Terrie's Take: Japan's Big 9 of 2013, Record Budget & Defense, 10m Foreign Travelers, Bain Buys Macromill, and Foreign Maids

Terrie's Take - AkihabaraNews.com

Terrie’s Take is a selection of Japanese-centric news collected and collated at J@pan Inc by long-time resident and media business professional Terrie Lloyd. AkihabaraNews is pleased to present Terrie’s learned perspective; we all could use another take on the news - here’s Terrie’s:

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Terrie’s Take on December 16, 2013

Feature:

  • Nine Events in 2013 That Will Change Us

Briefs:

  • Budget to hit record JPY96trn in 2014
  • Defense spending to hit JPY24.6trn
  • Foreign inbound traveler numbers to exceed 10m for 2013
  • Bain Capital to buy Macromill
  • Little action on foreign home helpers


Nine Events in 2013 That Will Change Us 
2013 has been the year of recovery of the Japanese stock market thanks to a newly mandated and now emboldened conservative LDP government. Thus this year's summary of key events revolves in around the role of government intervention and the trends that such politically-driven activity will have on our businesses in 2014. In addition, we recognize some technological breakthroughs that remind us that Japan is still a source of innovation and technical excellence.

1. January -- Japanese battery technology vindicated
The Boeing 787 Dreamliner fires that were global news in 2012 and early 2013 were found to NOT be caused by production problems at GS Yuasa, the maker of the lithium batteries powering the aircraft. Once the company was cleared of fault, everyone was left to wonder what really happened. Our guess is that the aircraft's core electrical design itself was to blame in some obscure way (for example, cabling positioning causing induced high-voltage spikes) and so the actual cause will never be found but seems to have been resolved by process of elimination, or perhaps the cause was found but swept under the carpet for political and economic expediency. Either way, no one got injured and so we may never learn the true story.

Key to this story is the fact that as yet since there is no safe alternative to lithium as a base for portable, dense energy storage, and electrical systems developers all over the world will continue to work with the material. This fact is being amply demonstrated by the world's leading electric car brand, Tesla, which has had to fend off several negative news events after drivers ran over objects on the road, pulled over safely, but then the cars caught fire. Tesla seems to have recovered from that negative publicity, and recently signed a contract with Panasonic for the supply of two billion more lithium batteries cells over the next four years. That's plenty to keep Panasonic's battery division busy for a while...!

2. March -- Australia becomes Japan's largest source of LNG
With the ramp up of the West Australian Pluto gas project, Australia overtook Qatar as the largest supplier of LNG to Japan, shipping 15.9m tonnes in 2012. As a result, LNG is now one of Australia's largest exports, worth AU$13.8bn last year. In all, Japan imported 87.3m tonnes of LNG in 2012, up by more than 30% over pre-3/11 volumes, and is expected to continue that pace until some number of its 54 idled nuclear power stations are bought back online. The utilities are consuming about 70% of Japan's LNG, which is a substantial drag on the economy and on resources.

The trend here is two-fold: firstly that the hydrocarbon economy is alive and well thanks to the nuclear power stand-off, so thank god for the U.S. increased production of oil, taking the pressure off the global markets, else Japan could be in real financial trouble. Secondly, we find it strange and interesting that Abe's government, so overbearing in other areas, has not rammed through nuclear power station restarts. Is this because they are sensitive to a backlash from the electorate? We don't think so, given their behavior over the recent state secrets bill -- they will do what they have to do, no matter how unpopular it is. So that leads us to think that there must be a more strategic reason for leaving the nuclear power plants turned off... great fuel for conspiracy theories.

 3. April -- First human trial approved for stem cells
Japan's Health Ministry approved the world's first clinical trial of a revolutionary stem cell treatment to reverse macular degeneration. The permission was given to researchers at the Riken Center for Developmental Biology to start a trial in 2014 which will morph iPS cells into retinal cells for six patients going blind from the age-related disease. The research is being led by Masayo Takahashi, who is a colleague of 2012 Nobel Prize winner for stem cell development, Shinya Yamanaka.

The trial is just the tip of the iceberg for Japanese government stewardship of stem cell treatments as a future specialty industry. Separate media reports put the government's total allocation for the further research and commercialization of stem cell treatments at between JPY21.4bn and JPY118bn. Much of this cash is being fed into a rising empire that Prof. Yamanaka is creating. Apparently he now has 20 teams focusing on different treatments, the results of each of which will likely be spun off into separate companies.

4. May -- Massive data leak at Yahoo Japan shows weak defenses
Mid-month, Yahoo Japan, the nation's largest web portal by far, admitted that they had found yet another data leak, this time on their ID servers, which involved the probable disclosure of up to 22m user account IDs. Although the IDs are publicly viewable anyway, they are not available as a single mass file, which of course is likely to be used by illicit email spam companies.

