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Consumer price index up 0.8% in January on higher gasoline, kerosene, food prices

Earlier today, the Statistics Bureau announced that Japan’s core consumer prices had risen 0.8% in January compared to the same month last year. This matches the figure seen from December, and is the fourth straight month in which we’ve seen a rise in the nation’s core CPI. Before we go any further, let’s take a look at all four consumer price measurement yardsticks and how they each fared in January:

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

Those year-on-year comparison figures are actually no different from what we saw in December, in all four categories. However, the nationwide consumer price index excluding fresh food and energy was 0.6% lower than in December.

Nonetheless, consumer prices are now on an upward trend, though they are clearly being driven by energy and food prices. The ministry’s report tells us that gasoline prices have risen 16.1% from a year ago, and kerosene prices have leaped 24.9%. At the same time, spaghetti prices have shot up over ten percent, owning to the rise in wheat prices.

So what’s getting cheaper? Laptop and digital camera prices both fell over 30%, while cellular phone fees were down about 4%. We seem to remember the government saying that it was going to strip discounted cellular phone package prices from CPI due to the fact that they did not reflect ‘reality’. Right.

Here’s a breakdown of the categories and their price changes in January 2008:

• Fuel, light and water charges +3.7%
• Transportation and communication +2.6%
• Clothes and footwear +0.8%
• Education +0.7%
• Miscellaneous +0.6%
• Food +0.5%
• Housing 0.0
• Reading and recreation -0.5%
• Furniture and household utensils -1.6%

This certainly looks like a trend we’re going to continue seeing, at least for the rest of the first half of 2008, as oil and gas prices will no doubt remain above their 2007 levels and thus force up shipping, transportation, food, and other related costs. We’ll be looking at the household spending data next, wondering how these higher prices will have affected spending on food and utilities.

Ron Paul on inflation

Love him or hate him, at least Dr Ron Paul isn’t wasting time posing questions to Roger Clemens (video follows the cut). Read more

January Industrial Output Slides 2.0%

Earlier today, the Ministry of Economy, Trade and Industry announced that Japan’s industrial production had fallen 2.0% in January, which was a larger decline than had been expected. In its report, METI asserted that production has essentially remained flat (it increased by 1.4% in December).

The worry now is that expected slowdowns in the US economy are causing Japanese manufacturers to take cautions against creating oversupply. Combined with weak domestic spending, and METI’s projection that output will fall a further 2.9% in February, this news sheds a pessimistic light on the direction of first quarter GDP figures. Bank of Japan Governor Toshihiko Fukui told reporters that the economic is slowing down after his meeting with the Council on Economic and Fiscal Policy today.

METI, however, expects to see a recovery in March, to the tune of a 2.8% rise. If the February and march projections are on target, the first quarter of 2008 will see the largest quarterly decline since 2001.

What interested us the most is that despite the media’s concentration on a potential slowdown in the US, METI actually reported strong falls in the shipments of electronic parts to Asia and Europe, while automotive exports to the Middle East slowed noticeably.

Nonetheless, focus remains on the US economy and what may happen there, even for METI.

While shipments fell 0.9% in January, inventories slid 1.3%.

Bank of Japan Governor appointment pushed back to next week; Is Fukuda crumbling?

Last week we learned that on Thursday night, members of the ruling Liberal Democratic Party and the opposition Democratic Party of Japan had gathered at a restaurant in Yokohama in order to hold backroom negotiations on who should be nominated for the position of Governor of the Bank of Japan. While the ruling party wants to see current Deputy Governor Toshiro Muto put into the job, many powerful members of the opposition party apparently remained unconvinced. DPJ leader Ichiro Ozawa told reporters today, “I’ve also known Muto well since he was in the Okura-sho (the former term for the Ministry of Finance), but whether or not he’s fit to be [BOJ] Governor is a different question.”

The DPJ is currently fighting hard to keep the focus on Muto, rather than their own strategies. After rumors that an appointment would be made early this week, the Asahi Shimbun is now reporting that the issue has been pushed back to next week. Although the DPJ is stating serious reasons for opposing the appointment of Muto, one is forced to wonder to what degree is the opposition attempting to flex its muscles in the face of what appears to be the continually ineffectual administration of Prime Minister Yasuo Fukuda.

