Terrie's Take: Small & Medium J-Business, Tuna Econ., and Make Sex Not War!
Terrie’s Take is a selection of Japan-centric news collected and collated 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 May 12, 2014
- Silent 3rd Arrow to Target SMEs?
- 3D printed guns lead to arrest
- Confusing economics of tuna
- Yoshihiko Miyauchi to step down as Orix CEO
- Ecchi, not war
- Most LGBT kids get bullied
Silent 3rd Arrow to Target SMEs?
Here we are in mid-May and the yen is still sitting at the 101/102=US$1 mark and there is little to no news on those Abenomics third arrow reforms. It's no wonder, therefore, that the press is listening to every whisper that comes out of Kasumigaseki, trying to guess what the next move will be. The latest is that the proposed corporate tax cut may be accelerated and implemented as early as next year, providing Abe with a major PR opportunity.
While lower corporate taxes seems like a step in the right direction, one also needs to remember the reasons for doing so, being: 1) to encourage Japanese corporations to spend some of their near-record JPY222trn in cash reserves here in Japan, rather than overseas, and 2) to encourage foreign firms looking at Asia to set up in Japan rather than Hong Kong, Singapore, or Beijing.
On the first reason, we think it is obvious by now that the bulk of large Japanese exporters have long since moved their manufacturing operations overseas, and there is little reason for them to return capital to a failing market back home where an aging population is holding on to its assets and actively decreasing spending as its collective insecurities grow. This massive move abroad by corporations is probably the main reason that the 2013 devaluation of the yen had so little beneficial impact on the economy, because those who would have benefited from cheaper exports no longer need such help.
On the second point, even a tax rate of 30% is still unattractive when you have all kinds of other hidden costs in doing business in Japan -- ranging from annually increasing social insurance contribution costs (which, once they are handled by the Tax Office will amount to a "tax" anyway), through to the high cost of transport, storage, and real estate. In fact, compared to Hong Kong and Singapore, even a 30% tax rate will still be almost double. A TT reader suggested to us a few weeks ago that corporations don't make location decisions based on tax and that rather they look at proximity to markets. While we debate this wisdom, even if it were true, what is more desirable? Proximity to a massive but mature and declining market like Japan or a vibrant and rapidly growing one like those of Vietnam, Malaysia, or Indonesia? Singapore as a corporate hub looks even more attractive by that measure.
While pondering tax cuts, though, it struck us that EVEN IF the Abe government did reduce corporate taxes, it won't provide much benefit to the economy. Why? Because 73% of ALL Japanese companies last year lost money (didn't pay profits tax), and so tax breaks will be irrelevant to them. It is no coincidence that almost all of these 73% are SMEs, who employ more than 70% of the population. So if the tax breaks are not going to have the "trickle up" effect that the government is looking for in reinvigorating the economy perhaps this explains why the Abe government has dragged its feet in implementing them -- because they won't help anyone but the biggest players.
Actually, because so many companies are not paying tax there is another recommendation is doing the rounds -- one that will require ALL companies, not just profitable ones, to pay taxes for the right to operate. The thinking is that these new levies will offset losses from the proposed reduction in the profits tax, and will work like a consumption tax on companies, being based on capitalization and salaries. We don't know if this is such a good idea, because while initially it would indeed pump up the tax base by 300%, it would also cause SMEs to actively lay off workers to stay in business. Some economists say that more people released into the work force by such actions will be a good thing, but we doubt it if most of them are older, hard to re-train, and unsuited to a post-manufacturing economy.
So how to help the SMEs get the economy kickstarted again if tax cuts aren't the answer? We think there are hints of a solution to be seen, but they are messy and "morally hazardous" (i.e., unpalatable as PR), so we think they will happen quietly while media attention is focused on the banner announcements.
Last year, the government ended the debt moratorium for SMEs, a temporary law which allowed about 300,000-400,000 companies, almost all SMEs and about 20%-25% of all Japan's actively operating businesses, to survive by paying interest and no principal on their bank loans. Indeed, many companies have been paying little or no interest either. We, like a number of others, predicted that there would be a rash of SME bankruptcies as a result and that this would spike unemployment. But it didn't happen. Instead, bankruptcies actually decreased...
