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Japan’s wages fall 0.6%

Speaking at January’s Liberal Democratic Party Convention, Prime Minister Shinzo Abe had this to say:

Economic growth is not for business enterprises, it is for the public…Therefore, I would like to do my best to make the economic recovery extend to households.

And, in his January 26 policy speech at the opening of the 2007 ordinary Diet session, Mr Abe said this about Japan’s economic situation:

Now is the time to elevate the Japanese economy to a new stage for economic growth over the medium and long term, and toward that end, we have formulated the “Direction and Strategy for the Japanese Economy,” which lays out the reform goals that we will pursue during the next five years. Under my leadership, we will strongly advance a new growth strategy under this policy so that the people can truly sense for themselves that we are achieving real growth.

Mr Abe, you now have your work well cut out for you; Here is today’s headline:

Japan’s Wages Unexpectedly Drop Most in 16 Months

Unexpected? This observer doesn’t think so; my guess was in the flat to -0.1% range. I was wrong. In fact, in December 2006 wages fell 0.6% against December 2005. Let’s remember: in the third quarter of 2006, corporate profits were up 15.5%, as the average wage climbed 0.1%. Those gains in wages, modest as they were, are now wiped out.

As Bloomberg points out: “Workers brought home an extra 5,500 yen ($45) in total pay in 2006, about enough to buy a case of beer.”� Hopefully that case of beer will help you feel that much better about not having the 5,500 yen extra you made last year.

Mr Abe, the clock is ticking. When I read your speeches referenced above, all I see are slogans: “A Beautiful Country,” “Direction and Strategy for the Japanese Economy,” “Asia Gateway Initiative,” “The Japanese Cultural Industry Strategy,” “The Comprehensive Plan for Challenge Again Assistance Measures,” “Program for Helping Striving Regions to Help Themselves,” “After School Hours Plan for Children,” “New Health Frontier Strategy,” “21st Century Environment Nation Strategy,” and “The First Year for Creating a Beautiful Country,” just to choose a few.

What do these mean? I see no nuts and bolts. No targets, projections, numbers, data, figures or even the skeletons of a plan.

Mr Abe, the clock is ticking. It is ticking on you and your sad Cabinet, full of Ibuki (Don’t send me any more letters, suicidal high school students!) and Yanagisawa (Women are birthing machines) and Kyuma (Japan did not support the US-led war in Iraq; it was only Koizumi’s personal opinion) and countless associated others (Honma, Matsuoka, Sata) who have done nothing but abuse their positions.

Mr Abe, you spoke of bringing the economic recovery to households. Now is your last chance. The December data is in. Your policy speeches are out there. Live up to what was said in them, show some form of quick recovery for the households of this country, or else step aside.

By the way: “The median estimate of six economists surveyed by Bloomberg News was for wages to climb 0.5 percent. None predicted a drop.”

I’m not surprised.

Japan’s stocks up (a little), unemployment up, and household spending down

Some things went up in Japan today: Unfortunately, data showed the unemployment rate rising to 4.1% in December, and slightly fortunately, the Nikkei stock index rose 19.43 points, or 0.11%, to finish at 17,490.19 points on the Tokyo Stock Exchange.

Data released on Tuesday showed the twelfth consecutive month of year-on-year decline in household spending, with a fall of 1.9% compared with December 2005.

Industrial production, on the other hand, was up by 0.7%, as reported by the Ministry of Economy, Trade and Industry in a preliminary report. Previous forecasts from Dow Jones Newswires and Nikkei had projected only a 0.2 percent increase, which led many to feel upbeat about the state of corporate Japan, although the Ministry has projected that this figure will fall by 2.8% once the January data rolls in.

As Bloomberg points out, wages grew 0.1 percent in the third quarter of last year, while average corporate profits increased 15.5 percent.

Masaaki Kanno, chief economist at JPMorgan Securities Japan Co. and a former central bank official, had projected that the Bank of Japan would increase the benchmark interest rate at the close of its next meeting, on February 21st. But today he had this to say about the possibility of a February rate increase:

Today’s data were a bit of a disappointment from the Bank of Japan’s point of view. If tomorrow’s wage report shows more weakness, we’ll change our call.

It still seems early to be making calls (unless you’re just looking for interviews with a wire service, in which case, call away). I think I’ll make mine on Vanentine’s Day…

No, make that groundhog day. I’m making my call on the February BOJ meeting on groundhog day, February 2nd.

