Japan important only as history lesson

[gkanai]

[Captain Japan]

[Takechanpoo]

[Captain Japan]

[Catoneinutica]

From that article, I think this concept is what Mulboyne was trying to explain to me last Sunday morning at 3 a.m.:

As I type this the Nikkei is down over 5% on the day. Well, at least Japan's roads should start getting fresh asphalt.

While not wanting to take away from Feldman's mastery of the art of saying everything and nothing (did he correctly call the Nikkei sell-off? You decide!), he does seem to be on to something here. The fact that Japan's share of global GDP has recently fallen to 1982 levels suggests that Japan is a has-been - a bad-breath'd, black-hair-dyed, cig-sucking old oyaji of a country - indeed, a threadbare, urine-stained stool-in-the-elevator-of-my-nearby-Sogo of a country!

-catone
-still annoyed by Take's most recent effort in the Random Nihonjin Pix thread

[Mulboyne]

Five years ago, Alex Kinmont identified a similar mood about Japan. This FT piece gives a taste:

"For those of us who began our investing careers in the early and mid-1980s, the realisation that Japan is increasingly irrelevant is unwelcome...After all, we grew up in a period during which the Japan weighting was the critical factor in the performance of global portfolios, and when, in addition, not having an informed view on Japan meant having no worldwide opinion on the overall outlook for G7 economies...Whereas 10 years ago a perspective on Japan was an integral part of a properly developed world view, we argue that today Japan is of no general importance except as a laboratory experiment in deflation." Mr Kinmont also describes Japan as intellectually sterile, diplomatically naïve in its relations with its neighbours and encumbered by policy sterility, as testified by its inability to reverse deflation.

Feldman criticised Kinmont at the time and indeed, both Japan's economy and market recovered almost as soon as the report appeared. What Feldman describes hearing at the recent conference, however, seems very similar to the mood Kinmont saw five years ago. Feldman probably remembers this and so is unwilling to join the pessimist camp in case Japan assets stage a similar rally.

What he also knows, though, is that Japan seemed "irrelevant" because the rest of the world was steaming ahead, almost without exception. It was this growth that ultimately gave a boost to Japan too. Today, however, recession fears are growing and, five years on, few of Japan's policy problems have been addressed.

Nearly 20 years of stagnation have made Japan's companies relatively lean and relatively energy efficient. They have cut their workforce and paid down debt. Ironically, this may prove to be a problem for the economy. Commodity prices have been rising for some years now, particularly food, metals and energy. Because Japan has been gripped by deflation, companies have been unable to pass these cost pressures on to the consumer. I think this is one factor behind the spate of food scandals. Indeed, the president of Meat Hope attempted to justify his firm's fraudulent behaviour by saying that the gap between the price Japanese consumers wanted to pay and the true cost of producing goods was such that the only way to turn a profit was to fake it. His comments are self serving but there is some truth in what he said.

We've seen prices begin to rise in Japan across a range of products as companies are finally forced to pass these higher costs on to consumers. They can no longer avoid doing so by cutting corners and costs. It might seem odd to talk about inflation when the broader risks seem to be a fall in global demand but this is partly a problem of timing. A recession might take the heat out of some commodity markets but Japanese companies are only now passing on cost increases from a few years ago. Japanese households, however, have not benefited from recent growth because salaries have not risen much. Consequently, they haven't been spending a great deal and domestic demand remains weak. I can't see companies raising wages any time soon and these higher prices mean the consumer will be squeezed. Remember also that a crackdown on consumer lenders means that households have less access to credit to ease the way.

Economically, Japan may have to resort to pump priming if growth is threatened. Politically, this situation could pose a problem for the LDP if the opposition parties can represent themselves as standard bearers for the little man in an increasingly unequal society where their interests have taken a backseat to those of corporations. Stocks are definitely cheap, though - the market is down 20% this year alone. You just need to have deep pockets to take on the risk and there aren't many people who feel like they have the spare cash right now.

