TT-413 -- Hedging against the fall of the US dollar

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, March 18, 2007 Issue No. 413

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

SUBSCRIBE to, UNSUBSCRIBE from Terrie's Take at:
http://mailman.japaninc.com/mailman/listinfo/terrie

BACK ISSUES
http://www.japaninc.com/terries_take, or,
http://mailman.japaninc.com/pipermail/terrie/

************** Trade Australian Shares Safely *************

With the global resources boom, the Australian ASX is an
excellent source of good stocks at reasonable prices. For
in-depth advice on investing in the Australian stock
market, speak to David Julian, an ex-Japan based banker
with more than 20 years experience in global investment,
10 years of which was spent in Tokyo. David is now with the
Melbourne firm EL&C Baillieu Stockbroking Ltd., one of
Australia's leading stock brokers. He specializes in
providing investment advice, including to individuals
living abroad.

For personal, trust-worthy assistance in English and
Japanese. Contact David on +61-3-9602-9236 or at
djulian@baillieu.com.au

***********************************************************

+++ WHAT'S NEW

Ever since the Chinese overtook Japan as the largest holder
of foreign reserves, the US in particular has started to
realize that having a bunch of foreign governments you're
not necessarily friendly with holding your debt isn't such
a good idea. While only Hillary Clinton has so far come
out and said that the foreign holdings are a risk, perhaps
she should have gone further and said that the Chinese are
the real risk, not the the Japanese. This is especially so
since China recently announced that it will create a new
government department to manage and actively invest its
foreign reserves for profit. One can't help wondering if the
announcement was more of a subtle message to the
USA that, "We don't need you as much as you need
us."

Which if it wasn't for the Japanese, would probably be
true.

However, the fact is that while the Chinese are posturing,
the Japanese government is still a faithful supporter of US
debt, as it has been for more than 15 years now. It owns at
least 27% (US$645bn) of the US government's foreign debt as
of December 2006, compared with less than half that held by
the Chinese. Further, the overall Japanese government
holdings of US dollars was a massive US$905.048bn. Much of
this was accumulated in 2003 and 2004 as part of the
government's yen intervention program, when, according to
the Nikkei, they spent around JPY35trn (US$296bn) to buy
dollars.

[Continued below...]

--------------- Bilingual IT Help Desk --------------------

We at BiOS (a Division of LINC Media, Inc.) have recently
expanded our IT Help Desk to increase support for foreign
companies in Japan, both large and small.
We'd like to invite you to join up too.

Our Help Desk Department is located in the heart of Tokyo,
and is staffed by experienced, bilingual IT engineers with
an intimate knowledge of both the global technology and the
local culture. Our rates are market-competitive and our
priorities lie in customer satisfaction and quality of
service.

For more information, visit our website at www.biosjp.com,
or contact us directly at solutions@biosjp.com.
-----------------------------------------------------------

[...Article continues]

Observers may wonder why Japan doesn't follow the Chinese
lead and start diversifying. After all, holding most of one's
reserves in a currency which is arguably over-valued and
due for a marked drop doesn't seem very fiscally prudent.
The reason appears to be that the Finance Ministry is
engaging in its own spot of Yen "carry trade" that we've
been hearing so much about. Basically, it is issuing
bonds at rates of about 0.6% here in Japan then earning
around 5% on US treasuries. Apparently this contributed
about JPY3trn (US$25bn) in special earnings to the
nation's coffers in FY2005. But if the US dollar drops,
this nice little earner will quickly be lost.

Ironically, the Finance Ministry reckons that it wants to
stay in US dollars and not diversify because they want to
maintain "liquidity and safety" of the nation's reserves.
But the fact is that the dollar took a big tumble in the
last two weeks simply because of jitters in the
domestic Chinese stock market. That quickly spread
to the US markets, and moving in concert with the
slump, the dollar dropped from JPY121 on February
28th to JPY115 just 8 working days later.

Remember, there were no changes in the Japanese
financial fundamentals. This "appreciation" of the yen
was simply a case of a "hit-and-run" by scared
international investment flows. And from what we can
see, this performance could easily be repeated if a
really negative economic trend starts to emerge from
the USA.

So, while the government seems quite sanguine about its
massive exposure to a fall in the US dollar, Japanese
firms are being much more pragmatic. The Nikkei recently
ran a good article about how firms are expecting a stronger
yen going forward and are planning for an exchange rate of
at least JPY110 to the dollar, if not even JPY105. The
traditional route is to hedge one's foreign funds, but this
is only a short-term measure and isn't much good during a
sustained period of volatility or correction. As many major
Japanese manufacturers start to see more of their profits
earned overseas than here in Japan, such as is now the case
with Toyota, Nissan, and Honda -- indeed, 84% of Honda's
sales came from abroad last fiscal year -- then they need
to get more sophisticated in handling their yen exposures.

