TT-483 -- It'll Be Raining Money for SMEs, ebiz news from Japan

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A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, August 31, 2008 Issue No. 483


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

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So here we are, the government's doing one of its financial
stimulus programs again -- after a long "time-out" dictated
by past-PM Junichiro Koizumi, who detested pork barrel
politics. Certainly we wonder what century we're in, when
we see 1990's style pump priming of this nature. This time
around, the program will cost the tax payer JPY11.7trn
(US$107bn). One could be forgiven for wondering if the
ruling LDP party wasn't trying to dangle a little bit of
pork to the voters just in time for the upcoming general

What is interesting about this budget though, is that there
appears to be much less traditional pork than usual.
Instead, the package involves a relatively small
JPY1trn-JPY2trn (US$9.3bn-US18.6bn) in direct spending,
while the bulk of it takes direct aim at keeping people
employed, by ensuring that small and mid-size companies get
the bank loans they need to stay in business and to keep
their workers on. To this end, a JPY9trn (US$82bn) slab of
the budget is to help facilitate easy bank loans for SMEs,
and another JPY400bn (US$3.65bn) is earmarked to cover any
loan defaults.

Recently, the problem for smaller firms trying to get
credit is that since the 2007 subprime debacle in the USA
hit our shores, and where Japanese banks have apparently
lost "only" JPY900bn (US$8.3bn), many of the larger banks
have become much more wary of making loans to potentially
risky lenders. At the same time, the smaller banks who
stayed out of US subprime market are now losing their
shirts here in Japan on mounting real estate developer
bankruptcies. By tradition, cautious banks equals no money
for any SME of any shape or size, unless that company is
already making such huge profits it doesn't need the money
any how.

But since SMEs employ at least 90% of the working
population, the government knows on which side its bread is
buttered, and thus it has decided to rain money on the
nation's small employers for the next six months.

[Continued below...]

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[...Article continues]

Now these loan facilitation programs are not new. Back in the
late 1990's, the governments of the day also rained money
on small firms. During these periods, loans became so easy
to get that all you needed to do was ask for it -- there
was little of the usual solvency checks or concerns about
guarantors, etc. We know of a number of smaller firms, who
in normal times could not get more than JPY10m-JPY20m of
credit, suddenly be allowed to go all the way up to the
government-guaranteed limit of JPY80m. We don't know what
the limit will be this time around, but with JPY9trn up for
grabs, it's a sure bet that everyone will be trying to get
their share.

The problem with this type of feast-or-famine approach to
lending money to small companies is that it encourages
risky lenders to jump in with the rest. You probably
skipped over that bad loan reserve amount stated above --
it's JPY400bn, or about 5% of the overall amount to be
loaned. That means the government expects, even before it
starts, that 5% of its money won't come back -- and in
our opinion that's a lot of bad loans. However, the
reality is that the final result will probably be even
worse. A loan stampede of the sort that is about to occur
will bring along with it a lot of companies that shouldn't
be in business any longer, as well as opportunists, and
the Yakuza (through front companies), and these lenders
are going to cause much greater losses.

As an example, look at the Tokyo Metropolitan government's
ill-fated Shinginko bank. This organization was set up in
a blaze of publicity by teflon-coated Tokyo Governor
Shintaro Ishihara. According to Ishihara, there were lots
of deserving companies around that simply couldn't get
loans, no matter how hard they tried. And if only they got
some cash, they'd be able to pull themselves out of the
hole. And thus, at a stroke of a pen and with nary a
dissenting voice other than the kill-joy Communist Party,
he put JPY100bn (US$930bn) of Metropolitan money into

Now, 3 1/2 years later, the bank is almost bankrupt, had to
receive an emergency capital injection of JPY40bn (US$370m)
in March, and is still losing money -- although only
JPY12.6bn (US$117m) projected for this current fiscal year
(ending March 2009), which is much less than in previous
years. And to get to the point, Shinginko's current bad
loan ratio -- after all the negative publicity and cleaning
up their act is still, wait for it.... 12.63%.

Prior to cleaning up, experts were saying that Shinginko's
ratio of bad loans could be as much as 40% of the original
capital. So somewhere between these two numbers is probably
more like the real amount of money the Fukuda government
can expect to not be paid back by SME lenders from its
stimulus package. Hmmm, sounds like they should have just
sent out checks in the mail, like Bush did in the USA.

