Terrie's Take 766 -- Falling Exports and What Comes Next, e-biz news from Japan

Sun Jul 27 23:36:08 JST 2014

* * * * * * * * TERRIE'S TAKE - BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term
technology and media entrepreneur living in Japan.
(http://www.terrielloyd.com)

General Edition Sunday, July 27, 2014, Issue No. 766

+++ INDEX

- What's New -- Falling Exports and What Comes Next
- News -- Uh-oh, it's going to be hot after all
- Web Content/Tech Job Vacancies -- Account manager/Sales position
- Upcoming Events
- Corrections/Feedback -- Learned Opinion on Patent Licensors vs. Trolls
- Travel Picks -- Cat Alley in Hiroshima, Fuji Rock in Naeba
- News Credits

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+++ WHAT'S NEW

We've been watching with interest the post consumption tax economic
performance, to get some hints as to future government stimulus
actions (important for knowing where to target sales: i.e., at the
recipients of government largess), and the movement of the Japanese
yen (important for those of us exporting). The Finance Ministry came
out with some negative data this week, showing that the nation's
exports fell 2% in June, and that the trade balance was in deficit,
again, to the tune of -JPY822.2trn. Of particular concern was a 6.8%
year-on-year fall in auto exports, the largest export category at
23.2%, and this on top of a disastrous 18% drop in May.

One suspects that the top guys at the finance ministry actually get
some grim satisfaction out of issuing these terrible numbers, because
they confirm what seems to be the prevailing view at the ministry,
that Abenomics is too risky and is unlikely to succeed. Not that they
can say what they think in public, but if they are thinking it,
unfortunately they might be right. Without surpluses created by
exports, or alternatively spending by consumers (or preferably both),
you really have to wonder how the Abe government ever thinks it will
dig itself out of the current financial hole. While they no doubt hope
to inflate their debt away, effectively passing it on to the general
public by way of a weaker yen, that won't work if the hole is getting
deeper each year and there isn't a ladder out.

The current situation is nicely summed by Assistant Professor Kazumasa
Oguro, previously an economist at the finance ministry, who points out
that Japan's gross debt to GDP will rise from the 190% today to an
unsustainable 500% by 2050 (his numbers), if the government continues
to borrow at the current rate -- which is more than 50% of its budget
(versus earnings from tax income). He sees little hope that the
government can reduce borrowing because of simple demographic trends.
By 2060 the nation's working population will comprise a ratio of just
one worker per pensioner, versus the already sub-par but still
manageable level of 3:1. Oguro is especially concerned that since
pensions and health care benefits now account for 33% of the national
budget, this level is going to increase by almost 1% annually.

[Continued below...]

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The Party is August 1st (this coming Friday), so you'll want to get in
and get your tickets quickly! For more information, go to the
Metropolis Twenty site:

http://metropolis.co.jp/event/twenty/
-----------------------------------------------------------

[...Article continues]

Actually, we think the current situation is a bit surreal. On one hand
the government and BoJ are saying the economy will improve from Q2
(the current quarter), as people start to recover from the shock of
the consumption tax. They're saying, "Don't worry, all is well." Yet
emerging statistics suggest otherwise and that in fact things appear
to be getting worse. It's commonsense isn't it? If exporters have no
reason to beef up production here in Japan, then exports are going to
continue to stay flat or fall further. And if there is no increase in
domestic corporate activity, then there will be no increase in wages
either. So, where then will the improvement in the economy come from?

