JIN-159 -- Foreign Brokerages Shrink Retail Operations

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

Issue No. 159
Wednesday, November 28, 2001


++ Viewpoint: Foreign Brokerages Shrink Retail Operations
++ Noteworthy News
- S&P Downgrades Japan Credit Rating
- Toyota Extends Interest-Free Car Loans for US Customers
- Sony Slashes Cost of PlayStation2
++ Events

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++ VIEWPOINT: Foreign brokerages shrink retail operations

This has obviously been a hard year for foreign securities firms
in Japan. Morgan Stanley earlier this month announced that its
retail arm in Japan, Morgan Stanley Nippon Securities, will no
longer accept new business; Soci騁・G駭駻ale in October said that
SG Online, its Web-based retail brokerage, will close online
operations effective December 27. Both companies were in the
retail business for less than a year.

Earlier this month, The Nikkei Shimbun, Japan's leading business
daily, reported that Tokio Marine & Fire Insurance is
considering withdrawing from online brokerage Schwab Tokio
Marine Securities, a joint venture between US online giant
Charles Schwab and Tokio Marine. Schwab Tokyo Marine Securities
announced that both parties are "negotiating the terms of
management, but haven't reached any agreement." Charles Schwab
has a 50 percent stake in the joint venture, while the rest is
shared by Tokio Marine (35.2 percent), Tokyo Mitsubishi Bank
(5 percent), and Mitsubishi Trust (5 percent). With Charles
Schwab having financial problems back home, the possible
withdrawal of Mitsubishi money would mean the end of Schwab's
online presence in Japan.

Merrill Lynch Japan Securities (MLJS), a retail arm of Merrill
Lynch, has also been downsizing its retail operations since last
summer. MLJS, which took over what was left of ailing brokerage
Yamaichi Securities in 1998, closed five branches in Tokyo and
Chiba Prefecture last summer. It now has 28 branches across Japan,
but industry sources say the company still has too many to handle.
It looks like the company is not going to meet its original goal of
becoming profitable within three years of operation. Merrill Lynch's
plan to cut its head count globally is bound to have repercussions
on the company's Japanese retail operations. A company spokesperson
says nothing has been decided, although some industry sources say
some of their clients are already shifting their accounts elsewhere.

"There is really little room to make money in the retail business,
especially for pure online brokerages," says Kristi Li, an analyst
at Lehman Brothers. There has been a clear shift from traditional
brokerages to online brokerages: There were 2.5 million online
accounts as of October, up from 1.8 million in March.

But even on the online front, big players are dominating the
business. The top four companies--Matsui, DLJdirectSFG, Monex and
Nikko Beans--have about 50 percent of the share, the rest being
divided up by many smaller players.

With turnover remaining low and competition severe, "the situation
is tougher," says Li. But, some companies are determined to stay.
If Schwab actually withdraws, it is logical to assume that "their
accounts would come to us," says David Turner, COO at Tokyo
Mitsubishi TDWaterhouse Securities, a joint venture between
a Canadian online broker and Tokyo-Mitsubishi Bank.

-- Sumie Kawakami

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**S&P Downgrades Japan Credit Rating

Extract: US ratings agency Standard & Poor's lowered Japan's credit
rating from AA+ to AA on Wednesday. The downgrade was due to the
slowness of the structural reforms the cabinet of Prime Minister
Junichiro Koizumi is supposed to be taking on, S&P said in a
statement. The possibility of Japan injecting more public money
into banks is high, while the much talked about second
supplementary budget may further weaken Japan's fiscal strength.
S&P predicts that Japan's economy and its fiscal condition will
deteriorate before the government introduces drastic measures.

Commentary: This was the second time this week that a private
rating company downgraded Japanese bonds. Earlier this week,
Dutch rating company Fitch IBCA Duff & Phelps also downgraded
Japan's credit rating from AA+ to AA, warning that Japan's
government debt may go over 150 percent of its GDP by the end
of March 2002.

From The Nihon Keizai Shimbun (in Japanese):


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** Toyota Extends Interest-Free Car Loans for US Customers

Extract: Toyota Motor Corp. said on Wednesday that it would extend
until January 2 its offer of interest-free loans for people buying
three of its models in the US. Toyota had originally planned to end
the financing campaign on November 30, but decided to extend it in
line with similar moves by major U.S. carmakers.

Commentary: The interest-free financing began after September 11 to
encourage consumers to buy cars. Bloomberg reports that car sales in
the US rose 24 percent year on year in October, sparked by the
incentives. Japanese carmakers, especially Toyota and Honda, have
been doing well, but if these incentives steal North American sales
from the first half of calendar 2002, the giant Japanese carmakers
could find a dent in their profit margins since they are both so
reliant on the US market. Honda, for one, sells more cars in the US
than in Japan and depends on the US market for the majority of its
operating profit.

From Bloomberg (in English):

** Sony Slashes Cost of PlayStation2

Extract: Sony will cut the suggested retail price of its PlayStation2
game console by 15 percent tomorrow to 29,800 yen. It will also start
selling the console in Hong Kong, Singapore, Malaysia, and Thailand
from December 13.

Sony is hoping
to recharge sales of its PlayStation2 console ahead of the year-end
and after the recent releases of Microsoft's Xbox and Nintendo's
GameCube. This is the second time in five months that Sony has cut
the console's suggested retail price. But the new price doesn't
include the DVD remote control and Memory Card.

From Reuters (in English):

From PlayStation.com (in Japanese):

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Written by Bruce Rutledge (bruce@japaninc.com) and Sumie Kawakami

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