From what we can see, even though the legal requirement for banks to help SMEs survive was removed, the FSA has continued to "nudge" banks to stay soft on SME loans, and so nothing changed, yet. What this tells us is that the politicians, or at least the bureaucrats advising the politicians, are not stupid and realize they need to do something about SMEs if they really want bottom-up changes in the economy. We now believe that if you want to see how Abenomics might move forward, instead of looking at the top line announcements, keep an eye on the rule changes and new programs coming out for SMEs. In following this strategy, you will notice that there have been some interesting developments recently. 1) There is talk within government circles of changing the rules on the treatment of directors of companies that go out of business, which to us sounds like a trial balloon prior to a major policy change. If the directors of zombie companies were suddenly released from personal responsibility for the massive loans their companies have received over the years, they are more likely to consider shutting those companies down and starting over. Right now they look at bankruptcy court and see themselves committing social suicide, so they hang on as long as they can. 2) In just the last few weeks, a number of colleagues have reported to us that it has suddenly become much easier for small companies to get loans of JPY10MM-JPY20MM, even if they are not profitable -- just so long as they are paying their taxes.
Putting a substantial amount of easy new money in the hands of SMEs makes sense although it is distasteful. These companies have historically proven they know how to spend. Yes, such moves will present a moral hazard and it will likely draw droves of Yakuza and other fringe-dwellers as well. But nonetheless, it will at least ensure that those who employ the bulk of Japan's workers will be sharing their newfound luck and for some of them they will actually reinvest and change their business for the better. What is the alternative? Throwing money through tax cuts at large companies who are already sitting on a JPY222trn pile of frozen cash? We don't think so. Piles of money don't vote, people working for SMEs do.
3D printed guns lead to arrest
If you have a 3D printer, the last thing you want to do is go around boasting on Twitter that you are using it to make plastic guns. Yet this is what a 27-year old Kanagawa-ken university employee did recently and as a result his apartment was raided by the police and he was arrested. The police said that of the five plastic guns seized, two were apparently functional and dangerous. This is the first instance in Japan of someone being arrested for creating weapons from web-based plans and a 3D printer. (Source: TT commentary from theguardian.com, May 8, 2014)
Confusing economics of tuna
What happens when a commodity becomes expensive because of the falling yen? It drops 50% in price...?! This is what has happened to the price of frozen bonito tuna, which after selling for more than US$2,300/ton in 2013 now sells for just US$1,200/ton in 2014, mainly because of slumping demand in Japan due to the high prices. Apparently the high prices last year were caused by a lower supply of tuna due to a poor fishing season, versus a much better season this year. Still, these extreme price fluctuations demonstrate that not only is the Japanese market an important one in the trade, but that Japanese consumers are very willing to abstain from a product that they feel is too expensive -- yen devaluation or not. ***Ed: Exporters of Bonito from Thailand are hoping that this is the bottom of the price-demand cycle, and that prices (and demand) will improve again next year. We presume it depends on what the Yen is worth at that time.** (Source: TT commentary from asia.nikkei.com, May 7, 2014)
Yoshihiko Miyauchi to step down as Orix CEO
An iconic business figure is about to leave the stage. Yoshihiko Miyauchi, the CEO of finance company Orix, will step down after more than 30 years in the job. Miyauchi co-established Orix back in 1964 and has since built the business into JPY1trn of revenues and an expected profit of JPY210bn this fiscal year. He is leaving after having groomed his 61-year old successor, Makoto Inoue, and putting into place a number of foreign mega deals to keep his team busy for the next few years. (Source: TT commentary from bloomberg.com, May 8, 2014)
Ecchi, not war
Ever heard of the "Senso Rabu na Otoko towa Ecchi Shinai Onna no Kai"? You probably will over the next few days, as this new women's group presses forward with its campaign to have its female members deny sexual relations with male partners who support Japan's right-turn on weapons exports. Their target apparently includes husbands and boyfriends who work for companies involved with weapons exports as well as those who simply support the policy. ***Ed: OK, so apparently this women's group had only one member when the Japan Times interviewed them, but the idea is catchy enough that we imagine it is drawing in new recruits. Certainly the foreign media will lap it up -- good click bait.** (Source: TT commentary from japantimes.co.jp, May 9, 2014)
Most LGBT kids get bullied
Perhaps it's not surprising, but a new LGBT study has found that 70% of kids who are gay or otherwise are bullied by their schoolmates, and that 32% of them have considered committing suicide. The bullying included 53% being verbally abused, 20% being physically bullied, and 11% being sexually abused. The problem appears to be systemic, as the study also found that 12% of the surveyed kids reported that the bullying came from the teachers themselves. ***Ed: Depressing...** (Source: TT commentary from pinknews.co.uk, May 8, 2014)
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That was Terrie's Take.
What's yours? Let us know down below.