TT-797 -- Foreigners' Role in Land Prices. E-biz news from Japan.

An Insider's comments on Japan's high tech business world
* * * * * * * * TERRIE'S TAKE - BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term
technology and media entrepreneur living in Japan.

General Edition Sunday, March 29, 2015, Issue No. 797

- What's New -- Foreigners' Role in Land Prices
- News -- Gumi restructuring after loss forecast
- Upcoming Events
- Corrections/Feedback
- Travel Picks -- Tofu in Saitama, Indigo Museum in Kyoto
- News Credits

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The 2015 tourist season kicked into high gear this month (March) thanks
to the arrival of cherry blossoms, and we are already experiencing a
taste of things to come -- queuing crowds and shortages.

Top of the shortages list is hotel rooms, which we mentioned in TT-782
last November as being a problem for the 2020 Olympics. In retrospect,
we should have forecast the problem happening a lot sooner. This week we
ran an informal survey of hotel rooms inventory over the
next 3 days -- given that ohanami season: is as reasonable a stress test
for room availability as any we can think of. According to,
only 51 out of 588 properties in Tokyo had rooms available for members,
saying that 91% of inventory was already reserved. In Osaka, only 46 out
of 915 regional properties had vacancies, a 94% reservation rate. In
comparison, Hong Kong hotels were 12% reserved and Singapore hotels 14%

One of the big opportunities created by the jump in hotel occupancy
rates is the need for more of them. On the last day of January, the
first of a spate of high-profile hotel deals was announced, reflecting
juicy anticipation of Tokyo's market performance over the next few
years. Mori Trust sold its Meguro Gajoen hotel and related restaurant
complex to LaSalle Investment Management and China's CIC for an
estimated JPY140bn. The complex is a major development, consisting of a
19-story office building (where Amazon Japan is located), a wedding
facility, shopping, and of course the hotel. The sale was a quick flip
for Mori, which paid JPY130bn for the property just a year earlier. Nice
money if you can get it.

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Then on February 12th, one of the most active foreign funds in hotel
real estate reappeared in the news when it announced that it was buying
the Rihga Royal Hotel Kyoto for an undisclosed sum. Readers might
remember that we mentioned in Terrie's Take 782 (November 24, 2014) that
one of Fortress Investment Group's fund managers said his hotels were
the best performing property assets in the company's portfolio.
Interesting to see that belief being echoed in a survey (by the Urban
Land Institute and PwC) late last year in China, where real estate
investors and developers ranked Tokyo the top investment destination for

On February 13th, Bain Capital announced that it was buying hotel and
spa operator Oedo Onsen Holdings for a reputed JPY50bn. The company
operates 23 day spas and 6 hotels around Japan and has grown about 30%
annually since 2007. Last year it served 5m customers and had revenues
of JPY35bn. Given that most of these customers have been Japanese so
far, Bain no doubt thinks it can internationalize the operation (much
the same as Fortress is doing as well) and in so doing pick up a growing
share of higher spending foreigners. A recent British survey says that
hotel room prices at major hotels in Tokyo rose 8% in 2014 thanks to the
swelling ranks of foreign travelers -- expected to hit 15m people this
fiscal year.

If Bain is cuing in on the foreign tourism boom, then their timing is
excellent. JNTO has just released figures showing that foreigners spent
about JPY16trn in real terms in 2014, up 31% over fiscal 2013. Foreign
tourist consumption of hotel rooms, food, and souvenirs now makes up
about 1.8% of export-related GDP. As we often say to our clients and
study groups, not only is this a large and pretty much
guaranteed-to-grow number, it's also essentially "free" money for the
government. Apart from some additional immigration and policing costs,
very few of these visitors place a burden on the nation's social welfare
infrastructure, unlike regular Japanese economic activity. In case you
were wondering, Japan's GDP was JPY570trn (US$4.92trn) last year.

Not just hotel funds, foreign individuals are also driving up real
estate prices. They are typically starting in the big cities, but we
predict it won't be long before the excitement moves out to the rural
areas as well -- especially recreational areas with the potential to
become look-alikes of Niseko and Miyakojima (two of the extremes
possible in geographically diverse Japan).