Still reeling from the government’s bungled response to recent scandals over imported food and the collision of a Marine Self-Defense Forces destroyer with a fishing boat, Fukuda has seen his cabinet’s approval ratings fall below 30% for the first time since taking office, according to the most recent survey data released by the Sankei Shimbun.

Fukuda’s response to the delay in the appointment process? “I really have nothing to say. There’s nothing we can do but wait.”

(Taro Aso, who has his sights set firmly on being the next Prime Minister, must be rubbing his hands right now, and buying Ozawa cases of whiskey - or perhaps even getting him a slot on SMAPxSMAP, which Aso himself recently did. Was Aso in Yokohama last Thursday night? Was he pushing for Muto?)

At any rate, one thing is confirmed: The LDP has lost a considerable amount of clout and would not dare calling the DPJ’s bluff on this issue by nominating Muto and forcing the DPJ to vote in a fashion that would make them look bad. In other words, neither Muto nor anyone else will be appointed unless his confirmation is assured in backroom negotiations - the risk of loss of face, for both the candidate and the ruling party, is simply too great. This simply confirms the lasting importance of backroom politicking, even if it sometimes has to be done in Yokohama.

Is there a chance that the Bank of Japan will have no governor on March 20? We tend to doubt that, given that it would bring about yet another loss of face (not because policy would be seriously affected), and would raise some serious eyebrows around the world about the ability of Japan’s political leadership to get things done. Could this play a part in forcing a general election? We’re just going to have to wait and see how much this fiasco further weakens the public perception of Mr Fukuda’s administration. Wait and see - now we sound like Fukuda.

Commercial Property Transactions in Japan up 27 percent in 2007

According to the Nikkei Real Estate Market Report, 2,186 commercial property transactions were effected in Japan last year, up 27% from 2006. The report notes that transactions outside of Tokyo shot up 60 percent, accounting for 934 of the total sales. These sales were driven by sell-offs led by state-run enterprises such as the former Japan Post and the Federation of National Public Service Personnel Mutual Aid Associations.

At the same time, office building sales fell by 20 percent in 2007. Buyers, however, paid more for what they got last year, especially in downtown Tokyo. In 2007, the average purchase price for a square meter of office space within downtown Tokyo was just above 1.9 million yen, up from 1.66 million in 2006 and 1.46 million in 2005.

The highest purchase per square meter in 2007? Tokyu Fudosan paid 42.74 million yen per square meter to acquire the Ginza Toshiba Building back in September. Total purchase cost? 161 billion yen.

Other notable purchases in 2007 included Goldman Sachs’ acquisition of the Tiffany’s flagship store in Ginza for 37 billion yen, ING Real Estate’s purchase of a Yokohama shopping mall for 60 billion yen, and Morgan Stanley’s 280 billion yen purchase of 13 hotels from All Nippon Airways.

Foreign and Japanese REITs have both been active in the market, with Singapore’s Mapletree Logistics Trust Management pouring 27.38 billion yen into the purchase of five properties in Japan last year. On the other hand, Japanese REITs snapped up 549 properties, paying 1.68 trillion yen in the process and bringing the total of their holdings to just over 7 trillion yen.

As for 2008? Buying has continued apace, as REIT Japan Real Estate has bought the MM Park Building on the Yokohama waterfront for 37.4 billion yen, Morgan Stanley has picked up Citibank’s headquarters for about 48 billion yen, and the Government of Singapore Investment Corporation has purchased the Tokyo Westin for about 77 billion yen (from Morgan Stanley, who paid 50 billion yen or so for the property just four years ago).

As for the future, Mori Building Company said in a report released on Monday that the amount of newly available office space in large central Tokyo buildings is expected to drop by 45.3% in 2008. At the same time, it might be hard for office rents in Tokyo to be pushed any higher, as some tenants already appear to be fleeing the city. We also expect to see the China Investment Corporation, as well as other Sovereign Wealth Funds, begin to take direct real estate investments in Japan, possibly from the third quarter of this year.

Bank of Japan Governor Fukui calls for further discussion on immigration

Speaking in Tokyo last Friday, outgoing Bank of Japan Governor Toshihiko Fukui made the following comment:

…[A] major reason for Japan’s low potential growth rate relative to the United States and European countries lies in the fact that it expects fewer immigrants and this is reflected in a lower expected increase in its working population…One way to raise Japan’s potential growth rate is evidently to ease restrictions on immigration. I think the time has come for us to think very seriously about whether we should accept more immigrants, or whether we would prefer to remain a relatively homogeneous society and be satisfied with low economic growth.

