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Tokyo Tatemono wins bid to develop Tokyo’s next huge mixed-use real estate project…in Nakano!

Apparently, Tokyo Tatemono has submitted the winning 143.7 billion yen ($1.16 billion) bid to acquire the grounds of the former “police academy” in Tokyo’s Nakano Ward from the Ministry of Finance.

First, it’s interesting that Bloomberg refers to the site in English as a former police academy, when Japanese sources name it (more) properly as 「旧陸軍中野学� �」 - the former Nakano War School. 陸軍, of course, refers to the former 陸軍省, or Ministry of War, which was abolished at the end of World War 2. I’ll let the Nakano buffs in the audience explain what the site was used for more properly…I’ll stick to wondering why the English-language press releases have sanitized the name (and former role) of the location.

Back to Tokyo Tatemono. The company apparently plans to build an office, residential and and commercial complex on the site, which sounds like another multi-use development. This continues a trend that has been going on for some time now in Tokyo, though this project seems a bit different; it lies outside of the circle of the Yamanote Line, which tends to demarcate “downtown” Tokyo from the more residential areas. This is why I find Nakano to be a curious choice of location for such a development. Nothing against Nakano…

The price struck me as well. Bloomberg quotes Daisuke Fukushima, a real estate analyst at Nomura Securities, as saying:

My first impression is that this is a very expensive price. But whether it’s really expensive will depend on how many floors Tokyo Tatemono can build and the condition of the market when they sell.

Not to mention, how much can the retailers get away with overpricing knick-knacks and individually wrapped cookies, which they’re doing very well with over at Midtown.

Japan’s Household Spending up 0.4% in May

The Statistics Bureau has kept us busy today. Its monthly family income and expenditure survey was released, and shows that household spending in Japan increased by 0.4% in May.

Last month, the average household income in Japan stood at 431,013 yen (+1.0% from a year ago). The average monthly household spending per household with two or more people was at 293,231 yen. According to the report, the rise in spending was mainly driven by increases in medical and education costs.

Disposable income, at 332,806 yen, was up 1.6% from a year ago.

Japan’s Unemployment Stays at 3.8% in May, at Nine Year Low

Earlier today, the Statistics Bureau released it’s monthly Labor Force Survey, which showed Japan’s unemployment rate unchanged at 3.8% in May, holding at a nine year low.

According to the report, in May 64.99 million people were employed in Japan, an increase of 510,000 from the same moth last year. On the other hand, 2.58 million people were classified as unemployed in May, for a decrease of 190,000 from May 2006.

Looking into the data, one sees that the number of men wishing to change their current job was at its lowest level since January of this year, while the number of women expressing a desire to find new employment was at an all-time high. Both the numbers of men and women wishing to find an additional job increased in May from April. Compared to May of last year, the number of both men (+3%) and women (+13%) wishing to change jobs has increased, the number of men wishing for an additional job has decreased 8 percent, and the number of women wishing for an additional job remains unchanged.

Consumer Price Index Down for Fourth Straight Month

After a 0.1% fall in April, Japan’s core consumer prices have fallen 0.1% yet again in May, according to data released today by the Statistics Bureau. Core consumer prices in Japan do not include fresh food, but do include fuel and energy prices.

The decline was held in check by rising prices in medical care (1.2%), as well as miscellaneous goods (1.2%). Furniture and household utensils (-1.4%) and Reading and recreation (-1.4%) led the decline.

With fresh food prices included, the Consumer Price Index rose 0.3% against May 2006.

Comments from Cabinet ministers revealed no change in their opinions: Economic and Fiscal Policy Minister Hiroko Ota told reporters, “Although there is some weakness in production, the economic recovery trend continues…My view on the end of deflation hasn’t changed…Japan has not yet entirely escaped deflation.”

Finance Minister Koji Omi said, “[The data] confirms the government’s view that the overall economy continues to recover in a solid manner.”

Yen/Dollar Swings: All About the Carry Trade?

Are the headlines making your head spin yet? Back on Tuesday (June 26), Finance Minister Koji Omi told reporters, “Foreign exchange markets should reflect Japan’s economic fundamentals…We will keep a watchful eye on foreign exchange rates…The weak yen symbolizes the shrinking presence of the Japanese economy. It is obviously bad news.”

It caught my eye, but I knew it wasn’t policy. Nonetheless, we saw these headlines start to pop up on June 27:

Yen Rises Most in 10 Weeks as Investors Scale Back Carry Trades (Bloomberg)
Yen Rises for a Third Day as Investors May Unwind Carry Trades (Bloomberg)
Yen climbs on risk aversion, carry trade unwinds (Reuters)
A Meltdown From The Yen-Carry Trade? (Forbes)
FOREX-Yen rises on risk aversion, carry trade worries (Reuters)

Then, a day later:

Yen Weakens on Speculation Investors Are Restoring Carry Trades (Bloomberg)
FOREX-Yen’s rise fizzles as risk-aversion eases (Reuters)
BOJ’s Inoue Sees `Huge Amount’ of Capital Flows Leaving Japan (Bloomberg)

The writers must be having a ball. Once they have software to write these articles automatically, the news firms will save a quite a bit of money.

Meanwhile, the human beings will continue to do analysis. On June 26, writing at Seeking Alpha, Jordan Kahn (author of the excellent In the Money blog) published a piece entitled “The Yen Carry Trade is Alive and Kicking.”

As Mr Kahn put it:

The Yen has actually slid to a 4 1/2-year low versus the dollar. This indicates that the Yen Carry trade is alive and well…At some point, the Yen is likely to rally, and concerns about the unwinding of this massive trade will resurface.

