TT-743 -- Things Not Looking Good for Abenomics, Ebiz news from Japan

Japan Travel
* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, Feb 09, 2014, Issue No. 743


- What's New -- Things Not Looking Good for Abenomics
- News -- Mt. Gox going under?
- Web Content/Tech Job Vacancies
- Upcoming Events
- Corrections/Feedback
- Travel Picks -- Secret Christians in Kanagawa, Black ramen in Saitama
- News Credits

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A new "industry" has been born over the six months, one that will last
until April 1st this year. What is it? None other than the typings of
a legion of economists and businesspeople (including your's truly)
speculating about what will happen to the Japanese economy after the
consumption tax increases from 5% to 8%, and therefore what will
happen to Abenomics. This is not just idle speculation. The impact of
the consumption tax on consumer sentiment and thus spending by
corporations across the board will affect us all. Our forecast is that
Abe's consumption tax increase is too early and it will cause a
recession in the following 3 quarters. If we're right, then it means
you have the next 6-8 weeks to lock in any business that you are
hoping to win in 2014, because after that we think that many companies
will temporarily conserve their spending at least until September,
watching and waiting to see what will happen. And by virtue of the
fact that everyone will be doing the same thing, the recession will be

Why do we think things will go retrograde? Four reasons:

1. No third arrow

For all the hype, PM Abe is only human and only capable of executing
just so much change at any one time. Given that he is trying to
engineer not just financial but also political (of the nationalist
variety) and social change, and given that each vested interest group
he needs to win over requires an army of LDP handlers to negotiate
with them, it is no wonder that there has been no significant "third
arrow" so far. You'll recall that the third arrow is structural
reform. Now, it could well be that Abe has some big surprises in
store, like legislation allowing private medical care as an
alternative to compulsory public care, but we wouldn't bet on it. The
nation's vested interests are dug in deep and Abe doesn't want to get
into a bruising fight he may not win. While the farming sector is weak
enough to make a good target on the behalf of TPP negotiations,
Education, Law, and Medicine are still far away from undergoing any
fundamental changes.

[Continued below...]

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[...Article continues]

2. Few pay rises

Abe needs "good inflation" to make his policies work and to stay in
power. Good inflation means floating all ships at once. However, as we
have said in several recent takes, the only real beneficiaries of the
current market froth are the few Japanese holding shares in the stock
market, or who are speculatively trading currency. In the meantime,
the average Joe may be doing a little last minute spending before
April -- which is why the financial figures look promising right now,
but it's temporary. As we reported last week, the nation's stock
market investors think that deflation-proof businesses, like beef bowl
chains, are going to be doing best in the next 6 months, while luxury
businesses like department stores will do it tough. As a result,
Isetan Mitsukoshi Holdings shares are down 15% in the last month.

The problem is that it doesn't look like there are going to be any
major pay increases happening any time soon to get consumers back out
on the streets. For example, the union at Nippon Steel has asked the
steel maker for an increase of JPY3,500 per worker, or about 1%
increase over last year. The last time Nippon Steel increased salaries
was 14 years ago in 2000...! The picture is much the same elsewhere,
with Rengo, a lot larger than the 27,400 workers at Nippon Steel's
union, only asking for 1% higher base, and possibly 2% on bonuses.
Given that a report came out recently from the Ministry of Labor
saying that adjusted for inflation, the nation's basic wages are now
at a 16-year LOW, it's highly unlikely that workers are going to
feeling richer after April 1st. This can only mean that consumer
spending will fall and public sentiment is going to get worse.

3. Yen strengthens temporarily

The Japanese consumer is a fairly predictable beast, and last time the
consumption tax was increased, from 3% to 5% in May 1997, the nation
fell into deflation (where it has been stuck ever since) as consumers
stopped spending and consumer products/services companies starting
frantically cutting prices to stay in business. The impact of the last
tax increase, which was smaller than this one, but which was also
accentuated by the Asian banking crisis at the time, was about 18
months. We think that the current planned increase will have a similar
chilling effect for at least another 18 months.

Added to the general pessimism of consumers will be the news of
temporary setbacks to exporters, the only really buoyant section of
the economy. In 1997, the yen strengthened for about 6 months, before
then weakening dramatically. If the same was to happen again, then the
yen will probably rise to about JPY96 to the dollar in the next 6
months, before eventually weakening to the JPY110-JPY115 level by the
end of the year. Japanese companies hate volatility and have long
memories. So they are likely to hang on to their JPY2.2trn cash pile
rather than spend it on more wages, at least until they can be sure
that a weak yen is here to stay. They are also very aware of the fact
that without a growing domestic market they are now highly exposed to
international factors such as wars, economic setbacks, natural
disasters, etc.