[Kuang_Grade]

It might be a bit too macro for Morgan Stanley, but in the short term, I'd be far more concerned about US $ exchange rate issues and Japan's modest growth prospects...there are other places in the world with higher growth potential that would overcome the near term exchange rate issues facing the US dollar, so I would expect those areas to get more interest, and these areas are probably far more fashionable to talk about at parties than investing in Japan. And while some efforts have been made, given that most of the 'hard medicine' that various large J companies have taken have mostly resulted in only slightly more focused companies (selling off various assets to focus on maybe 4 things instead of 6) or simple mergers (Mergers are ultimately not going to fix most of the problems facing the Japanese department stores) in order to buy more time to come up with a more sustainable solutions, I don't think anyone should be surprised that some folks would say 'Japan is in OK shape, but the payoff isn't worth the effort in more cases than not'.

[Catoneinutica]

But personally I am so glad to watching these vultures saying like that. I too have already started buying stocks( recently I have stopped, though). This is a huge chance since 2004 and 2005.

Hope that falling knife doesn't sever your weenie, Take!:ninja2:

[Jack]

Two guys, both totally lost in space...
Japan's economy still solid: PM
AFP

[b]Gov't says stock slump due to foreign speculators]
Kyodo/Japan Today

Same kind of head-in-the-sand thinking and denial that cost them millions of lives during the war. Japanese people should outsource their government.

[amdg]

Nearly 20 years of stagnation have made Japan's companies relatively lean and relatively energy efficient. They have cut their workforce and paid down debt. Ironically, this may prove to be a problem for the economy. Commodity prices have been rising for some years now, particularly food, metals and energy. Because Japan has been gripped by deflation, companies have been unable to pass these cost pressures on to the consumer.

I can't agree more. Although I don't deal with (and, to be honest, barely understand) the economic overview, I do see this trend even increasing still now. Even major players in electronics, for example, are keeping wages down, keeping staffing low and forcing workers to pick up multiple roles that two or even three people would handle in the past. Not good.

[Catoneinutica]

Good overview of Japan's persistent-vegitative-socioeconomic state

http://business.timesonline.co.uk/tol/business/markets/japan/article3240252.ece

Niseko is "humiliating"?

[Captain Japan]

Nearly 20 years of stagnation have made Japan's companies relatively lean and relatively energy efficient. They have cut their workforce and paid down debt.

That may be true but I don't know that the workforce has been cut down in the right areas. Many big companies are restricting new-hires to the hakkengaisha system while still maintaining a mass of upper-level, chain-smoking oyajis, whose primary tasks seem to be as selectors of which Kabukicho hostess club to attend each evening.

A friend of mine this week told me that her hakkengaisha is sending her to a new company in March (right before the start of the fiscal year beginning April 1). As it is, she is only allowed to work 6 hours, which of course does not entitle her to benefits. This sort of job rotation is continuous and ensures she will never be full-time. Another friend, who is full-time, told me not long ago that her salary was higher 10 years ago than it is today.

I guess this handling of personnel might look good when the numbers are added up but I don't see how it won't wind up killing a company's future, which I guess is what this thread is saying.

[Captain Japan]

Good overview of Japan's persistent-vegitative-socioeconomic state

http://business.timesonline.co.uk/tol/business/markets/japan/article3240252.ece

Niseko is "humiliating"?

That is pretty amusing. Last year I did some consulting with a tourist organization, which was looking for ways to boost tourism in Tokyo. I told them that in my experience the biggest problem is that the majority of restaurants and hotels in Japan aren't motivated to attract foreigners; instead they appear very satisfied with Japanese customers. As an example, I mentioned Niseko. I indicated that this is perhaps the greatest tourism success in Japan in decades. I asked: why doesn't a Japanese company attempt something similar? The response was amazing: nobody in the room knew what the hell I was talking about.

[Greji]

I guess this handling of personnel might look good when the numbers are added up but I don't see how it won't wind up killing a company's future, which I guess is what this thread is saying.

Not necessarily from the labor example, Capt'n. We used to hire tanki dai grads, the so-called "pepes" in the vernacular. They did all the administration, routine paperwork, odd jobs, and poured the ocha/coffee. Very few of them would last up to ten years owing to marriage, or quitting to go elsewhere. We have replaced them with the Hakken girls, with obvious savings and a guaranteed full-time work force for as long as we need them.