By the way, what did members of the Japanese government have to say about today’s economic news?

Finance Minister Hiroko Ota:

I don’t see the employment environment deteriorating…Spending on clothes has declined due to the impact of the warm winter but I don’t have the impression that spending in general is getting worse.

Deputy Chief Cabinet Secretary Hakukbun Shimomura:

Although we can see some weakness in consumption, our view remains unchanged that the long economic recovery continues unchanged.

Some weakness? Twelve straight months of decline?

How big are soft drinks in Japan?

Obviously, soft drinks are popular in Japan. There are vending machines everywhere and convenience stores stocked with them positioned every 500 meters or so. One site claims that there are 5.6 million vending machines in Japan, or one for every 20 people in Japan, while showing pictures of some of Japan’s more unusual vending machines. And more unusual vending machines.

However, it’s soft drinks, and not vending machines that I’m interested in. The soft drink industry is huge in Japan; market leader Coca Cola is followed by Ito-en, Suntory, Kirin, Asahi, and a host of others. Product life tends to be very short; Coca Cola Japan has been known to introduce 30 new products in a year, selling each with a massive campaign and then letting them die as the ‘newness’ wears off for the consumer. But, the question remains: just how many soft drinks do Japanese people drink each day?

Ken Y-N at What Japan Thinks has some information for us that he’s translated from Japanese. The amount of information is quite comprehensive, so check it out. One result that surprised me: over 40% of the Japanese public drinks soft drinks every day. I actually thought it would be a bit higher. Shows what I know…

No surprises there: Japan’s retail spending down in December

Japan’s Ministry of Trade, Economy and Industry announced this morning that revenue at Japan’s retailers declined 0.2% from November to December of 2006. Year-on-year, sales declined 0.3% from December of 2005.

These numbers are hardly encouraging, for the Bank of Japan or anyone else. Many observers continue discussing whether or not the BOJ will decide to raise interest rates at their next meeting in February, but it’s starting to look like a moot point. The economy needs to recover before such a thing happens.

So, then, why the decline in retail sales? Shinji Kikuchi, head of research at the Japan Department Store Association, puts it well:

Consumers don’t have buying power. Winter bonuses rose close to 3 percent, but disposable income hasn’t increased. Rising pension premiums and taxes have gobbled up the gains.

Rising taxes? You might have missed that one, but the government rolled back income tax cuts on New Year’s Day (for the second year in a row) - when there wasn’t much news and everyone was distracted. That decision slipped under the radar in terms of news coverage, but still hits the wallet, which is what counts in the long run, as well as the month-to-month run.

Given the second effective tax rate hike made at the beginning of this month, as well as the continued warm weather, it’s hard to see department store sales picking up in January. It’s too early for a projection, but if we were forced to make one: down 0.3% against last January. Let’s hope we’re wrong, and for the right reasons.

By the way, the Japan Department Stores Association 2006-2007 guide is now available as an English pdf.

Income disparity in Japan

The supposed widening of the gap between the rich and poor in Japan has become quite an issue over the past year. The Democratic Party of Japan intends to make it a campaign issue in the leadup to this summer’s Upper House elections. In the new DPJ campaign television ad, three of their party leaders pledge to carry out a policy of Seikatsu ishin, or lifestyle restoration. In other words, they want people to trust them to bring their personal income back in line with what it once was (Here is a press release by the DPJ on their intentions for the new Diet session that got underway last Thursday).

Many people blame reforms made under the Koizumi administration for exacerbating the gap between rich and poor. Personally, I have seen no data proving that it has worsened, although the situation has been talked about so much here in Japan that I believe it; it would be good to see some evidence.

However, in an historical sense, many Western thinkers wonder why such income disparity (when compared to that of the United States, for example) failed to develop in the first place. And that brings me to the point of my post:

This was posted back in October, but is still relevant. The very well written Economist’s View Blog has a link to a paper entitled The Evolution of Income Concentration in Japan, 1886-2002: Evidence from Income Tax Statistics by Moriguchi Chiaki and Emmanuel Saez, as well as a discussion on that paper. If the topic interests you in the least, it makes for good reading, and an interesting cultural point of view.

And if you have any ideas on how to patch up the supposed growing income disparity in Japan, or even some ideas for a decent campaign commercial: contact the Democratic Party of Japan.