It’s a short piece, but to the point: The trend is still there and still very alive, despite the major media’s panic over a swing down to 122.20 and up to 123.35 over two days (and we have to wonder if they’re forgetting about those low 121s earlier in the month - better chance to sell yen on ‘discount’).

The carry trade still has legs.

Darryl Whitten on the BIS Annual Report

On Tuesday, we reported on the recent annual statement from the Bank of International Settlements, which called the yen’s current value ‘Anomalous’. Since then, there has been little commentary about the report in any media. Today, a piece entitled BIS Report Calls Recent Yen Depreciation ‘Anomalous’ from The Japan Investor’s Darryl Whitten appeared on Seeking Alpha.

It’s a short article, but good. Mr Whitten has been on the ground in Japan for a long time and knows what he’s talking about, and in this piece he offers a view of the risks surrounding a weak yen. Here’s a snippet:

The negatives for Japan from a weak yen include,

1. Rising raw material purchasing costs for companies.
2. Increased reliance on exports.
3. Problems attracting foreign capital (even though Japan is actively encouraging FDI).
4. Growing inflation pressures (from rising corporate service prices).
5. The prospect of a tsunami of domestic savings flowing overseas to chase higher yields, which already is a structural component of the so-called yen carry trade.

Get over there and read the rest of the article.

Tokyo High Court Rejects Injunction Against Bull Dog

Earlier this afternoon, the Tokyo High Court handed down its ruling on the injuction that Steel Partners had saught against Bull Dog’s proposed ‘poison pill’ plan for diluting the hedge fund’s holdings in the sauce maker, and it ruled on the side of Bull Dog.

Reuters explains the logic behind the ruling:

The Tokyo District Court ruled that the issue of share warrants does not violate the principle of shareholder equality as long as the economic interest of shareholders is maintained.

Lawyers have said Japanese corporate law does not protect the size of a stake relative to other shareholders’ stakes, just its monetary value.

The logic there may seem fuzzy, but it should be kept in mind that judges in Japan rule on the letter of the law, and almost never inject their own interpretation.

Warren Lichtenstein, the manager of Steel Partners, had this to say:

We believe the company’s scheme, if allowed to be carried out, would be detrimental to the legal framework of corporate Japan. (It) would weaken international faith in the integrity of the Japanese capital markets, and would not only deter investment in Japanese companies but also undermine Japan’s efforts to become a global centre.

On the one hand, he could be very correct. On the other, if firms start to feel safe from the threat of hostile takeover, we may see a reversal in the trend of companies deciding not to go public with their shares due to fears of unsolicited takeover bids.

Steel Partners plans to appeal the ruling.

Industrial Production Down in May

Earlier this morning, Ministry of Economy, Trade and Industry announced that industrial production fell in May for the third month in a row, showing a 0.4% decline. Bloomberg’s survey of 48 economists had predicted a 0.9% rise.

According to Bloomberg:

The decline may dissuade Bank of Japan Governor Toshihiko Fukui and his policy-making colleagues from raising interest rates in July.

Then again, so might the elections in July.

Former Sony CEO Idei Making Big Moves

On the train this afternoon I was reading a Japan Times article focusing on Nobuyuki Idei, the former CEO of Sony. The piece came via Kyodo News, and the original reporter had spoken with Idei on Monday of this week. Idei had much to say concerning the current state of innovation in Japan’s technology sectors. Here are some bits:

Sadly, Japan was unable to lead the information technology industry…At present, there is no world-class brand from Japan that does Net business. There is no new Sony on the Net…By using IT more and more, I hope one day there will be a new world-class company from Japan.

We’ve lamented this situation before, as have many others. But that’s not what we’re here to dwell on. What he said next in the interview struck me: According to Idei, Japanese Internet companies have not shown enough innovation and remain “localized” because they are overly dependent on imitating US-style business models. He then asserted that he has seen more promising innovation amongst Internet firms happening in China and other parts of Asia.

In 2006, in order to provide a “value creation catalyst” for young Internet workers in Japan, Idei set up a consultancy called Quantum Leaps.

Then, when I got home tonight, this headline was waiting for me: Aiming For Japan, Baidu Names Ex-Sony CEO To Board

The first two paragraphs:

Chinese Web search leader Baidu.com Inc., which is seeking to expand into the Japanese Web search market, said Tuesday it had named ex-Sony Chief Executive Nobuyuki Idei as a company director.

Idei, one of Japan’s most famous corporate executives, is widely blamed for missteps at Sony, the world’s largest consumer electronics company, where he was forced out as leader in 2005. He is the founder and chief executive of Quantum Leaps Corp., a technology consulting practice he currently runs.

I’m not sure how I missed the story before, but I’m glad I got them in reverse order, since the Japan Times/Kyodo piece makes no mention of Idei’s new post at Baidu. Isn’t context refreshing?

28% of Japan Inc Owned by Foreigners in 2006

Last Friday it was announced that foreign shareholders held 28% of shares in Japanese companies in 2006, which was a record high. Further, foreigners are now the largest single group of shareholders in Japan for the first time.

It wasn’t missed or forgotten, just something I keep saying, “Next post will be that” about. So why blog it now?

Someone emailed the story to me and asked if I had seen it, and wondered why foreigners would be buying so many shares in Japanese companies when they tend to pay such low dividends and generally be unreceptive to shareholder needs.

I think that’s a question worth considering, and while companies that pay higher dividends tended to be the target of foreign buyers, I still think that many people see quite a few Japanese equities as undervalued. Of course, there are plenty more reasons out there, so the real reason I’m posting this is to get the question out there for discussion: Why are a growing number of non-Japanese snapping up Japanese issues?

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