The same job is being done, with the same amountm or slightly less bodies present and at a considerable long term savings.

[Captain Japan]

The same job is being done, with the same amountm or slightly less bodies present and at a considerable long term savings.

Savings, yes, maybe. But if you are completely demoralizing your young workforce what is the point?

The chain-smoking oyaji makes more than 10x that of the OL, whose output is 10x more than the chain-smoking oyaji. My point is that the cuts are misdirected.

[Greji]

Savings, yes, maybe. But if you are completely demoralizing your young workforce what is the point?

The point is that there is no young workforce competing in that category. The ones remaining when the program was implemented, knew they were safe and are only replaced by attrition.

Instead of rehiring new Pepes each year (we used to hire from 20 to 30 Jr College grads a year) we now hire none and only use Hakkens. As I said, most pepes are leaving in around five years, or no later than ten, so there is a high turnover anyway.

The hakken workers are usually older more dedicated, and know than they can be replaced almost with just a phone call which makes them a little more intense. Plus, being usually older, they are more game and some will even give a chain smoking oyaji an occasional courtesy wank or two!

[Mulboyne]

Once they started, companies weren't shy about getting rid of middle-ranking executives. Their first response was to stop recruitment which meant graduates and school-leavers couldn't find work. Then they began to transfer staff to newly created "subsidiaries" which enabled them to renegotiate contracts - i.e. cut salaries and benefits - without breaking labour laws. Some of these units were set up on such poor terms that it seems the only motive behind them was to demoralize the workforce in order to force them to quit. There were plenty of anecdotes about intra-company hazing to get people to leave and stories about executives who didn't tell their wives they had lost their job for a year or so, continuing to put on a suit and pretending to go to work. Suicides were not uncommon for that group. Where companies were slow to deal with their cost base, bankruptcy often took the decision out of their hands and the senior oyajis at such companies had the hardest time finding new jobs.

Undoubtedly, not all companies acted in the same way and the average age of employees at some has risen sharply. Then again, this figure is a little misleading because it only measures full-time employees and, as we've said, younger employees are often taken on as part-timers. It's worth recalling also that the law has gradually caught up with employers. While it largely turned a blind eye to labour force restructuring during the 90s, the law now has better definitions of karoshi (death by overwork) and also puts companies on the hook for constructive dismissal. There has been more attention to the work conditions of part-timers: Both Fullcast and Goodwill, major suppliers of freeters, were punished for sending part-timers to do restricted work at ports and construction sites.

It's probably worth mentioning that not all of these old guys are as useless as they seem. Some are very competent and know their industry's dark arts well. I can also recall working with one bloke who did absolutely nothing but it turned out that his old schoolfriend was a big cheese at a major customer and sacking him would have lost the business immediately. Remember too, that the bubble burst at the beginning of 1990. That means anyone older than 47 at the time has reached retirement and is now on a pension or working elsewhere so time is taking care of that problem.

On a different note, there was an article yesterday (Japanese) about Japan's best known day-trader who came to public attention when he made a killing on J-Com shares. Mizuho securities accidentally sold stock at a fraction of the real price and he was one of the guys alert enough to buy it. He claims that he has been unaffected by the recent falls, having sold off all his positions before the rout. He also mentioned that he had decided to take some new positions on the 22nd and bought 150 million yen's worth of stock. Yesterday, he thought that might be a little early but, if he's telling the truth, then he ought to be slightly in profit today.

[canman]

Sorry for taking this thread off onto a different topic, but I would like some of you deep thinkers to help me get my head around the sub-prime loan problem and why this is having such a huge effect on all markets, including Japan.
So, what I can figure out is that these sub-prime loan lenders, whoa re one step up from loan sharks, worked very hard to get people, who really shouldn't have been house owners in the first place into houses. They used very "creative loans" shall we say, with rapidly increasing payments programs to make lots of money. Many mainstream banks, such a Citi, and Chase Manhattan seeing a profit, began to bankroll these sub-prime lenders. All the while there is a housing boom going on in the US, and house values are skyrocketing, or bubbling if the correct term is used.
Then the bubble bursts and the value of houses starts to drop. Those speculating start to loose their shirts since the value of the house is not what they expected it to be etc. But here is the part I don't understand, the sub-prime lenders, who had these loans with the ever increasing interest rates began to get a lot of defaulters who couldn't make the huge new payments, and they began to default which in turn caused the housing prices to go down further, and then the Citi banks and the others lost their shirt. So my question, why didn't they just reduce the interest rates, so people could keep their houses, keep making payments and avoid this whole problem. It seems that a 6% return is pretty damn good, compared to what is going on now, or is my information way off track. Sorry for such a long post, but I have lost such value in my stocks and I'm just trying to make sense of it all.