Analysts appear to agree that exports are down for the following main reasons:

1. Exporters are already well invested in their target markets. By the
government's own stats, some industries such as automotive parts have
been producing over 36% of their output overseas (2011) -- a number
which probably exceeds 40% today. With the value of being local in
each given market, and with looming manpower shortages, uncertain FX,
and high domestic taxes in Japan, why would they bulk up again here at
home?
2. Unwillingness by exporters to drop prices to grab more market
share, and instead just keeping the higher profits. Since the Lehman
Shock, Japanese international firms have learned the value of
liquidity and they are not ready to give up their piles of cash for
more market share just yet. Instead, they are holding on to what they
can get, and stashing it away for a rainy day.
3. Then, lastly, perhaps the most important factor -- the soft global
economy. The Asian Development Bank has just reduced its growth
forecast for major industrialized economies from 1.9% to 1.5% for
2014, mostly due to slower US growth. SE Asia growth is also down
because of Thai and Viet-Chinese political tensions.

This is a factor that the Abe government can do nothing about and
which appears to be the biggest threat to Abenomics. While diluting
your currency with massive Quantitative Easing (QE) may work for a
nation like the USA, whose currency serves as the base for world trade
and whose armed forces can be projected around the world, Japan has
neither of these advantages. So every time there is an external shock
or weakness, the careful plans of the nation's economists go out the
window and international market forces (those "animal spirits" Abe is
so fond of) take over.

Certainly there are plenty of sources of turmoil to be had in the
world right now. It is not hard to see ISIS or Al-Qaeda uniting
fighters all the way from Libya to Iraq, and embarking on a holy war
against their neighbors and the West. Or separately an escalation in
the Ukraine which forces Putin and Russia into an open encounter. Or a
melt-down in China's shadow banking sector. Or another domestic
earthquake, a global drought, an EU member country bank run, etc. It
has to be frustrating for the Abe team to see the yen so easily get
overtaken by global concerns and thus get stuck at JPY101-JPY102 -
US$1 since January, regardless of how much financial engineering they
are trying to do.

As a quick reminder, there are basically four main reasons why the
Japanese yen is considered a "safe haven" currency and thus in
continuing high demand. 1) The size of its economy and its ability to
absorb large flows of money; 2) low interest rates; 3) strong net
foreign assets, thus providing diversification and less vulnerability;
and 4) an economy well removed from the source of turmoil.

Japan pretty much fills all these conditions (except turmoil from
earthquakes, of course).

So as businesspeople, what should we anticipate will happen over the
next few months?

Given the amount of armed conflict in the Middle East and Ukraine, as
well as gathering pressure on the Chinese economy, these and other
external factors will continue to weigh on investors and thus the yen
is likely to stay where it is or even strengthen further. So, our
guess is that BoJ will be forced into another wave of QE in
September-October. The Abe government is also likely to implement some
more direct financing programs in addition to the indirect ones it has
been doing through the DBJ, INCJ, Post Office Bank, and GPIF. It's
pretty obvious that if only 12%-14% of Japanese own shares, then
pumping the stock market alone will have limited usefulness, and in
Japan at least companies don't seem to follow the trickle-down theory.

Maybe Abe will be tempted to raid the cash pile of Japan's exporters.
This pile is reputed to exceed JPY200trn, and is growing by the month.
Abe could institute some kind of special tax rule that requires cash
to be repatriated to Japan and invested into nationally approved
programs, OR, the company's head office will be taxed at a higher
rate. While this might be too punitive and drastic for a
business-friendly political party, we're sure that the government can
come up with variations the effectively offer the same kind of
carrot-and-stick incentive to get the money to come back home. "War
(on inflation) Bonds" perhaps?

But if Abe really wants to touch off a wave of domestic optimism and
consumer spending, he needs to reach down past the big boys, to the
slice of companies that actually hires the bulk of the nation's
workers -- the SMEs. These companies have been virtually untouched by
the wave of liquidity sweeping the markets, to their detriment, and
this is a major reason why salaries are not going up. Our guess is
that the Cabinet Office will come up with some way of bypassing the
risk-averse banks and get the money directly into the hands of the
small players.

How? Maybe some kind of subsidy program keyed to employment and
capital investment, delivered through METI or the People's Finance
Corporation. Alternatively, and as we have mentioned in a previous
Take, they could also set up a venture capital operation that matches
government funds to private funds. Cool Japan could be a good platform
to try something like this out on.

