TT-701 -- Many More Bankruptcies Next Month? 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, Mar 10, 2013, Issue No. 701


- What's New -- Many More Bankruptcies Next Month?
- News -- Australia becomes Japan's largest source of LNG
- Upcoming Events
- Corrections/Feedback -- Car sales not so bad
- Travel Picks -- Art in Tokyo, Handmade Dolls in Kyoto
- News Credits

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In December 2009, the People's New Party as the junior partner of the then DPJ government, pushed through legislation which required the nation's banks to "accommodate" requests from small to medium-sized enterprises (SMEs) for changes in their loan terms without being penalizing the said companies. The most common change request by far was to stop repaying principal and to make substantially reduced interest payments. The "Kamei loans moratorium" law in and of itself had no teeth, but given that the Financial Services Agency (FSA) was charged with managing its implementation -- something apparently it didn't want to get involved in -- the banks really had no choice but to comply.

We remember being impressed by the brazenness (and success) of the proposed new law by Shizuka Kamei, the banking and postal services minister at the time, who effectively wanted to supply trillions of yen of soft loan extensions to SMEs without causing the government to carry the debts on its books (although in most cases, the government's Hosho-kyokai credit guarantee corporation is involved at some level). Rather, it was the banks who would have to carry the hundreds of thousands of companies who might have otherwise had to shut down. At the time, the banks complained vociferously, but the government's fear of a deep recession caused by the Lehman Shock was stronger, and the law was passed. There has been much commentary over the last 20 years about Japan's zombie companies, and with Kamei's new law, these companies were given new respite that was to last, after two renewals, until the end of this month.

[Continued below...]

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[...Article continues]

In the last year, there has been quiet but growing concern in the banking industry as to the downside of all these stalled loans. As we have stated in past issues of Terrie's Take, the FSA estimates the value of loans under the moratorium probably total around JPY230bn. However, we seriously doubt that this number is correct. As we edge closer to the end of the month, more and more numbers are starting to appear in the press that suggest the real number is quite huge.

For example, the Japan Times reported a while ago that 3.4m loans were extended to both companies and individuals (because real estate loans were allowed to be renegotiated as well), then the Nikkei has consistently said in the last few months that about 300,000-400,000 companies have stalled loans. If you were to believe the FSA number, JPY230bn divided 3.4m loans, you get an average loan value of just JPY760,000. We don't know of any real estate loan in a major Japanese city, let alone a company loan, that would be that small.

Instead, if we were to make an intelligent guess, we think that the 400,000 companies are probably responsible for around 1.2m of the loans. The reason we say this is that it is common practice among Japanese SMEs to take loans from multiple banks, since this allows them to get more capital and the banks are happy because they can spread the risk. From what we see, the average spread of loans for a single company is at least 3 different banks, and for companies deeper in trouble the spread is probably -- 5 or more, if you count the personal finance loans for the CEO and founding family.

As to just how much money those 1.2m loans represent, you need to understand how Japanese SMEs companies "graduate" up the debt tree. Because there are so few equity investors (angels, venture capital firms, etc.) in Japan, companies have little option but to grow with debt, and it's a well-trodden path. They start out with the government's own lending agency for SMEs, the Japan Finance Corporation (JFC), then only after they have outgrown that route do they go to the banks. Since the JFC is very responsive and as of January this year was lending an average JPY6.6m (2013 number derived from their lending JPY2.2trn to 333,119 companies), it's reasonable to think that any subsequent bank loans to a given SME will be at least this amount again, if not larger. We think the average is probably a bit more than double -- say, JPY15m per loan.

So now if you take those 400,000 companies and multiply them by JPY15m each, then instead of the FSA's low-impact JPY230bn (US$2.4bn) of liabilities you get a whopping JPY6trn (US$62bn). That's a serious number, and we're surprised that this is not being given more coverage in the financial press, yet. Maybe with all the focus on the stock markets and Abe's awakening of "animal spirits", everyone is ignoring the ugly bits of the economy and hoping that the trickle down of wealth will help many of these troubled companies back on their feet again.

