Internet and sends alerts when water and nutrient
levels are falling. ***Ed: For plant klutzes like your's
truly, this is great. The only problem is the price, they
are asking JPY600,000... Think we'll wait for the Korean
version to show up a year or two from now for JPY40,000.
Also, it will be interesting to see if the Police start
trying to subpoena customers' growing data from Panasonic,
for certain "herbal" prosecutions...** (Source: TT
commentary from e.nikkei.com, Jan 7, 2012)

http://e.nikkei.com/e/ac/tnks/Nni20120106D0601A08.htm

-> Domestic outsourcing market consolidating

A wave of consolidation in the Japanese outsourcing market
is going on, as highlighted by Friday's announcement that
Pasona Group will buy out Caplan Corp from trading house
Itochu. The Nikkei speculated that the buy-out price for
the JPY15bn (FY2010 revenues) company will be around
JPY2bn -- your standard 1.5x likely EBIT. The purchase
gives Pasona access to Japan Airlines as an account as well
as Caplan's in-house training for specialty assignments.
***Ed: The domestic market is contracting for just about
all sectors of outsourcing, so one presumes that Pasona is
taking a bet that having come this far, the Japanese
government is not going to let JAL go out of business any
time soon, thus giving them a long-term customer.**
(Source: TT commentary from e.nikkei.com, Jan 7, 2012)

http://e.nikkei.com/e/ac/tnks/Nni20120106D0601N02.htm

-> Nexon IPO misfires

A little old as news, but interesting none-the-less, the
Japanese maker of Facebook games, Nexon, had a
disappointing debut on the share market and this probably
served as notice for investors in the Zynga IPO in the USA
the next day. The company's stock fell 2.3% in the first
day, and as of Friday was down a full 13%, coincidentally
about the same as Zynga was in the US. The fall of the
stock price of both companies marks the realization by
investors that companies with businesses reliant on the
goodwill of another (Facebook) for their survival and
profitability, are probably not such a good bet.** (Source:
TT commentary from bloomberg.net, Dec 14, 2011)

http://www.bloomberg.com/quote/3659:JP/news


NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

***------------------------****-------------------------***

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BDTI will get greater visibility, and donors in the next
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Inquiries:  info at bdti.or.jp
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+++ CANDIDATE ROUND UP/VACANCIES

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+++ UPCOMING EVENTS/ANNOUNCEMENTS

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***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors at terrie.com.

*** In TT641 we delved into possible reasons for the
Japanese permanent singles rate increasing as it has.
Contra to the mouse overpopulation theory we heard about
from a reader late last year, this time the observation is
a bit more conventional.

=> Reader comments:

I was very interested to read your article on declining
marriage and birth rates.

I believe that if young couples could easily afford
spacious three-and four-bedroom homes, they would marry and
have two to three children. But if all they can hope for is
two six-mat rooms and a three-mat kitchen or similar
combination, then having children just isn't inviting.

A large part of the answer lies within the house
construction industry, prices for shoe-box mansions, and
building height restrictions. One might add regional
development, as there are thousands of large empty houses
in some rural areas.

Mansion construction in Tokyo appears unabated and people
are still leaving the regions. The opposite should be
happening. Japan should repeat the Meiji era policy of tax
breaks, such as those that spurred the development of
Niigata, for regional development.

The birth rate I believe is in the construction industry's
hands.

***********************************************************
END

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+++ ABOUT US

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Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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