Terrie's Take 729 -- Can Abe Get Companies to Increase Salaries? E-biz news from Japan.

Terrie's Take terrie at mailman.japaninc.com
Mon Oct 7 08:53:00 JST 2013

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, Oct 06, 2013, Issue No. 729


- What's New -- Can Abe Get Companies to Increase Salaries?
- News -- Looming consumption tax hits retail/luxury stocks
- Web Content/Tech Job Vacancies
- Upcoming Events
- Corrections/Feedback -- Freedom of Speech vs. Hate Speech
- Travel Picks -- Art in Tokyo, Boating in Okinawa
- News Credits

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As many commentators have noted, the third "arrow" of PM Shinzo Abe's
stimulus package is reform and more specifically deregulation and the
reallocation of national resources and efforts. But somehow along the way,
the lack of wage increases by employers has become the latest "cause
celebre" and dubbed the reason for a lack of market enthusiasm and a lack
of consumer spending. As a result, the government, which as the leaders of
a democratic nation can't force companies to do what they don't want to do
by conventional means, is having to turn to other methods to get companies
to share the burden of lifting the country out of deflation.

Thus it was this week that the Ministry of Economy, Trade, and Industry
(METI) announced that their officials will be visiting  companies and
asking them (read, arm-twisting) to increase wages. This type of direct
government intervention would cause a huge stink in the USA, where
companies have the right to decide what to pay their people and when to pay
it, but in Japan it's a very practical way to get quick action. Why?
Because so many major companies feed at the government trough -- receiving
everything from cosy domestic monopolies and infrastructure contracts, to
being involved in foreign aid and development projects that are funded by
government low-interest loans.

So with sufficient visits and enough reminders that these companies need to
be mindful of future business, METI and the various other agencies of the
government (such as the FSA), will be able to get some dozens, if not
several hundred companies, to fall into line. The problem with this
strategy, though, is that while Japan's major companies have high profiles,
in fact they only employ a few million people. The Bureau of Statistics
says that in 2009 ALL companies over 300 people employed just 8m people
(and it's probably 10%-15% less today), while those companies with under
300 employees had 48m workers. The remaining workers (actually, now
numbering 20.42m in 2013) were classified as irregular, meaning they have
little or no tenure where they work.

What this tells us is that 90% of Japan's workforce, the nation's main
consumers, either work for small companies who don't have anything to do
with the government and thus can't be leveraged, or they are irregular
employees and will be the last in line for pay raises anyhow. Therefore,
it's hard to see the LDP achieving much of a result after all this personal
effort, and this is without considering the fact that only 27% or so of
Japan's companies actually make money and pay tax in the first place. It's
difficult for management, no matter how much they might love Mr. Abe, to
give out pay raises when you have no money to do so.

Indeed, everyone seems to have forgotten Japan's zombie companies, who
thanks to soft and rescheduled loans (courtesy of pressure from the FSA on
banks), are still very much with us and still very much employers of a big
chunk of the workforce. Without these firms getting fixed, somehow, the
government is going to find it very difficult to get a virtuous cycle of
pay increases and inflation to start moving. Instead, as we've already seen
with stocks, a few elite people will get windfalls, the number of BMWs and
Mercedes Benz's they buy will hit the headlines, but somehow the overall
economy will barely improve.

[Continued below...]

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[...Article continues]

Even among the larger and more profitable companies, the interest by
management in passing increases in wages (versus a more flexible increase
in bonuses) to employees is extremely low -- only 2.7% according to a
recent survey. This shouldn't be surprising given the headwinds that most
Japanese companies have faced over the last 20 years contributing to their
ongoing wariness about the future. Sure, they have large pots of money
right now, but most see this as a temporary situation given the specters of
an ongoing high yen, the dominance of China as a manufacturing base, the
increase in aged employees and thus higher salaries, increased taxes
(specifically the consumption tax), and the general hampering of innovation
by government regulations.

So what can the Abe government do to get companies to pay more salaries?
How to fix a deeply damaged economy? We can only see one way: cauterize and
regrow. The zombie companies need to be forced out of business, the people
they employ need to be re-trained to deal with a post-manufacturing
economy, and new and non-Japanese companies need to be able to enter the
market and start innovating. Doing this in one short, sharp blow would be
extremely painful, and from past events we doubt it will happen. Instead,
we see the government, which is comprised of some very smart people,
engaging in a series of reforms that overall and over time will have the
same palliative effect.

Thus we came up with a partial prescription of measures that will help put
in place the changes needed:

1. TPP -- joining the TransPacific Partnership trade deal will give the
government a perfect excuse for reforming Japan's commercial and
professional sectors. Currently no one is able to dislodge the many
entrenched interests who prefer the status quo, and being able to blame the
foreigners for having to make painful adjustments and opening up the market
will be very convenient. We expect to see a lot of changes being attributed
to TPP over the next 5 years.