But the fact is that for a lender to ask for a moratorium on loan principal repayments, they must really be at the end of the road financially, as the banks will always warn a company asking for a change in terms that this will be a financial black mark against them (i.e., limited or no loans in the future). And given the events of the last four years (post-Lehman malaise then the 3/11 Tohoku earthquake), it is hard to believe that any of these companies have seen their financial circumstances improve. So while the world looks at Japan and thinks that a recovery is underway, the reality is that up 25% of Japan's functioning (versus dormant) companies are instead tottering on the edge of insolvency.

What will happen next? Although the scene is set for a mini massacre of SMEs, it appears that despite of the Kamei law ending, the FSA is still putting pressure on the banks to be soft on troubled loans. Since goodwill with the FSA is imperative for any bank to stay in business, the Nikkei says that banks, particularly highly exposed regional ones, are putting aside loan provisions of up to 10%-20% of their SME loan exposure. Yet at the same time they are still helping firms they judge to have some life left. Perhaps this industry-wide support action helps to explain why, mysteriously with SME financial armageddon potentially only days away, the bankruptcy rate for companies leaving more than JPY10m of debt behind them was at an 18-year low last month. February saw only 916 companies going under, about 11% less than in the same period last year.

We shake our heads. We know there is a fire, but so far, no smoke.


Lastly, if you're interested in the Japanese view of current China economic and political trends, you won't want to miss a presentation on March 25th by Nobuo Asai, a well-known political commentator appearing on the TBS current affairs TV program "Sunday Morning". Mr. Asai was a researcher at Tokyo University then Georgetown University, and worked at Nomura Research Institute for many years. He really knows his stuff. Price of admission is free, as the presentation is part of an overall Yokohama City promotional event.

...The information janitors/


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+++ NEWS

- Globis ties up with leading Indian business school
- Non-GMO soybean search leads to Ukraine
- Australia becomes Japan's largest source of LNG
- Japan rises in world tourism competitiveness
- Balloon-hoisted transmission stations for future emergencies

=> Globis ties up with leading Indian business school

Seems that Japan's largest private MBA school operator Globis is continuing its international push, this time with a tie-up with Hyderabad, India-based Indian School of Business (ISB). According to the tie-up agreement, ISB will design and deliver a variety of courses and programs for private sector and governmental organizations in Japan which are looking to internationalize their workforce. Source: TT commentary from, Mar 9, 2013)

=> Non-GMO soybean search leads to Ukraine

Although the US has been shipping soybeans to Japan for decades, the encroachment by GMO crops has meant that trading houses are now looking further afield for supplies. Over the last few years the focus has been on cultivation in the Amazon basin and competition for harvests with Chinese buyers. But now trading house Sojitz has started importing soybeans from the Ukraine and says that the quality is good enough that they expect the "few hundred" tons slated for this year to jump to 5,000 tons within the next 3 years. Japan consumes 950,000 tons of soybeans, of which 92% come from the USA and Canada. Ukraine produces 2.33m tons of soybeans a year -- so there seems to be some scope for expansion of this project. (Source: TT commentary from, Mar 8, 2013)

=> Australia becomes Japan's largest source of LNG

With the ramp up of the West Australian Pluto gas project, Australia has now overtaken Qatar as the largest supplier of LNG to Japan, shipping 15.9m tonnes in 2012. In comparison, Qatar, which has been the traditional major supplier, exported 15.7m tonnes, while Malaysia shipped 14.6m tonnes. Between them, the three countries now account for over half of Japan's current LNG needs, which were 87.3m tonnes last year due to the continuing shut-down of most of the nation's nuclear power stations. LNG is now one of Australia's biggest exports, worth AU$13.8bn in 2012. (Source: TT commentary from, Mar 9, 2013)

=> Japan rises in world tourism competitiveness

Although it has no bearing on actual visitor numbers, Japan did quite well in a recent World Economic Forum ranking of destination countries based on their competitiveness. The organization's latest report puts Japan at 14th place, following Switzerland, Germany, Austria, Spain, the UK, and the USA in the first six places, and ahead of South Korea in 25th place. The Japanese high ranking was based on its customer-oriented culture, transport infrastructure, and IT infrastructure (although in the IT category, it came in 7th). (Source: TT commentary from, Mar 8, 2013)