Perhaps more tellingly, this leak came just four weeks after another more serious incident, where Yahoo Japan found a trojan on their servers that was harvesting user data and preparing to send it out to its creator. The company said that it caught the trojan in time, after it had harvested about 1.27m accounts. While hacking into databases happens all over the world, Japan seems particularly somewhat nonchalant and vulnerable when it comes to hacking, and one wonders when the nation's major providers will start to take the threat seriously, especially now that China and Japan are at political loggerheads over the Senkaku islands.

5. June -- Visa changes mark start of massive tourism increase
Rule changes announced by the Justice Ministry about tourist visas for visitors from South East Asia seem to answer the question that Japan's top tourism officials have been asking themselves: "Do we prefer a few overstayers from SE Asia or the uncertainty and over-reliance on China?" The fact that the Senkaku islands dispute seriously interrupted yet again Chinese tourism in 2012 and 2013 means that Japan by necessity needs to find fresh markets -- the so-called China-plus-one strategy that until now only applied to manufacturing.

The good news is that since the visa requirements were eased in July (visas were extended from the existing 15 days to open multiple-entry stays), the number of visitors from those beneficiary countries has soared. The countries were Thailand and Malaysia for now, and from next year, will most likely also include Indonesia and Vietnam. The number of Thais entering Japan, for example shot up by almost 100% over the second five months of this year, giving an aggregate increase for the whole year over 2012 of almost 70%. Not only are the Thais less threatening than the Chinese, but they are also more likely to be repeat travelers, simply because the climate and economic differences are so much more marked than those with China.

Our own www.japantravel.com business has taken good note of the developing flows from SE Asia and set up its own office in Bangkok in October. The target is to work with the local Japan fan base and build a solid community there to influence more people to come to Japan for their holidays.

6. July -- Softbank continues to build a global mega-brand (and debt to match)
Early July the FCC cleared the way for Softbank to take over Sprint Nextel, the USA's third largest phone carrier. The merger cost Softbank US$21.6bn, saddling the Japan headquarters with a massive amount of new debt, but at the same time vaulting Softbank to become one of the largest carriers on the planet. Softbank's Mr. Son first announced his offer to take over Sprint in October 2012, but then had to overcome competition from Dish Network, which added an extra US$1.6bn to the price tag. Recent commentary has been that Mr. Son has personally taken control of reorganizing his new prize, and is spending a significant amount of time in the States to "Softbank-ize" the business and its product offerings. Will be interesting to see how he looks to shake up the market and more importantly whether he can pull Sprint out of the slump it had been in.

7. August -- Nothing like doubling down when things are looking hopeful
In the middle of summer we were greeted with the depressing news that the nation's public debt had hit a number never used before by a first-world nation -- one quadrillion (yen). In case you needed reminding, that means "one thousand trillion". And we thought that a trillion was a lot...! Another way to visualize this level of debt is that it represents a debt of JPY7.92m (US$79,000) for each man, woman, and child in Japan. Given that about 30% of Japanese don't have any savings, you can increase that number to about JPY13m for those who actually do have some savings put aside.

We suppose that the Abe government imagines that they can inflate the real value of this debt away, and certainly there is some truth to that -- IF Japan is allowed to keep sinking its currency. Just this week, the yen hit a 5-year low of JPY103-US$1, however, there is a high chance that world events and jealous neighbors will change this status quo in 2014. Also, there is the disconcerting fact that the government is going to double-down for next year and increase the budget (and debt) even further. Where is all the money going? Mostly on social security and healthcare for the aged -- both areas that are begging to be seriously pruned over the coming 2-3 years.

8. September -- Sharing fingerprints is thin edge of wedge
It may seem innocuous enough -- an announcement that the police and immigration authorities of both the USA and Japan are going to share fingerprint data on about 85m people. After all, whatever makes us safer is good isn't it? While the basic sales point to the public has been anti-terrorism, and thus public safety, we can't help wondering if there isn't a bigger cross-border plan going on? Especially in light of this month's (December's) ramming by the LDP of the new state secrecy law through parliament. The Abe government made it pretty clear that they were pushing the security bill through so that they could remain trusted allies of the USA -- a particularly pressing relationship given the recent sabre rattling in the region by China.

If you look at all the tax, immigration, and military information sharing measures that have been going on recently, Japan appears to be buying itself a permanent stake in the U.S. military-government-business hemisphere, a stake that will be completed when/if TPP gets done. Not to say that this is surprising or necessarily so bad, just that the previous government, the DPJ, kind of had the Japanese thinking that they were their own boss. Abe is certainly making it clear to all citizens that this is not the case. Unfortunately for him, the state secrets bill is opposed by 80% of the adult population and even the LDP Secretary General is unsure who will be affected by the new law -- something that news media organizations and their journalists are particularly unhappy about.