Japan and India to start free trade talks next week

In a speech delivered to the Lower House of Japan’s Diet on December 14, India’s Prime Minister, Dr Manmohan Singh said:

Economic ties must be the bedrock of our relationship and a strong push is required in this area. Our trade and investment ties are well below potential. This must change. In contrast, India’s trade with China and Korea is booming, and grew last year at around 40 percent with both countries. China’s trade with India is nearly three times India’s trade with Japan and Korea’s trade with India is almost equal to Japan’s trade with India.

As I said, this must change. To exploit the full potential of our economic cooperation, we need strong efforts by our two governments, business and industry.

One major step in that direction will be taken next week, when Japan and India begin talks on a free trade agreement.

To put Prime Minister Singh’s comments in numerical perspective: Bilateral trade between Japan and India in 2005 was approximately $6.2 billion; trade between Japan and China was $173.4 billion in the same year.

A Japanese delegation will be traveling to New Delhi to begin talks. The Japanese side will be looking for India to lift its 100% tariffs on Japanese autos, and the Indian side will be seeking a reduction in tariffs on shrimp and more relaxed visa rules for medical care professionals and engineers from India who wish to work in Japan.

Yesterday, in a release issued by the Japan-India Business Cooperation Committee, Chairman Nobuo Ohashi said:

The JIBCC is committed to continuing its active cooperation in government-level dialogue and to furthering exchanges between the business communities of our two nations.

Prime Minister Singh, in the same speech, also observed:

I believe the number of Indian restaurants in Japan has increased phenomenally. I assure you that sushi and tempura are equally becoming popular in India.

I wonder if they brought Singh over to Takadanobaba, where a new Indian shop seems to open every few days. At least there are no longer any lines at lunchtime…

Japan’s December 2006 core consumer prices: A weaker rise than expected

As we mentioned this morning, Japan’s December 2006 core consumer prices were expected to show a year-on-year 0.2% gain. That did not happen: Business Week and others are reporting that the consumer price index for December is up 0.1% versus the same month last year.

For the whole of 2006, the core CPI, which excludes fresh food, notched a gain of 0.1%, the first time in eight years that core CPI has increased over the course of a calendar year.

And the debate over interest rates goes on: Business Week announces that the weak rise in core CPI is “deflating expectations for the central bank to raise interest rates next month.” They quote Hiroshi Shirashi from Lehman Brothers, who said:

Given this tame data, it’s really difficult for the bank to explain why it would want to tighten credit next month as domestic prices haven’t improved.

I think Mr Shirashi is right on here. Plenty of observers have made the easy criticism of saying that the BOJ did not raise interest rates due to ‘political pressure,’ yet I haven’t seen any of them give an argument as to why the Bank should have even considered raising them in the first place.

Japan’s Cabinet Office: The end of deflation is in sight

In a report issued on Thursday in Tokyo, Japan’s Cabinet Office had this to say:

The economic recovery will be driven by the private sector. Solid corporate profits will spread to households through improvement in the job market and wages…The end of deflation is in sight…but we need to monitor risks to ensure prices don’t resume falling.

Japan’s core consumer prices (which exclude fresh food) rose 0.2% in November (versus the previous year) and are projected to see the same growth in the December statistics, when they are released later today.

Many observers are expecting a slowdown in exports due to sluggish global demand over the coming year, which is expected to cut into corporate profits, and thus capital expenditure, which has fueled Japan’s recent economic growth. The Cabinet Office did not explain how consumer spending would be expected to pick up if such an economic environment becomes reality.

The Cabinet Office believes that Japan’s economy will grow at a 2% rate for the financial year beginning this coming April 1st.

How much beef can you buy?

The Marmot’s Hole, a blog focusing on South Korea and life in that country, has assembled an interesting post that gets down to the bottom of figuring out just how much beef one could buy on the average salary in Korea, Japan, Mexico, the UK, the US and Italy. The post was inspired by a recent Korea Times article reporting that Koreans pay more per kilogram of beef than any other nation in the OECD. The article touches on issues of protectionism in agricultural and livestock markets, and includes this oddly worded quote:

Despite hight beef prices, the majority of Koreans do not want to consume meat from cattle raised in countries that have experienced mad cow disease.