4. U.S. politics

Usually the U.S. is the single biggest external factor influencing
Japan's economy, as we have seen both with the post-Lehman decline in
US consumer spending and its impact on Japanese exports (tools and
components to China -> goods to America), and more recently the
tailing off of the Fed's quantitative easing program and its effect in
strengthening the yen (as easy funds move from risky developing
country investments back to safe havens for a while). The tailing
actions are likely to remain tame under the new chairperson, Janet
Yellen, but the perceived ongoing weakness of the US economy does
scare investors and exaggerates movements in the markets.

Then, let's not forget that the next US presidential election happens
in November 2016, and campaigning is likely to start in late 2015.
Past experience tells us that not much new legislation gets
done in that period, and indeed, conservatism rules. This means that
if Obama can't get TPP past his own Democrat party by mid-year, TPP
probably won't happen any time soon, if at all. If not, then Abe loses
his means of applying external pressure on local vested interests, and
that means the end of any meaningful reform in the agricultural sector
for a while.

Are there any bright spots on the horizon after April 1st?

Well, the likely severity of the situation will rev up the
government's tourism push. It's easy to service 10m tourists paying
10% consumption tax and asking for little or no services in return.
Since the JNTO just set up an office in Jakarta, we imagine that visa
loosening for Indonesia is not far away and this could unleash as many
as 200K more tourists per month from that country.

Also, if you're into shares, you could be looking at those companies
that supply the public works projects the LDP is so good at executing.
For example, how about the 60m wide x 9-13m high tsunami wall that
MLIT is proposing for Tohoku? We don't know how much concrete that
will consume, but given there are currently 300km of levees up that
way and all of them need rebuilding or new construction, you're
probably talking a very significant amount...! The largest player,
Taiheyo Cement is already planning to ship about 10m cu. m. of
concrete to Tohoku in 2014, and our guess is that this will probably
double once the levee rebuilding hits full speed. Of course the
coastline is going to be as ugly as can be, so forget about any of
those Indonesian tourists heading to the coastal areas, where the
economy most needs them. ;-)

...The information janitors/


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+++ NEWS

- Sony getting out of the PC business
- Online gaming business primer
- Mt. Gox going under?
- Exports still weak
- New tax-free investment accounts popular

=> Sony getting out of the PC business

It's a sign of the times when Sony decides to dump its PC business,
spin off the TV division (with eventual likelihood of selling it off),
and cut 5,000 jobs globally. The company has announced a restructuring
charge of JPY90bn for the next two years (JPY110bn loss for this
fiscal year) to get past the changes. Of all of its businesses,
smartphones and PlayStation console games are still showing promise,
although both are difficult segments to stay competitive in. ***Ed:
Letting go of the Vaio business must have been hard, but it's the
right decision. Commoditization of mobile computers (cell phones,
tablets, etc.) means that only the cheapest mass producers and
value-added software firms are going to stay in business long term.**
(Source: TT commentary from, Feb 6, 2014)

=> Online gaming business primer features a really excellent primer by Masanari Arai of
Kii Corporation about the online games market in Japan and how the
Japanese do things differently. Arai points out that Japan is now the
best-monetized market for smart phone games, surpassing the USA for
spending. But whereas U.S. users buy downloads, Japanese instead
prefer in-game purchases. Furthermore, Japanese players fall into four
categories and that one of these, the "Socializer" is more likely to
buy player-to-player gifts to help out their friends who are also
playing online, versus western players who tend to be more
competitive. (Source: TT commentary from, Feb 7, 2014)

=> Mt. Gox going under?

