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Japan’s Household Spending Rose 0.1% in July - Fifth Consecutive Monthly Rise

Earlier today, the Ministry of Internal Affairs announced that in June, average household spending at households with two or more people in Japan had risen for the fifth consecutive month by 0.1% to 280,587 yen. Although the rise was less than expected, and actually less than a year ago in nominal terms (by 0.1%), we still find it a tad surprising given the declines in retail sales, car sales, supermarket sales, consumer price index and consumer confidence.

July data showed monthly income per household at 735,579 yen, up 7.6% from a year ago. Consumption expenditures were at 300,190 yen, down 0.4% from July 2006. Disposable income also rose by 7.4 percent, and reached 607,088 yen.

So what did consumers spend on in July? According to the report, clothing and footwear expenditures were up 5.2%, culture and recreation was up 3.4%, and furniture and household utensils spending was up 3.3%.

On the other hand, spending on housing was down 6.0% and transportation and communication costs were down 5.0%. Fuel and utility charges were also down 2.8%.

What effect might the election have on the economy?

Just a day after Newsweek published what I mentally dismissed as a fluffy, alarmist piece on the state of Japan’s economy (Japan’s markets are in danger of slipping back into irrelevance), the Nikkei has published an editorial with the title Ruling Party Defeat Bodes Ill For Economy.

The Nikkei has been as critical of Abe’s misguided economic policies as any other paper, so it surprised me a bit to not see them say that a ruling party victory could be just as bad for the economy. Nonetheless, the Nikkei has two reasons why the LDP’s crushing defeat may be bad for the economy: 1) It may cause “upheaval” in the stock market, and 2) It may slow the implementation of economic policy.

I thought Abe already took care of the second one, but Takahide Kiuchi, the author of this piece, seems unconvinced, stating, “There are worries that structural reforms and the trend toward fiscal health started by the Koizumi government will change.” I tend to think that those worries were already in place, and that however the DPJ’s takeover of the majority in the Upper House affects these issues, it would be hard for it to be worse than what Abe is already doing.

In truth, I don’t see this election having much direct effect on the economy at all. The Upper House is ceremonial, and the LDP supermajority in the Lower House means they can override any rejections from the Upper House. If the Lower House can get its act together and approve next year’s budget within thirty days of convening, it has no need for Upper House approval anyway.

The real effect would be if Abe decides to (or is pressured into) calling a snap election, which it doesn’t seem like he will. Nakagawa and Aoki’s resignations seem to be the initial offer, and it’s hard to imagine the stubborn Abe yielding any further. That said, the longer Abe is in the job, the worse for both the LDP and the economy.

Besides, tomorrow the US House of Representatives votes on the ‘comfort women’ resolution and the LDP should thus have a perfect opportunity for distraction, if they’re politically savvy enough to exploit it properly.

Japan’s Upper House Election - Live Blogging Commentary

(This will be a somewhat random, scattered post, updated with links and bits from TV and hearsay as it happens. I have added my live blogging of the election results at the end of the post, after the cut to ‘continue reading’)

If you’re looking for a good running commentary of the Upper House election as the results continue to come in, I recommend what’s going on over at Japan Economy Watch, where Edward Hugh is putting together a good running post of events as they happen. And he asks the big question, “how the hell will the markets read all this?”

At this stage (2:00AM JST), with 6 seats left to be confirmed, the breakdown is like this:

LDP: 35
DPJ: 59
Komeito: 8
Japan Communist Party: 3
Socialist Party: 1
People’s New Party: 1
Independent: 8

Source: Nippon Television

This is being updated as results are reported.

As the Japan Observer points out, in his appearance on NHK just a short time ago, Prime Minister Shinzo Abe used the phrase ‘a new country’ rather than ‘a beautiful country’.

LDP heavyweight and Upper House Party Chief Katayama has made his concession speech.

