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BOJ Roundup: Interest rates, GDP and inflation projections, and corporate versus household recovery

The first item in this roundup is pretty much a non-item: The Bank of Japan policy board voted 8-1 today to keep the uncollateralized overnight call rate at 0.5%.

The bank, however, did release a slew of other information. In its Outlook for Economic Activity and Prices report, the BOJ starts off by sticking to the opinion that “Japan’s economy is expanding moderately” despite the fact that, “The pace of improvement in the household sector, however, has remained slow relative to the strength in the corporate sector.”

The corporate sector, however, has been unusually strong; stronger that it has been in 16 years. On Monday, the National Tax Agency announced that income at Japan’s corporations totaled 57.08 trillion yen in the 12 months to June 30 of this year. That figure was 13.3% higher than last year, and surpassed the previous record of 53.12 trillion yen, which was set in the 1990 tax year.

Granted, there are more workers in the economy now than there were in 1990, and we would assume that they’re making at least as much per head - more on this to come in another post. What struck us about the NTA’s numbers, however, was that only 32.4% of those firms were operating in the black. Getting to the other end of the BOJ’s statement, the NTA says that wages fell for the ninth straight year in fiscal 2006.

More on that report will have to come in a future post. For now, it’s back to the BOJ. After the above statement, the bank says that although expansion is expected to continue, “there are uncertainties regarding overseas economies and global financial markets.” How this is ever true…

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Yet another domestic food scandal; Bush to lobby for US beef

It has been reported that yet another maker of traditional Japanese confectioneries has run into trouble due to its practice of falsifying the manufactured dates of its products. This time, the firm in question is Ofukumochi Honke, a dessert manufacturer in Ise, Mie Prefecture.

We won’t bother pointing out the connection between Ise and Shintoism. There’s nothing to be gained from reading in at such a symbolic level. If you’ve never been to the Ise Shrine in Mie Prefecture, where the goddess Amaterasu Omikami is enshrined, I recommend going in the autumn. It’s truly beautiful.

At any rate, Ofukumochi follows Akafuku Mochi, another confectionery maker who ran into trouble earlier this month for lying about dates. This follows labeling scandals at Fujiya, Meat Hope and chicken supplier Hinaidori…

Yet, there is still nervousness surrounding the importation of US beef, which currently can only come from cattle 20 months of age or younger (odd that the marketers haven’t started a veal boom, but that’s another story…).

Since Japan doesn’t export much meat to the US, it hardly needs to prove that its own meat (or candy) is safe to the Americans. Demonizing foreign meat is thus an easy game to play. I have written widely on why I think US cattlemen are to blame for their own troubles - and I still think they are - but at this point Japan is starting to look a bit silly.

At any rate, US President George W Bush, a man with the credibility of a broken thermostat, is set to discuss the issue of US beef imports with Prime Minister Yasuo “Sock Garters” Fukuda when the two meet next month in the US (no thanks to Kyodo for already removing the link to the story). It will be interesting to see if Bush, the man who asked former Prime Minister Shinzo Abe to describe what a ‘triangular merger’ is, presses Fukuda on Japan’s own food safety issues.

Disclaimer: I don’t know whether Yasuo Fukuda actually wears sock garters. I just imagined it and realized it must be true, or should be.

Household spending, income up in September

A report released yesterday by the Ministry of Internal Affairs and Communications tells us that in September, Japan’s average household spending increased 3.2% from the same month a year earlier, while average household income was at 431,793 yen in September, up 0.8% from a year earlier.

At the same time, consumption expenditures stood at 311,331 yen, which was 5.5% higher than last year.

First, household spending had risen 1.6% in August. This makes the September numbers seem strong, but we need to remember that they are being compared against September 2006, and that month saw a whopping 6% drop in household spending.

So what did Japanese households spend on in September? At the top of the numbers was spending on furniture and household utensils (+9.2%), transportation and communication (+7.8%), and culture and recreation (+4.8%). Showing the largest drop in spending was education (-10.9%)

67,689 yen on average was spent on food, which lead all categories in real terms. Furniture and household utensils was last, at 8,867 yen. Housing accounted for 17,378 yen in the average budget.