Whatever the actions of the government will be, there is one thing we
can be sure of. By the extent and boldness of the LDP's actions, we
will know just how bad the nation's problems are. Small ideas will
mean that the government feels it still has time and funds up its
sleeve, while bold initiatives will mean "look out below!" If the
later, for businesses like our's it will mean quickly jumping at
opportunities as they become available, because if things really are
that bad, the funds won't last that long.

Interesting times...

...The information janitors/

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

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

+++ NEWS

- No welfare for foreigners
- No Chinese chicken at McDonalds Japan
- Uh-oh, it's going to be hot after all
- 5-Year plan to cut government payroll by 10%
- Women can boost workforce by 1.05m people

=> No welfare for foreigners

Since the 1950's the subject of whether long-term foreign residents in
Japan could get welfare support from Japanese local governments was a
non-issue. Although the laws clearly say that only Japanese are
supposed to get such support, Japan as a matter of course gave similar
consideration to long-term foreigners on humanitarian grounds. Well,
with a case in Oita, the Japanese Supreme Court has now decided that
foreigners are NOT guaranteed financial support when they get into
financial difficulty, even as pensioners or invalids. In a decision
that simply reminds foreigners that life is unfair, the court case now
allows local governments the right to decide whether to offer or
withhold such support. ***Ed: So, tell us again WHY we are paying
taxes, when we can't receive the simple benefits that other first
world nations offer automatically to all legal tax paying residents?**
(Source: TT commentary from scmp.com, Jul 21, 2014)

http://bit.ly/1AlU6v6

=> No Chinese chicken at McDonalds Japan

A few days too late, McDonald's in Japan has said that it will stop
selling chicken products made in China, after a scandal in China
emerged about expired and contaminated meat being sold to it by local
suppliers. The cancelation of Chinese products will mean that there
will probably be a shortage of chicken on Japanese menus until the
company can get product delivered from Thailand. ***Ed: In our
household, our policy towards buying Chinese products is very simple.
Unless we know that the food was produced and processed in-house by a
Japanese-owned firm, if it's from China we don't buy it. Millions of
other families seem to be thinking the same thing and this incident
just reinforces our position.** (Source: TT commentary from
usatoday.com, Jul 25, 2014)

http://usat.ly/1tciq0H

=> Uh-oh, it's going to be hot after all

Where is that El Nino effect on the weather when you need it? While
the Met Agency originally predicted a cooler and wetter summer due to
the El Nino weather pattern kicking in at the middle of August.
However, instead it is now issuing heat warnings for most parts of
Japan. Temperatures are expected to hit 35-38 degrees towards the end
of the week. Three people died of heatstroke last weekend and 3,179
people received treatment for the condition. ***Ed: Commonsense is the
order of the day -- plenty of water and avoiding physical exertion at
midday are a good start.** (Source: TT commentary from wsj.com, Jul
25, 2014)

http://on.wsj.com/1tPwTNF

=> 5-Year plan to cut government payroll by 10%

In an ongoing program to cut down the size of central and regional
government in Japan, already less than half the size on a per capita
basis than the government workforce in the USA, the Abe government
says it will either cut or transfer about 10% of its payroll between
2015 and 2020. The program will affect 29,672 of the nation's 296,544
central government civil servants. The farm ministry will bear the
biggest cuts, with about 14.2% of its workforce affected. ***Ed: As
much as we don't like bureaucracies, experts are saying that these
cuts are probably going to have a negative effect on the economy, and
that some of the national construction projects should be targetted
for cuts instead.** (Source: TT commentary from japantimes.co.jp, Jul
26, 2014)

