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Macquarie has a 19.9% stake in Japan Airport Terminal; will it be allowed to buy more?

Is Japan about to face a test? Earlier this week, US Assistant Treasury Secretary Clay Lowery told the Foreign Correspondent’s Club of Japan that “There are concerns among investors that Japan may not be fully committed to attracting FDI (foreign direct investment). It is therefore important Japan sends a clear signal that it is open for investments.”

Just a month ago, European Union Trade Commissioner Peter Mandelson, while on a visit to Japan, declared it to be the most closed developed economy to foreign investors.

Both are most likely thinking of the recent order issued by the Ministry of Economy, Trade and Industry against the UK-based Children’s investment fund. The government decided that allowing TCI to double its share in J-Power from 10 to 20 percent would endanger national security. TCI is already the largest single shareholder in J-Power.

Now, we have learned via the Nikkei that Japan Airport Terminal, the company that operates Tokyo’s Haneda Airport, is 31.5% held by foreign investors. Eight months ago, that figure stood at 24.7%.

According to the paper, Macquarie Airports Ltd, a unit of Macquarie Bank, is now JAT’s top shareholder, having amassed 19.9% of the company since it began buying shares last July. Japan Airport Terminal intends to extend the takeover defenses that it adopted last year.

Back in February, the government decided against passing a law to place a limit on foreign ownership of Japanese airports to less than one third. Although this was seen in some circles as a positive sign, it really doesn’t matter now that a national security law has been invoked to stop TCI from buying shares in J-Power. The question now is whether the Japanese government will continue to issue orders against foreign investors in such cases, and if it does - what potential risks could the financial markets face as a consequence?

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.

Yomiuri: Firms no longer allowed to confiscate foreign trainees’ passports

Today’s Yomiuri reported that the Ministry of Justice “looks set to stop companies” from continuing the practice of seizing passports belonging to foreign nationals who work for those firms under the foreign worker trainee program.

For an introduction to what the foreign trainee program is, here is a description from the Association for International Manpower Development for Medium and Small Enterprises.

We also learn from the Yomiuri that these firms will no longer be allowed to restrict the movement of such employees during their non-working hours. After describing these two new guidelines, the Yomiuri gives us the understatement of the week:

The foreign trainee system was designed to enhance international relations by introducing foreign trainees to new technology and skills, but it often has been misused as an excuse to bring unskilled workers into the country.

Other media sources have used other terms: ‘Slave labor’ case makes Japan rethink foreign trainee program from Bloomberg, and Constant trouble haunts Japan’s foreign trainee program from Kyodo.

One would assume that confiscating passports has to violate some form of law - most likely an international agreement. And confining the movements of workers on their off hours is at best childish, at worse a violation of human rights.

For those of us hoping to see Japan grow into a model of leadership for the region, the necessity of such measures is another black eye on the image of the nation. Once the Ministry of Justice revises its regulations, we’ll be interested to see if any punitive measures are included, or if not confiscating passports of foreign nationals simply remains a ‘guideline.’

Ready to be fingerprinted and photographed? What’s behind the Accenture contract?

In last week’s edition of Terrie’s Take, Japan Inc.’s Terrie Llyod commented on the new system for fingerprinting all foreigners coming into Japan beginning on November 20. As he put it:

Even if you live permanently in Japan, own property, have chidren at Japanese schools, own a company and pay taxes to the Japanese government, changes to immigration procedures at Narita airport will require you to go through new rigourous checks and balances including eye-scanning and finger printing. Aside from the inconvenice, what messages is the Japanese government sending to potential foreign investors and business people?

First, before anyone says that the US does the same thing and thus Japan is justified in its actions, I want to say why I think that line of argument would be risible: Read more

Ashikaga Bank Bidding: Don’t Bother, Overseas Businesses

Were you planning to make a bid for state-controlled Ashikaga Bank? Well, don’t bother unless you’re Japanese. It seems as though the Financial Services Agency is set to exclude foreign businesses from bidding for control of the regional bank.

We’re forced to wonder how much the winning bid might already be set at.

Seiyu Still Struggling, Announces Job Cuts

We’ve posted before on why we think Wal-Mart’s investment in the struggling Seiyu supermarket chain is just not working. After announcing in August that it expects to post its sixth consecutive year of losses in 2007, Seiyu downgraded its earnings projection this week to a loss of $91 million in the year ending December 31. As Seiyu continues to renovate its shops and switch more locations to 24 hour openings, it also plans to spend 4.5 billion yen in an effort to let 450 workers go this year.

The big question now is whether Wal-Mart, the world’s largest retailer, will exercise its option to increase its stake in Seiyu from the current 51% to 66.7% by the end of the year. Should Wal-Mart not choose to increase its equity stake in the firm, it could be interpreted as a sort of no-confidence vote in Seiyu. With Wal-Mart recently having pulled out of both South Korea and Germany, we see little reason for it to charge ahead in a market where supermarket sales continue to decline and medium to long-term demographics give little hint of a recovery.

On the other hand, with Seiyu shares down 58% over the past 12 months, any hint of a turnaround means those shares (at 86 yen right now) carry quite a discount. It will be interesting to see how Wal-Mart plays this one.

Goldman Sachs to buy Tiffany’s Tokyo Flagship Store for 3.7 or 37 Billion Yen

This one is just off the Nikkei press: Goldman Sachs To Buy Tiffany’s Main Store In Japan For Y3.7bn.

