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BizCast Japan “Top 7 stories of ‘07″ released at Trans-Pacific Radio

The BizCast Japan “Top 7 business stories of 2007″ has been released on Trans-Pacific Radio. Actually, it was released about a week ago, but we neglected to promote it here. In the program, Albrecht Stahmer and I discuss some of the biggest issues and trends that we saw in Japan in 2007, and speculate on how they might play out in the future. Have a listen over at Trans-Pacific Radio.

Japan’s household spending down 0.6% in November, Wages down 2.1%, Retail sales up 1.6%

After we saw a 0.6% rise in household spending in October, purses tightened across the nation in November, and household spending fell by 0.6 percent to 282,836 yen, according to data released by the Statistics Bureau on Friday. September had seen a much more encouraging 3.2% growth in household spending.

Despite the decline in household spending, we also learned that retail sales increased 1.6% in November, which means that they have now been on the rise for four consecutive months. The news was not necessarily rosy for all retailers, as the push in sales was driven by higher gasoline and fuel prices. At large retailers, sales were up 0.4 percent.

Back to the households: In October, we had seen a rise of 0.4% in income at workers’ households with two or more people. In November, however, household income fell by a worryingly fat 2.1 percent. With oil and gasoline prices still high, and December being a colder month, it’s hard to imagine that retailers will be seeing an increase in expenditure for December. Read more

Unemployment down, job offers per applicant down, and a record number of people employed by temp staffing agencies

After increasing for two straight months and then holding steady in October, Japan’s unemployment rate dropped 0.2% to hit 3.8% in November. Data released yesterday by the Ministry of Internal Affairs and Communications also showed that in November, the number of people employed in Japan stood at 64.33 million, which was an increase of 0.4% from the previous year. On the other hand, November’s figure of 2.46 million unemployed people was down by 5.0% from last year.

Perhaps more interestingly, we see in this month’s Labor Force Survey from the Ministry of Health, Labor and Welfare that the ratio of job offers to job seekers has sunk to a two year low. In November, the ratio was at 0.99, down from 1.02 in October.

We have been slowly watching this ratio slide and a while ago predicted that it would go below 1.0 before the beginning of 2008. We had not seen less than one job offer per applicant since November 2005. This is a bad sign for labor, as it reduces some pressure for wages to rise. The lower unemployment rate, however, might be able to offset that effect. At the same time, it should be good news for employers, who still need to make better choices with regard to hiring.

With relation to hiring practices, we saw one other interesting nugget of information in the ministry’s report. In fiscal 2006, the number of workers in Japan contracted to work by staffing firms and temp agencies exceeded 3 million for the first time.

Fiscal 2006 ended in March 2007, and we saw an increase of 26.1% in the number of workers under contract with staffing agencies compared to fiscal 2005. Of course, FY2005 was the previous record holder.

Here’s where things might get interesting for investors. The government seems to be continuing to deregulate the staffing industry, which means that these firms are able to send workers to more and more types of industries. As this has happened over the past few years, profit and revenue at temporary staffing agencies has soared; In fact, in FY2006 revenue leapt 34.3% to a record 5.42 trillion yen at such firms.

Yomiuri: Japan’s travelers up in arms over new fuel surcharges

Back in November, it was reported that although Japan Airlines had decided to raise its fuel surcharges on international flights for the winter months, rival All Nippon Airways declared that it would not increase its prices. This was the first time that the two firms have not moved in accord with regard to fuel surcharges on international flights.

Now, we’ve been told by the Yomiuri that JAL’s surcharge on flights to Hawaii has jumped from 5,000 yen per person to about 19,800 yen, and will be boosted to 25,000 yen in January. While it may have seemed as though ANA was missing out on some easy profit taking, it now appears as though they have made the better move from a PR standpoint. Read more

Japan’s nationwide core consumer prices up 0.4% in November on higher fuel, utility prices

Just two days ago, Bloomberg published its survey of economists and predicted that Japan’s core consumer price index had risen 0.3% in November. This afternoon, the Statistics Bureau released its CPI data and we found that in November, Japan’s nationwide core CPI went up 0.4 percent.

