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Overseas visitors to Japan down 18.4% in January, for sixth straight month of decline

Although they didn’t publish the figures on their English-language website, the Japan National Tourism Organization announced on Wednesday that the number of overseas travelers visiting Japan in January fell 18.4% against a year ago to 581,000. This is the third consecutive month of double-digit decline, and the sixth consecutive month of overall decline.

At the same time, the number of Japanese heading overseas fell 12.9% against a year ago to 1,179,000. This is the 21st consecutive month in which the number of Japanese traveling overseas has fallen.

In terms of foreign visitors to Japan, South Korea remains the leader, with 129,600 visitors in January. Due to the rise in the value of the yen, however, this figure was down 52.3% from a year ago. Other nations with strong percentage drops in the number of visitors to Japan were Germany (6,500 visitors, down 21.6%), France (8,200 visitors, down 12.7%), the US (47,300 visitors, down 12.7%) and the UK (13,600 visitors, down 10.5%). Read more

Aso meets Obama, Obama meets Aso

On Tuesday, Prime Minister Taro Aso became the first foreign head of state to visit US President Barack Obama. What did they discuss?

Prime Minister Taro Aso agreed with U.S. President Barack Obama here Tuesday on the importance of maintaining the dollar as the primary global currency.

Meeting in the Oval Office, the two leaders also agreed to strengthen the Japan-U.S. alliance and to make diligent efforts to overcome the current economic crisis.

Oh, great. I didn’t read past those first two paragraphs. If you did, let us know if anything of substance was discussed.

Over at Observing Japan, Tobais Harris has the patience to smartly write about a situation I have no patience for, as we both agree that this meeting is a mistake on the part of Mr Aso.

Lawson to buy am/pm for 15 billion yen

Earlier today, the Nikkei announced that Lawson is set to acquire rival convenience store operator am/pm for about 15 billion yen. While nothing has yet been formally announced, the Nikkei said it Lawson may announce the buyout by the end of this week. Lawson is apparently set to purchase all existing shares in am/pm from its parent company, Rex Holdings.

Although Japan is saturated with convenience stores, with about 45,000 such shops across the country, am/pm has about 790 of its 1,100 shops in operation within the greater Tokyo area. As the population and ratio of single-member households continue to grow in the Tokyo area, it seems as though Lawson is betting on these locations to continue turning a profit despite Japan’s demographic woes.

Currently, Seven-Eleven operates 12,100 convenience stores in Japan, making it the market leader with nearly 27% of all convenience stores bearing the firm’s logo. Lawson operates about 8,600 shops, and the acquisition of am/pm will narrow the gap between the two industry giants.

It has also been speculated that Lawson has followed Seven-Eleven’s strategy of selling more store-branded items, and that this will help contribute to an earnings increase for fiscal 2008.

The Nikkei article closes with this paragraph:

Convenience store chains logged sales gains in 2008 thanks to new age verification requirements for cigarette vending machines. But the market is maturing, with sales declining for eight years in a row through fiscal 2007. This has made it increasingly difficult for midsize chains like am/pm and the numerous small regional firms to compete against the giants, and the latest deal may spur an industry shakeout.

After those eight years of losses, sales increased due to increased purchasing of tobacco products at convenience stores in 2008, while convenience store sales exceeded department store sales for the first time ever. Still, convenience stores are getting more people into their shops, which is important. However, it should also be noted that in January, the average convenience store customer spent 595.5 yen per purchase, a decline of 0.5% from a year ago.

Back to the Nikkei article. It does seem likely that more moves to acquire smaller players in this sector are to follow, and that smaller firms might find themselves able to sell out at better values as competition to acquire them increases.

A breakdown of convenience store operators by number of shops in Japan:

Seven-Eleven: 12,100 shops - 26.9% of total
Lawson: 8,600 - 19.1%
Family Mart: 7,300 - 16.2%
Circle K Sunkus: - 6,100 - 13.6%
Ministop - 1,900 - 4.2%
am/pm: 1,100 - 2.4%
Others: 7,900 - 17.6%

Japan supermarket sales fall 2.7% in January

According to data released today by the Japan Chain Stores Association, supermarket sales in Japan fell 2.7% in January. Sales of clothing and household products heavily pulled down sales, which totaled 1.15 trillion yen, and showed a fall for the second consecutive month.

Here is a breakdown of January’s adjusted figures (not including stores opened within the past twelve months):

• Food: +0.7%, 61.3% of total revenue
• Household Products: -5.5%, 20.0% of total revenue
• Clothing: -10.9%, 12.4% of total revenue
• Miscellaneous Items: -7.2%, 6.0% of total revenue
• Services: +8.4%, 0.4% of total revenue

The figures include 8,778 stores operated by 70 companies. The number of supermarkets increased by 125 against a year ago. When figures from those newly opened stores are included, sales showed a 1.8% fall.

Sales per square meter fell 4.2% as available floor space increased 2.5%. The number of employees at Japan’s supermarkets increased by 1.7% in January.