Over at Trans-Pacific Radio, we’ve posted an interview with Debito Arudou that was done on Friday, with Debito’s predictions for the election. He’s been pretty dead-on so far…

My live bogging of election coverage from midnight to 2am is past the cut…

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Japan’s Retail Sales Down 0.4% in June

Given the rollback in income tax cuts, the massive increase in local taxes for fiscal 2007, lack of wage growth, worries over pensions and the recent decline in consumer confidence, I assumed that June retail sales would take a pounding. With May’s pay packets being the first to show the huge rise in local taxes, and nearly all employees at Japanese companies being paid once a month, usually late in the month, it seemed logical that in June, consumers would hold on to their purse strings, choosing to put off purchases until the Fall sales season hits.

Thus, I was a bit surprised to find that Bloomberg’s survey of 25 economists showed a median average prediction of a 0.6% gain in June’s retail sales figures. I hadn’t even considered the possibility of a gain in June; I was wondering more along the lines of just how bad it would get in June.

The report did have a bit of good news: Sales at large retailers were up 0.9%, for the first time in four months. Wholesale sales were up 5.3%. In a related item, US computer giant Dell has decided to start selling its PCs at electronics giant Bic Camera.

Except that I’ve seen Dell PC at Bic Camera for at least the past two years, so I’m not sure why that’s news now.

Earlier today, the Ministry of Economy, Trade and Industry published its report on retail sales for June, and the results were indeed negative: retail sales fell 0.4% in June against June 2006 (English report not yet published). Could we start to see declines in household spending over the coming months?

That would be bad for the economy indeed. With all the talk about capital spending and Japan’s increased exports, consumer spending still makes up about 55% of Japan’s GDP. Could a rise in the consumption tax lead to strong falloffs in household spending? If history is any guide, yes.

At the same time, we saw how Japan’s recent export data was boosted by the weak yen. The yen surged to 118 against the dollar today. I don’t think anyone is yet calling this a trend reversal, but again: history is there for a reason.

I still think an August raise in interest rates would be a mistake, but I still have the chances of it happening set at 65%.

Carry Trade Watch: Tokyo-based Forex Trading up 19.2% in April

This just in from the Nikkei: In April, average daily forex trades in Tokyo surged to 240.3 billion dollars, up 19.2% from a year ago. Of that total, trades executed by non-Japanese entities accounted for 167.1 billion dollars, which was up 31% against April 2006.

Trading in the South African Rand, which provides far better interest rate and bond yields than the yen, was up 50% year on year.

Despite the boost in the amount of Tokyo-based forex trading, the Nikkei tells us that, “Tokyo trading still pales in comparison with Europe and the U.S. In London and New York, the figures came to 967 billion dollars and 487.9 billion dollars as of October 2006.”

Japan’s June Consumer Price Index Down 0.1% - Fifth Straight Month Down

Japan’s core CPI has fallen for the fifth straight month, showing a 0.1% decline in June. Amongst the major categories surveyed by the Ministry of General Affairs, only clothing and footwear (0.4%) and medical care (1.0%) showed increases against June 2006.

Japan’s core CPI includes energy prices but not fresh food. According to the ministry, this month’s figure was kept from sliding further by increases in gasoline prices.

Falling prices for cellular phone services and electronic goods have hurt hurt the index. A price war is gearing up in the cell phone industry, with major carriers Softbank and AU both cutting prices in an attempt to take market share away from sector leader NTT DoCoMo. In addition, prices of flat-screen televisions, an item with heavy sales volume, fell by 24.3%. Laptop computer prices were down 29.3% and the prices of desktop PCs fell by 19.7%.

What affect might this have on the Bank of Japan’s August policy board meeting? Although bank officials have not yet commented on the numbers, we believe that they will stick to their position that inflation is due to set in, and that interest rate hikes (or at least one hike) may be justified by future projected increases.

Japan’s June Trade Surplus up 53.4%

According to preliminary data released by the Ministry of Finance yesterday, Japan’s trade surplus surged ahead 53.4% in June compared against June 2006. During that period, exports were up 16.2% and imports increased by 10.7%. By region, the middle east saw the greatest percentage increase, up by 55.8% to 239.2 billion yen. Japan, however, still holds a trade deficit in the region, primarily due to oil imports from Saudi Arabia and the United Arab Emirates.