http://bit.ly/1l4OgV9

=> Women can boost workforce by 1.05m people

A government white paper out this week states that if childrearing
support were provided to Japan's mothers, the country could free up to
1.05m more people for the workforce. Japan's working population is
expected to fall from 65.77m last year to just 56.83m people by 2030.
The government is particularly targeting women in their 30's who
typically retire to have families and are lost from the skilled
workforce for good. If they do return it is in their 40's and in jobs
of less responsibility and pay. ***Ed: Maybe we're math-challenged,
but while the objective is good -- giving women the choice to reenter
the economy if they wish -- what difference will 1m new workers make
when the nation will be down by 9m people? Also, from what we
understand, most of the labor shortage at present is at the two
extremes of the workforce: technology and manual labor -- neither of
which are probably very relevant to returning mothers.** (Source: TT
commentary from the-japan-news.com, Jul 26, 2014)

http://bit.ly/1xjPoK4

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.

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

+++ WEB CONTENT/TECH VACANCIES

=> Are you in web content, sales, or engineering- If so, this section
is for you.

** HIGHLIGHTED POSITION

- Account manager/Sales position

Bilingual account manager for major tourism portal
(www.japantravel.com), we are particularly interested in speaking to
people living both inside and OUTSIDE Tokyo, and wish to recruit at
least 5 more staff within FY2014. JPY3M - JPY5M base + 10% commission.
We are interested in both Japanese and foreign job applicants. The key
requirements are that you have an outgoing personality, ability to get
a visa (which we will sponsor), and that you can speak/hear/understand
reasonably fluent Japanese and English. Strong reading and writing
skills in your non-native language are not necessary.

Interested individuals may e-mail resumes to: info at japantravel.com.

-----------------------------------------------------------

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

+++ UPCOMING EVENTS/ANNOUNCEMENTS

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

+++ CORRECTIONS/FEEDBACK

=> => In TT-765 we discussed the fact that innovation is alive and
well in Japan, and that Japan has a viable post-manufacturing future
if it nurtures its inventors.

*** A reader responds:

I have several comments about your editorial, based on my past lives
as a Silicon Valley patent lawyer and as a former corporate exec who
considered pitches from IP aggregators like Acacia Research.

The only ways to "use" a patent are to (a) license it or (b) sue
someone. Neither has any necessary connection to making and selling
new products. Having a patent on a widget doesn't give you any legal
right to make, use, sell or import a widget. A patent is solely a
negative right -- i.e., a right to *prevent someone else* from making,
using, selling or importing the widget.

For example, if I patent a "wheel with rim and spokes," in general I
can't make, use or sell such wheels if Acme has a broader a/k/a
"dominating" patent on wheels generally. I'd need either to get a
license from Acme (which they might not want to give) or prove legally
that their patent is invalid (most likely an expensive legal battle).
But even though my own factories are idle, if Acme start selling
wheels with rims and spokes, I can sue to stop them from doing so.
OTOH, if there isn't any Acme out there, there's nobody to stop me
from making, using and selling my wheels with spokes even if I don't
have a patent.

Panasonic's problem is that it's not so good at turning its inventions
into products. But it follows from the above that you don't need
patents in order to invent and sell stuff. To be secure in selling the
products, they preferably should be careful not to infringe someone
else's patents. (Unless they're confident of beating the crap out of
their opponent in a lawsuit, as was one Valley company where I
worked.) But once they get past that hurdle, Panasonic can sell its
product *even if Panasonic doesn't have any relevant patent at all.*

So do companies like Acacia Research pose new threats to the
Panasonics of the world? Probably not. The third-party patents to
which AR acquires rights already exist. So Panasonic doesn't
necessarily face any higher marginal risk of getting sued than it did
while those patents were "sleeping," as you put it. Panasonic does
have an enhanced problem as a factual matter if, unlike the original
patentees, AR has the will and intention to sue them -- the "troll"
scenario. But legally that risk was already there from the moment
those heretofore "sleeping" patents issued. So your admonition that
"they'd better hurry up" isn't pertinent.