First, we need to keep in mind that Japan includes energy costs in core CPI. Rising oil prices have thus led to an expectation that consumer prices would rise in November, which turned out to be true. Looking at the data, we see how that plays out:

• November nationwide consumer price index: +0.6%
• November nationwide core CPI (excluding fresh food): +0.4%
• November nationwide consumer price index (excluding fresh food and energy): -0.1%

The report tells us that gasoline prices were up 10.9 percent in November, while kerosene prices jumped 11.8 percent. Here’s how the categories break down:

Fuel, light and water charges: +2.2%
Transportation and communication: +1.5%
Food: +0.9%
Clothes and footwear: +0.7%
Education: +0.7%
Miscellaneous: +0.5%

Housing: +0.0%

Medical care: -0.3%
Reading and recreation: -0.6%
Furniture and household utensils: -1.6%

This is the second month in a row that we’ve seen an increase in core CPI, following October’s rise. What might all this mean? Bloomberg speculates that higher oil prices may prove very damaging to the economy, especially if consumer spending is hit hard:

Households cut spending 0.6 percent, the first drop since July…Wages fell and employment prospects worsened as job seekers outnumbered vacancies for the first time in two years…The jobs-to-applicants ratio fell to 0.99 in November from 1.02 in October, the Labor Ministry said. Wages slid 0.2 percent from a year earlier. Pay has only risen in one month this year.

We will have more on the household spending data (and the good news on unemployment) soon, so we won’t get too much into it here. However, the cut in household spending does not bode well for GDP growth in the current and upcoming quarter. We know that the government is planning on spending 215 billion yen in an attempt to offset higher oil costs, but psychologically, this probably won’t make much of a difference. Higher bills are higher bills, and general sentiment seems to be that with the higher costs being inevitable this winter, there’s a need for a bit of belt-tightening when it comes to household finances.

With just over half of GDP represented by domestic demand, it’s looking more and more as if exports are going to have to carry the bulk of any GDP growth we may see in this quarter and over the next. Just today, we learned that the government claims “Japan’s economy can grow 2 percent or more in the next four years if the government carries out reforms.”

Would those reforms include an increased sales tax?

Industrial output down 1.6% in November; METI downgrades its assessment of Japan’s regional economies

Earlier today, the Ministry of Economy, Trade and Industry announced that Japan’s industrial output fell 1.6% in November. Last month, industrial production had increased 1.6% and hit an all-time high. What we found interesting in the ministry’s data was the projection that large manufacturers expect a 4% gain in production for December. This increase will apparently come on the back of increased orders for construction machinery.

Increased orders for construction equipment may seem surprising with the ongoing plunge in housing starts, but we’re expecting a boom in building to start sometime in the middle of next year. At any rate, with the decline in housing starts and high oil prices on its mind, METI also downgraded its assessment of Japan’s regional economies today, saying:

Conditions in regional economies are mixed although they are showing a moderate improvement trend as a whole.

This, of course, is meaningless fence-sitting. But what does mean something is the fact that METI minister Akira Amari made it clear that METI will be watching over larger firms to make sure that they do not attempt to bully smaller firms into not passing along the increased costs for raw materials. That sounds like a job that would require a serious number of regulators…

Nikkei: Japan at less than 10% of Global GDP for first time since 1982

That headline is only the beginning of the bad news in Thursday’s edition of the Nikkei, though it may be indicative of what 2008 has in store for the economy. Essentially, the Nikkei is reporting that in 2006, Japan’s share of global GDP stood at 9.1 percent, which is the first time in 26 years that Japan as accounted for less than 10 percent of global GDP. According to revised figures published Wednesday by the Cabinet Office, Japan’s GDP grew 2.4% in real terms, but fell 4% in nominal terms in 2006. The global economy grew at about an 8% pace in that year.

In another story, we learn that Japan’s IPO market is shrinking, and the blame is placed on…you guessed it: A lack of auditors and stricter regulations. As the Nikkei put it:

Before listing on the Mothers market [for startups] of the Tokyo Stock Exchange earlier this year, a manufacturer asked about 200 business partners to submit reports confirming that it has “no relations whatsoever with crime syndicates and other antisocial forces.”

The Nikkei also points out that the Tokyo Stock Exchange currently has no way to verify the veracity of a given firm’s claim to have no ties to “antisocial forces.”

Then, we see that according to a Nikkei survey, the percentage of CEOs who feel that Japan’s economy is expanding has fallen from 79% in October to 64% in December. 96% of the 134 CEOs surveyed said that the fall in housing starts is hurting the economy.

Finally, two stories we haven’t seen in English yet:

1) In fiscal 2006, Japan’s personal savings rate fell to 3.2 percent of income, and now stands at an historical low. The Cabinet Office asserts that wages increased 1.8% that year. Japan’s savings level peaked at 11.4% of income back in fiscal 1997.

2) The Japan Travel Board announced that in 2007, the number of Japanese traveling overseas decreased by 1.1 percent, showing the first fall in 4 years. This is something we will probably have to get back to, but what stands out to us in the report is JTB saying that fears over food safety in China have put negative pressure on the number of people willing to travel there.