Exports to Asia, however, led the boom, surging 16.2% to 3.542 trillion yen in June. Exports to Vietnam and India, nations which have been heavily visited by Ministry of Foreign Affairs officials, especially over the past year and a half, saw the greatest gains in terms of percentage, at 34.8% and 39.4%, respectively. Earlier in July, Truong Vinh Trong, the Deputy Prime Minister of Vietnam, had lunch with Foreign Minister Taro Aso, where the two discussed the necessity of judicial reform for Vietnam’s economic development and continued integration into the world economy. And last October, when Nguyen Tan Dung, the Prime Minister of Vietnam, met in Tokyo with Prime Minister Shinzo Abe, the two leaders agreed to begin negotiations on a Japan-Vietnam Economic Partnership Agreement, which began in January and are still ongoing.

Economic relations with India were ramped up during the Koizumi administration, with then Foreign Minister Yoriko Kawaguchi making two trips to that nation during her short tenure in Kasumigaseki. Since Shinzo Abe has come to power, discussions between the two nations have continued, with Abe asserting that Japanese firms need to establish greater presence in India.

Thus, we expect to see continued growth in Japan’s economic partnerships with these two nations.

Getting back to the report on trade: On Wednesday, the Foreign Ministry also announced that January-June 2007 figures showed a 59.3 percent increase versus the same period last year. Again, this is in yen-valued terms. Over this period, exports jumped 12.8% to 40.36 trillion yen while imports climbed 8.2% to 35.23 trillion yen. For the second consecutive half-year period, Japan’s total trade with China exceeded that with the US. Also notable was that trade surpluses with both China and the US declined over this six-month period.

So, why the massive growth in value of the trade surplus? I had been set to write a bit about the yen’s weakness and how that has affected (distorted?) the results, but Edward Hugh has already put together an admirably written post on this. Regarding the June statistics, Mr Hugh points out that:

…[W]hile exports climbed 16.2%, imports gained only 10.7% which was significantly below market expectations. The weaker import reading reflects both the weakness in the yen (and hence the relative cost of imported products) and ongoing weakness in domestic demand.

Well said. Those expecting to import to Japan need to be careful at this stage. With the market drying up (and a possible consumption tax hike on the horizon), it will take carefully niched, well marketed products to really stand out. Protectionist forces, of course, may rear their ugly head and it make take some more creative, outside the box thinking for importers to establish a foothold in this market.

With that out of the way, Mr Hugh gets on to the meat:

It is also worth bearing in mind that export volumes, which don’t take into account price and currency fluctuations, rose only 6.1% y-o-y in June, and thus that a significant part of the increase in the surplus comes not from increased output, but from the increased yen value of sales prices in other currencies.

6.1% is really nothing to sneeze at, but I agree with the use of the word “only” and I probably would have used it myself. The point here is very relevant: as exports make up a greater and greater part of Japan’s GDP, the value risk increases, especially when they may not be any more serious downward pressure on the yen (sure, we will have that last push down (all the way to 125?), but I’m looking at the next five years), especially if interest rates actually do rise next month, and double especially if they are risen twice before the end of 2007.

So, what is the hedge against this risk? You’ll have to read Mr Hugh’s post for that…

Gyudon PCs: Even better than before

Sofmap is a large electronics retailer in Japan, and their shops are a fixture in the Akihabara landscape. I subscribe to their email newsletters because I build my own PCs and servers, and there’s no way I’m going to miss out on some of their deals. Usually, they send a few emails a week pushing the usual stuff: processors, motherboards, graphics cards, hard drives and the like. Recently I haven’t been paying much attention to their emails since I only need a few items to build my next super PC, and I’m going to get the processors in the US in a few months. Tonight, however, I got an email that really caught my eye:

ソフマップ・オリジナル「牛丼パソコン」「バーガーパソコン」
のラインナップを一新しました!!

