TT-661 -- Surprising Trend in Number of New Companies. 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, May 13, 2012, Issue No. 661


- What's New -- Surprising Trend in Number of New Companies
- News -- Kyoto University gets important patent in USA
- Upcoming Events
- Corrections/Feedback -- Dual nationality for Japan
- Travel Destinations Picks -- Hokkaido and Miyazaki
- Japan Business Q&A -- Property Taxes
- News Credits

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If you were asked whether there were more or less new
companies being formed in Japan over the two years of 2009
and 2010, post-Lehman but before the earthquake, you would
probably say "less". Certainly we would have. Things are
clearly getting worse for many domestic companies and there
were a bunch of them going out of business last year --
12,707 owing JPY10m or more. This isn't a record, but it
does represent the jobs of tens of thousands of people, and
a lot of bad loans losses to the banks.

To our surprise, the real answer is that the number of
companies being started up each of those two years in fact
exceeded the number shutting down by a substantial margin.
Specifically, there were 86,016 new companies started in
2009 and 87,916 in 2010. At the same time, just 35,935
companies shut down in 2009 and 35,622 in 2010. So that's a
surplus of around 52,000 companies a year, which means
Japan had a healthy inventory of 3,441,000 (approx.)
registered companies as of December 2011. We don't have the
number of new companies formed in 2011, but we believe it
will be up as well, due to the re-establishment of
businesses connected to the Tohoku disaster.

So what's going on here? How is it that the nation is
experiencing a rather impressive surge of new companies
even as the economy continues to tank for domestic-only

As far as we can see, there are two major reasons apart
from the obvious one of ambitious dreams. They are:
government largesse and taxes.

Government Largess:
When the People's New Party (Kokumin Shinto) formed a
coalition with the DPJ in 2009, it was able to put one of
its founders, Shizuka Kamei, in to the banking and postal
services post within the Hatoyama cabinet. From this
position, Kamei immediately started voicing concern about
the spiraling rate of bankruptcies of small- and
medium-sized companies and urged action by the government
to force a moratorium on loans taken by stressed SMEs, on
to their banks. Actually, there are rumors that Kamei had
ulterior motives for doing this:

[Continued below...]

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[...Article continues]

Following his public pressuring, the government wound up
passing a law providing for the moratorium and backed it up
by having the Financial Services Agency (FSA) "encourage"
the banks to comply. So it was that the banks started
rolling over loans and collect interest only -- a major
departure from previous financial policy (especially by the
banks) and the start of a rather surreal period. Actually,
the legislation was very clever, because the government
made sure that the loan roll-overs were a "willing" act by
the banks and thus it didn't pick up direct liability for
them. Yes, it is on the hook for funding to a
semi-governmental guarantee corporation backing the loans
-- but for the time being this money is an investment
rather than a liability.

The action has meant several things:
i) An eventual reckoning with all these zombie companies
has yet to come and will provide interesting statistics
once the the moratorium runs out early next year.
ii) The banks and indirectly the government have a growing
liability that won't be known until the banks do eventually
call in their credits next March. As of 2010, it was
estimated that 500,000 companies had rolled over their
loans. We imagine that number is at least 750,000 companies
by now.
iii) No one seems to know just how much money is at stake.
Our guess is that probably more than 250K (half) those
companies with stalled loan repayments will go under if the
moratorium is lifted, causing the loss to banks of more than

But on the upside, the moratorium has meant that loads of
companies which would otherwise have disappeared are still
gamely limping along and keeping their staff employed. This
is after all the real target of government policy vis-a-vis
SMEs and so in this respect they have been successful.
Because of this, we think that while the moratorium was
only supposed to last 3 years, the current difficult
business environment will ensure that it will be continued
another 1-3 years. If it isn't, then you can expect the
bankruptcy rates and unemployment to soar next year.

