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December household spending up 2.2 percent, household income down 2.7 percent

After Japan’s average household spending fell 0.6% in November and energy and food prices continued to rise, most forecasters had predicted that December’s figures would show lower growth, or perhaps slide back into negative territory. However, contrary to such expectations, December’s household spending figures showed a rise of 2.2% from the previous year, reaching 351,667 yen, according to data released by the Statistics Bureau.

At the same time, household income took a hit in December, slipping 2.7 percent, as the income of household heads declined 2.0 percent. At the same time, income from bonuses fell 1.1 percent and disposable income was 3.6 percent lower than a year ago. These figures leave little room to be optimistic for January’s spending figures.

We have to admit that these numbers initially seemed surprising, as we suspected growth in household spending would be restrained by belt-tightening as the winter truly hit. We know that average wages showed a 0.1% uptick in November, but that hardly seems like enough to have caused a spending spree. So what did households increase their spending on in December? Here’s a breakdown: Read more

BizCast #11 released at Trans-Pacific Radio

The first BizCast Japan of 2008 has been released over at Trans-Pacific Radio. In the program, Albrecht Stahmer and I discuss the battle between Toyota and General Motors, Mizuho’s purchase of $1.2 billion of preferred shares in Merrill Lynch, blogging, inflation, real estate and G.communication. Have a listen over at Trans-Pacific Radio.

False information disclosures on stock purchases make Japan’s Financial Services Agency look incompetent

When disclosures of Japanese shares need to be made, the information is submitted to Financial Services Agency’s Japan’s EDINET (Electronic Disclosure for Investors’ NETwork) website. I’m sure that anyone who has used the EDINET website will agree with me that it’s pretty much a piece of junk. From having pages locked in frames to a useless search function that was developed without considering usability, it’s a system designed by people who don’t use it - which is a problem. When such systems are launched to the public, it’s a sign that the management in charge is incompetent and that the system is bound to have problems in the future.

And EDINET now has a serious problem. On Friday, six fake reports of large share purchases were made. According to reports, the disclosure was made by Teramento, a company in Kawasaki. According to the filing made, the firm took a 51% stake in Toyota Motors, Nippon Telegraph & Telephone, Sony, Fuji Television Network, Mitsubishi Heavy Industries and Astellas Pharma.

That would be a huge market move indeed, valued somewhere in the neighborhood of 20 trillion yen ($187 billion). Teramento itself is capitalized at 1,000 yen.

On Sunday, the Financial Services Agency said that it had requested Teramento to correct the information. Teramento apparently refused, and the FSA issued an order for the correction to be done by Monday. Read more

Japan’s core consumer price index up 0.8% in December on oil, transport, food price surges

The big story this morning is that “inflation has doubled in Japan” and “inflation hits 10 year high in Japan.”

Those, may be true, but let’s take a look at what actually happened with consumer prices in December. As Always, we need to point out that there are four different Consumer Price Index readings released by the Statistics Bureau each month. These are the ‘general’ index, ‘general’ excluding rent, the ‘core’ index and the ‘core’ index without energy prices included. Thus, Japan includes energy costs in core CPI. Looking at the data, we see how that plays out:

• December general nationwide consumer price index: +0.7%
• December general nationwide consumer price index (excluding rent): +0.9%
• December nationwide core CPI (excluding fresh food): +0.8%
• December nationwide consumer price index (excluding fresh food and energy): -0.1%

As in November, we are clearly seeing prices driven upward by high oil and food prices. Still, the 0.8% rise in core CPI is significant, as we have not seen such a leap since March 1998, when a 1.8 percent jump was registered.

