MW-96 -- One Step Forward, One Step Back

J@pan Inc Magazine Presents:
M O N E Y W A T C H
Weekly Financial Commentary from Tokyo

Issue No. 96
Thursday October 21, 2004
Tokyo

CONTENTS

@@ VIEWPOINT: One Step Forward, One Step Back

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Date/Time: Tuesday, November 2nd 7:00 pm
Location: City Club of Tokyo - Maple Room (Canadian Embassy Complex)
Language: English
Website: http://www.ea-tokyo.com
Email: info@ea-tokyo.com
=======================================================================

@@ VIEWPOINT: One Step Forward, One Step Back

After being so upbeat last week, as if to try and prove me wrong about
all the positive changes that are on the horizon, Daiei, the retailer
that will go down in history for destroying value almost as effectively
as Wal Mart has created value, returned to the headlines to temper my
optimism. And our friends from the Ministry of Finance waded in with
some disconcerting words.

As a little background, Daiei had, we were led to believe, been rejected
by the IRCJ and thus would have to seek a market solution to its current
problems. Everything was looking good, there appeared to be a number of
players looking at various segments of Daiei with retailers, private
equity groups and real estate investors lining up to do their piece in
the turn-around story. Then with a very swift about turn Daiei was back
with the IRCJ and appearing very smug at their accomplishments ・ once again.

Daiei should have been liquidated many years ago. It has never shown any
ability to even meet the interest payments on its debt, never mind provide
a return to shareholders or even service to its customers. Here was an
opportunity to have a market solution, ensure capital is applied
appropriately and value created, and the IRCJ spoils all that by stepping
into the fray. Remember the IRCJ was meant to only be involved if there
was no market solution; that was evidently not the case here with at least
two buyers at the table.

So then the MOF debate on tax rises and balancing the budget started again
with them lobbying for rolling back the emergency tax cuts from 1999 to
balance the budget. This will hit consumer spending hard if it occurs, much
as the consumption tax rise in 1998 did. Let us not forget that this is
the leg of the Japan economic structure that needs to be encouraged.

Not a good week. Let's hope next week provides more encouragement.

-- John Charles-Decourcy

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STAFF
Written by John Charles-Decourcy (jcd@japaninc.com)

Edited by J@pan Inc staff (editors@japaninc.com)

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