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Japan’s household spending down 1.6% in March - durables hit harder

With food and fuel prices surging, Japan’s consumers have expressed their lowest degree of sentiment in nearly five years. In the face of sluggish wage growth, we have been expecting to see households begin to tighten their belts and rein in spending. After seeing increases of 2.2% in December and 3.6% in January, February’s household spending came out flat. In March, household spending decreased 1.6%, for the first drop reported since November of last year.

According to the Statistics Bureau, spending at households with two or more people came to 312,565. Income at households with a salaried worker as head of household came to 453,482 yen, which was up 0.6% from a year ago, while spending at workers’ households was at 342,868 yen, down 0.2% from last year.

Here’s a breakdown of spending per category, along with changes against March of last year: Read more

March consumer price index up 1.2% - is a pull out of deflation coming at the wrong time for the wrong reasons?

On Friday, the Statistics Bureau announced that Japan’s core consumer prices had risen 1.2% in March compared to a year earlier. This follows a1.0% rise in February and successive 0.8% rises in December and January. March was sixth consecutive month that core consumer prices showed an increase, and the 1.2% increase was the largest seen since a 1.8% jump back in March 1998.

What was different about March figures, however, was that when fresh food and energy costs were stripped from the index, consumer prices saw a rise of 0.1% - the first rise in this figure seen since 1998. Before we go any further, let’s take a look at all four consumer price measurement yardsticks and how they each fared in March:

• March general nationwide consumer price index: +1.2%
• March general nationwide consumer price index (excluding rent): +1.3%
• March January nationwide core CPI (excluding fresh food): +1.2%
• March January nationwide consumer price index (excluding fresh food and energy): +0.1%

Immediately after the numbers were released, Economic and Fiscal Policy Minister Hiroko Ota told reporters: Read more

Global Voices Online looks at the butter shortage

Hanako Tokita over at Global Voices has posted an interesting article entitled Where has all the butter gone? As US retail shops grab headlines by rationing rice to customers, there has been a rash of supermarkets in Japan that simply have no butter left on their shelves. To help give a perspective on the issue, Tokita has translated a blog entry from Bebe Kobo, a site run by a small-scale dairy farmer in Japan.

Where has all the butter gone? at Global Voices Online

Bloomberg’s William Pesek on Japan’s (lack of) English ability, and why it hurts competition

Bloomberg’s William Pesek has penned an excellent opinion piece on why Japan needs to focus on better English education for its workforce at this point in history. As he points out, without English ability across the spectrum, Japan will simply never be able to achieve its stated goal of being Asia’s leading financial hub. So long as dinosaurs as former Education Minister Ibuki Bunmei (himself fluent in English) continue to portray English proficiency as something to be feared, Japan simply will not be able to gain a competitive foothold.

Read it.

Japan’s supermarket sales up 1.4% in March for second straight monthly rise

In February, Japan’s supermarkets finally showed an official rise in sales after having declined for 25 straight months. However, as we noted, sales were actually down 2.39% when not “adjusted”, i.e., when stores opened in the past year were included. March figures were similar, with a 1.4% official rise reported, but sales down 4.0% when newly opened shops are included.

In March, total sales rose 0.4% to 1.08 trillion yen. Once again, aside from food sales, supermarkets did not fare well. Here’s a breakdown of sales by category in March (these are adjusted figures):

• Food: +2.7%, 61.5% of total revenue
• Household Products: -0.4, 20.0% of total revenue
• Clothing: -2.5%, 11.8% of total revenue
• Miscellaneous Items: +2.2%, 6.3% of total revenue
• Services: -1.8%, 0.4% of total revenue

Just slightly over a year ago, we reported with some surprise that Tesco had decided to move into the Japanese market, with plans to open up to 35 shops. At that time, Japan’s supermarket sales had been down for 15 straight months, and the growth of discount 100 yen shops, the surge in department store food sales, the increase in the number of single person households and the ongoing woes of Wal-Mart made Tesco’s task seem difficult, to say the least. On Monday, the Nikkei Marketing Journal reported that things have been somewhat difficult for Tesco thus far, with sales at its 8 Japan locations showing a 4% decline in year-on-year sales.

Tesco has a reputation of quickly exiting markets that do not turn out to be profitable. However, the firm seems to be echoing Wal-Mart in its dogged pursuit of success in Japan. Tesco plans to send Michael Fleming, who has a very strong record with bringing success to the firm’s Asia operations, over to join the management team in Japan.

Best of luck to Mr Fleming. Supermarket operations are one of the toughest businesses in Japan, and although a shrinking population combined with the growth in single person households will make his task daunting one, there are still inefficiencies in the market to overcome and competitive advantages to be had.