Is it right to call these numbers ‘inflation’ in so many headlines? One story that did so, Reuters’ “Japan inflation hits 10-year high” quotes Morgan Stanley’s Takehiro Sato as saying:

The higher prices were mostly driven by food and energy, meaning they are deflationary, as nominal incomes remain weak. The near-term trend for the central bank is steady to lower policy, and after a new BOJ governor is named a new initiative may emerge…

Ok! That last part is interesting, but gets away from what we were interested in, which is the continued use of the word “deflationary.” Another word we’ve heard in conversation but not yet seen in print came up at a Bloomberg article this morning. Again, from Mr Sato: Read more

Tokyo new condo supply down 30% in 2007, projected to decrease again in 2008; Talk of increased real estate investment warming up

Japan’s real estate market is about to get interesting. A few days ago, the Japan Real Estate Institute reported that the number of new condos placed on sale in the Tokyo area had fallen to its lowest number in 14 years. Within the 23 wards of Tokyo, the number of new units put on the market fell 30% against 2006. In the broader area in including Tokyo, Kanagawa, Saitama and Chiba, the number fell by 18.1 percent.

The number of units sold within the first month of hitting the market slumped to 59.3% in December, which is well below the 70% figure that Japan’s real estate industry sees as a minimum for turning a profit.

While supply fell, prices rose 10.6% over 2006, hitting an average of 46.44 million yen per unit.

On Thursday, Haseko Research Institute announced its prediction that the supply of new condos in the Tokyo area in 2008 would fall a further 1.6% against the figures from 2007. The telling figure, however, was that Haseko predicted a fall of 7.3% in the Osaka area, which had seen a slight rise of 0.2% in 2007. Read more

The silver lining on the recent Nikkei downturn? Japan’s government eyes extending tax breaks; A sovereign wealth fund is proposed

Despite the opposition Democratic Party of Japan attempting to use gasoline, capital gains and dividend income taxes as political footballs early on in the Diet session, current economic conditions are allowing the ruling Liberal Democratic Party to usurp at least part of the DPJ’s thunder, even if doing so may hurt the nation’s tax base.

On Thursday, the Nikkei reported that a group of 58 LDP lawmakers, led by former Financial Services Minister Yuji Yamamoto, have made a proposal to extend temporary tax breaks on revenue earned from capital gains and dividends. Whether or not this will lead to compromise on the gasoline tax issue is open to speculation, but lower taxes are always a good thing in the eyes of investors.

Current tax on dividends and capital gains is set at 10 percent, though that figure is set to be eased back up to 20% by 2010. The LDP’s proposal would put off any scheduled increases in the taxes so long as the Nikkei remains under 18,000 points. We don’t see the point in such an arbitrary number (it corresponds approximately with the Nikkei’s high from last year), but this is more about politics than the economy.

Perhaps more interestingly, however, is that this proposal also calls for the setting up of a sovereign wealth fund. Although the battle over taxes between the LDP and DPJ promises to provide at least some excitement in the opening months of this year’s political season, a potential showdown between the government and the Ministry of Finance (which has thus far resisted efforts to make any ‘risky’ use of Japan’s foreign reserves) might prove far, far more entertaining.

Would it be possible that we see the sovereign wealth fund arm of the proposal dropped in exchange for extending the tax breaks?

Japan’s leadership searching for excuses for the Nikkei’s drop, and waiting for instructions

Wednesday morning’s Nikkei is reporting that Japan’s six major banks have seen unrealized profits on their equity holdings reduced by some 60% since the end of last September. That adds up to a decline of 70% in value since the end of June 2007.

Yesterday didn’t help much, as the Nikkei lost 752.89 points to close at 12,573.05. Combined paper profits at the six firms have been wiped down from 12.5 trillion yen at the end of September to somewhere in the 6-7 trillion yen range.

What attention has all this gotten from Japan’s policy makers? Back on January 15, State Minister for Economic and Fiscal Policy (should those really be the same job?) Hiroko Ota told reporters, “The various price rises, including for food, are starting to affect consumer sentiment bit by bit…I want to watch things very closely.”

