TT-627 -- Old People: Savings and Health Liabilities, e-biz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, August 28, 2011, Issue No. 627


- What's New -- Old People: Savings and Health Liabilities.
- News -- M&A picks up steam
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback
- News Credits

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We were in Shinjuku Tokyu Hands today, just in time for
their big annual Hands Messe sale. The place was packed
with people browsing for the unusual and unbuyable (in
regular stores anyway). While looking around the Interior
section, which features goods at twice or triple the price
of Crate&Barrel in the USA, we happened to notice a number
of older customers clustered around the bedding section.

They were eying up the latest Tempur sponge pillows, the
type that mold to and support your head and body shape.
These are no ordinary pillows and come at a pricey
JPY14,000 and up. In the USA you can buy the same thing
online for US$86, or around JPY6,500, meaning someone is
making a pretty healthy profit. Anyway, these things are
really popular, and we hung around long enough to see one
old lady line up pillows, mattress cover and a bunch of
other accessories, which will set her back the best part of
JPY100,000. We suppose a good sleep is worth a fortune to
the right person, especially an older person who carefully
picks and chooses their luxuries.

This got us thinking about the declining Japanese consumer
market and where the few bright patches are. Clearly, at
least one of the brightest patches is old people --
especially if you're selling specialist bedding, orthopedic
hip replacements, and food processors that let you process
veges without having to chew them so much. Yes, these are
big sellers as well. :-). How convenient that old people
in Japan also own most of the nation's wealth. Currently
the Japanese public has financial assets of JPY1.476q
(US$19trn), about 1/7 of the world's total savings, and
of that more than 60% is owned by people 60 or older.

So it was a coincidence that as we were researching data on
the wealth of old people we came across a story describing
the other side of the coin, that is, the cost of old people
to Japan in terms of healthcare. According to a Nikkei
article, the nation's medical costs rose 3.9% to a record
JPY36.6trn (US$481m) for Fiscal Year 2010 through to March
31st, 2011, and of this, expenses due to people aged 75 or
older rose 5.5% to JPY12.7trn -- or 35% of the total.

[Continued below...]

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[...Article continues]

Work back to people aged 70 and older and the percentage
goes up to 44.3%. Now keep in mind that we have entered the
age of generic drugs, so apart from the fact that
government-mandated treatment fee reimbursement rates for
hospitals and clinics rose just 0.19%, it's clear that most
of the increase is caused by old people.

So how is it that we have a situation where old people have
the bulk of the nation's savings and yet the young working
tax payer is expected to cover the oldies' rapidly
increasing health care bills? The national insurance system
for health, pension, and unemployment is already in deep
trouble, and the government itself is hugely in debt and
planning to issue more bonds to go even deeper in.
Therefore, with a rapidly declining workforce and a much
smaller payroll tax base to lean on in future years, it's
obvious that the current arrangement can't keep going.

One answer in the interim is said to be a massive rise
in consumption tax, and Japan certainly has the luxury of
having up to 15%-17% more tax up its sleeve before it hits
similar rates to countries like the UK. However, here in
Japan consumption tax in reality is a tax on the young, who
are also typically poor, since it levies essentials, not
just discretionary items. Financial experts such as the
IMF say that a Japanese consumption tax rise will not be
regressive, since low-income earners pay progressively
lower income tax anyway and older people can still consume
high-value goods and services even though they have little

But we don't agree. The fact is that annual spending by
people 70 or older in Japan is documented to be 10% less
than that those in their 30s. A much higher consumption
tax is going to dampen that discretionary spending even
more -- moving the tax burden to regular daily necessities.
Therefore, we don't think raising consumption tax is going
to fix the basic problem of a rapidly greying society nor
the lopsided distribution of wealth and health care
liabilities. It will be a great 10-year bandaid however.

So what other options are there? Our take is that not only
will the retirement age be lifted to at least 70, so as to
delay benefits, there will also be a means test on
pensioners receiving their full pensions. We have already
seen the idea of discriminating who can receive benefits
and who cannot, based on the debate over payment of
increased child allowances by the DPJ last year. For a while it
looked like income earners of JPY20m or more weren't going
to get the allowances, even though as tax payers they had a
right to them. We think this idea of using social welfare
as a safety net for the unfortunate, rather than a right of
the many, is an inevitable development whose time will soon

Also, and this may sound a bit extreme, Japan may have to go
back to old traditions of deciding who gets to live a long
medically assisted life and who is allowed to pass away
with less intervention -- think "Ubasuteyama" legends where
villagers in times of famine were said to leave their old
folks up in the hills to die. This may sound harsh, and it
certainly is morally loaded, but it could be achieved in a
politically acceptable way by partially privatizing the
health system so that people aged 70 or over would have to
use their own assets for prolonged medical care. In this
way they get to choose whether to keep living at their own
cost or to pass their remaining assets to their kids.