These are heavy words coming from a man of his position, though three things need to be noted:

1) Fukui is on his way out the door, and most likely will land a comfy position in the private sector sometime later this year. His comments, thus, may be seen as out of line with his peers in the Diet, though to some degree, they reflect thinking that has been voiced from Japan’s business circles, an audience which Fukui may feel more comfortable speaking to at the moment.

2) By nature of his position, Fukui has quite a bit more experience hobnobbing with top-level bureaucrats and policy setters than the vast majority of Japan’s politicians, whose vision and policies tend to be very narrowly and locally focused. Fukui is thus in a better position to view both the benefits and potential downsides to increased immigration than most sitting Diet members.

3) Fukui is now free to speak his mind. Did he want to make such statements four years ago? Perhaps, but that may have landed him in hot water. Making such a statement now certainly won’t hurt his chances for future employment, and may cause him to be seen as something of a visionary in some circles (How many Japanese ex-central bankers are seen as visionaries on monetary policy?)

Unlike folks such as Tokyo Governor Shintaro Ishihara or aspiring Prime Minister Taro Aso, Fukui has no need to keep voters happy or riled up with his statements. He’s not up for re-election, seems to have no political ambitions, and thus has no need to subscribe to populist nationalism simply to butter up voters who love to hear it.

The most telling part of Fukui’s statement may be the last sentence; it’s worth taking another look at: “I think the time has come for us to think very seriously about whether we should accept more immigrants, or whether we would prefer to remain a relatively homogeneous society and be satisfied with low economic growth.”

This is a stark choice, presented in a black and white fashion. Fukui throws up the classic either/or argument - either we allow more immigration or we accept low economic growth. His argument may be a logical fallacy bordering on strawman, but whether or not it turns out to be true can only be borne out by time.

One thing, however, is certain: The number of foreigners coming to Japan and deciding to settle here is increasing. The government has slowly been coming grips to this and seems to be developing a silent immigration policy. There has been little public debate thus far on how to proceed over the “immigration” question, and we do not expect to see any until at least after the next Lower House election.

In this context, Fukui’s comments are very welcome. It is time for Japan to have an open discussion on the topic of immigration combined with the future of the nation’s economy, and there are few public figures brave enough to spark it. Whatever the nation decides - or more properly, whatever the nation’s leaders decide, the time has come for Japan to finally take comments made by Mr Fukui to heart, though it’s a damn shame the same can’t be said of his monetary policy.

Japan supermarket sales down 1.7% in January, falling for 25th straight month

During the brief history of this website, we have yet been able to report a rise in Japan’s supermarket sales. At some point we are sure it will come along, but it did not happen in January, according to data released yesterday by the Japan Chain Stores Association.

The figures show a 1.7% decline compared to the January 2007. Not only have sales now fallen for 25 straight months, but they have fallen in 46 of the past 47 months. The JCSA data is based on sales at 8,653 shops owned by 78 companies that have been in operation for at least one year.

The truly frightening figure is that when sales at newly opened stores are included, they fell by a stunning 5.6 percent. Usually the inclusion of these stores makes the numbers look a little bit better. In December, sales had been down 1.5% including such shops, and 1.8% when they were filtered out.

Here’s a breakdown by category for January sales:

• Food: -0.3%, 59.4% of total revenue
• Household Products: -3.6%, 20.6% of total revenue
• Clothing: -4.2%, 13.8% of total revenue
• Miscellaneous Items: -1.4%, 5.9% of total revenue
• Services: -11.3%, 0.3% of total revenue

Food sales had risen slightly in December, while all other categories were down.

We also see some interesting figures in terms of employment. In January, There were a total of 441,651 employees on payroll at the nation’s supermarkets, down from 467,866 in December. This is a 5.6% decline in workforce. The number of full-time workers fell from 134,335 in December to 128,737 in January, while the number of part-timers fell from 333,531 in December to 312,914 last month.

The JCSA points out that the scandal over frozen Chinese gyoza broke in late January, and that according to the Ministry of Heath, Labour and Welfare that the average monthly wage had fallen to 330,212 yen in 2007.