Not reassuring. Ota was commenting on the Economy Watchers Index, which had been released the week before and was down for the ninth consecutive month. The survey’s index hit its lowest level since January 2003. The Economy Watchers Index measures sentiments amongst people whose jobs are sensitive to changes in economic conditions - taxi drivers, barbers, restaurant workers, hotel staff and so on. Edward Hugh posted a chart over at Japan Economy Watch that shows how this index has fallen over the past year.

Nine straight months down. Ota’s response? Again: “I want to watch things very closely.” Read more

Japan’s supermarket sales down for 24th straight month in December; down for 11 straight years in 2007

Earlier today, the Japan Chain Stores Association announced that sales at the nation’s supermarkets had slid 1.8% in December, thus showing a year-on-year loss for the 24th consecutive month. Total sales at locations open for at least one year stood at 1.39 trillion yen in December.

Sales for all of 2007 dropped 1.4% to 13.98 trillion yen. That makes 2007 the 11th consecutive year of decline for supermarket sales, which ties the streak that Japan’s department stores have going.

The JCSA bases its survey on data from 8,806 supermarkets operated by 79 chains. Those 8,806 locations employed a total of 467,866 people, up 2.5% from a year ago, for an average of just over 53 employees per location.

Of those workers, 134,335 were listed as regular employees (正社員) and 333,531 as part-timers. That puts about 28.8% in full-time positions and about 71.3% in part-time jobs (someone out there must be working as both). A year ago, that percentage was 29.3% full-time employees and 70.7% part-timers, so we’ve seen a slight uptick in the number and proportion of part-time supermarket workers in the past year. Read more

Nikkei pounded again; looking to the Bush administration for economic relief measures a bad strategy

On Friday, Japan’s Jiji Press published an article with the headline, “Tokyo Stocks Seen Regaining Some Ground Next Week.” An excerpt:

Tokyo stocks are expected to recover some ground next week as buyers seek to benefit from attractive valuations and moves by U.S. policymakers to rescue the world’s biggest economy from the threat of recession.

“The time is ripe for an upturn for stocks,” Hideyuki Suzuki, senior analyst at Morningstar Japan K.K., said, explaining that the U.S. government and Federal Reserve are starting to take serious measures to shore up the flagging economy, while U.S. corporate earnings news has likely passed its worst for now…

…But stocks pared some losses late in the week thanks to a reported plan by the administration of U.S. President George W. Bush to launch an economic stimulus package and growing expectations of immediate and bold interest rate cuts.

Unfortunately, it seems everyone except for Jiji realized that the Bush administration’s “reported” plan is a joke. As John Fund from the Wall Street Journal commented on Bill Mahr’s show this week, “Is the solution these $250 rebates? I mean, we might as well just take a helicopter and spread it around the country.”

Of course, the Bush administration’s plan is a political ploy. And depending on the Bush administration during an election year to prop up your hurting stock market is, umm, well, (fill in the blank).

At any rate, the Nikkei got absolutely pounded today, losing 535.35 points to finish at 13,325.94. It’s now down 12.95% on the year. Could there be a recovery this week? Of course it’s possible. But Monday’s action dug an ugly hole.

Average wages showed slight rise in November: Ministry of Health, Labor and Welfare

On Friday, the Ministry of Health, Labor and Welfare released its labor survey for November 2007. From the data, we see that cash earnings in that month stood at 290,302 yen on average, up 0.1% from a year before. This is the second of eleven reported months in 2007 that have seen an increase in wage. The only other month to see an increase was August.

Although the increase in wages may seem like a good thing, we see that the real wage index was actually down 0.5% in November. It’s important to notice that the 0.1% increase in wages came on the back of an average 1.4% increase in the number of hours worked in November (at 156 hours). The media inexplicably failed to pick up on this second statistic.

Real good news, however, comes from the fact that the number of regular employees (正社員) increased by 2.2% in November. At the same time, however, we do still see growth in the market for part-timers, as their ranks expanded 5.2% while the number of full-timers increased 1.0%. Read more

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