If you're like us, you've vaguely heard of Bitcoin, a cryptocurrency
that keeps users basically anonymous and which is highly popular in
countries where currency is controlled and in industries that like to
skirt the law. You may not know, however, that until mid-2013, one of
the largest bitcoin exchanges, businesses that exchange bitcoins for
real currencies, was Mt. Gox here in Japan. The company at one point
was believed to handle almost half the trades (1m or so) done on the
bitcoin network. Now, however, doubts over whether the exchange is
still solvent and can still honor bitcoin redemption/exchange requests
means that its trading volume has fallen to just 30,000 trades. The
largest exchange for the currency is now BitStamp in Slovenia. ***Ed:
The shadowy Bitcoin network is alive with complaints about Mt. Gox
being highly unresponsive and slow to honor trades, so most users no
longer trust it. Of the two founders, both of whom are foreign, one is
still in Japan. You can still find an entry for Mark Karpeles on
Linked In.** (Source: TT commentary from, Feb 7,

=> Exports still weak

Although the overall economic indicators such as unemployment are
showing the best numbers for the last seven years, there is concern
that these are temporary and are directly related to the run up to the
consumption tax increase. In contrast, export data just out for
December 2013 and thus completing that year, show that trade for the
whole year was locked into a tight band of 5% or so of the JPY6trn
recorded in December. This means that instead of exports noticeably
climbing, which Abenomics needs and should be causing, instead the
export sector is flat. ***Ed: A Credit-Suisse report in January
clearly says that exports are unlikely to increase for two major
reasons: weak demand for machinery and tools in Asia and the fact that
the hollowing out of Japan-based manufacturing base means that there
are less companies able to take advantage of the low yen.** (Source:
TT commentary from and, Feb 7,

=> New tax-free investment accounts popular

No one likes paying tax, and as a result, the government's plan to
channel more money into the stock market by allowing people tax-free
(NISA) investment accounts is working as intended. Apparently the new
accounts attracted JPY300bn from 2.75m people during the first month
(January). Of these, about 17% have started trading stocks. The NISA
program allows investors to keep the first JPY1m of profits tax-free.
***Ed: Unfortunately and generally speaking, most of the NISA accounts
are not new cash coming into the market, but rather existing investors
moving to the tax-free program. Still, it's a start and as neighbors
start seeing Mrs Watanabe pocketing her profits, maybe stock trading
will catch on one suburb at a time.** (Source: TT commentary from, Feb 7, 2014)

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



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------------------ ICA Event - February 20th-------------------

Speaker: Tish Robinson, Professor of Organizational Behavior at
Hitotsubashi University ICS
Title: "Workshop - Speak Out!!! Don't Freak out!!!"

Details: Complete event details at

Date: Thursday, February 20th, 2014
Time: 6:30 Doors open, Buffet Dinner included and cash bar
Cost: 4,000 yen (members), 6,000 yen (non-members) Open to all. No
sign ups at the door!!!!!!!
RSVP: RSVP by 10am on Monday 17th February, 2014. Venue is The Foreign
Correspondents' Club of Japan.



=> No feedback this week.



=> Chatodera Temple, Oyama, Kanagawa-ken
A small, interesting temple on the slopes of Mt. Oyama

People who visit Mt. Oyama usually stick to the cable car or hiking
routes that bring you straight up the mountain to Oyama Dera Temple or
Afuri Jinja Shrine. But there is actually a lot more in the area to
see, including the small, slightly out of the way, Chato-dera (or
Sato-dera) Temple. In this temple, tea ceremony masses are held 101
days after someone has died. There are also many Buddhist statues on
the grounds and along the road and path leading to the temple. Some of
the statues have a special marking "ki" on them indicating that they
were made by secret Christians.

=> Men Dojo Ramen Restaurant, Saitama
Home of black ramen and the best noodles around

This is a recommendation for those who can't get enough of the
top-quality but off-the-map locations that you'll never find in a
guide book. Men Dojo is a ramen restaurant that serves the best
noodles going. That's a bold claim in a noodle-happy country, but it's
one that stands up to the challenge. It also comes with the bonus of
being a hidden gem, off the beaten path, a place so local that it
doesn't even have a website. However, the wide variety in the menu and
the rich flavors have kept me returning to this shop again and again,
even after moving away from the area.

As you might expect, the specialty here is ramen, and there are plenty
of ways to get it. Miso ramen tends to be the most dominant, although
you can find any other variety you like. My personal favorite is the
ookara ramen, the one with three chili peppers listed on the menu. As
its name suggests, this is one hot dish of noodles that is sure to
make you sweat. Perhaps the most novel menu item is the kuro (black)
ramen, with heavy, black broth that looks like squid ink, and has an
excellent flavor. The gyoza (dumplings) and chahan (Chinese-style
fried rice) are both outstanding. There is a long list of toppings to
add onto your ramen for a cheap price, as well.



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