It may also interest our readers that while convenience store sales fell 0.6% in March, 7-11 Japan has been quick to react to the desire of many consumers to buy domestic food products. According to the Nikkei, 93% of vegetables in 7-11’s bentos are domestically-sourced:

Seven-Eleven Japan Co. is accelerating its efforts to raise the percentage of domestically grown vegetables in its bento boxed meals, sandwiches and other items to improve the taste of its offerings as well as address growing consumer concern about food safety.

Currently, 93% of the vegetables used by the firm are grown in Japan, a relatively high percentage compared to the 80% level at major retailers of prepared foods and family restaurants, and the even lower ratio at rival convenience stores.

Of course, 7-11 was ahead of the curve on this one:

Seven-Eleven’s plan, which dates back to around 2000, started in order to offer more delicious food items, rather than to ensure safety.

They do seem to be trying hard to beat us over the head with the “taste” factor.

DoCoMo has a new logo; increased market share to follow?

We’ve touched before on the struggles facing DoCoMo, Japan’s mobile market leader. As the introduction of number portability and aggressive advertising and pricing campaigns from rivals AU and Softbank have driven DoCoMo’s market share under 50% for the first time since late 1998, the firm is at a crossroads. It has attempted to reassert itself as an innovator by launching a line of phones that emit scents, and is pushing the same kind of family discount packages on its website that Softbank has leveraged into market share expansion over the past year. Read more

Japan’s consumer confidence shows slight recovery in March

After five straight months of falling consumer confidence, and numbers at nearly a five-year low in February, March consumer confidence figures showed a slight recovery, according to the Cabinet Office. After having dropped to 36.1 in February, we saw consumer confidence at 36.7 in March, which is still below the score of 37.5 that was registered in January.

The Consumer Confidence Index generates five scores, each of which is considered positive when above 50, and pessimistic when below the 50 mark. Here’s a breakdown for March’s figures, with the change from last month:

• Consumer Confidence Index: 36.7 (+0.6)
• Overall Livelihood: 34.4 (+0.7)
• Income Growth: 38.7 (–0.2)
• Employment: 37.6 (+0.6)
• Willingness to buy durable goods: 36.2 (+1.4)

Four of the five category scores rose in March, with “Income Growth” being the only score to continue its decline. “Willingness to buy durable goods” showed the strongest increase, though that score has been very low since about November. In March 2007, “Willingness to buy durable goods” scored at 48.9 - and that was the month in which we saw it drop below the 50 point line.

Although it is good to see consumer confidence stop falling, this cannot be seen as a strong recovery, and does not seem indicative of a more optimistic view for consumers, at least not yet. It was hard to imagine the numbers getting much lower than they were in February.

The Cabinet Office also said that 85.7 percent of those surveyed believed that prices would rise over the coming year. Although this is lower than the record high of 86.5% in February, it still reflects the fact that prices are indeed rising and that consumers don’t yet see any reprieve from such conditions. Combined with the worsening expectations for wage growth, this leaves little room to be optimistic about consumer spending over the coming months.

Steel Partners sells off stakes in Bull-Dog and Kikkoman; TCI is holding paper losses in J-Power

Earlier today, the Nikkei reported that Steel Partners has sold off all of its shares in the Bull-Dog Sauce Company, as well as Kikkoman. A year ago, Steel Partners held about 10% of Bull-Dog shares, and launched its takeover offer in May. After the Supreme Court declared that Bull-Dog’s anti-takeover defense measures were legal, Steel Partners brought in about 2 billion yen from the company when it bought back its stock warrants. It has been speculated that Bull-Dog has spent up to 70% of its sales revenue from the past year on boosting its cross shareholdings.

According to the paper, Steel Partners also made about 2 billion yen from its investment in Kikkoman. Although we don’t know the reasons exactly why Steel has decided to pull out of its Kikkoman position, it is certain that Kikkoman is gearing up to spend quite a bit of money on a new ketchup factory in China as well as 6 or 7 soy sauce factories in South America, China, North America, Oceania, Southeast Asia and Eastern Europe. The construction is expected to cost tens of billions of yen and bring Kikkoman’s production volume near the range of an annual 1 million kiloliters.

Back on April 1, the Nikkei published a piece entitled Firms Begin To Dismantle Takeover Defenses As Benefits Remain Unclear, which highlighted the fact that there have been no successful hostile takeovers in Japan, that courts tend to be friendly to management, that takeover measures hurt share value, and that poison pill measures can be quite costly to a firm.