Unemployment up for second straight month in September; number of female workers down; manufacturing, construction and medical industires see drops

After falling for eleven straight months and hitting its lowest point in a decade in July, Japan’s unemployment inched up 0.2% to 3.8% in August. According to data released today by the Ministry of Internal Affairs and Communications, that 0.2% rise in Japan’s unemployment rate was replicated in September, which means the unemployment rate now stands at 4.0%.

The number of people without jobs fell by 110,000 from a year earlier to 2.69 million, showing a decrease for the 22nd consecutive month. The number of people employed stood at 64.22 million in September, which was down by 90,000 from last year. That was he first decline in the number of people employed in a year.

Speaking at a press conference today, State Minister in charge of Economic and Fiscal Policy Hiroko Ota said that there is no reason to take it the increase in unemployment seriously, because industrial production is picking up.

Looking into the data a bit, we see that the number of employed males stood at 37.61 million (up by 110,000 from a year earlier). On the other hand, the number of female workers slid by 210,000 to 26.60 million. The unemployment rate for men increased from 3.8% to 4.0% and the unemployment rate for women increased by 0.3% - from 3.7% to 4.0%.

It thus appears as though a sudden increase in the number of women being unemployed is behind the September statistics.

Broken down by industry, although the number of workers increased within the retail, wholesale, food and lodging industries, it fell in all other sectors. The manufacturing, construction and medical industries saw noticeable reductions in the number of employees since last year. We should keep in mind that the number of employees at Japan’s manufacturers actually increased in 2006 for the first time in 15 years.

The Emperor’s Old Clothes: Former Nova President Saruhashi’s office/digs on the evening news

Former Nova President Nozomu Saruhashi apparently spent somewhere between 60 and 70 million yen on his private office, which doubled as a living suite, complete with a sauna.

Here’s the Emperor’s old clothes on NHK News from Tuesday night:

It looks as if the bankruptcy administrators are trying hard to separate Saruhashi from the company he ran. This is probably in the hopes that someone will step in and buy what’s left of Nova. The administrators claim that there are interested parties, but no names were given - giving out names didn’t seem to work so well last time. This time we might not even get to hear the denials of interest at press conferences.

There will be those who say, “So what? CEOs spend tons of money on offices.” True. But it seems that’s not what the people administering this bankruptcy want heard on the evening news.

More on overpriced rice

Last week we wrote about lowered demand and overproduction in this year’s rice crop, which has led to price decreases at wholesale auctions. In an effort to boost prices on behalf of rice farmers, the government was set to purchase 230,000 tons of rice for what I call the nation’s “Strategic Rice Reserves” (the government calls it a “stockpile”, which reminds me of nuclear weapons and sounds a bit negative).

On Sunday, Phillip Brasor had a thought provoking piece on this issue published in the Japan Times. I will quote a bit here, but the whole article needs to be read:

Should Japanese people eat more rice? Again, the voters at home overwhelmingly sided with the farmers: yes, they should. But a number of people in the studio took issue with the question itself.

“Why can’t I eat anything I want?” asked one student, even though he said he ate more rice than the national average. And Honma seemed offended. “That question is pointless,” he said. Whether or not Japanese people “should” eat rice was irrelevant to the debate, since you couldn’t do anything about people’s preferences in a free society.

When free choice and open markets get in the way, it’s time for the PR and marketing people to ramp it up. We’re wondering what sort of campaign the Ministry of Truthiness Agriculture might be whipping up…

And then there was one: Two more potential Nova buyers say no

We heard the names Marui, Aeon, Rakuten and Yahoo tossed around as potential buyers (or ’sponsors’) for Nova. Then Marui basically said they weren’t interested. Tonight, an article in the Asahi Shimbun tells us that Aeon and Rakuten are out as well. Actually, it turns out they were never in - or perhaps have ‘never been in’ since allegations of securities fraud arose this morning.

From Aeon President Okada: “当社のショッピングセンターにＮＯＶＡの教室が入居しているから名前が挙がった� けなのでは。まったく考えていない。”
“Our name came up because Nova has locations in some of our shopping centers. We’re not thinking about it at all.”

From Rakuten President Mikitani: “何で名前が挙がったのか、正直意外� 。検討するには難しいと思う。”
“Why did our name come up? It’s honestly surprising. I think it would be difficult for us to consider [supporting Nova].”