[Takechanpoo]

Now Jedea-AngloSaxon vulture dudes commanded Japan to build J-SWF. They try to make the J-SWF pay the debt of sub-prime loan from J-national's assets. This is not lending but donation without return in fact.
And these vultures' main J-agent is Takenaka Heizo. fuckin' J-traitor!!! dog!!!!

[Mulboyne]

There are a few comments about that here.

Banks have actually done some of what you suggest. However, they have some big limits on their room to move. Defaults didn't start the fall in house prices, they were already falling. Not everyone defaulting is doing so because they can't afford the mortgage payments. Many are doing so because they don't want to keep paying for an asset that is worth less than they paid. In foreclosed property auctions, some $700,000 properties have been going for around $300,000. Those are extreme cases but its easy to see that even if you offered someone zero interest, it wouldn't make sense for them to keep paying off that loan when the price has fallen so much.

Another issue is that the banks have to pay for their money as well. They pay interest to savers so they need to make some margin on loans or else they will just be locking themselves into permanent unprofitability. Put simply, the weakest lenders couldn't afford to cut interest rates to borrowers to levels that would make enough of a difference.

In some cases, of course, loans are no longer on the balance sheet of the original lender. They have been repackaged into bonds and sold on to a different group of investors. These investors don't have the same incentives as mortgage lenders. They would prefer to see a loan go into default in order to get the certainty of some cash back from the sale of the underlying asset rather than try to keep the loan alive which could prove to be a risky undertaking.

[ttjereth]

Soooooooo....


Would this be a good time to pick up a house in the U.S. for cheap, or a really, really terrible time?

[Mulboyne]

Now Jedea-AngloSaxon vulture dudes commanded Japan to build J-SWF. They try to make the J-SWF pay the debt of sub-prime loan from J-national's assets. This is not lending but donation without return in fact.
And these vultures' main J-agent is Takenaka Heizo. fuckin' J-traitor!!! dog!!!!

No-one is asking Japan to set up a sovereign wealth fund. Instead, Japan has been looking on as China, the Gulf States, Singapore and the like have been making a splash with their capital and wondering whether it should recycle its surpluses in the same way. If anything, Anglo-saxons countries have become increasingly wary about the lack of transparency that SWFs represent so they wouldn't necessarily welcome Japan following suit.

[Takechanpoo]

No-one is asking Japan to set up a sovereign wealth fund. Instead, Japan has been looking on as China, the Gulf States, Singapore and the like have been making a splash with their capital and wondering whether it should recycle its surpluses in the same way. If anything, Anglo-saxons countries have become increasingly wary about the lack of transparency that SWFs represent so they wouldn't necessarily welcome Japan following suit.

This is superficial view. Compared to the SWF of Arabian oil upstarts and China, J-SWF will become a dog one which is completely controled by Uncle Sam. You need to notice that dude who first started saying about building J-SWF is Takenaka, dog of vultures.

[Charles]

Soooooooo....


Would this be a good time to pick up a house in the U.S. for cheap, or a really, really terrible time?

I vote: really terrible time. I'd wait a little longer because property values are still falling, and the mortgage market is extremely unsettled. Now the real trick is knowing when it has bottomed out. I figure it will take a couple of years, minimum.

[Mulboyne]

This is superficial view. Compared to the SWF of Arabian oil upstarts and China, J-SWF will become a dog one which is completely controled by Uncle Sam. You need to notice that dude who first started saying about building J-SWF is Takenaka, dog of vultures.

He wasn't the first to suggest the idea. It has been talked about in Japan since the days of the Maekawa Report and most recently was brought up before the scale of the sub prime problems became evident. On balance, it is probably in Japan's interest to have such a fund because it can set targets above the piss-poor returns the country gets from blindly buying treasury bonds whenever America asks them.

