TT-515 -- Sophie's choice by government funds, ebiz news from Japan

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A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, Apr 26, 2009 Issue No. 515


- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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This last week, the Diet passed a bill that allows the
government to invest capital into large private and public
companies which are suffering from the global economic
downturn. The bill is intended to protect jobs at large
employers that might be in danger of either going under or
having to massively restructure. To be eligible for the
funds, recipient companies need to employ at least 5,000
people within Japan, and have incurred a 20% drop in sales
in the last quarter, or 15% over the last financial half

Among the first nominees of this government's largesse are
audio maker Pioneer and DRAM/chip maker Elpida. The news
is that Pioneer will get about JPY30bn (US$300m approx.),
and Elpida an as yet undisclosed amount. The investments
will be made via the Development Bank of Japan (DBJ).
Surprisingly, there doesn't seem to be any requirement for
the government to exit these investments, which pretty much
sets the tone for the monies being interpreted as tax-free
"gifts" from the state. Maybe the details are still in the

This makes for a major change from the last time government
injections into private companies were done, back in 2003,
via the Industry Revitalization Corporation of Japan
(IRCJ). Readers may recall that the IRCJ was established to
acquire the bad assets of the nation's still-struggling
banks, so as to stop a financial sector meltdown. Back then
the IRCJ was very focused on communicating to the public
that for each investment it made, it would insist on making
a profit from the company acquired, and thus forestalling
opposition cries that it was money down the toilet.

[Continued below...]

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[...Article continues]

As it turns out, the IRCJ created a high-level team drawn
from private industry, and the results were very good
indeed. Companies were turned around and profits made for
the state. Possibly the volume and size of the investee
companies were not as great as might have been hoped when
the politicians first announced the idea of a government
buy-out fund, but certainly they were enough to make a

In this respect, the IRCJ effort then was not so different
to the recent efforts of the U.S. government to recapitalize
major banks, securities firms, and some insurance
companies over the last few months. It was based on the
idea that the banking system has to be stable, else the
entire commercial activities of the nation will grind to a
stop. Fair enough, whether you love them or hate them,
we need banks to underpin this capitalist system of ours.

However, as we're now seeing with the U.S. government's
venturing into the auto sector, putting government
investment funds into private non-bank companies is not so
clear cut. After receiving billions, GM and Chrysler are
still highly likely to go bankrupt.

If there are other sources for the technologies, services,
and products that a given company puts out, no matter how
big it is, why shouldn't that company have to live or die
by the marketplace, just like its competitors have to?
This idea that the government as a major investor will
pick which zombie company gets to survive and which gets
to go bust is very troubling. The process is completely
open to political leverage, led by the catch cry, "They're
too big to be allowed to fail."

Pioneer makes nice products, but has no particularly
leading edge technologies that would be lost to the nation
by their demise. Indeed, one gets the impression that the
company got stuck in a 1970's time warp and its senior
management never really understood that the world was going
digital. So why are they being rescued? Employment?

Well, we calculated that the JPY30bn which will be invested
into the company, if divided by the 10,000 employees in
Japan, results in an investment of JPY3m per employee to
protect their jobs. Surely 100 small companies with 100
employees each would create the same or even better quality
employment "bank", and we're sure that these smaller firms
would be delighted to have a large undemanding shareholder
throw JPY300m each at them. Further, with 100 companies
in a portfolio, the government's investment would be
sufficiently diverse that it would probably be safe.

Contrasted to Pioneer, Elpida may be a bit different, in
that it's probably more strategic to the nation. This
company is a combination of the chip businesses of Hitachi,
NEC, and Mitsubishi, so it owns advanced IP and feeds some
of Japan's largest high-tech companies with products that
would be hard to replicate. Japan would be at a strong
disadvantage technologically and supply-wise if the
company was closed down and the assets shipped off to

Being on a roll, the government also announced that it is
planning a separate public/private investment fund worth up
to JPY900bn -- which actually does look a bit more measured
and thought out than the employee-protection program above.
But with just JPY82bn to come from government, and the rest
supposedly coming from private financial institutions who
will get government guarantees, we wonder whether this
15-year fund will really produce any useful results?
JPY900bn is not a lot of money if the primary targets are
major troubled companies, and the likelihood of getting a
return from the fund is probably very low, especially if
it invests in politically charged targets...