“Difficult” in this context usually means something along the lines of, “Umm…no.”

Will Yahoo even bother rejecting the offer?

Mainichi: Saruhashi dumped his Nova shares by September 30; Nishida: I arranged the Nova equity warrant sale; Saruhashi: I’ve never heard of Nishida

There has been some speculation going on as to how former Nova President Nozomu Saruhashi was reported to hold somewhere in the neighborhood of 20% of the firm’s shares by last Friday. As anyone following the Nova case knows, Saruhashi, along with holding company Nova Kikaku, was always assumed to be the majority holder of Nova’s shares.

He was. The Bloomberg box told us that Nova’s top shareholders were as follows:

1. Nova Kikaku 35.94%
2. Saruhashi, Nozomu 35.47%
3. Roots 11.82%
4. Saruhashi, Hikaru 3.83%
5. Saruhashi, Izumi 1.93%

We’re forced to wonder how and when Saruhashi cashed out, and whether or not it was legal. First of all, according to a notification from the Financial Services Agency in March, any transaction involving a purchase or sale of 5% of a listed firm must be reported on EdiNET (Electronic Disclosure for Investors’ NETwork).

Nova’s code at EditNET is 941240. As of this morning, no sale from Saruhashi has been reported.

So…when were the shares sold? According to today’s Mainichi:

It has emerged that the stake held by NOVA Kikaku and Sahashi had declined to 3.69 percent and 16.02 percent, respectively, by Sept. 30, totaling 19.71 percent. Neither Sahashi nor NOVA Kikaku has submitted a report on the sale of the shares.

Emphasis added. There’s not much of a point in even checking EditNET or Bloomberg. The sale was not reported within five days. According to the FSA’s document from March, failure to properly disclose any transaction involving greater than 5% of a listed firm is a violation of the Securities and Exchange Law.

Also according to the Mainichi: Arrested stock price manipulator Haruo Nishida told the paper on October 11 that he was involved with setting up the sale of Nova’s equity warrants, saying, “I helped set them up. I was just about to do it (get involved with NOVA shares) and was heading off to Britain (in connection with that), but the Osaka district prosecutors stopped me, so I couldn’t go.”

So, the Mainichi sat on this info for 18 days?

Perhaps they couldn’t verify it. After all, last Thursday, Saruhashi told the Mainichi, “I’ve never heard of Nishida, nor have I met him. A lawyer was dealing with the funds and I’ve heard the lawyer has had nothing to do with him, either.”

Note: EdiNET of course has a frustratingly stupid user interface and does not properly process GET variables from an HTML form.

FSA: Let the regional banks fail, it’s Takenaka’s fault anyway

With few signs that problems at Japan’s regional banks are clearing up, it seems that some members of the Financial Services Agency are encouraging the government to let the banks fail. This would allow for depositors to receive up to 10 million yen of funds in their accounts, as the Japanese government capped its deposit guarantees at that level in 2005.

What happened? The Nikkei tells us this:

Since 1991, 181 financial institutions have filed for bankruptcy protection. About 80% of the total, or 144 filings, were submitted from 1998 to 2002. Hakuo Yanagisawa served as financial services minister during much of this period. After Heizo Takenaka took over the post in September 2002, however, only Ashikaga Bank went belly up.

And then lets us know that there is ‘a view’ that Takenaka’s relaxed stance on regional banks led to sloppy management practices, which led to the problems we see today.

Good to see they’ve found someone to pin the problem on.

74% of corporate managers support the LDP: Nikkei

According to the Saturday’s edition of the Nikkei, a recent survey by Keidanren (the Japan Business Federation) has found:

74% of top executives at Japan Business Federation member companies support the ruling Liberal Democratic Party, while 8% back the opposition Democratic Party of Japan.

Support for Prime Minister Yasuo Fukuda was at 79%, compared to the overall 59% surveyed in September by the Nikkei.

Given the recent thumping handed to the LDP in July’s Upper House election, is it safe to say that we are seeing further signs of the divide between the wealthy and the not-so-wealthy in Japan? Or, is there simply not another party that might be in a position to support business owners? Given that the LDP is increasingly speaking of supporting higher consumption taxes, which will certainly hurt domestic spending, how incompetent can the opposition really be?

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