JIN-157 -- JAS President Reportedly Resisted Merger with JAL

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J@pan Inc Magazine Presents:
T H E J @ P A N I N C N E W S L E T T E R
Commentary on the week's business and technology news
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Issue No. 157
Wednesday, November 14, 2001
Tokyo

CONTENTS

++ Viewpoint: JAS President Reportedly Resisted Merger with JAL
++ Noteworthy news
- Morgan Stanley to Withdraw from Retail Business in Japan
- IDC Japan: IT Industry to Reach JPY7.9 Trillion by 2005
- BOJ Governor Says He's Worried about Falling Prices
++ Events

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++ VIEWPOINT: JAS President Reportedly Resisted Merger with JAL

The Nihon Keizai Shimbun, Japan's leading business daily, reported today
that Japan Air System president Hiromi Funabiki resisted the merger with
Japan Airlines until he was convinced there was no other choice for his
airline.

The Nikkei says JAS talked with JR East, JR West and others in search of
a suitable partner, but after the Sept. 11 attacks in the US and the
subsequent downturn in air travel, the carrier turned its full attention
to JAL. This week the two carriers announced their intentions to merge
as early as next fall.

The Nikkei story sheds some light on what the two airlines call a union
"in the spirit of equality." The newspaper says Funabiki was looking for
a partner that would allow JAS more independence. Now the No. 3 airline
in Japan risks being swallowed up by JAL, the nation's leading airline.

The article also says Bank of Tokyo-Mitsubishi was a driving force behind
the merger. The bank owns 2.2 percent of JAL, according to information
from Tokyo Keizai, and its officials approached Tokyu, which owns more
than 30 percent of JAS, to get talks started as early as spring 2000.

The integrated carrier is really going to put the squeeze on All Nippon
Airways, Japan's leading domestic airline, with a 50 percent share.
JAL-JAS (no official name has been released for the new company, but
we bet it is going to sound a lot like "Japan Airlines") would have
48 percent of the domestic market and 75 percent of the international
market. But while ANA will feel a lot of pressure, Skymark, the young
startup that mainly flies the popular Tokyo-Fukuoka route, will feel
the pressure in spades. In fact, Skymark may have to appeal to the
largess of the new merged entity just to stay in business.

Former competitors have been joining ranks across a large swath of the
Japanese economy. This may allow the merging companies to improve
"management efficiencies," as JAL president Isao Kaneko said this week,
but it is likely to have a negative effect on competition and give
consumers less choice.

-- Bruce Rutledge

News on merger of JAL and JAS:
http://www.asahi.com/english/business/K2001111300386.html

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++ NOTEWORTHY NEWS
(Long URLs may break across two lines.)

** Morgan Stanley To Withdraw From Retail Business In Japan

Extract: Morgan Stanley's International Private Client Group announced
Tuesday that it will close its Japanese retail securities business:
Morgan Stanley Nippon Securities Ltd. MSNS will no longer accept
new business, although it will assist clients in managing the assets
in their accounts until they have had an opportunity to transfer
their accounts elsewhere. Of its 100 employees, a limited number
will be retained for the period necessary to assist clients and
ensure an orderly winding up of operations, the company says.
All MSNS employees will be offered severance pay and career
assistance services.

Commentary: MSNS started business less than a year ago as Morgan
Stanley Dean Witter Nippon Securities, but changed its name after
Dean Witter withdrew from Japan in August. Here's the official
comment on the decision to close MSNS from Morgan Stanley's Robert
Sculthorpe, head of the International Private Client Group: "Although
we achieved our goals for our first year of operation, the
dramatic downturn in the economic climate has led us to conclude that
we would not be able to develop this business and achieve scale and
profitability in a time frame that would justify continued
investment. The current difficulties experienced by both domestic and
foreign retail securities players in Japan underscore the immense
challenge of establishing a successful retail securities business at
this time."

Morgan Stanley's not the first to exit the retail securities business in
Japan. ABN Amro also withdrew, and others may follow.

Morgan Stanley's press release:
http://www.morganstanley.co.jp/pc/index_e.html

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** IDC Japan: IT Industry to Reach JPY7.9 Trillion by 2005

Extract: Private research firm IDC Japan says that Japan's IT
industry will grow to JPY7.9 trillion by 2005 from JPY5.27 trillion in
2000. It says that outsourcing of IT-related services marked
significant growth in 2000 and is expected to grow further, while
services related to the purchase, implementation, and maintenance of a
single hardware is likely to shrink.

Commentary: IDC Japan projects an average annual growth rate of 8.4
percent for the IT industry over the next five years. Compare that
with even the most optimistic predictions for economic growth in
Japan over the next few years (the International Monetary Fund sees
Japan's GDP growing by 0.2 percent in 2002, for example), and the
IT industry doesn't look so bad after all.

IDC Japan's Web site (password and ID required):
http://www.idcjapan.co.jp/

** BOJ Governor Says He's Worried about Falling Prices

Extract: Reuters reports that Bank of Japan governor Masaru Hayami said
Wednesday that he is "worried" about prices falling further and
cautioned that the nation's economy needs careful monitoring to avoid
a deflationary spiral. He also resisted calls by politicians and others
for the BOJ to set inflation targets. The bank governor was speaking to the
upper house budget committee.

Reuters article:
http://www.forbes.com/newswire/2001/11/14/rtr424339.html

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