This certainly isn't what Japanese want to hear about the
future for their health and social welfare system, but if
you think about it, the current arrangement already
unfairly burdens the young and if anyone was so inclined to
study the problem they would probably find that it is
adversely impacting child welfare. You have to wonder why
society should value more favorably a bedridden elderly
person with plenty of assets over a child whose parents are
struggling to make ends meet? Is it simply because old
people can vote, and kids cannot?

If you want to learn more about the pros and cons of a
higher consumption tax, two very good articles online are:

1. A May 2000 report from the Japan Economic Institute.

2. And, a June 2011 report from the IMF entitled: "Raising
the Consumption Tax in Japan: Why, When, How?"

...The information janitors/


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+++ NEWS

- KDDI surpasses Softbank in new smartphone sales
- Softbank pays Citibank debts by selling Yahoo shares
- Consumer finance firms may be turning corner
- Japanese M&A picks up steam
- Domestic demand to boost solar energy shipments 1,000%

-> KDDI surpasses Softbank in new smartphone sales

While Softbank waits patiently for Apple to unleash the
iPhone 5 on the world, its fortunes in the marketplace are
falling while competitors who have next-generation Android
products are in the ascendent. In July, KDDI overtook
Softbank Mobile in terms of new smartphones sold, according
to data from research firm BCN. ***Ed: Given that Apple has
significantly increased its projections for sales of iPhone
5 phones worldwide, we don't think we can forecast the
demise of Softbank just yet.** (Source: TT commentary from, Aug 28, 2011)

-> Softbank pays Citibank debts by selling Yahoo shares

Softbank has for the last time tapped into its lucky
treasure trove of Yahoo shares, selling 4% of its holding
in the US firm to Citibank in return from being released
from a $1.135bn loan it received from the bank in 2004.
Softbank has done well out of Yahoo and used proceeds from
the 37% it held back in 1996 to pay down a substantial
amount of acquisition costs in its telecoms business as
well as making many other investments. Softbank still holds
a major stake in Yahoo Japan, which is yet another money
machine. (Source: TT commentary from afp on, Aug
28, 2011)

-> Consumer finance firms may be turning corner

In what would have to be good news for Shinsei bank and
other firms that jumped in to the consumer finance sector
10 years ago, the level of refund requests from consumers
to finance firms dropped 20% in July over the same month
last year. Empowered by a court ruling in 2006, consumers
had been flocking to major consumer finance firms to seek
compulsory refunds for loans they took pre-2007 and which
were often charged at more than 22%. This down trend in
refunds is happening just in a nick of time for some
firms, but too late for industry leader Takefuji which
went bust last year. (Source: TT commentary from, Aug 27, 2011)

-> Japanese M&A picks up steam

The announcement by Asahi Group Holdings that it will buy
Independent Liquor in New Zealand for US$1.3bn is a good
example of the dramatic increase of overseas acquisitions
by Japanese firms, thanks to the strong yen and easy
lending conditions. Japanese international M&A activity is
up 67% over FY2010, with 401 deals worth US$45bn already
announced so far since January 1st. The top countries
targeted by Japanese firms are Switzerland, the USA, and
Brazil. ***Ed: A recent Nikkei article reckons that 80% of
all earnings by listed companies as of March 31st, 2011,
were derived from foreign earnings -- adequate proof that
we are in the middle of a revolution in Japan's interaction
with the rest of the world on a commercial level.**
(Source: TT commentary from, Aug 26, 2011)

-> Domestic demand to boost solar energy shipments 1,000%

The Chairman of the Japan Photovoltaic Energy Association
has announced that he reckons Japanese demand for solar
cells will increase 10-fold in a "short period". The
reason is because of the government incentives now offered
to the producers of wind, solar, and geothermal power,
which requires public power utilities to buy such
alternative power at above-market rates. Apparently solar
panel shipments are already 31% up in the 3 months ending
June 2011, over the same period in FY2010. ***Ed: Solar
energy accounts for just 2.9% of power consumed in Japan in
2010, compared to 15% in Germany, so we have lots of
capacity to fill yet.** (Source: TT commentary from, Aug 26, 2011)

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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The pile of debt was made instead of taxing the general public at present, and where a general tax would have hit every one, issuing bonds is a nicely proportional tax heavily in favor of the poor with no savings :) of course it is not tax on the present, but a tax on the future. Who it taxes largely depends on how it is paid back, a default (monetizing the debt or restructuring) would tax those who can most afford it. I always had assumed this was the unspoken plan, no one seriously thinks the money will be paid back?

^Above is just my opinion. Below is something I read.

I read somewhere that the theory of consumption taxes not being unfair to the low income earners goes that the low income earners are mostly new entrants, who in time will increase income and hence benefit in the long run. That new entrants have low incomes is especially true in Japan, but will the rise in the future as the have in the past? Maybe not, making that theory especially not applicable in Japan.

Either way people who can't afford to pay, won't. Those who can will have to, why not just pretend it's a loan? JGB seem a much fairer voluntary tax than the traditional lotteries and gambling!