Japan convenience store sales up 7% in January

According to data released Friday by the Japan Franchise Association, convenience store sales in Japan rose 7.0% in January, as the number of tobacco-buying customers continues to show in the year-on-year figures.

Looking closer at the numbers, however, we see that sales per customer declined in January by 0.5%, to 595.5 yen. Thus, the increase in sales is due to a 7.6% increase in the number of customers over a year ago. In January, about 975.7 million visits were made to convenience stores in Japan.

Here is a breakdown of the four major categories reported, with the percent of total sales represented by that category as well as it’s change from a year before:

• Prepared foods: 33.2% of total, +1.2%
• Packaged foods: 29.7% of total, +2.9%
• Non-foods: 32.8% of total, +28.0%
• Services: 4.3% of total, +9.6%

Warm weather in northern and eastern Japan apparently also contributed to higher sales of soft drinks and ice cream.

McDonald’s secures 40 billion yen loan from Japanese banks; to be put towards expansion in China?

Friday morning’s edition of the Nikkei is reporting that McDonald’s has secured a 40 billion yen syndicated loan from Mizuho Corporate Bank, Mitsui Sumitomo, and Bank of Tokyo-Mitsubishi UFJ. Nine other regional banks are also contributing to the 62 month loan, which will be denominated in yen.

Although the Nikkei says the loan is to be used for “business operations,” no specific information as to what those operations might be is available at this time. Despite the global economic and financial crisis, McDonald’s has been performing well as consumers seek cheaper purchasing solutions, and reported a 7.1% increase in sales in January. In 2008, McDonald’s posted record high sales in Japan.

Although the story has been picked up some some English language media sources, none seem to be making the connection to recent speculation that McDonald’s is seeking to expand in the Chinese market. On Wednesday, Brian Durkin, the vice president of development for McDonald’s in China, told reporters that the firm’s China operations had not been impacted by the economic downturn. ABC News provides a very interesting quote from Mr Durkin: “McDonald’s customers, when they go out shopping, they may not buy furniture or clothes, but they get hungry in the process.”

This sounds like a “be everywhere” strategy, which has certainly worked for McDonald’s in many places. The article goes on to tell us that McDonald’s intends to open 500 new shops in China over the next three years. Although this does not seem like a huge number of new shops, it seems clear from Mr Durkin’s comments that McDonald’s is looking at opening more restaurants in strategically important locations.

So, here are the questions: How much will it cost McDonald’s to open 500 new shops in China? At what interest rate did McDonald’s secure this syndicate loan? Why couldn’t Chinese banks (assuming the “business operations” in question are to be conducted in China) have raised their profile by securing the funds? Are Japanese banks using this loan to grab headlines?

Japan department store sales down 9.1% in January

On the back of employment and income growth concerns, Japan’s department stores took a big hit during the recent New Year’s shopping season. According to data released today by the Japan Department Store Association, sales at department stores nationwide fell 9.1% in January, marking the eleventh consecutive month of decline. The survey covered sales at 90 department store operators, with 279 shops. Both the number of companies and the number of stores was one lower than a month ago.

Here is the breakdown of sales by individual categories:

• Clothing: 44.0% of total sales, down 11.9%
• Personal Effects: 13.0% of total sales, down 12.5%
• Miscellaneous Goods: 11.9% of total sales, down 13.2%
• Household Goods: 4.5% of total sales, down 10.2%
• Food: 21.4% of total sales, up 0.7%
• Services: 0.9% of total sales, up 0.5%
• Other: 1.6% of total sales, up 11.7%
• Gift Certificates: 2.2% of total sales, down 13.4%

The figures also show that sales of artwork, jewelry and precious metals fell 19.1% to 21.74 billion yen, showing a decline for the 23rd straight month. Clothing sales have now fallen for 19 straight months.

Notes on real estate: Office vacancies up, rents down, fewer new condos on the market

In an article published last week, the Nikkei tells us that vacancy rates at office buildings in central Tokyo inched up 0.2% to 3.4% in January, according to data from CB Richard Ellis. This is the sixth consecutive month in which vacancy rates have increased. At the same time, average rent per tsubo, about 3.3 square meters, decreased 0.3% (about 40 yen) to 15,310 yen.

On Monday, the Real Estate Economic Institute announced that the number of new condo units put up for sale in January in Tokyo decreased 24.1% against a year ago, to 1,760 units. This was the 17th consecutive month in which the supply of new condo units has slipped. 64.2% of new units were sold within a month of being put on the market, which is up from the 61.9% seen in December but still less than the 70% sales ratio considered as healthy by the industry.

The average price of a new condo in Tokyo was about 41.72 million yen, down 0.9% from a year ago. Adjusting for the average size of a new condo, this is about 590,000 yen per square meter.