One of the best ways to defeat FX movements is to procure
and produce products in the local markets that they are
being sold in. Apparently Honda has raised this principle
to a fine art and now tries to make sure that 80% of its
overseas sales are based on local production and
procurement -- no easy task when you have to build a
device containing a lot of quality-critical parts.

Another way is to simply buy and sell in yen as the base
currency and have your suppliers and customers deal with
the FX risk. While most western buyers/sellers won't accept
this, those in Asia will. The Nikkei says that one company,
JPY270bn electronics manufacturer Advantest, does more than
70% of its South Korea, Taiwan, and other Asian business in
yen now. Doing this has virtually freed the company from FX
risk and means that losses/gains only amount to
JPY100m-JPY200m for each one yen appreciation that occurs
in the FX markets. In days gone by, a one yen strengthening
would have wiped out ten times that amount.

Perhaps a third way to control FX exposure, and one which
appears to be gaining popularity among the more
horizontally integrated multinationals, is to not take cash
payments at all, but instead to off-set them against other
goods and services that can be brought back to Japan or
moved to a third market. Doing this needs a high level of
financial and systems sophistication, but the benefits can
be massive. Popular off-shore locations for IT services to
be moved to/from are China, Vietnam, India, and the
Philippines. Vietnam in particular has caught the interest
of corporates such as NEC and Nihon Unisys. Recently there
was a news release that one mid-sized Tokyo-based software
firm, Nippon Systemware, is looking to have about 12% of
its planned 900 engineers to be in Vietnam, with another
100 in China. Japanese firms particularly like Vietnam
because it is more manageable than China and because
Vietnamese of Chinese descent can read basic Kanji and
therefore learn how to communicate in writing with Head
Office more quickly.

**************

As individuals, another way for us to cope with fluctuating
yen holdings is to start buying some overseas assets. While
real estate is perhaps the usual investment for foreigners
eying their eventual return home, another possibility is
foreign stocks. A few days ago we received a phone call
from a talented Australian stock broker we'd not heard from
in some time -- Melbourne-based David Julian. Some of our
readers may recognize Julian's name, because on and off
from the mid-1980s through to just a couple of years ago he
worked in Tokyo. He began his career as a Japanese equity
analyst with Kleinwort Benson International (now Dresdner
Kleinwort Wasserstein) then joined Salomon Brothers Asia
(now Nikko Citigroup) as a special situations and small cap
equities analyst. His last stint here was in real estate.

Nowadays, Julian is living back in Melbourne working for
EL&C Baillieu Stockbroking, a leading stock broker in that
city. He works as a private client adviser, helping, among
others, expats in Japan who want to invest in Aussie shares
but who don't have a broker or who don't know how to go
about setting up an ASX account. If you've never thought
about investing in companies listed on the ASX, you should.
The lower level of liquidity in that market means that
there are some good bargains to be had, and coupled with
signficant tax benefits for non-resident investors, makes
for a good way to build your non-US dollar reserves. David
Julian is a friendly and knowledgeable person, and has told
us that he is will to offer advice to those interested. He
can be contacted at djulian@baillieu.com.au

**************

Probably some of our readers are wondering what our
reaction is to the Horie ruling that he is guilty and will
serve 2 1/2 years in prison for securities fraud. In light
of the lack of prosecutions over the Nikko Cordial affair,
we think the treatment of Horie is unfair, even inspite of
his ascerbic personality and media antics. More in the
NEWS section below.

**************

*** This week's FEEDBACK section is about our Brian
Tannura article, and how he is populating Japan with
sticker machines.

...The information janitors/

***------------------------****-------------------------***

========== Logistics: The So-Fast Corporation =============

Tour 1: So Fast Logistics Warehouse Tour

Do you have parcels going missing? Products keep getting
damaged? Packaging not suitable? Then check out So Fast's
cutting edge packaging machinery and logistics solutions.
Remove the mystery from distribution in Japan. See for
yourself how it is done and rest easy in the knowledge
that your products will receive the treatment your
customers deserve.

Tour 2: So Fast Group Call Center

So Fast Group company, Landscape Corp, operates one of
Japan's most comprehensive call centers, with a database
of more than 95 million individuals and 7.5 million
companies.