Six days later, the Nikkei published a piece entitled More Firms Adopt Takeover Defenses That Seek Shareholders’ OK which stated that 443 firms had adopted anti-takeover measures by the end of FY2007.

Finally, it’s worth noting that just as Steel Partners exits now from its Bull-Dog chapter with a profit, that The Children’s Investment Fund is estimated to be holding 16 billion yen in paper losses deriving from its investment in J-Power. Today’s Yomiuri tells us, “If TCI refuses to obey the government order (to stop purchasing shares in J-Power), the fund or its executives may face a fine or prison term of up to three years.”

J-Power has no anti-takeover measures in place.

Nikkei highly critical of Japanese government’s decision to block The Children’s Investment Fund

Now that Japan’s government has effectively blocked TCI from upping its stake in J-Power from 9.9% to 20%, a slew of negative reactions to such action is bound to be published, and some pressure is expected to be put on Japan’s government to allow the nation’s current stunted form of capitalism to develop on its own.

The Nikkei got the ball rolling today, in an opinion piece titled Govt ‘Selection’ Of Shareholders Costs Japan Dearly. Some selections:

[M]arket insiders are wary of an acceleration in Japan selling by overseas investors. “TCI had offered an alternative plan restricting its voting rights even if it was allowed to increase its stake,” said Kengo Nishiyama, a strategist with Nomura Securities Co. “The government failed to give a convincing explanation of why the plan was not acceptable.”

…Each time a foreign activist fund’s attempt to take over a Japanese company has been blocked — a typical case is the aborted bid by Steel Partners to take over Bull-Dog Sauce Co. — or calls to control foreign investment in sensitive sectors have emerged, foreign investors have rushed to sell Japanese equities, regarding Japan as remaining closed to them…

…It is unusual for the government to get involved so directly in private-sector investment activities.

(I’m not so sure about that last statement; this just seems like a particularly egregious example.)

“Japan must now face the question of whether management of a company or the government has the right to choose shareholders,” said Yoshihiro Ito, director of Okasan Capital Management Co. The effective selection of stockholders through cross-shareholdings — a practice that is reviving in Japan — listings of both parents and subsidiaries, and government intervention will distort the stock market and cost companies dearly.

Bull-Dog Sauce is a case in point. The company has spent a total of more than 12 billion yen, or about 70% of its sales, to purchase cross-shareholdings and other securities in the past five years since Shoko Ikeda became president.

The government needs to be extremely cautious and have a clear justification to intervene in private-sector investments. Otherwise, it could seriously damage the national interest.

The word “could” seems a bit light in this sentence; The LDP has been damaging national interest for decades. One question they will be faced with in the future is whether the population will believe that their actions are in the voting public’s best interest or if they are more akin to amakudari back-scratching. Although this may not seem like a bread-and-butter issue at first glance, it certainly looks as if the public is going to have more of a “choice” on these matters in the coming years, if you’ll pardon the pun.

Tokyo area condo sales down 17.9% in FY2007 as prices rose 9.3%

According to research data released by the Real Estate Economic Institute today, 58,156 new condominium units were sold in the Tokyo area in fiscal 2007, marking the first year since 1993 that the number of new units sold dipped below 60,000, while the number of sales was 17.9% lower than the previous year. In the greater Tokyo area (including Tokyo, Saitama, Kanagawa and Chiba), the average new condo sold for 46.98 million yen last year, which was up 9.3% from FY2006.

If only central Tokyo is considered, the average price shot up 16.0% as higher land and construction costs combined to push up retail prices. Nationwide, land prices rose 1.7% in 2007 after having risen 0.4% in 2006, which was the first increase seen in 15 years.

At current unit prices, it’s getting tougher to close deals, as only 66.3% of new units were sold within one month of coming online, for the lowest figure since 1991. At the same time, 10,837 units remained unsold at the end of FY2007, which was the first time since FY1992 that over 10,000 new condos remained empty at the end of a fiscal year.

The effect of revised building laws, which went into effect in June of last year, continue to crimp the supply of new condos, as sales of new condos in the Tokyo area this past March dropped to their lowest level in 15 years, falling 17.8% on the year to 4,490 units. At the same time, the average sale during March stood at 49.98 million yen, showing the 16th consecutive month of price increase.

What effect could all this have on the market? Just a few weeks ago, Mori Trust CEO Akira Mori told Bloomberg, “Condo builders are facing a severe situation. There is a high probability for bankruptcies among condo builders.”

While many small developers are apparently already feeling the pinch, those developers who manage to hold out may be in for a windfall, according to Mori: “Sellers couldn’t rid themselves of the vision that real estate prices would increase. In about six months, they will probably rush to sell at a loss. Many transactions may take place in half a year.”

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