TT-509 -- Toyota and Debt, ebiz news from Japan

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A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, Mar 15, 2009 Issue No. 509


- What's new
- News
- Candidate roundup/Vacancies
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A couple of weeks back, a reader wrote in saying that he
found it strange that Toyota, a company which last year
(2008) had JPY4.6trn (US$47bn) in cash, securities, and
financial reserves, would go to the government-owned JBIC
bank for a JPY200bn (US$2.04bn) handout. This on top of
selling JPY200bn of corporate bonds in February. We agree
that when we first heard the news, surprise was our first
reaction as well. Even with 300,000 employees worldwide
and the company's stated policy of not laying off permanent
employees (in Japan at least), it is still selling about
8.9m cars a year, and we figure that it has at least 5-10
years of operating funds left, easily enough to buy out a
couple of its major U.S. competitors and still have some
left over to develop next-generation electric cars.

So what gives?

First let's take a look at the Japanese attitude towards
debt in general, because this gives us some possible clues
as to Toyota's actions.

Over the centuries the commoner in the street didn't have
much in the way of assets, because punitive taxes and
polarizing social divisions were designed to keep things
that way. Thus anyone wanting to take a loan was stepping
out of the norm and dealing with shady characters who
wanted high interest or your life. Individuals became
allergic to lending, and these attitudes have survived the
War and persist even today. We recall well being warned by
the old folks after first setting a company here, "Don't
ever use a sarakin (consumer loan company), you'll regret
it." As a result, we never did. Nor do most of the rest of
the population -- especially now that the government is
limiting consumer loans to no more than 30% of a person's

[Continued below...]

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[...Article continues]

The exception to taking on debt as an individual as been where
it is officially sanctioned debt -- i.e., your indebtedness
is seen as a socially responsible act. By this we mean
government-sourced or condoned debt such as home mortgages,
car loans, school loans and other socially worthy debt. Luckily
it's also human nature that with these needs satisfied, a
citizenry can be kept docile.

The government until recently was the nation's major mortgage
lender and still provides "encouragement" for mortgages by
providing banks strong guidance on making low interest
home loans. Even now, despite the downturn, people are
still getting 1.6% loans variable for 5 years or 3.2% loans
fixed for 30 years.

Houses costing US$500K may be small and take 40-minutes to
commute from the city center, and salaries may be low
(averaging JPY5.63m for a family), but after a 20% deposit,
a 35-year or longer loan at a couple of percent interest
results in outgoings from the family pocket book of just
JPY160K/month, less than a third of one's income. If the
family car is seldom used, and Mom and Dad rely on
plentiful public transport instead, the disposable income
of Japanese families is very healthy indeed, and of course
has contributed to the high savings rate of the nation.
Especially for older families where the kids have left home.

These public savings were until a few years ago recycled
by the Japanese economic machine to the Japanese Post
Office savings bank, assisted by government-legislated
favorable taxation and interest rates. This money bucket
was eventually turned into today's Japan Post Bank by the
Koizumi reforms, and has around JPY200trn of financial
assets. By any measure it is by far the largest financial
company in the world and apparently holds around 28% of
private savings. In the past, the postal savings bank was
a massive cookie jar that governments used to raid when
they wanted to fund something out of budget -- such as the
excessive public works stimulus packages of the 1990's.

Because of the excesses of the 1990's the Japanese
government is truly addicted to debt, which continues to
expand through insufficient tax income and an aging
population. Now, with the huge fiscal stimulii already
announced and being proposed (in total around JPY40trn --
US$408bn), estimates are that the current debt level of
150% of GDP will zoom to 200% within a year or so.

While this sounds high, until now the government debt has
been manageable because much of it (around 65%) was
purchased by insider groups such as the Japan Post Bank
and various domestic public and private pension and
insurance funds. It has often been said that with no one
threatening or foreign to call in that debt, the government
is under no real pressure to pay it off -- providing of
course that it can keeping issuing bonds at relatively low
interest. The problem for them now is that if the next
stimulus goes through at the proposed JPY25trn level or
so, then the buying capacity of the domestic funds will
have been breached and any new buyers are either going to
have to come from abroad (unlikely) or some internal
work-around created.

Last time around it was in a bind like this (in the
mid-1990's) the government tried raising taxes, but this
killed consumer spending, and prior to that they raided the
postal savings bank. So we suspect the fund raising will
either be by some form of tax-favorable bonds that will
suck in public savings the same way that Japan Post did in
the past, a raid on Japan Post Bank through changed
legislation (Koizumi already told Aso hands off earlier this
year, though), and/or there will be an acceleration of the
Quantitive Easing program whereby the Bank of Japan "prints
money" to buy government debt directly, as well as more
stock and bond purchases by Japan Post Bank and other
government-related financial institutions. Either way,
the resulting impact on the economy will be inflation.

Besides the government, the other sector with a debt
addiction is of course the business sector. After the War,
there was very little money around and the government
took a highly paternal and controlled approach to regrowing
the nation. It was decided that companies could be directed
to strike a compromise between a centrally controlled
society and a fully capitalist one, and rules were put in
place to ensure that the companies understood their social
role -- which was to look after workers and improve their
living standards.

In return for taking on this burden of social
responsibility, companies were given cheap debt, large
firms got hooked into government contracts and thus
monopolistic positions in various industries, and smaller
companies were given rules and regulations that allowed
them to make mistakes and get behind occasionally in
taxes without being sent bankrupt. Even today, it is a little
known fact that the "bank of last resort" in Japan is
actually the Tax Office, which has a certain "tolerance
level" for overdue taxes before threatening to liquidate the

So what does this background have to do with Toyota?