It's ironic that you suggest that overseas vulture funds want Japan to set up an SWF to bail out America. There has never been a better time for Japanese capital to set up vulture funds of their own to take advantage of opportunities elsewhere so why don't they do that? A Japanese Ripplewood would do a lot to restore confidence in Japan.

[dimwit]

Once they started, companies weren't shy about getting rid of middle-ranking executives. Their first response was to stop recruitment which meant graduates and school-leavers couldn't find work. Then they began to transfer staff to newly created "subsidiaries" which enabled them to renegotiate contracts - i.e. cut salaries and benefits - without breaking labour laws. Some of these units were set up on such poor terms that it seems the only motive behind them was to demoralize the workforce in order to force them to quit. There were plenty of anecdotes about intra-company hazing to get people to leave and stories about executives who didn't tell their wives they had lost their job for a year or so, continuing to put on a suit and pretend to go to work. Suicides were not uncommon for that group. Where companies were slow to deal with their cost base, bankruptcy often took the decision out of their hands and the senior oyajis at such companies had the hardest time finding new jobs.

What amazes me the most about this is that most of these middle managers is their sense of self-importance to the company. None that I have ever met have tried to improve their skills/marketability by say taking, correspondence classes or night school.

[Catoneinutica]

This is superficial view. Compared to the SWF of Arabian oil upstarts and China, J-SWF will become a dog one which is completely controled by Uncle Sam. You need to notice that dude who first started saying about building J-SWF is Takenaka, dog of vultures.

<slaps side of head> And here I'd thought that Takenaka was the vulture of dogs. Live and learn.

Extending the avain metaphor, one reason the term "vulture" has such resonance among a lot of Japanese and would-be Japanese like Takechanpoo is that Japanese investors overseas are, in general, renowned for being kamo (suckers). They like to buy at the peak because their collective mentalities are straitjacketed into a superior-pricing paradigm: they think that, as with a brand good, higher price = higher quality. Pebble Beach, the Exxon Bldg in NY, Verio...the list of megablunders goes on and on.

-catone
-hmm, Merrill Lynch might be a good candidate for shorting
-wouldn't be surprised if amakudari idiots played a large role in a lot of those lame investments

[Mulboyne]

What amazes me the most about this is that most of these middle managers is their sense of self-importance to the company. None that I have ever met have tried to improve their skills/marketability by say taking, correspondence classes or night school.

Very good point. It's partly a legacy of a comparatively poor tertiary education system which left the responsibility with companies to train employees with "all they need to know". I'm always struck by the energy and thirst for knowledge that many people put into their hobbies because it is a stark contrast to what they show inside a company.

There were some interesting cases of executives rediscovering an appetite for life after being fired because they suddenly had to use their own ingenuity to make their way in the world. Sadly, there were probably more who never quite got over the shock and settled for finding a series of dead-end jobs which nevertheless gave them the supposed status of having a meishi.

[Takechanpoo]

Well, if time passed in a few years, you dudes would realize what I told.
Remember it untill that time come.

[Mulboyne]

The reason Japan originally decided against setting up a SWF is that they believed that they were symbols of developing countries or oil-rich states and not appropriate for a country with ambitions to be an economic superpower. In recent years, though, the status and influence of SWFs have risen and Japan has considered setting one up as a means of boosting Tokyo as a financial centre. Singapore uses Government Investment Corporation and Temasek funds to attract foreign finance firms. Japan doesn't really need to do that since fund managers already come to Japan to get a slice of Post Office money and public pensions. What could be useful for Japan is that SWFs have created a good pool of investment specialists in the countries who set them up. While Japanese investment managers are substantially better than they were twenty years ago, when they were little more than glorified bank managers, there is still a dearth of talent in the country. They would only get better if a Japanese SWF was set up to be focused on generating better investment returns. If, as Take fears, it simply became a vehicle for politically motivated investments then it would be a waste of time. Since Japan already regularly makes such investments, there would also be no real reason for a SWF: in fact, from a US perspective, it would draw unwanted attention to them.