The other big motivator to establishing a company is taxes,
or the reduction of them. While salarymen/women are unable
to deduct much of anything from their incomes, with the
advent of "non-regular" workers (part-timers, temps,
contract staff, etc.), who now account for 34.4% of the
workforce, having a company can completely turn the tables
tax-wise. Company owners get to claim against income a
generous portion of their accommodation, travel,
entertainment and a broad swathe of other expenses. This is
not to say that being a non-regular worker is a cushy
number, far from it. But it does give rise to the desire to
incorporate and to take advantage of the tax deductions

Further, there are also a lot more people making money from
side jobs and Internet jobs, and again many of these people
see a company as a tax-savings facilitator.

Lastly, since companies don't die, it is possible to vest
assets into a firm such that it continues to own and milk
those assets for future generations of family/shareholders.
This is a simple ploy to get around Japan's harsh 50%
inheritance tax policy, and since the government has
announced that it may increase inheritance taxes in the
near future, this is just another incentive to get a
company established quickly.

So apart from "past-due companies" and those set up for tax
arrangements, the number of firms actually newly
contributing to Japan's labor force and general economy is
probably significantly less than the numbers would
indicate. In 2010, around 7,153 so-called Godo Gaisha
companies were formed within the overall 87,916 number.
These are the next generation of (discontinued) Yugen
Gaisha, and are primarily favored by boot-strapping
start-ups because they are cheap to establish and run.
As such, they are probably the real new contributors
to Japan's commercial base. It's a shame there is so
few of them.

Mentioning Yugen Gaisha (YK's), although they were made
redundant as an establishable entity back in 2005, there are
still about 1,720,000 still in existence. Our guess is that
at least half of these are wealth protection entities and
as such will remain on the books for some years to come.

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+++ NEWS

- Seto Inland Sea cycling route for Tourists
- New legislation to limit cab numbers?
- Kyoto University gets important patent in USA
- Manufacturers, retailers have full warehouses
- Helium blimps for emergency radio transmitters

-> Seto Inland Sea cycling route for Tourists

We've been saying for a while now that Japan is a great
place to cycle. Drivers are reasonably courteous, on
country roads they tend to travel at lower speeds, and the
landscape outside the cities is beautiful. It's only a
matter of time before cycling tourists from other countries
discover this, and the likelihood of that happening is
being increased by a new promotion being run by the Ehime
and Hiroshima Prefectural Governments and Taiwanese cycle
manufacturer, Giant. The three organizations have opened
and are promoting a 265km cycle touring route past some of
the most scenic parts of the Seto Inland Sea. The target
users for the route are foreign tourists in particular.
***Ed: Right on!** (Source: TT commentary from, May 12, 2012)

-> New legislation to limit cab numbers?

In what we think is a retrograde step, the government is
considering legislation to reduce the number of cabs on the
road. Apparently there is a surplus of cabs due to a major
change in the licencing rules in 2002. Nowadays anyone can
operate a cab so long as they meet safety and operating
standards. ***Ed: Our take is that the politicians
sponsoring this legislation are probably representing the
larger operators, who are suffering from the competition
and crying poor. Strange how everyone still operates on the
same pricing, though, isn't it?** (Source: TT commentary
from, May 12, 2012)

-> Kyoto University gets important patent in USA

Recognizing its ownership of the discovery of how to create
stem cells from adult tissue, Kyoto University has been
awarded an all-important commercialization patent from the
US Patent Office. The patent means that any products or
processes derived from the patent and subsequently
commercialized, which means pretty much all products
developed in the USA in particular (since fetal stem cell
research is banned there). The university has already said
that it will keep licencing fees low, so as to encourage
global research into cell regenerative medicine. (Source:
TT commentary from, May 12, 2012)

-> Manufacturers, retailers have full warehouses

A report from real estate firm CBRE has found that the
vacancy rate for 54 major warehouses feeding the Tokyo
metropolitan area is just 4.5%, the second lowest rate of
space available since March 2005. Further, vacancies for the
Kinki region is essentially zero. Since warehouses in Tokyo
and Kinki supply about 80% of Japanese consumer goods,
this situation is unusual and is keeping warehouse owners and
operators happy. ***Ed: So the big question is WHY the
warehouses are full? The smart money is saying that it's
due to companies stocking up before possible summer power
cuts, when manufacturers are going to have to reduce shifts
or move production times to weekends.** (Source: TT
commentary from, May 8, 2012)