...Political targets such as JAL, which has just applied to
the DBJ for a JPY200bn loan. We're willing to bet that JAL,
a company which has been struggling internally (quite apart
from the external factors of fuel costs and reduced
passenger numbers) with management and IT problems for the
best part of a decade now, will soon make it on to one or
other of these investment programs. And so some things never
change, just the numbers get bigger and we the public get
more blasé.


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+++ NEWS

- Possible holiday reform
- Half million foreigners working in Japan legally
- Nomura declares JPY700bn loss
- Shinsei and Aozora to merge?
- No-alcohol "beer" a hit

-> Possible holiday reform

The central government is reportedly looking at modifying
the dates of some public holidays, so as to ensure that
they fall on days that allow 3-day weekends and thus
encourage employees to take time off work and travel with
their families. To ensure that Dads actually do take off
their extra days of leave -- which currently they don't 50%
of the time, the government is also considering changing
accounting rules so that any unused employee leave will
have to be accounted for as a liability, and be financially
provisioned for in company accounts. ***Ed: This is a great
idea, and will certainly make companies more interested in
having their staff actually take time off.** (Source: TT
commentary from, Apr 21, 2009)

-> Half million foreigners working in Japan legally

According to the Labor Ministry, 504,360 foreigners were
working legally in Japan in January, 2009. According to the
report about a quarter of that number were working in
Tokyo, and around 30% of all foreigners work in temporary
staffing or subcontracting jobs. ***Ed: We're not sure if
this number includes zainichi Koreans and Taiwanese or not,
but if not, then it represents a large jump from the
330,000 legal foreign workers declared in July 2008, just
last year. The 2008 number was in itself a big jump,
representing 30% more people than the number of workers
registered in 2007 -- so some interesting demographic
changes going on here... Or, maybe it just reflects the
fact that since companies now have to report their foreign
employees, the Ministry's figures prior to 2008 were "lazy
data"?** (Source: TT commentary from, Apr 22,

-> Nomura declares JPY700bn loss

Call it the Lehman effect, or whatever, Nomura is suffering
right now. The company has just declared its largest ever
annual loss, of JPY709.4bn (US$10.2bn). Actually, the
company has the ignominy of incurring the largest loss ever
for a Japanese corporation -- although that record will
apparently be broken shortly by Hitachi with an even larger
loss. Nomura's numbers reflect about JPY530bn worth of
one-off charges relating to the Lehman takeover as well as
general trading losses. (Source: TT commentary from, Apr 25, 2009)

-> Shinsei and Aozora to merge?

Hard to say if it's a good idea or not, but in any case,
the Shinsei and Aozora banks are rumored to be discussing a
merger. Both banks are controlled by foreign investment
funds, J.C. Flowers on the Shinsei side and Cerberus
Capital on the Aozora side -- so we can assume that they
have been able to do the numbers. The joint organization
would be the 6th largest commercial bank in Japan. ***Ed:
Shinsei operates primarily a retail bank and Aozora is an
institutional bank, so it's hard to see how the two will
produce any synergies from a tie-up. We suppose that if
they injected sufficient capital so as to build out a
monolithic set of services then a merger would make more
sense. But, then where would the differentiation be versus
the larger domestic banks, with their much bigger depositor
customer bases?** (Source: TT commentary from,
Apr 25, 2009)

-> No-alcohol "beer" a hit

Good news for pregnant mums, designated drivers (Japan has
zero blood alcohol tolerance for drivers), and old guys
who can't hold their liquor! A beer that tastes like the
real thing but has absolutely no alcohol in it has hit the
stores. Kirin's "Free" beer seems to have broken the taste
barrier that has dogged other non-alcoholic (dog's) brews
and has been such a huge hit that it has sold out all
over the country. When it comes back in stock, you can pick
up a can for JPY150. (Source: TT commentary from, Apr 23, 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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