JIN-473 -- A Crisis of Confidence

J@pan Inc Newsletter
The 'JIN' J@pan Inc Newsletter
A weekly opinion piece on social, economic and political trends
in Japan.
Issue No. 473 Wednesday July 9, 2008, Tokyo

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A Crisis of Confidence

Last week, Isamu Kuroiwa was arrested for fraud after he
allegedly conned investors out of roughly 10 billion yen that
they had invested into shrimp farms. According to the Yomiuri
newspaper, the firm received money from over 35,000 investors
to the tune of 85 billion yen – 75 billion was apparently used
to pay dividends while Kuroiwa and his cronies pocketed the

This is just the kind of fraud it was hoped that new
legislation, such as J-SOX that came into force this April,
would prevent. However, smaller, unlisted companies still appear
to be able to take advantage of consumers' trust. While this
particular group were caught, and are likely to be held to
account, there are most likely multiple similar outfits in
operation and the chances of the duped investors recovering
their funds are minimal. Moreover, it is not just in relation
to their investments that the Japanese public risk being taken
for a ride. Even in terms of the foods that they buy, there are
now good grounds for extra vigilance with a string of outlets
having been found to be selling out-of-date or incorrectly
labeled food products.

Indeed, the number of food scandals in the last year is
staggering, even with hyperbolic media frenzy factored in. To
name just a few, last autumn Mister Donut was attacked for using
expired syrups in its drinks, JT Foods and Nissin were embroiled
in the poisonous gyoza scandal earlier this year and, most
recently, smart restaurant chain Senba Kitcho was forced to
close after a string of dodgy standards were reported -
including its re-using of discarded food from diner's plates.
Additionally, although the focus has been on the unpaid
teachers, the students at the insolvent Nova language school
also got a bum deal last year, many of them losing out on their
already paid-for lessons without recompense.

All this, combined with significant price rises across the
board, is having a serious impact on consumer confidence. Last
month, the Cabinet Offiice's consumer confidence index saw a
drop from 35.2 points in April to 33.9 in May. According to Ken
Worsley of JapanEconomyNews.com, 'May's score was the lowest
seen since December 2001, when the index dipped to 33 points.'
Worsely also notes that, 'On the same day as these results were
released, the Bank of Japan announced that it would not raise
interest rates from their current 0.5% level. In his statement,
Bank of Japan Governor Masaaki Shirakawa said that compared to
April, "More now recognize the downside risk that domestic
demand poses for the economy as well as the risk of rising
prices."' Furthermore, there has also been a dramatic decrease
in monthly spending on services and durable goods.

[Continued below...]

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[...Article continues]

In order to combat this, the Fukuda cabinet has planned the
establishment of a central consumer affairs agency in Japan, to
start work in 2009. The new Consumer Agency will also deal with
financial product transactions and play a role in regulating
commodities; in all, it will have jurisdiction over 30 consumer
protection laws. The result of a report by the Council for
Promoting Consumer Policy, the new entity is primarily a
response to the criticism the government and various ministries
received after recent food scandals – the common theme being the
slowness of reaction. As well as the creation of this new body,
the government will also debate a 'food traceability law' to
guard against mislabeling – the new law would force food
companies to keep better records on the origins of their

Will these measures work? For all the government's effort to
convince consumers that it has their interests, and not those
of big businesses at heart, it will take a long time to restore
confidence and consumers will become increasingly fickle in
terms of where they place their trust. Compounding the problem
is also an apparent downturn in confidence at the business
level. Bloomberg reports that the Bank of Japan's Tankan survey
last week 'showed confidence among the largest manufacturers
fell to a four-year low' – the report also singled out the
stagnation in wages which could be another explanatory factor
for the low consumer confidence ratings. Either way, there
appears to be something of a vicious cycle playing out in terms
of confidence at both the consumer and corporate level.

It is not all doom and gloom though. The Social Insurance Agency
has announced that Japanese pensioners will receive an average
increase of 54,000 yen this year, and, history teaches us that
a degree of caution during difficult times is more beneficial
in the long term than defiant overconfidence. Nonetheless, any
government effort to persuade consumers that their food is safe
and their investments are not being squandered can be no bad

Peter Harris


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