-> Helium blimps for emergency radio transmitters

Softbank is testing helium blimps in Aichi-ken as part of a
new emergency system that will have the blimps replace
radio transmission towers damaged in earthquakes, fires,
and other disasters. The company will place the blimps 100m
above the ground over each transmission node that is
damaged and will service a radius of approximately 3km. The
blimps will connect through trucks on the ground that
reconnect them to parts of the company network still
working. ***Ed: Pretty cool stuff. Smart, too, since unlike
NTT DoCoMo, which has put redundant radio towers in, the
Softbank solution allows them to set up the blimps only
where and when they are needed.** (Source: TT commentary
from, May 12, 2012)

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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from the region's cities and towns is understandably more
focused on repairing the social fabric of communities.

On May 16, The Netherlands Chamber of Commerce and Tohoku
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JAPAN 2: Community Leaders Report. This public forum will
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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 TT-659 we covered the problem of 70% kids having an
aversion to English -- primarily because of how it is
taught, or, more specifically, how it is tested.

*** Reader says: One solution, albeit with all kinds of
bureaucratic obstacles (surprise!), to the decline in
Japanese youth willing to study abroad, would be for Japan
to allow dual citizenship. Currently there are many
Japanese living abroad who hold both Japanese and foreign
(mostly US) passports. These are people who speak English,
know the culture, and know Japan. The fact that they
haven't dropped their Japanese passports indicates at least
some emotional tie, perhaps even fondness, for Japan.
Technically, though, Japan does not recognize dual
citizenships. The US, of course, does -- the US is no
altruist, they tax on worldwide income, so as difficult as
they are when it comes to giving out citizenships, once
they have you, they have a financial incentive to keep you.

Until recently, the Japanese Government didn't do much
about these dual citizens living abroad, partly because it
was difficult to figure out which Japanese citizens had
other passports. But for whatever reason (and the reasons
do seem unclear), the government has started to crack down.
For example, if you hold a Japanese and US passport, and
you try to renew your Japanese passport at a consulate or
embassy abroad, they will ask for a valid visa to prove
that you have the right to be in that country. If you show
the passport of the other country as proof of your right to
be in that country, they will refuse to give you a new
Japanese passport.

The mysterious thing is that this is a Foreign Ministry
initiative, when in theory enforcing the law should be done
at the behest of the Justice Ministry. Again, mysterious.

But why do this in the first place? Why force a segment of
the population that is the most international to give up
their Japanese passports?


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=> Cafe Good Life: Asahikawa's Retreat, Hokkaido

Set in the hills just outside Asahikawa, Cafe Good Life
offers more than just a good meal for those who make the
journey. Established a little more than five years ago, the
cafe attracts tourists drawn to nearby Asahidake,
Hokkaido's tallest peak, as well as locals from the
surrounding towns. Reasonably priced, delicious food in a
beautiful rural setting is what attracts them, but it's the
atmosphere the owners, Shibuya and his wife Machiko, create
that makes people linger and keeps them coming back.

Bokusui Koen, Miyazaki

Miyazaki is rich in such natural spots, and the further
inland you go, the better you will be rewarded. Bokusui
Park (Koen) is one jewel of an example. The poet Bokusui’s
house is inside the park, and you can actually catch a
glimpse of the rooms from the outside. If you follow the
steps behind the house, you will come to a small shrine and
a stone slab with one of the writer’s poems. There is also
a museum in the park if you want to learn more about him.
Across from the house is an expansive park with several
viewing platforms from which to take in the scenery. Kids
will enjoy the many slides and other contraptions built
into the hills. One can take a picnic lunch and enjoy the
surroundings, or have a soba lunch at a restaurant right
inside the park.



=> Question

I am considering buying a property in Japan, what taxes
should I be aware of?

*** Answer

The following taxes would be imposed when you purchase a
property in Japan.

- Real property acquisition tax (Fudosan Shutoku Zei)
The real property acquisition tax is a prefectural tax on
individuals who acquire land or who acquire houses located
in the prefecture during the year.

- Registration and license tax (Toroku Menkyo Zei)
The registration and license tax is a national tax imposed
on a person who registers a real estate.

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