2. Removal of the lifelines extended to zombie companies. We have
speculated in the past about just how many companies would go out of
business if the loan rescheduling program started by Kamei in 2009 were to
be stopped. Presuming that any company needing a loan moratorium must be in
serious trouble, and with more than 3.4m such loans extended to probably
around 300,000-400,000 companies, this would mean that about 20% of Japan's
approximately 3.3m operational companies (versus another 2m shelf
companies) would go out of business. We checked the stats and found that
this would affect about 3-4m workers. Not a small number, but manageable.
And once those companies were disposed of, it would free up the workforce
to move to more productive jobs and over time improve the government's tax
base. Will it happen? Not all at once. But we do expect a gradual
tightening on such firms and eventually seeing them forced out of business.

3. Allocation of more capital to risk-based and innovation-oriented
businesses. It's been long said that the two big challenges facing Japan
and regrowth is the lack of risk-taking people (which will be improved when
people are forced out of work) and lack of risk-taking capital. The
government is throwing all sorts of money at low-tech and often unnecessary
public works, but we see a much better application of that cash as being in
companies and workers who can compete in the international economy. This
means new skills and new ideas. Right now we see little or no effort in
budgeting advanced adult re-training, outsourced financial and marketing
management for small businesses, or even meaningful tax and other
incentives for those funding new companies. But we do believe that
legislation and action in all these areas is on the way.

4. Overhaul of the social security contract. It's an undeniable fact that
the current social security system is broken and needs restructuring. So
it's good to see the government start to take steps to re-allocate the tax
burden back on the people who are beneficiaries of the current system --
retired people. This should have happened a long time ago, but better late
than never. We expect more pressure on this generation, including lower
payouts on pensions, an additional increase in the age of pension
entitlement, and the introduction of some better private savings incentive
(than what's available now) for people to fund their own retirements.

Lastly, are the tax cuts that Keidanren and other industrial groups are
demanding the magic formula for improving the nation's financial situation?
We don't think so. While they may be helpful, for the reasons we have given
above we see other factors as having greater influence on the economy.
Existing companies are overly cautious and instead what is needed is new
growth from new players in new industries. This is where the government
should be investing our tax money, and giving the next generation of
workers and employers hope for the future.

...The information janitors/


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+++ NEWS

- Record levels of stock trading
- Looming consumption tax hits retail/luxury stocks
- Mercury pollution on Mt. Fuji most likely Chinese origin
- Mail rates to increase
- Are you ready for space burials?

=> Record levels of stock trading

It appears that Mrs Watanabes (all hundreds of thousands of her) around
Japan have started realizing that the only way to help the family make some
extra cash in the current stage of Abenomics and in lieu of pay raises for
workers, is to do some day trading on stocks. So for those people lucky
enough to have the cash and the time, they are piling in to the stock
market with lots of leverage through margin trading. The total turnover at
the top 7 online brokerages for the April-September period was JPY181trn,
or about 460% higher than the same period last year. Margin trades now
account for 60% of overall trading. (Source: TT commentary from
e.nikkei.co.jp, Oct 5, 2013)


=> Looming consumption tax hits retail/luxury stocks

In a taste of things to come, the shares of companies that supply
discretionary goods and services to consumers are getting beaten up in the
stock market. Particularly hard hit have been department stores, clothing
retailers, and luxury hotels. As examples, Isetan Mitsukoshi Holdings stock
kept falling every day this week for a loss of about 6%, the Imperial
Hotel's stock fell by 4%, and luxury online hotel booking agency Ikyu fell
11%. General consensus is that in the absence of increasing wages, the
higher consumption tax will cause people to curtail spending on luxury
items. (Source: TT commentary from e.nikkei.com, Oct 5, 2013)


=> Mercury pollution on Mt. Fuji most likely Chinese origin

A research team from the University of Shiga Prefecture has found a
correlation between higher-the-normal mercury pollution on the upper slopes
of Mt. Fuji, and prevailing winds blowing in from China. The mercury levels
detected at the Mt. Fuji weather station on the peak's summit measured up
to 2.8ngms per cu. m. of air, about double that of normal, although far
below the upper 40ngm limit imposed by government health standards, ***Ed:
We fail to see why the Japanese might focus on this type of low-level
pollution, when not 200km away, there are far more egregious emissions of
radioactivity from Fukushima. Maybe the government should encourage
scientists from now on to relate findings like this to the nation's most
pressing problems -- being those at Fukushima. (Source: TT commentary from
thenews.com.pk, Oct 6, 2013)


=> Mail rates to increase

Japan Post is getting ready to increase the cost of mailing throughout
Japan, with increases of roughly 2% (25gm letters will now cost JPY82
versus the current JPY80). The rationale for the increase was given by
Japan Post's oversighting ministry, the internal affairs ministry, has been
the pending increase in consumption tax. According to the internal affairs
ministry, Japan Post will have to pay an additional JPY38bn in consumption
taxes annually after the rise next April. (Source: TT commentary from
japantimes.co.jp, Oct 5, 2013)


=> Are you ready for space burials?