Indiscriminate loans, of course, is not healthy. Aside from
start-ups, which are easy to recognize and should be
funded differently anyway, companies not making money now
are generally companies that will never make money. Even
in good times, about 70% of Japanese SMEs report a loss to
the tax office, and for most of them it is not a
discretionary loss caused by growth. Rather it is a case of
hanging on year after year, in manufacturing, construction,
roading, and other "gritty" industries.

So while this new dollop of cash will certainly keep more
people employed beyond the election, one wonders if the
same amount of money couldn't be better applied to either
help old companies learn new ways, educate struggling
business owners about the merits of M&A (i.e., getting
bought out), or helping educate new companies how to take
up the employment slack.

In case you were wondering, the current and thus normal
bad loan provisions set out by major Japanese banks are
(according to the Nikkei): Mitsubishi UFJ -- 1.15%, Mizuho
-- 1.6%, and Sumitomo Mitsui -- 1.24%. Even 2nd-tier
regional banks who have been hit hard by the recent spate
of real estate developer bankruptcies, such as the Yachiyo
Bank, only have a bad loan ratio of 5.15%.

...The information janitors/


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+++ NEWS

- New eavesdropping detection device
- Now, vitamins for your refrigerator
- Global dollar intervention plan
- Ricoh to buy US OA company
- NewsCorp to start a new satellite channel into Japan?

-> New eavesdropping detection device

General engineering contractor Taisei Corp. has developed a
new eavesdropping bug detector that can find wireless mics
and hidden cameras within 20 seconds of exposure in a
suspect room. The new unit has 16 sensors which detect most
forms of wireless EMF and a camera that provides the unit
operator with a visual fix after the sensor inputs are
triangulated. Current detectors require hand-held
"sweeping" of suspect areas, which takes time, and can miss
well-hidden devices.(Source: TT commentary from, Aug 28, 2008)

-> Now, vitamins for your refrigerator

Hitachi has announced a new refrigerator that not only
evacuates some of the oxygen to reduce the decomposition of
fresh foods, but also emits vapor-borne Vitamin C to
provide antioxidant action on the food as well. Hitachi
says that the new R-Y6000 "slows down the loss of nutrients
in vegetables and of DHA in fish." (Source: TT commentary
from, Aug 29, 2008)

-> Global dollar intervention plan

Reuters reports that the Central Banks of the U.S., Europe,
and Japan were getting ready to intervene in the
international currency markets in order to prop up the US
dollar, back in mid-March when the dollar fell to JPY95.77.
The countries apparently agreed to intervene if the dollar
went into free fall below JPY100 to the dollar, but as it
happened the yen-dollar rate stabilized and now the
dollar has come back 10%. ***Ed: Some conspiracists say
that in fact the intervention did occur, and point to the
dollar's sudden recovery and the rate of foreign-held US
treasuries suddenly increasing by US$60bn as proof.
However, as other commentators have pointed out, Japan
spent around US$200bn to weaken the yen against the dollar
in the early 2000's, and yet had very limited impact. So
was there intervention or wasn't there?** (Source: TT
commentary from, Aug 28, 2009)

-> Ricoh to buy US OA company

Office equipment maker Ricoh has announced that it will buy
out US-based OA equipment distributor Ikon Office Solutions
for US$1.62bn, an 11% premium over Ikon's trading price on
the NYSE. The deal gives Ricoh direct control of 400 sales
locations around the U.S., Canada and Europe AND, allows
them to disconnect rival Canon from that same sales network
if it so chooses. About 40% of Canon's U.S. sales go
through Ikon. ***Ed: This could get interesting! Analysts
are wondering if Canon will put up a counterbid...**
(Source: TT commentary from, Aug 28, 2008)

-> NewsCorp to start a new satellite channel into Japan?

Speculation is mounting from a News Corp announcement that
it will be establishing a fresh subsidiary in Japan,
whether the company is planning to launch a new satellite
channel in Japan. News Corp largely gave up on Japan back
in 2004 after it sold its share of SkyPerfectTV , and more
recently its interests in DirecTV to Liberty Media. The
news of the pending subsidiary came from the Nikkei and so
far no one knows if this is pure speculation or loose lips
on the News Corp team. (Source: TT commentary from, Aug 29, 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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