TT-461 -- What Will Happen to the Yen-$ Rate? ebiz news from Japan

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A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, March 16, 2008 Issue No. 461


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

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It's been an unsettling couple of weeks since the start of
March -- maybe spring has arrived. Both the the stock and
foreign exchange markets -- places where lots of Japanese
housewives try to eke out a little extra gain on the
falling salaries of their salarymen husbands -- have dropped
precipitously and look like they will continue to do so for
a while to come. Starting with the stock market, the Nikkei
started out two weeks ago at 13,400, and closed last Friday
at 12,241, a drop of about 9% in just two weeks. That's a
big drop, and we still have another two trading weeks to go
before the end of this fiscal year.

Then there is the US-Japan exchange rate, which started out
JPY104.5 to the US dollar, and on Friday was JPY99, a drop
of 5%, and the highest yen-dollar rate in over 12 years. Look
at Australian or NZ dollars, two currency pairs that
housewives love to trade, and you'll see a similar movement
-- about 6% or so movement in favor of the yen.

For those of us doing business with Japan, this level of
volatility is worrying, and many people out there are
wondering if the situation is going to get worse (i.e.,
Japanese yen will keep strengthening).

As usual, we stick out our necks out and speculate on
what we think will happen...

[Continued below...]

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[...Article continues]

As usual with this subject, we will add our disclaimer that
we are not experts on foreign exchange, the ways of nations
and macroeconomics, nor even in predicting the future. But
we're great at throwing darts, and it seems to us that there
are some basic fundamentals going on here that have
finally reached critical mass and are blowing the darts
sideways. The world economy is in a major transition.

Central to understanding of how things work in Japan, we
need to realize that the nation is extremely dependent on
the health of the global economy for its "free cash flow", and
since the USA is the powerhouse of the global economy and
much of its politics, whether the knock-on effects upon
Japan are real or not, it is fear as much as fact that
moves markets. And here in Japan people are extraordinarily
fearful about the negative turn of events in the USA.

We've all heard about the subprime problem until we're
totally sick of it, however, it is not just the actual
losses (now at US$400bn by current estimates) that we have
to worry about, a bigger problem is the slow down in both the
business and consumer finance sectors. Here at Japan Inc.,
we have seen for ourselves at a practical level how US
banks are clamping down on lending to businesses. Indeed,
several client companies' transactions here in Japan have
been killed or stalled due to the sudden lack of will to
lend by their US bankers.

On the consumer side, new home mortgages, credit cards,
auto loans, etc., are all under pressure and even
individuals who could pass a creditworthiness check prior
to Christmas are now finding themselves getting turned
down. Consequently, it is starting to sink into the
collective consciousness of consumers that they have to
be careful and cut back on their spending. The trouble is
that America relies on consumer spending for more than
70% its GDP (20% more than Japan), and the smart
money is betting that the nation is already in recession.

The slowing economy has caused the Federal Reserve Board
(the Fed), chaired by Ben Bernanke, to rapidly lower
interest rates and to flood the banking system with cash.
The lower interest rates are supposed to perk up consumer
demand, while the extra liquidity is to help banks who are
struggling with the fall-out of the subprime mess.

The problem, though, is that the consumers who can afford
to repay are not borrowing the extra money, while those
that can't repay are being charged HIGHER rates on their
loans to offset the risks -- and so the cost of borrowing
is actually going up, not down.

The flood of money being issued by the Fed is significantly
diluting the value of the US dollar. The Fed no longer
publishes the numbers for money supply, but independent
experts say the M3 money supply has grown to 18% pa.
This makes all that energy, resources, and weapons we
mentioned earlier much more expensive in US dollar terms,
and makes the economies and currencies of relatively
stable economies like Europe and Japan look more
attractive. Thus the US dollar sinks and the yen rises.

We don't think the mess in the USA has worked itself out
yet, and indeed, may not for the rest of this year, given
that George Bush is limping along as President and does not
seem too concerned about what will happen to the economy
after he leaves the Whitehouse. Thus, Bernanke (who in 2002
while talking about the dollar being a fiat currency and
thus is intrinsically worthless, illustrated the point by
repeating the Milton Friedman quote that if deflation were
a problem, he would "drop money out of a helicopter") is
in fact making good on his helicopter promise and will
continue to pump money into the economy until something

Many have wondered if the Bank of Japan and the European
Central Bank won't intervene to stop the slide of the
dollar. The Japanese in particular have a trillion dollars
in foreign reserves and have seen these lose 9% in value
in just two weeks, AS WELL AS watching their exports
suddenly get 9% more expensive. However, the situation in
the USA is clearly a crisis, and the Fed appears bent on
supplying enough cash into the system that US banks don't
fail. Bear Sterns almost collapsed last Friday were it not
for an emergency loan from the Fed so as to see them

So if BOJ and ECB were to intervene, they would be undoing
the Fed's work and the knock-on effects of a series of bank
failures in the US would probably be much worse for the
global economy than a temporary loss of value on reserves or
international competitiveness.

Thus we have a scenario for a perfect storm for the US
dollar versus the yen, and it is not impossible to see a
retracing of 1995, when just 79 yen bought a US dollar.

