MW-91 -- All in the Balance

J@pan Inc Magazine Presents:
Weekly Financial Commentary from Tokyo

Issue No. 91
Monday, September 6, 2004

@@ VIEWPOINT: All in the Balance

========================= EA Event ====================================
Entrepreneur Association of Tokyo: September Seminar

This September, Tokyo entrepreneur Mark Devlin -- CEO and Publisher of
Crisscross KK and Japan Today -- will be presenting, "Metropolis & Japan
Today: Past, Present and Future." Don't miss this great opportunity to
hear how Mark has created Japan's No. 1 English Magazine and the
world's leading source for Japan news.

Date/Time: Tuesday, September 7, 7:00 pm
Location: City Club of Tokyo - Maple Room (Canadian Embassy Complex)
Language: English

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@@ VIEWPOINT: All in the Balance

We left at the beginning of the O-Bon holiday a little worried about the
outlook for Japan, due principally to the weakness in the global economy,
high oil prices and the resulting negative effects on the Japanese
exporters. Now everyone is back at their desks, well-rested and ready to
look at the last quarter of the year.

One thing is clear: The global economy is on a plateau after a sharp
increase in activity, and everyone is trying to divine whether the next
move in economic activity will be up or down. Certainly, looking at the
global economy, we can make an on-balance argument that there
will be a negative move in economic activity. A very quick review of
the situation in each of the main economic centers may look somewhat
as follows:

Europe: Germany, France and Italy are battling significant structural
problems with the welfare state, unemployment is closer to 10 percent
than 5 percent in all these economies and the barriers for employers
are too significant for them to take on any new employees. The welfare
state is far too burdensome.

UK: Interest rates are on the way up, housing prices are beginning to
stutter, although the rest of the economy appears to be doing well
based on household spending. Watch housing prices for the next

US: Greenspan is speaking this week and will probably be as optimistic
as usual on the US economy. It does appear that the economy is doing
well, but the US is further behind in the rate cycle than the UK and
Australia. We worry about high oil prices, an over-dependence on
consumer spending and the effects higher interest rates could have
on the wealth of overly leveraged families -- not to mention the
overly leveraged US government.

China: The economy appears to be on "overheated" mode and the powers
that be are doing everything they can to reduce the extreme hot spots
-- in particular, commodity processing and real estate. We worry about
the aftermath if the powers that be fail to maintain control, which
we believe is a significant possibility.

Australia: What recession? Australia has managed to continue to grow
throughout the last four years uninterrupted. The stock market hit an
all-time high last week, but households are leveraged, housing
prices appear to be bubbly, and with the RBA raising rates, one
wonders if Australia and the UK may not face the same fate.

But we really only care about Japan, or at least this is our
particular focus -- so what does this all mean for us? Well,
certainly the exporters will come under some pressure if
the rest of the world economy goes into a downturn. But does that
necessarily mean that Japan will be dragged down by the rest of
the world? We think not.

The exporters have had a few years now of restructuring, initially
against the stronger yen. They have continued to improve their
competitiveness through locating closer to their main markets.
A downturn will hurt them, but only globally -- less pain will be
felt at home.

An increase in oil prices and commodities can only be seen as
good for Japan: It may help introduce a bit of inflation to the
system, as deflation still remains incredibly stubborn in Japan.
This could also help to be the catalyst that encourages the Japanese
consumer to consume today rather than waiting until tomorrow, which
has been an extremely profitable strategy in Japan for the last
several years. (Personsally, though, and given the current situation,
I can only applaud the Japanese consumer for being economically

And not only are consumers being economically rational. It appears
that the very engines of capital allocation, the banks, are
beginning to see the light. We have seen a number of smaller deals
in the capital markets releasing value, but finally there is a fight
of the titans between the Bank of Tokyo Mitsubishi and Sumitomo Bank
for UFJ.

Now, quite exactly why they are fighting over UFJ is a mystery, but
healthy competition will lead to a more efficient allocation of capital,
which could be the aspect of the Japanese economy that saves it from
the fate the rest of the world is currently facing. We believe this is a
very material force: After 10 years of destruction and obfuscation,
there is significant scope for value to be released -- and with the
big banks slugging it out, nothing will be taboo.

-- John Charles-Decourcy

================= JOURNALISM INTERNSHIPS ===============================

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Qualified individuals seeking this opportunity must be Tokyo-based
and fluent in English. (At least some knowledge of the Japanese
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Interested parties should send relevant resumes, samples and contact
information to Maria Deutsch at:

======================== Setting up a Company ==========================
Entrepreneur's Handbook Seminar

Terrie Lloyd, founder of over 12 start-up companies in
Japan will be giving an English-language seminar and Q&A on
starting up a company in Japan. This is an ideal
opportunity to find out what is involved, and to ask
specific questions that are not normally answered in
business books. All material is Japan-focused.

Time/date: 10:30am, Saturday, September 11, 2004
Place: 7-8-1 Minami-Aoyama, Minato-ku, Tokyo 107
Price: 15,000 yen prepaid, 20,000 yen at the door
Included: Lunchbox, refreshments, handouts

Bookings:, in English or Japanese.

Subscribers: 2,032 as of September 6, 2004

Written by John Charles-Decourcy (

Edited by J@pan Inc staff (


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