The Nikkei this last week told a story of Taiwanese investors flocking
to Tokyo to buy studio apartments and standalone homes. One
semiconductor-making entrepreneur interviewed claimed to now own more
than JPY1bn of real estate here, producing yields of up to 10%. The
newspaper further mentioned that he has been introducing Tokyo property
investment to his mates as well -- especially friends with assets of
JPY5bn-JPY10bn. The paper says that the investor group focuses on
Roppongi, Ginza and Shibuya.

Thanks to all this foreigner-stimulated action, coupled with the heating
up of demand by Japanese large listed exporters, commercial land prices
in Japan fell just 0.3% nationwide last year -- indicating a likely
turning point for land prices everywhere. Of course most of the
increases are going on in the major cities, and so there is a large gap
versus rural areas. But what that means in an inbound tourism context is
that there is a value gap outside of the major cities. That represents a
once-in-a-decade buying opportunity for those people willing to step out
of their comfort zone and take a punt that tourists will start exploring
the farthest depths of the countryside.

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+++ NEWS

- Complete and trustworthy Fukushima report
- Inflation back to zero
- Can't get past the demographics
- Gumi restructuring after loss forecast

=> Complete and trustworthy Fukushima report

The Tokyo-based citizen radiation mapping organization, SAFECAST, has
just published a complete and up-to-date report about the Fukushima
Daiichi power plant and its effect on radiation levels, food, health,
and the evacuees. This has been a major undertaking for the group and
the report runs over 100 pages. It quotes copious sources for its
findings, and appears to be one of the most trustworthy documents now in
existence in English about Fukushima. In essence the report says that
official (government) numbers for radiation levels are (these days)
reasonably close to what SAFECAST's own citizen-derived data say.
Therefore, radiation contamination over land, while still a concern, is
far less threatening than some sensationalist sites abroad would have
you believe. ***Ed: This said, we do believe that the radiation
situation at the actual power plant is far from being under control and
is still a threat to the environment.** (Source:
announcement, Mar 29, 2015)

=> Inflation back to zero

In what has to be a major set back to the objectives of the Bank of
Japan (BOJ) to reintroduce Japan to inflation (target: 2%), in fact
after taking out the costs of food and the consumption tax rise last
year, the nation's core inflation rate actually fell back to zero, where
it was in May 2013! Economists say that the fall in target inflation has
mostly been due to the drop in oil prices and weak consumer demand. As a
result, experts are expecting that the BOJ may launch another QE round
later this year -- but probably not before waiting to see what the
coming labor wages negotiations season yields. Unions are saying that
they are pushing for an average increase of at least 3%. (Source: TT
commentary from, Mar 27, 2015)

=> Can't get past the demographics

Nice article from CNBC that neatly encapsulates why Abenomics will have
limited success, due to companies not being willing to re-invest their
recent windfall profits in Japan. The article points out that due to
demographics and the inevitable decline of domestic markets, Japanese
firms don't see any reason to be aggressively investing here at home. A
recent survey showed that the number of companies planning new
investments in Japan over the next 3 years actually fell 1.9% to 64.5%.
The thinking is that after 15 years of deflation, both consumers and
corporates will find it hard to imagine that things will change.

=> Gumi restructuring after loss forecast

Not 3 months after a spectacular IPO, the mobile game software developer
Gumi has announced that it will undergo a restructuring in order to turn
its business around after a shock forecast to investors that it would
lose about JPY400m this fiscal year. The company did a JPY45bn IPO in
December 2014, on the back of its highly profitable overseas gaming
business, and had earlier forecast a profit of around JPY1bn. ***Ed:
Unfortunately it seems that the company management became distracted
with their immense IPO, one of the largest in Tokyo last year, and took
their eye off the ball. The firm says it will fire about 100 staff and
sell two web games. Shares are now at half the listing price -- a good
chance to get into a fundamentally strong company.**

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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=> Our article in TT-794 saying that JAL was worth flying again, except,
maybe, the food, stimulated a good number of responses. Here is one of
the more comprehensive comments.