9. November -- Backtracking on reforms stimulates law suit
It is no coincidence that our last major event to influence us in 2013 and beyond is again a government-related one. In this case, the Abe government's inaction over the backtracking of Kasumigaseki's bureaucrats on online business reform. As readers may remember, earlier this year, an appeals court found that the Health Ministry ban on the online sales of most OTC drugs was unfair and that online sales should be allowed. This was very welcome news for Rakuten subsidiary, www.kenko.com, which lost a substantial amount of its sales after the OTC drug sales were suspended previously.

Unfortunately the relaxation of the ban didn't last long, as the Health Ministry came to the rescue of pharma's vested interest groups by passing fresh rules banning online sales of drugs. Rakuten's big boss, Hiroshi Mikitani, got really upset about this arrogant treatment of the sector and threatened to withdraw from PM Abe's showcase reforms advisory team. Now, Mikitani's subsidiary, Kenko.com is going to sue the Health Ministry on the basis that its ban is unconstitutional -- which it probably is. What we have here is the old guard versus the new guard: a trend that can only pick up pace as younger entrepreneurs prove to be essential to the nation's financial health, through their ability to improve efficiencies and conduct business abroad and so produce taxes at home.

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Note from Terrie:
This is our last Terrie's Take of 2013. It's been an interesting year, and we hope that you will stay with us in 2014, as Japan either stands ready to escape 20 years of economic stagnation or falters under the burden of the soon-to-be-increased consumption tax. We will be back on January 12th, an extra week later than our normal two weeks off, because of the way the holidays fall this year. We hope that everyone has a great Year-end break.

Budget to hit record JPY96trn in 2014
Talk about doubling down, the Abe government continues its merry tradition of spending future generations' income by continuing to run huge budget deficits, a situation that doesn't look like it will stop anytime soon. The Finance Ministry is forecasting that the government will require a record JPY96trn (US$917bn) budget for 2014, about JPY340bn more than this current year. In stark contrast, the government's anticipated tax revenue will be around JPY50trn, meaning the remainder will be added to the national public debt as borrowings of one kind or another.
(Source: TT commentary from asia.nikkei.com, Dec 14, 2014)

Defense spending to hit JPY24.6trn
One of the areas slated for increase in the new government spend-up in 2014 and the following four years is defense, and the government has put in a budget request to the Finance Ministry of JPY24.6trn, an increase of JPY1.2trn over the current annual spending. Most of the money will apparently go on U.S.-sourced technology, such as Osprey transport aircraft, Global Hawk drones, F-35 stealth fighters, and two new Aegis ships with ballistic missile-killing systems.
(Source: TT commentary from asia.nikkei.com, Dec 13, 2013)

Foreign inbound traveler numbers to exceed 10m for 2013
For the first time ever the number of foreign travelers to Japan is expected to exceed 10m people. A JNTO report released two weeks ago reported that by the end of November, the tally was already at 9.5m visitors, making the 10m target a likely shoe-in. The JNTO says that it thinks yen weakness coupled with eased tourist visa restrictions for some SE Asian countries are the main reasons for the increased numbers. The biggest gainers in terms of origin were Thais, up 69.1% from 2012, to 397,600 people, Vietnamese, up 53.5% to 79,300 people, and Indonesia, Malaysia, and Singapore, all up more than 30% each. The total tourist spending in 2012 was estimated at JPY1.09trn, a number which will probably increase by more than 15%-20% this year.
(Source: TT commentary from ajw.asahi.com, Dec 12, 2013)

Bain Capital to buy Macromill
Japan's largest online market research company, Macromill, has become the target of an M&A offer by Bain Capital Partners of the USA. Since Macromill is publicly listed, the offer was made to all shareholders, but the largest two, Macromill's Chairman/President, and Yahoo Japan, have apparently already agreed to accept the JPY786 per share -- so it's a done deal. Shares had previously been trading at around JPY650/share, giving shareholders a decent 20% premium. ***Ed: Having pioneered the concept of online surveys in Japan, Macromill has about 2.5m respondents in its database, but has been feeling a lot of pressure domestically from literally scores of competitors offering lower prices and more niche user segmentation.**
(Source: TT commentary from research-live.com, Dec 12, 2013)

Little action on foreign home helpers
Ever since the American Chamber of Commerce in Japan released a recommendation in June for the Abe administration to relax the rules on families earning more than JPY7m/year to be able to employ foreign home helpers, particularly helpers from the Philippines, there has been little-to-no action by the government. Apparently home helpers, either Japanese or foreign, make up just 0.1% of the work force (about 60,000 workers), while in the USA the number is 0.5% and in Hong Kong it is a whopping 7.7%. Estimates are that if Japanese wives were able to return to the workforce with the help of home help, at an 80% work force participation rate (i.e., the same as for men), their presence would increase Japan's GDP by 14%.
(Source: TT commentary from reuters.com, Dec 12, 2013)

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Images: Terrie’s Take; AkihabaraNews.com

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