So, Dorothy, we wouldn't be investing in US dollars just
yet... at least wait until you see the BoJ and ECB both
acting in concert to buy dollars.


Lastly, we alert experienced managers to the new CEO
vacancy advertised in our jobs section below.

...The information janitors/


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+++ NEWS

- 1,922 unlisted companies could do IPO
- Illegal downloaders may lose Internet connection
- Kanebo ordered to pay more to minority shareholders
- New laser impervious to overheating
- Cash under the bed

-> 1,922 unlisted companies could do IPO

Teikoku Databank, Japan's answer to Moody's, has an annual
survey on privately owned companies that could meet the
listing requirements of the Second Section of the Tokyo
Stock Exchange, and found that 1,922 companies meet the
basic requirements, 140 companies more than 2007. Teikoku
trawls the data from its corporate databases containing
data on more than 1.84m companies. ***Ed: Whether a company
could list or not is evaluated from: i) EBIT profits --
JPY100m for Years 1 and 2, JPY400m for Year 3; ii) Market
Cap of shares listed -- JPY2bn; iii) Net Assets -- JPY1bn,
and some other factors related to corporate governance.**
(Source: TT commentary from, Mar 12, 2008)

-> Illegal downloaders may lose Internet connection

The Yomiuri Shimbun has reported that a group of ISPs are
contemplating shutting off Internet access for customers
who repeatedly download copyrighted content illegally. The
companies will apparently set up a discussion panel next
month to formulate a policy. According to the Yomiuri, an
estimated 1.75m people in Japan use file-sharing software
such as Winny and other applications. ***Ed: Several years
ago a single ISP tried the same thing and the government
vetoed the action as a form of censorship. It will be
interesting to see if there is strength in numbers and if
the initiative will be supported this time around.**
(Source: TT commentary from, Mar 15, 2008)

-> Kanebo ordered to pay more to minority shareholders

In a strong precedent, the Tokyo District Court has ordered
that Kanebo compensate minority shareholders who were
squeezed out by 3 funds offering a low price to acquire and
restructure the company back in 2005. While Kanebo has said
that the buy-out was done at a fair price, a level which
was subsequently used to determine buy-backs from the
minority shareholders, the court has determined that the
company in fact underpaid by 220% and ordered an
adjustment. ***Ed: In another article, the Nikkei says that
the minority shareholders had to spend JPY45m to get an
independent audit done in order to arrive at the valuation.
Observers are saying that this is evidence of the lack of
options for aggrieved minority shareholders and that in
most cases they are unable to take action because it is
prohibitively expensive to do so.** (Source: TT commentary
from, Mar 15, 2008)

-> New laser impervious to overheating

QD Laser, a j/v between Fujitsu and Mitsui, has said that
it will begin mass-producing a new laser chip for optical
communications networks. The chip's special feature is that
it maintains its optical output power even as it heats up,
something other chips can't do, thus eliminating the need
for cooling systems and consequently cutting power
consumption by 2/3. QD started shipping samples in
February, and will boost production to 10K units a year in
August, rising to 50K units next year. (Source: TT
commentary from, Mar 11, 2008)

-> Cash under the bed

Probably a lot of readers saw this one already, but we
thought it would be fun to include. Two sisters in Osaka
have been charged by the Tax Office for avoiding tax on an
inheritance from their real estate tycoon father. The Tax
Office raided the homes of both sisters and found 50
cardboard boxes stacked up in the garage of one of them,
containing JPY5.93bn (US$60m approx.) in bank notes! The
sisters were charged with trying to dodge paying JPY2.86bn
(approx. US$29m) in inheritance tax. ***Ed: According to
the BIS, as of the start of 2008 there was JPY81trn of
cash in circulation in Japan, up from JPY29trn in 1988.
This is a much higher ratio (about 3x compared to the USA)
than other countries, and is possibly an indicator of the
size of Japan's underground economy, or of just how much
the Japanese trust the banking system NOT. We don't know
which interpretation is worse!** (Source: TT commentary from, Mar 14, 2008)

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.


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This is an exciting opportunity to get in at the ground
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plastics manufacturing design sector. Key to the company's
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Remuneration commensurate with experience, but up to JPY20m
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Featuring two performers: Chan Chan (Latin & Cuban Rhythms)
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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

-> In TT458 we wrote about dual nationality issues and how
Japan appears to be cracking down on Japanese taking a
second nationality. This subject has generated a lot of
feedback. Here is one of the more interesting ones.

*** Our reader says:
It's not just Japan that has it in for dual nationals. I
know a girl who had both Korean and Japanese nationality
and had the misfortune of losing her Korean nationality
due to not knowing how to show/use passports at the point
of entry.

The background is that at Christmas she went back to Seoul
to visit her family. She left Japan on her Japanese
passport but arriving in Seoul, decided it would be easier
and quicker to go through as a Korean. When the
authorities noticed that she had no exit stamp in her
passport they took her in for further questioning. Not
wanting to weave a web of lies, and the Korean guards not
believing that Japanese bureaucrats would "forget" to
stamp her passport, she came clean pretty quick. She was
fined (not sure but I think US$1000) and more importantly
was stripped of her Korean nationality!


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Written by: Terrie Lloyd (

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