Excellent post, although it might have been better to use nominal GDP as a means to calculate how much beef one can purchase in the various countries.

Apple’s iPhone, Japan, and the LA Times

I’ve been meaning to write this up for a bit, although it’s not directly connected to events within the Japanese economy. Nonetheless, it does have a relation to Japan and business, so here goes:

On January 11, Bruce Wallace at the LA Times published an article entitled In Japan, Barely a Ripple: Apple’s much-anticipated iPhone is ‘business as usual’ in a country where mobile features already are so advanced. I sort of groaned when I read the headline, having expected the American media to crawl over each other in an attempt to slag off Steve Jobs and his overly enthusiastic introduction of the iPhone to the “rest of the world” (ie, America). The article has actually been quite popular on the web, and many similar stories have been published. Those aside, Mr Wallace’s article in particular is so profoundly misguided that I had to write something in response.

Looking at the text, it turns out that the quote from the article’s leader (’business as usual’) was taken from a guy working at a cell-phone shop in Harajuku. There was no mention as to whether or not this gentleman had actually seen the mobile device in question, or knew anything about Apple’s recent introduction of the iPhone beyond what he had just been told.

The other Japanese person interviewed for the article, 23 year-old Mami Nawa, spoke of the technological virtues of her keitai with this quote:

I like it because it’s cute. And with my long nails, the paint gives me a better feel for the phone.

That’s right. Two people on the street quoted for an article ostensibly concerning mobile telephony in Japan. No market analysts. No engineers. No business leaders. Nobody from Sharp, Toshiba, Sanyo, Mitsubishi, Sony-Ericsson, Softbank, NTT DoCoMo, or KDDI’s AU. No official from the Ministry of Posts and Communications. Just a guy in a keitai shop making minimum wage and a girl who likes her nail color. Is that the basis for a newspaper article?

Here’s a quote on the supposed Japanese reaction to the release of the iPhone:

On the day when stock markets swooned and techies buzzed over Apple Inc. Chief Executive Steve Jobs’ long-awaited entry into the mobile-phone market, Japanese consumers could be excused for wondering: Why the fuss? … Many Japanese had a [hard] time buying Jobs’ line about “reinventing” the phone.

Japanese had a hard time buying a line they never heard? The thing is, Apple didn’t hype the iPhone’s release at all in Japan. Far from the reaction described in the LA Times piece, there was no reaction to Job’s announcement in Japan. Why should anyone be surprised that there was no reaction in Japan? The evening news I watched didn’t show any clips of Jobs speaking and the major daily newspapers didn’t run the story on their front pages. English blogs in Japan have picked up on it, but Apple made no push in Japanese. Jobs made his comments within the context of the American market. He may have overstated things, as he is wont to do, but he’s an evang-a-ceo, that’s his job. He’s a hype man.

Part of the criticism levied against Apple in the article is that it’s not 3G ready. Of course, no statistics are given on 3G market penetration in Japan, as though they wouldn’t be relevant to the article’s assertions (though still around 50%, it should increase as more subscribers take advantage of the number portability system and deep handset discounts).

Apple plans on having the iPhone out in Asia around 2008. That probably means 2009. By then it will easily be 3G capable, if not 4G; they know how to put new chips in it, they’re willing to do what it takes to make the product swim in the local market. Their existing partnerships in Japan stand to gain tremendously from its introduction to the Japanese market. Yes, the product might fail, but with two more years of developing it for this market, that’s looking unlikely. At the least, it looks like a good bet for Apple.

Now, as for the recent rumors of a Softbank partnership. I just hope this doesn’t happen, not only for Apple, but also the Japanese consumer’s sake. Goldman Sachs had the smarts to pull out on them. They are a joke of a company and treat their customers like crap. From the Yahoo BB fiasco to the having to pay money for them not to sell your email to ‘market research companies’ to the sheer volume of spam I receive since they bought out Vodafone (I’m going to AU next week), Softbank sucks.

Apple is over a year away from firing up its marketing machine over the iPhone in Japan, and selling them next to the hugely successful iPod in Japan’s largest electronics shops such as Yodabashi and Bic Camera, where they have secured premium retail space at the expense of Japanese manufacturers over the past few years…but that’s not in the article either. At any rate, when it’s successful, I’ll be looking forward to another piece by Bruce Wallace entitled I told you so: Apple’s iPhone big in Japan.

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