According to the article, Goldman Sachs is set to buy the land and building “for about 37 billion yen.” That figure does not jive with the headline, though in the article we discover that Tiffany’s itself bought the land and property in Ginza for 16.5 billion yen in 2003. We’re assuming that Goldman’s is paying the higher figure, though it’s still too early for a correction to be issued. Tiffany’s will continue to operate the shop by signing a long-term lease with Goldman’s.

The purchase price values the land at 180 million yen per tsubo, which is about 3.3 square meters. That makes the site Japan’s most expensive single piece of real estate - by a stretch - as the price apparently values the land 80% higher than Yamano Music’s main store in Ginza, which was the highest valued property in Japan in 2007.

The Nikkei also tells us that earlier in August, Goldmans paid confectioner Fujiya and other firms 9.3 billion yen for the building across the street from Tiffany’s. We’re not assuming that Tiffany’s is as desperate to sell off assets as Fujiya was.

Foreign Students Staying on to Work in Japan Hits Record High: Ministry of Justice

Back in March we heard that the number of foreigners working at Japanese companies had hit a record high yet again, and digging into those numbers showed us that the number of foreign workers at Japanese companies who came from East or Southeast Asia was growing much faster than any other group. Then, in April, we heard Hiroshi Inoue, Keidanren’s director of international affairs, tell an audience in Hakone:

We cannot say we don’t want the workers to settle in Japan. But in terms of formulating a policy for the introduction of foreign laborers, we are assuming there will be a rotation system. I don’t think it’s likely that the majority of foreign workers will want to settle in Japan, so the assumption is that they will return to their home countries after a certain period.

No word yet on what he’s smoking, but the Yomiuri provided what sounds like a juicy headline today: Number of foreign students staying on to work in Japan hits record high.

According to the Ministry of Justice, which controls Japan’s immigration bureau, the number of foreign students who found jobs and stayed in Japan after graduating in 2006 increased by 40%, from just over 5,900 in 2005 to 8,272 last year.

Of this group, 6,000, or 75.53%, were from China. They were followed by 944 South Koreans, 200 Taiwanese, 119 Bangladeshis, and 118 Malaysians.

About 70% of these workers went into non-manufacturing firms, with the largest group of them (about 2,700, or 30%) going into translation or interpretation positions.

My initial reaction to this was that the numbers seem a tad low, although the growth rate is obviously headline worthy. In April 2006, the number of foreign workers at Japanese firms stood at a record-high 222,929. This was an increase of 24,549 (or 12.37%) over the 2005 numbers. I’m projecting an increase of between 27,000 and 29,000 foreign workers at Japanese companies in 2007, and that might have to be revised upward with these new figures coming out.

What we need to bear in mind here is the magic number of 27,071. That would be the number by which the head count of foreign workers would have to increase by in 2007 in order for the quarter million mark to be surpassed. Given the growth in the rate of foreign graduates finding work in Japan and the relative ease with which they obtained visas - of the 9,034 who applied for visas, 8,272 were approved, for a 91.57% success rate - the low unemployment rate (down to 3.7%) and the greater number of positions than job-seekers in metropolitan areas, I can see the 250,000 threshold easily being crossed sometime early next year.

A quick note on that 91.57% success rate for foreign graduate visa seekers in 2006. Given that these visas need to be sponsored by companies, we can thus assume that 91.57% of that group had secured employment in Japan. According to data from the Ministry of Health, Labor and Welfare, Japanese university graduates had an 85.8% success rate in securing jobs in 2006 - and an 87.7% success rate in 2007.

28% of Japan Inc Owned by Foreigners in 2006

Last Friday it was announced that foreign shareholders held 28% of shares in Japanese companies in 2006, which was a record high. Further, foreigners are now the largest single group of shareholders in Japan for the first time.

It wasn’t missed or forgotten, just something I keep saying, “Next post will be that” about. So why blog it now?

Someone emailed the story to me and asked if I had seen it, and wondered why foreigners would be buying so many shares in Japanese companies when they tend to pay such low dividends and generally be unreceptive to shareholder needs.

I think that’s a question worth considering, and while companies that pay higher dividends tended to be the target of foreign buyers, I still think that many people see quite a few Japanese equities as undervalued. Of course, there are plenty more reasons out there, so the real reason I’m posting this is to get the question out there for discussion: Why are a growing number of non-Japanese snapping up Japanese issues?

Tokyo slips! Down one spot, now only the fourth most expensive city for expats!

Mercer Human Resource Consulting has released their 2007 annual rankings of the most expensive cities for expatriates, and Moscow has stayed on top while Tokyo slid from the third to the fourth spot. London climbed from number five to number two, and Seoul fell one place to number three. Rounding out the top five is Hong Kong.

If you’re looking for the budget expat experience, Asuncion in Paraguay was the least expensive city surveyed for the fifth year running, coming in at #143.

Although Moscow remained on top apparently due to rising housing costs, and London is notoriously famous for such, one has to wonder if the property value boom in Tokyo might help push it back towards the top.

At the end of its description, Mercer included this line in both bold and italic text: We do not recommend that expatriates use these figures to compare their own compensation packages.

Don’t worry, Mercer! Expats in Tokyo use a different yardstick, but it wouldn’t be a secret if I told!

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