To the extent aggregators like AR aren't trolls, then a big part of
their sales pitch is to give their licensees some protection from
dominating patents. Suppose I'm already selling or intending to sell a
product, but I'm worried it infringes somebody else's patent out
there. If I can get a license under a huge basket of related patents,
or even a particular broad patent, I may have a stronger case that my
product is kosher to sell. In this scenario, AR's customers are
licensing *defensively,* to cover their own rear ends. This doesn't
pose any enhanced threat to Panasonic either. The threat to Panasonic
came earlier, since those companies are selling or intending to sell
products that compete with Panasonic's -- and they don't need patents
to do so.

Of course, if a company sells or licenses rights to AR, they might
have more revenue and therefore better financial performance compared
to Panasonic. But in that case, Panasonic's IP managers, not its
engineers, are the ones on the front lines: they could follow suit and
transfer rights to AR or a similar company, and enhance Panasonic's
cash flow.

If innovation means getting new products and services into the
marketplace, then patents are a great way to slow down someone else's
innovation. The Framers of the US Constitution believed patents could
teach people how to practice useful arts, but actually a journal
article or even a YouTube video can be sufficient for that purpose.
(IBM used to publish precisely such a journal, describing inventions
it didn't care to patent.) Yes, companies can make more money if they
use their patents more imaginatively. But as businesses like AR
perhaps prove -- per their website, aggregate of $1B revenues in 20
years: not exactly a house on fire -- that's a matter of legal and
financial imagination, not engineering.

The original problem you highlight in your piece, the hollowing out of
the manufacturing sector, has very little to do with patents.
Education, company and labor law, corporate culture and especially
finance usually have a lot more to do with it.

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

+++ TRAVEL DESTINATIONS PICKS

=> Onomichi's 'Cat Alley', Hiroshima
A story of a tucked away art village

The temples and shrines of Onomichi that make up the area's famed
temple walk are indeed grand. So numerous and beautiful in structure
and history are they that you might pass right by a small, overgrown
path, only just barely denoted as being perhaps somehow special by the
presence of a small collection of peculiar-looking cats. Venture into
this narrow alleyway, and you will have stumbled upon Onomichi's "Neko
no Hosomichi" -- Cat Alley.

Now, before your write this off as another street bursting with
strays, be aware that this patch of land, once laden with crumbling
housing with memories all but lost to time, was given a second life by
a man who saw much potential in this hidden cove. Born and raised in
France, Shunji Sonoyama, with his eye for design and superb ability,
came to Japan and made a noteworthy impact in communities throughout
the country through art installments and various community projects.
Onomichi, being where he laid his roots -- most likely because the
town is already filled with famous vantage points for artists,
filmmakers, and writers -- is where you can see most of his work in
action.

http://bit.ly/1pk7ytE

=> Heading to Fuji Rock Festival, Niigata
A guide to attending Japan's famous festival

The Fuji Rock Festival is one of Japan's biggest outdoor music
festivals. It is held at Naeba Ski Resort on the last weekend in July
each year (so it just happened -- but hey, there's always next year!).
There is also a free entry night on the Thursday which is a warm up
for the main event.

Tickets usually go on sale from early March each year with a slight
discount until the middle of June. After that you will pay full price.
You can buy individual days or a pass for the whole weekend. Tickets
can be purchased from Lawson, e+  or Ganban, if you are in Japan, or
from Ganban if you live overseas. Ganban offer assistance in English
so that might be the best choice if you don't speak Japanese.

The Fuji Rock Festival is held at Naeba Ski Resort which is about 30
minutes from Yuzawa town/Echigo Yuzawa Station. Bullet trains and
local line trains can get you to Echigo-Yuzawa. There is then a free
shuttle bus for festival ticket holders that leaves from the east exit
of the station. The buses run from around 0500 to 0200 the following
morning. There can be big queues at peak times but there is a large
fleet running continuously so the lines tend to move quite quickly.

http://bit.ly/1khtt63

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

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+++ ABOUT US

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

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