ご好評いた� いております、ソフマップオリジナル「牛丼パソコン」
「バーガーパソコン」。本日両シリーズの全ラインナップが新しく
なりました！

Translation:

The lineup of Sofmap’s original Gyudon PC and Hamburger PC has been renewed!

Thanks to you, Sofmap’s original Gyudon and Hambuger PCs are popular! From today, both series have an all-new lineup!

Gyudon, of course, is the famous beef-bowl dish popularized by salarymen on a budget. The computers are priced according to the sizes of the beef bowls one would find at a shop such as Yoshinoya. The lineup includes the regular size (並盛), the large (大盛), the extra-large (特盛), and the super size (極盛), as can be seen on Sofmap’s campaign page for the Gyudon PC lineup.

The image on that campaign page (click on it below to see a full size version) suspiciously resembles Yoshinoya’s colors and style…

I’m not sure about a Gyudon (or Hamburger) PC, but this is one of the more unique marketing angles I’ve seen in a bit.

More on Steel Partners and Bull Dog from Stippy and Japan Inc.

We’ve recently added the Japan Inc website to our list of links. If you haven’t read it before, check it out - as the byline reads, the site (and the accompanying print magazine) focuses on business, technology and people. There also happen to be some online personal ads in case you’re lonely.

I’m mentioning the site now because this week’s edition of Terrie’s take deals with Steel Partners, their attempted hostile takeover of the Bull Dog sauce company, and the resulting lawsuit/appeal/court rulings. Actually, as Terrie puts it, he is commenting on what someone else wrote on this same issue over at stippy.com.

So first, let’s look at the Stippy article, which is titled “Japan High Court Rules Against Saucy Gaijins“. The author starts by giving us some background information and then, concerning the Tokyo District Court’s decision to allow Bull Dog to issue equity warrants to all shareholders but buy back those from Steel Partners with cash rather than shares, asks this:

[W]asn’t the idea of a free market just that, it was free, and equal rules and fair competition by all ultimately drives up the value of the economy and the companies which are a part of it?

Well…not exactly. That’s not really the legally developed idea of a free market at all, unless you’re an anarchist (even a Libertarian would have to admit to some level of laws and regulations). Markets are also free to set limits on what constitutes “free and equal.” The principle of “equal rules and fair competition” thus does not leave out the possibility of defending against destructive forces, which is what this court case was about; the court ruled that Steel Partners was “abusive” in its dealings with Bull Dog shares. I’m certainly not saying that I support the court’s decision in this case (because I don’t - the court’s decision was basically insane), but there are two points to be made: 1) The idea of a free market is just that, an idea. As such, it is a slightly different concept in everyone’s mind, and thus exists in reality only as shadows on the wall of a cave. 2) Nothing even resembling an actual free market exists anywhere, and especially not in Japan.

That said, I don’t find the court’s decision surprising at all. It had the 80% support of Bull Dog shareholders to fall back on, as well as the business community’s distaste for hostile takeover bids, which must have been a strong silent pressure.

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Japan’s Supermarket Sales Down for 18th Consecutive Month

On the heels of last week’s strong supermarket sales data, we still have not such good news coming from the supermarket sector. In June, supermarket sales across Japan were down 1.5% year on year, showing a fall for the 18th consecutive month, and now for 39 of the last 40 months.

This month’s data covered 8,645 shops owned by 79 companies employing 446,515 workers - 129,599 full time and 316,916 part time. Interestingly, while 31.5% of the full-timers were women, that group made up 90.87% of the part-time work force.

Broken down by category, May 2007 supermarket sales looked like this:

• Food: -1.1%, 60.1% of total revenue
• Household Products: -2.9%, 19.8% of total revenue
• Clothing: -1.8%, 13.6% of total revenue
• Miscellaneous Items: No change, 6.1% of total revenue
• Services: -1.6%, 0.4% of total revenue

Don’t forget: This Friday we’ll be seeing the most recent retail spending data from the Ministry of Economy, Trade and Industry, and next Tuesday we will see the June household spending data.

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