*** Reader: Coincidentally after reading your comments about flying JAL,
I had a chance the next day to fly them for the first time in some
years. Likely due to the short notice and Spring break, the fares were
relatively expensive, and I ended up booking my flight through HIS, but
JAL definitely was less expensive than other airline options. Here's
what I found:
* After purchasing the ticket, I tried picking my seats at the JAL site
but it wouldn't allow me to unless I was also checking in. This, I
thought, was different from say, ANA.
* On checking-in at Narita, both my business associate and myself were
given upgrades to Business Class. So, I guess, I should say all good
things about JAL!
* Surprised they had FT and WSJ but not Japan Times on the flight!
* The beverage service in business class was a bit disappointing, with
screw-cap small bottles of mediocre champagne and wine. Dinner was okay.
Both of us liked best the cold-tomato salad. Maybe for a 4-hour flight,
one should not expect more?
* Not so lucky on the return leg. Economy lunch - a bland entree of
scrambled eggs and minced meat over rice. Disappointing.
* Flight attendants on ANA, though equally young, are more
experienced/trained and courteous, I felt.
* That said, there was one middle-aged attendant on the JAL business
class who, I could see, was experienced in anticipating passengers'
needs. Unfortunately that person was foreigner-shy, even though I was
speaking to my associate in Japanese the whole time.
* On the return, I landed at Haneda. Rare for me. I had checked in my
small wheeler -- that was a mistake as it took about 40 minutes to
retrieve it. Have not experienced this with longer flights on bigger
* For the fare, overall, not a bad deal. The problem starts if I compare
it with the other airlines.



=> Tofu Wonderland, Saitama
Enjoy Tofubou's spread of tofu goodness

It is hard to miss Tofubou. Located along busy Highway 15, Tofubou has
numerous banners advertising their tofu soft cream, tofu donuts, and
tofu buffet. As I've never tasted tofu donuts or tofu ice cream before
and curiosity led me to visit the shop.

Upon entering, I was greeted by a wide array of tofu products. The glass
counters have ready-to-eat snacks, great for a quick lunch or as a side
dish to supplement dinner. These include inarizushi (a pouch of fried
tofu filled with sushi rice), tofu karaage (a deep fried dish that
tastes as good as its chicken counterpart), okara (soy pulp with
assorted vegetables), agedashi tofu (fried tofu served with garnish),
kinchakuni (another kind of fried tofu pouch tied on one end, which goes
nicely with soup), and the shop's bestseller: tofu hamburgers.

Two open refrigerators hold the various kinds of tofu. Some can be
consumed as is, while others are used for cooking or baking. Examples
include soy milk or soy cream, fresh tubs of tofu, fried tofu of various
cuts and sizes, and trays of yuba (tofu skin, a delicacy in its own
right). These are fresh-made everyday at the shop. If you ever tire of
plain tofu, Tofubou also offers tomato tofu, yuzu tofu, edamame tofu,
and black sesame tofu.

=> The Little Indigo Museum, Kyoto
An alchemy of color and music

It was only two centuries ago that villages like Miyama were locked away
from the rest of the world. People would live from the bounty of the
land, and after a rich harvest would plant indigo, a blue flowering
plant whose compost would nurture the soil, getting it ready for the
following year. Also known as Indigofera tinctoria, this plant is better
known for its blue pigment which is used to dye denim and other
textiles. In the days of old, items like clothing were heirlooms to be
passed to the next generation; in the same way that land or property
would be today. It made the handmade kimonos and other traditional
clothing all the more special.

Until the modern era, blue was the preferred color for wedding dresses.
Blue was the symbol for purity and piety in wedding dresses, until a
young twenty year old princess called Victoria changed this forever with
a white wedding dress in England in the nineteenth century.

The museum was originally a village elder's house built in 1796. Its
high pitched roof with seven saddles testifies to the importance of this
building. The thatched roof is replaced every thirty years, a way of
ensuring the skills of thatching are passed to the next generation.



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