Japan’s GDP contracts 3.3% in fourth quarter, 12.7% annualized

While PR fallout has yet to land concerning Finance Minister Shoichi Nakagawa’s seemingly drunken appearance at the G7 meetings in Rome this past weekend¹, data released today by the Cabinet Office shows Japan’s GDP as having fallen 3.3% in the October quarter, annualized at a 12.7% decline. This is the largest fall since since an annualized 13.1% decline in the January-March quarter of 1974.

For comparison, while Japan’s October-December GDP declined 3.3% against the third quarter, the US saw a 1% fall while the EU experienced a 1.5% contraction.

Where were the declines seen? Here’s a breakdown of performance by major categories, compared against the third quarter:

Domestic Demand: -0.3%

Private Demand: -0.6%

• Private Consumption: -0.4%
• Household Consumption: -0.4%
• Household Consumption (excluding rent): -0.6%
• Private residential investment: +5.7%
• Private non-residential investment: -5.3%

Pubic Demand: +0.6%

• Government consumption: +1.2%
• Public investment: -0.6%

Capital Spending: -2.9%

Exports of goods and services: -13.9%
Imports of goods and services: +2.9%

The largest drag on GDP figures is clearly in the export category, which fell at an annualized 45.0% in the fourth quarter. Is there any end in sight for this? With bankruptcy figures still climbing and machinery orders still falling, the head of research at the Bank of Japan, told reporters last week that there is a possibility that the first quarter of 2009 might see worse numbers than what was reported today.

The BBC quotes State Minister in charge of Economic and Fiscal Policy Kaoru Yosano as saying, “Japan alone won’t be able to recover. The economy has no border. It is our responsibility to rebuild the domestic economy for other countries.”

Such a statement seems to shrug off the possibility that an uptick in domestic consumer spending is either possible or will do much to bolster the economy. Although it’s not stated directly, Yosano’s words seem to run against the spirit of the stimulus package championed by Prime Minister Taro Aso. He is correct in believing that Japan cannot recover until exports begin selling again. However, the final sentence - “It is our responsibility to rebuild the domestic economy for other countries” - seems quite odd. Exports certainly have not fallen off due to problems with Japan being able to provide supply and inventory, and Japan would have little trouble providing ample supply should demand pick up, say, next week or so.

At least Yosano wasn’t visibly drunk when speaking.

¹For more on Nakagawagate, see what Tobias Harris has written over at Observing Japan, as well as what MTC has written at Shisaku.

Brief thoughts on JETRO’s February newsletter

JETRO released its February newsletter a couple of days ago, and it beings with the statement, “Global financial turmoil combined with calls for new ways to manage an increasingly interdependent global economy are just two of many trends requiring companies, nations and consumers to reexamine previously held assumptions concerning their place in the world.”

This is obviously a broad swath to cover in one 13 page newsletter, but JETRO offers plenty of food for thought, and a viewpoint slightly detached from much of the media coverage we’ve seen thus far on both the global financial crisis and the US-Japan relationship.

The newsletter begins by affirming what we all know - that the ability of the US and Japan “to work together will have major implications - not only in promoting global economic recovery - but also in efforts to maintain growth in an increasingly integrated Asia.” This passage goes on to highlight the more positive aspects of the bilateral relationship.

Towards the end of the first page, an interesting sentence pops up: “The inauguration of US President Barack Obama as well as change in Japan - marks a good time to reevaluate the US-Japan relationship (sic).” Two questions: 1) What is this vague “change” in Japan that is mentioned? 2) Is it an anticipation of political change, or an acknowledgment of severe social and demographic forces altering the landscape of Japanese business?

The second section, entitled “Examining Current Turmoil Within Context of Japanese Experience,” begins with this:

Commonly-held assumptions concerning the underlying strength of the US economy, as well as the emergency of the BRIC’s and the theory of their economic decoupling were all severely tested last year (sic).

I do think JETRO is remiss in failing to point out that some questioned the underlying strength of the US economy before last year, and more significantly, that many (including myself) held no faith in the theory of decoupling, especially with the distribution of US Treasury debt as it is.

That’s only the first two pages. On page three, the newsletter goes on to describe what “lessons” the Japanese experience can offer the US today, and quotes the always relevant Richard Jerram of Macquarie Securities as pointing out that US authorities acted much faster in the face of the current crisis than their Japanese counterparts did in the months follow the bursting of the bubble. It would be interesting to see a discussion (theoretical as it may be) comparing the role of the US electoral system and the state of Japan’s parliament at the time when the bubble burst, but that would entail a much larger project.

Nonetheless, I feel that the US reaction to the current crisis will, in the long term, make us realize that it is not just acting swiftly, but also taking the proper actions, that will actually have the greatest benefit for the whole of the economy. If there is an economic categorical imperative, it does not show in the actions taken by the US thus far, and to what extent the role of partisan politics plays in this dissonance would make for an interesting debate.

I still hold that there is nothing positive to learn from Japan’s reaction to the bursting of the bubble, in terms of a road map taken then that should be followed now. There are only blatant mistakes that need to be avoided.

But I digress. The JETRO February newsletter is here.

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