We have not yet seen household spending data for January in order to compare it to supermarket spending, though since those numbers are due out within the next week, it will be interesting to see how households spent on food in January.

Still waiting to see when Muto will be named as next Bank of Japan Governor

Last June, we speculated that former Ministry of Finance Vice Minister and current Deputy Governor of the Bank of Japan Toshiro Muto would be the prime candidate to succeed current BOJ governor Toshihiko Fukui, whose term ends on March 19 (ie, real soon).

Then the Upper House election happened in July, and Muto’s candidacy seemed less clear, or at least seemed to be more of a potential political football. With the opposition Democratic Party of Japan gaining control of the Upper House, any LDP-favored candidate was no longer a certain shoe-in for the job. By law, both houses must approve any candidate for the top position at the Bank of Japan, and both parties appear to be looking for political leverage in the discussions.

At any rate, it had been rumored that a successor to Mr Fukui would be named by the end of this week, but then the Nikkei said on Tuesday that the appointment will not come until early next week, which leads us to believe that some backroom dealing is still going on. After all, who else could they seriously be considering at this point?

The major publicly stated DPJ opposition to Muto’s appointment appears to be concerned with his former position as a Vice Minister in the Ministry of Finance. In their view, this represents a conflict of interest, since the DPJ contends that his appointment would violate the principle of separating fiscal management from monetary policy. Read more

Are soaring Tokyo office rents starting to drive tenants out of the city?

We’ve been watching the Tokyo office rent situation with great interest over the past year or so, as prices seem to climb into areas where it is soon going to become prohibitive for firms to rent prime space in downtown Tokyo. Last week, Miki Shoji reported that rents had increased another 2.2% in January, while Ikoma Data reported rents were up 0.7% and Building Kikaku declared that rents had climbed 0.9% over the same time.

Vacancy rates, however, remain low: 2.55% according to Miki Shoji, 1.7% by Ikoma, and 2.83% according to Building Kikaku.

Of course, this time of year is when office (and residential) rents tend to climb; February and March are prime moving seasons in Japan. On Monday, the Nikkei reported that “the office rental market in downtown Tokyo is showing signs of reversing course, with some corporate tenants being forced to move to more inexpensive areas due to the 10-30% annual spike in rents in the capital’s busiest business districts.”

This is hardly surprising, and something we’ve been predicting for some time, though we assumed the true pain in the market is still some time away. Nonetheless, the Nikkei reports that Mori Trust has not yet begun to seek tenants for its Marunouchi Trust Main Building, which is slated to open in November. Why is this important? A few years ago, the Marunouchi Trust North Tower opened at “nearly full occupancy.” Should the situation be different this time around, people will take notice. Read more

Morgan Stanley, Citibank, Sapporo, Sovereign Wealth Funds and Foreign Reserves: It’s Getting Political

After hearing rumors that Wal-Mart may be looking for Citibank to provide a capital injection for struggling supermarket operator Seiyu, we found this morning’s announcement that Morgan Stanley is set to purchase Citibank’s Tokyo headquarters for 48 billion yen quite interesting. Over lunch, someone suggested that selling their head office just might give Citi enough cash to lend Seiyu a helping hand. I laughed out loud. That’s not going to happen, right?

But Morgan Stanley has been playing the Tokyo property market quite well over the past few years, just having sold the Tokyo Westin to the Government of Singapore Investment Corporation for about 77 billion yen. Morgan bought the Westin from Sapporo Holdings in 2004 for about 50 billion yen. That’s over a 50 percent return on investment in under 4 years.

Sapporo posted 5.51 billion yen in net profit in 2007, up from 2.34 billion in 2006, a result that was backed in large part by - you guessed it - asset sales. As we speak, Sapporo’s management remains focused on putting some form of takeover defenses in place, which it plans to announce by March 5.

Back to Singapore: the Government of Singapore Investment Corporation’s purchase of the Westin, as well as other high-profile moves by sovereign wealth funds, appears to have waken some sleeping giants in Nagatacho. We know that former Chief Cabinet Secretary Yasuhisa Shiozaki has been pushing for more discussion leading toward the formation of a Japanese sovereign wealth fund for some time now, but the Ministry of Finance has wanted nothing of it. Read more

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