Does Japan know about your product? Landscape can help.
Come have a look and see how your message can be delivered
politely and efficiently. Landscape takes telemarketing
to a new level with its 30-strong calling staff, backed up
by the largest consumer database in Japan.

http://www.japaninc.com/sofast for more details.
===========================================================

+++ NEWS

- Relaxed engineer visas
- New process for making hydrogen
- Horie convicted, and slams judgment
- Lack of sex responsible for low birth rate
- JVC likely to go to Texas Pacific

-> Relaxed engineer visas

The Japanese Business Federation, Keidanren, has
recommended to the government that the immigration
requirements for foreign engineers' visas be relaxed, to
encourage a larger number of people to come work here,
particularly in IT. They suggest that engineers coming in
under the experience category be allowed in after just 4
years of relevant work experience, versus the current 10
years. But before you think that Keidanren is going soft,
they are also looking at recommending Japanese-language
requirements on future worker intakes, to alleviate
problems typically associated with a surge of foreign
workers. ***Ed: Hmmm, we doubt that they've thought this
through too much. Imposing Japanese language skills will
add at least 3-5 years on to the supply curve, and given
the choice of English or Japanese, most Chinese and Indian
engineers are going to pick the global language. Japan
needs to understand that internationalizing may in fact
mean accepting English as a second language, as has
already happened in Europe and in most of the rest of
Asia. This is not heresy, just pragmatism.** (Source:
TT commentary from nikkei.co.jp, Mar 18, 2007)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20070317D17JF744.htm

-> New process for making hydrogen

Toshiba has announced that it has developed a new process
for producing high-purity hydrogen from ethanol. The new
process uses a lithium oxide compound to clean ethanol of
CO2, and thus produces 99.9% pure hydrogen. Existing
processes can only manage 65% purity in mass-produced
quantities. The new process is expected to be used in fuel
cells and hydrogen-powered cars. ***Ed: Toshiba might
really be on to something here. Apparently the company
plans itself to enter the fuel production business --
something you'd normally only expect a trading company to
do. This development is probably worth watching.** (Source:
TT commentary from nikkei.co.jp, Mar 16, 2007)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20070315D15JFA01.htm

-> Horie convicted, and slams judgment

Being out on bail, Horie is still free to talk to the
press, even after being convicted of securities fraud and
being sentenced to 2 1/2 years in jail. He says that the
findings were unfair and that he is not guilty. Clearly
his defense team plan to fight the case in an appeal.
***Ed: There is no doubt that a double-standard is at work
here and to us it's quite disturbing. The problem is that
the Japanese judiciary is less concerned about wrong-doing
(else how can you explain the lack of arrests in the Nikko
Cordial scandal?) and more about the accused's attitude and
public expression of regret. Horie just doesn't want to
play the game and he's going to get his a-s kicked as a
result. The moral of this story is if you are ever
unfortunate enough to have to go to a Japanese court, keep
your utterances to ones of absolute regret and
repentance.** (Source: TT commentary from
washingtonpost.com, Mar 18, 2007)

http://tinyurl.com/yvyjr9
Or, http://www.liveurl.org/index.php?yECJZFmrDu

-> Lack of sex responsible for low birth rate

According to a survey by the Japan Family Planning
Association (JPA), 39.7% of Japanese aged 16 to 49 do not
have sex more than once a month, a figure which is up 5%
from 2004. Among married couples, the rate is 34.6%. The
survey results were released by the FPA's director, who
said that the figures were dismal and that, "Research shows
that if you don't have sex for a month, you probably won't
for a year." He partly blames stress from work and a
decline in physical communication skills. In another
survey, from the University of Chicago published in 2006,
Japan ranked last in a 29-country study of sexual
satisfaction. Only 25.7% of Japanese said they were
satisfied in bed. ***Ed: And probably 50% of those people
were lying... Japan has a major problem reconciling the
happiness of its people with the feudal ideals of its
aged politicians and family heads. Personal happiness is
still a foreign concept to a nation where the spiritual
ideal is one of suffering in silence.** (Source: TT
commentary from theseoultimes.com, Mar 18, 2007)

http://theseoultimes.com/ST/?url=/ST/db/read.php?idx=4976

-> JVC likely to go to Texas Pacific

A Nikkei report says that Matsushita Electric is likely to
pick the Texas Pacific Group (TPG) fund over competitor
Cerberus as the buyer of its shares in stricken subsidiary
Victor Company of Japan (JVC). Matsushita owns 52.4% of
JVC and hopes to do the sale within March. (Source: TT
commentary from forbes.com, Mar 15, 2007)

http://tinyurl.com/3cwv82
Or, http://www.liveurl.org/index.php?lLNVf0ujEG

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

***------------------------****-------------------------***

---------------------- M&A Advisory -----------------------

The Japan Inc. Advisory team is highly experienced in
helping foreign entrepreneurs both sell and buy companies
in Japan. Our experience includes:

- Fund-raising for venture businesses
- Selling companies for owners looking to leave Japan
- Sourcing buy-out targets for foreign firms entering Japan
- Assisting with joint venture and takeover negotiations
- General management advice

We have a dedicated, experienced team that
specializes in smaller deals that other investment
specialists are not interested in. Email
jack.turner@japaninc.com for a free and confidential
consultation.

-----------------------------------------------------------

+++ CANDIDATE ROUND UP/VACANCIES

=> LINC Japan Ltd., an affiliate of the LINC Media group,
is actively marketing the following positions for market
entry customers setting up in Japan.

* Storage Support Engineer, bilingual, hardware -- JPY15m+
* HR support junior manager, bilingual, services -- JPY6-8m
* IT sales trainee, bilingual -- JPY4-5m
* Freelance market entry consultants, bilingual -- Neg.

Interested Japanese or foreign candidates may e-mail
resumes to: terrie@lincjapan.net.

+++ UPCOMING EVENTS/ANNOUNCEMENTS

------------------- ICA Event - Mar 22 --------------------

Speaker: Masakatsu Kojima,
Director of Product and Engineering, HTC

Topic: Global Trends in Mobile Technology

Details: Complete event details at http://www.icajapan.jp/
(RSVP Required)
Date: Thursday, March 22, 2007
Time: 6:30 Doors open, Buffet Dinner and Open Bar included
Cost: 3,000 yen (members), 5,500 yen (non-members)
Open to all- NEW LOCATION- Ristorante Conca d'Oro
http://www.websanko.com/b_info/akgardencity/details.html

-----------------------------------------------------------
______________________________________________________
IT events announcements are priced at JPY50,000 per week.
For more information, contact sales at japaninc.com

***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors@terrie.com.

-> TT412 -- 5.5m vending machines. We commented on the
activities of flat vending pioneer Brian Tannura and his
colonization of Japanese shopping malls with sticker
machines.

*** Our reader says: Greetings from Auckland. I always
enjoy reading your articles. I have been interested in your
vending machine comments over the last two articles. I
wonder whether there is a business opportunity to vend
English lessons and materials through vending machines in
Japan at prices of JPY200 to JPY1,000. One could imagine a
variety of lessons at different levels, as well as self
assessments and grammar tools. Is this a viable
distribution mechanism?

*** Brian Tannura responds: Yes, this is an interesting
idea. Possible sites include book stores, izakaya, language
schools (in some form of partnership), travel agencies,
recruiting companies, and just about anywhere that a person
would feel some pressure about their inadequate English. We
have been looking for some time at the idea of combining
flat vending as a ticket to buy content across another
media, such as cell phones, and this would certainly fit
that category.

...The information janitors/

***********************************************************
END

SUBSCRIBERS: 25,038 as of March 18, 2007
- Show quoted text -
(We purge our list regularly.)

+++ ABOUT US

STAFF
Written by: Terrie Lloyd (terrie.lloyd@japaninc.com)

HELP: E-mail Terrie-request@mailman.japaninc.com
with the word 'help' in the subject or body (don't include
the quotes), and you will get back a message with
instructions.

FEEDBACK
Send letters (Feedback, Inquiries & Information) to the
editor to terrie.lloyd@japaninc.com.

ADVERTISING INFORMATION
For more information on advertising in this newsletter,
Contact ads@japaninc.com.

SUBSCRIBE
Get Terrie's Take by giving your name and email address at
http://www.japaninc.com/newsletters/free_sign_up, or go
straight to Mailman at:
http://mailman.japaninc.com/mailman/listinfo/terrie

BACK ISSUES
http://www.japaninc.com/terries_take
or, http://mailman.japaninc.com/pipermail/terrie/

Copyright 2007 Japan Inc. Communications Inc.

_____________Japan Inc is worth every penny!__________
Don't forget you can get deeper analysis on Japan's
hottest new businesses and technology from the
quarterly edition of J@pan Inc. 1-year subscription
JPY3,600(Japan). It's so cost effective you can even get
your company to pay for it!
Go to: www.japaninc.com/mgz_subscriptions for details.
=======================================================

Newsletter:

business