According to Bloomberg, San Francisco company Elysium Space Inc. is
offering space burials to clients in Japan. The company will put about 1gm
of your loved one's ashes into a "space grade" aluminum tube and fire it
into space along with up to 400 other peoples' ashes. Once up there, the
tubes are expected to circle the planet for several months, before
eventually being pulled back to earth and burning up upon re-entry. The
cost of doing this will be about US$1,990, significantly cheaper than the
cost of a tombstone (average cost of JPY2.7m). ***Ed: In case you're
wondering, the funeral market in Japan is worth JPY1.3trn (as of March
2010). (Source: TT commentary from Bloomberg.com, Oct 1, 2013)


NOTE: Broken links
Some 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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Title: "Aftershock: The New Job Market Landscape in Japan"

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=> In TT-728, we commented on hate speech in Japan and the lack of means to
control such hostile behavior. One of our readers took exception to the
article, and made some good points which we replay here.

*** Reader's Comment:

I strongly suggest that you should in the future continue to refrain from
commenting on political issues, especially when you fail to demonstrate a
rudimentary understanding of the underlying legal issues.

"To be honest, we can't understand why the government doesn't take some
kind of action to restrict hate speech and more definitively outlaw acts of
racial discrimination. "

Earlier in your comment you point out that other "first world countries"
(not sure if you used that correctly or meant to imply "advanced"
countries) "although notably not the USA). Did you wonder for even a moment
why that might be? Have you spent any time at all to look into the
relationships between legal guarantees of free speech and hate speech laws
in different countries? Based on your quote regarding Japanese academics
and supposed ties to conservatives I rather doubt it.

Rather than go into an extended explanation which results in "the answer to
bad speech is more speech" I'll simply say that if you are so concerned
with complaining about Japan following the US in this matter, do some
research into reported crimes of violence against minorities in different
countries and check which of those have a hate speech law. While
correlation is certainly not causation, you will find that the countries
which do have hate speech laws have greater reported levels of violence
against ethnic or religious minorities. The existence of hate speech laws
does nothing to protect minorities. On the other hand robust legal
guarantees and protection of freedoms of speech show that a culture values
all of its members.

The U.S. is in fact a shining example in this area. I say this not out of a
sense of patriotism but rather as a member of a religious (and previously
considered ethnic) minority who enjoys the freedoms granted to me and mine.
As a long term permanent resident of Japan I'm comforted rather than
concerned by the lack of laws which regulate speech.


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The Japan Emergency Team, operator of Japan`s only Disaster Relief Vehicle
is asking for help to keep the Disaster Relief Vehicle running. The DRV, a
30 foot converted Motorhome sleeps up to ten, has shower, cooking,
facilities and is still on site in Tohoku where it assisted in providing
showers, food and emergency assistance as it still does. In addition it has
a mobile `convenience store` which provides necessities to those in
temporary housing.

The Japan Emergency Team was formed in 1989 when 38 students from Chuo
University went to assist in the San Francisco Earthquake making history as
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Probably the capital`s most eye-catching museum

Since it opened in 2007, The National Art Center in Roppongi has become a
major player in Tokyo`s art scene. The innovative wavelike design by famed
architect Kisho Kurokawa and the airy interior set it apart from the
majority of the city`s other museums, and make for a very agreeable

Once you get inside, one immediately striking point is the spaciousness of
the entrance area. It`s over 150 meters wide and boasts a lofty 21 meter
ceiling, which has the effect of diffusing every sound and creating a
soothing, hushed atmosphere. This is enhanced by the curving curtain window
which lets in huge amounts of light, casting delicate latticed shadows on
the floor and walls. In this area you`ll find three information counters,
plenty of coin lockers to store your bags, and a café which serves also as
a good rendezvous point.

The feeling of space extends also to the galleries. There are two large
galleries for special exhibitions, and ten other rooms which are `smaller`
only in that, at 1000 square meters with 5m ceilings, they aren`t as large.
Movable screens allow the galleries to be rearranged, so they can either
pack in a good number of smaller pieces, or provide space to do justice to
larger works of art.


=> Kadena Marine Complex, Okinawa

The Kadena Marina Complex located on the North China Sea is a hidden
recreational gem in plain sight right off of Route 58 in Kadena Town. The
complex is part of but also physically separated from the American Kadena
Air Base. There's a sentry gate at the entrance on Route 58 that isn't
manned, and thus for as long as I can remember it has been open to the
general public, with the marina, scuba shop, gear rentals and pavilion
rentals being exceptions.

The general public is free to experience the beach and the co-located
Seaside Ristorante. The beach is shallow and netted in, but becomes deep
enough for serious swimming along the southern side. A large island in the
marina harbor is a popular spot to explore. Scuba divers can regularly be
seen at the extreme southern side of the beach plunging into the water off
of the coral bluff.




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

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