However, there was no word on how fears over food safety have affected tourism to Hokkaido…

Higher wages, higher bonuses - yet Japan’s average wages continue to fall in 2007

Last week, the Ministry of Health, Labor and Welfare announced that in October, Japan’s real wage index decreased by 0.2 percent, as total cash earnings fell 0.1%, contractual cash earnings were down 0.3%, and scheduled cash earnings were down 0.4 percent.

Digging into the yearly data, we see wage decline trending downward overall in 2007. We do know that winter bonuses increased by an average of 0.71% in 2007, to hit 829,865 (with the average Nintendo worker taking home a 1,470,266 yen bonus). That 0.71% increase, however, lagged behind the 1.82% increase that was seen in the winter of 2006. Most market watchers believe the slowdown in the growth rate is due to the fact that a sizable number of baby boomers are retiring.

To bolster that claim, we can look at Toyota, which issued a winter bonus equivalent to 3.2 months of pay. On the average, that bonus was 0.86% lower than a year ago. In other words, we have plenty of evidence that the retirement of baby boomers is putting negative pressure on wage growth.

This helps to explain an apparent contradiction: According to data from the Ministry of Health, Labor and Welfare, scheduled cash earnings declined in nine of the first ten months of 2007. In the single month without decline, wages changed 0.0 percent. Thus, we have seen no months in 2007 with an increase in scheduled cash payments (Click on the image to view a full-size version).

At the same time, the ministry announced yesterday that 82.8 percent of companies reported that they had either increased wages for their employees or were planning to do so. At the 1,500 firms responding to this survey in September, wages had gone up an average of 1.7 percent, or about 4,400 yen.

Of course, those interested in getting into more details with these numbers will need to break them down into size of firms and take a closer look at the demographics of different sectors, but this reports give us a start, and indicate that we will most likely see further downward pressure on wages in 2008, even if most firms raise their average wages.

Note: We compared the decline in scheduled cash earnings against the report that 82.8% of firms surveyed by the ministry had either hiked their wages or were planning to do so. The decline in average wages over 2007 also applies to the other two categories, total cash earnings and contractual cash earnings. In the case of total cash earnings, we see a fall again in nine of the first ten months of 2007, with a 0.6% increase in August. For contractual cash earnings, we see a fall in seven of the first ten months of the year, with earnings flat in the other three months.

For a more interesting breakdown of these numbers, we will have to compare wage growth at firms with over 30 employees versus wage growth at all firms. Actually, here’s a quick chart. The red line represents year-on-year wage growth at firms with more than 30 employees, while the blue line shows the overall rate of wage growth amongst the Japanese workforce. It literally pays to work for Nintendo.

Google, DoCoMo to join up on i-mode mobile services

This is a move that promises to be good for NTT DoCoMo, a firm which is currently Japan’s leader in market share for mobile phone services, though is seeing a large number of younger users defect for Japan’s other two service providers, Softbank and AU. According to Tuesday’s Nikkei, from this Spring, DoCoMo users will be able to use Google’s search, email, scheduling and picture storage services.

Why is this big news? Well, it seems as though DoCoMo has finally realized that it cannot control all operations in a vertical structure - to move forward in the future and protect its market share, it will have to reach out to other firms in order to offer appealing top-end services to its users.

Does this mean that DoCoMo’s vertical market strategy is on the outs? Probably not, though the firm will have to look at other ways to attract subscribers and provide services. We’ve been a bit surprised thus far that Softbank has failed to leverage its Yahoo Japan brand as part of a mobile services bundle, though this could be just the motivation they need…

2006 Education spending in Japan at all-time high

The Ministry of Education, Sports, Science and Culture recently made available the results of a survey into education costs in Japan that reveals while education spending in Japan has hit an all-time high, there may be further evidence of a growing social divide in those numbers. We’ve heard talk about a gap between urban and rural areas, as well as the growth of the income gap over the past few years. Now we’re wondering if talk may begin over the possibility of ‘education gaps’ in Japan, and what effect that might have on Japan’s economy in the future.

According to the report, at households with an annual income of 12 million yen or more, an annual average of 271,000 yen per elementary or junior high school student was spent on tuition fees for cram schools, which help prepare students for junior high and high school entrance examinations. On the other hand, at households with income of less than 4 million yen, an average 98,000 yen per child was spent on such schools.

In terms of total education costs, including regular school tuition and cram schools, another marked difference revealed itself. While parents spent 1.37 million yen annually per child for those students who attend private school, 330,000 yen was spent on students attending public school. Read more

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