=> Balloon-hoisted transmission stations for future emergencies

Hats off to Softbank for successfully testing its latest balloon-based emergency transmission stations last week. Softbank can get one of the transmission stations up in the air and functional in about 5 hours, meaning that if there is a major disaster knocking out regular transmission towers, at least cell phone access will be up and running again quickly. The balloon transmission stations can support about 100 concurrent users within a range of 3-5 kilometers. (Source: TT commentary from Mar 8, 2013)

NOTE: Broken links
Some 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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An executive seminar at Tokyo Midtown on the attractions of Yokohama for commerce. The keynote speaker is Nobuo Asai, an international politics expert, joined by Bosch Operating Officer Naoki Yagyu, and Yokohama Mayor Fumiko Hayashi. After the talks, relax with a drink and browse a selection of relevant booths. Apply now for this one-off seminar and learn the benefits for businesses of setting up in Japan's second largest city.


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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-700, we carried a news item about 2013 auto sales being down and not showing any sign of recovery. A reader gives us a bit more insight into why.

*** Reader: Congratulations on this 700th edition! Writing a weekly newsletter for more than fourteen years is truly an achievement. I hope that you will be able to keep on writing these newsletters.

I noticed the news item about domestic car sales. It may be worthwhile to mention that the domestic car sales in the early months of 2012 were going through a peak as the industry was recovering not only from the earthquake of 2011 but also the flooding in late 2011 in Thailand. Many car components and sub-components are being manufactured in Thailand and then shipped for assembly into Japan. That supply chain was affected by the flooding. This had hampered the recovery of the domestic car factories and delayed deliveries to customers to the end of 2011 and early 2012. Therefore, as early 2012 saw a peak in domestic car sales, is it not really a big surprise to see a drop in this year's car sales. The end of the government incentives on buying eco-cars also did not help to promote car sales.

If you want to review the numbers yourself I can encourage you to use the online database of the Japanese car manufacturers association JAMA at You can find here all data on both domestic production and domestic sales.



=> Design Festa, Tokyo
Biannual art and design expo

If you’ve been searching for a place to appreciate meticulous artwork, listen to an indie death metal band, buy some hand-made crafts, and have your face painted with movie-caliber scar makeup all under the same roof, you can rest easy now. Design Festa is a two-day art and design festival held regularly in the Tokyo Big Sight convention center in Odaiba, Tokyo. Much to the festival’s credit, the terms “art” and “design” are liberally defined here, giving the event a true “there’s something for everyone” spirit. Amateur and professional artists of all degrees of success flock to the event to display and sell their work, and just taking it all in is an event in itself.

What can you see there? Actually, the better question would be ‘What can’t you see there?’ To start with, there’s paintings and drawings. Lots and lots and lots of paintings and drawings. Some are finished, on display and awaiting your appraisal (or purchase). Others are in-progress. Large -- sometimes enormous -- canvases and walls are set up so festival attendees can watch the artists hard at work. There are handmade crafts, another loosely-defined term which includes everything from jewelry and book covers to toys, metal work, wood work, musical instruments, action figures, household items, and even clothing. One section of the festival is the “dark room,” reserved for artists whose work is best viewed in the shadows. These works are often abstract collections of lighting, paintings under black lights, and so on.

=> Ando Family's Handmade Dolls, Kyoto
Come face to face with the doll maker to Royalty

Would you like to be the doll maker to the King of Thailand? How about the Imperial Palace in Tokyo? What about the idea that you and your descendants might be the preservers of this unique Japanese handicraft for hundreds of years? Or could you imagine having a mini army of workers laboring around the clock to make each doll, paint each eye, design, select and sew each kimono?

Today I was blessed with the opportunity to enter the previously closed world of royalty. If only I could shrink myself to a Japanese doll (Ningyou) and be presented to the King! Even if I could not get into the presence of the Emperor I can still get an insight into royalty within the showroom. In the tradition of Hina Matsuri, or doll festival, the top two dolls on the presentation platform (hina dan) represent the Emperor (Odarisama) and Empress (Ohinasama). Kyoto is known as the center of handicraft design since it was founded in the Heian period in 794. Many of these handicrafts such as folding fans, and dolls are featured in the Tales of Genji, the oldest written novel in the world and Kyoto's most famous novel.



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Written by: Terrie Lloyd (

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