Well, let's connect the dots. Individuals have little
capacity or inclination to get loans outside of the sarakin
construct, so they expect their employers to look after
them. This is a political reality with severely negative
implications for any political party that ignores it. In
return for being looked after, the population is largely

The government knows the best way to protect employment is
to protect the companies that provide it, and they have the
leverage through historical connections to get cooperation.
Further, based on experience up to now, they have also
developed a cavalier attitude to massive debt, and don't seem
to mind serving lashings more of it. This is why the BoJ and
Japan Post Bank have been has been approved to go buy up
corporate bonds, to prop up the big employers.

So, when a company like Toyota goes to the government for
money it doesn't necessarily need yet, we can only imagine
that it has worked out a deal that makes it Guinea pig for
a convoy of companies. Our guess is that Toyota has agreed
to retain for another few months the bulk of its domestic
employees in return for both the loan and (we assume some
government agency participated) purchases of the February
bond issue. No doubt there will be more such loans and
purchases to come, and this won't end with just Toyota.

Indeed, we expect that most major listed companies with
export exposure and large numbers of staff will be at the
BoJ cash counter over the next few months, topping up
their reserves regardless of whether they are in trouble
yet or not.

This is Japan Inc. at work.


Our Entrepreneur Handbook Seminar is obviously filling a
need in the community right now, as many people look at
their employers and see the writing on the wall. We had a
sell-out audience of 35 in February, and still more people
wanting to attend. So, we have decided to re-run the
seminar next week for those people unable to make it last
month. Details can be found at:

Lastly, Terrie's Take is proud to be a supporter of The
Japan Helpline. To get help 24 hours assistance with any
problem, whether personal, legal, or financial, any time,
go to and click `help`.

To donate:
Your support keeps The Japan Helpline going.

...The information janitors/


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+++ NEWS

- Willcom gets more cash
- Trains and car sharing
- Cell phone browser company hits major milestone
- Electricity consumption way down
- Job hunting gets harder

-> Willcom gets more cash

PHS wireless operator Willcom was reported by the Nikkei to
be preparing to receive another JPY5bn (US$49m) investment
from majority shareholder, U.S. private equity fund
Carlyle. Carlyle's shareholding will increase to 65%. The
money will be used to boost PHS transmission speeds to
20Mbps, to compete with W-CDMA 3G operators such as eMobile
and Softbank Mobile. (Source: TT commentary from, Mar 14, 2009)

-> Trains and car sharing

It seems that car sharing is really starting to catch on,
with East Japan Railway (JR East) announcing that it will
enter the business and make a small initial fleet of 6 cars
available in Tokyo and Kanagawa. Subscribers will be able
to unlock the cars using the unique ID on their Suica
commuter card. Apparently JR East will extend the service
to over 12 stations in Tokyo over the next 24 months. The
price will be JPY630 for every 30 minutes of use, plus the
usual registration and monthly subscription fees. ***Ed:
Obviously a small experiment to start with, but imagine if
JR East started doing this service at stations popular with
tourists -- outside Tokyo.**

-> Cell phone browser company hits major milestone

We hear so much about the sexier side of cell phones, the
content providers, that we tend to forget that there is
some good money to be made out of the middleware and
back-end components as well. One such supplier, Access, has
announced that it has shipped over 700m licences of its
NetFront browser. Apparently the company has had a hit with
its widget browsing capability in newer versions of the
browser. ***Ed: The fact that Access has a money machine
with its browser business would help explain why the
company still has a market cap of 4 times a single year's
worth of sales despite a difficult year in FY2008.**

-> Electricity consumption way down

The Federation of Electric Power Companies of Japan has
said that overall electricity consumption in February
dropped by a record 15.8% from the same month in 2008, and
that oil consumption for thermal power generation dropped
by a massive 52% (Fuel oil) and 83% (Crude oil)
respectively. The large drop is thought to be due both to a
contraction of manufacturing activity due the recession,
coupled with a very mild winter. It is expected that oil
consumption for power generation will fall even further
once TEPCO's quake-hit Kashiwazaki-Kariwa nuclear plant is
allowed to come back on line some time in April. (Source:
TT commentary from, Mar 13, 2009)

-> Job hunting gets harder

The Ministry of Health, Labor, and Welfare has announced
that only 86.3% of university grads and 87.5% high school
leavers were able to find jobs after finishing school last
year. The numbers are the first drop in job fulfillment in
5 years. The prefecture with the highest rate of unemployed
university and school leavers is Okinawa, where only 57.9%
found jobs on graduation. (Source: TT commentary from, Mar 14, 2009)

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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sell-out audience of 35 in February, and still have more
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So, we have decided to re-run the seminar next
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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 Terrie's Take 507 we covered the China honey trade
in Japan and how low cost honey poses a potential threat
to the Japanese food supply.

Reader: Your article got me thinking about honey, and while
looking through a "free paper" at the ads, I came across
one for... wait for it... dog honey! It turns out that the
company is selling NZ Manuka honey at a rate of 500gms for
7,350yen! Someone is making some good money out of honey.

There is a site to go with the paper ad.

What's interesting is that the web page comes loaded with
facts and certifications that establish the value of the
product. I guess that in Japan you can market just about
anything if you have the right amount of backup "evidence".

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