Terrie's Take: Japan's Soft Engineering, Japan's Not so Good at Cybersecurity, Butter Imports, and More!

Terrie's Take - AkihabaraNews.com

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 June 2, 2014

Feature:

  • Master Plans to Move Japan into Soft Engineering

Briefs:

  • Self-provisioned cloud services from NTT
  • Adobe Flash vulnerability opens financial data to attack
  • Retail sales data show tax impact is severe
  • Someone is making money, foreign assets hit a record
  • Butter imports to rise

Master Plans to Move Japan into Soft Engineering
Anyone else get the feeling that the Japanese government is embarking on more than one ambitious master plan? Most of us are focused on Abenomics and efforts of the government to devalue the currency while shifting the tax burden onto the retired, which is providing plenty of commentary but not so much action. Deeper in the planning rooms of Kasumigaseki, though, there appear to be other projects going on which really might change the way people live and work here. We're referring specifically to Cool Japan, a collection of subsidies, targeted support activities, and capital fundings, as well as some major new initiatives in the Science field -- ranging from a significant increase in budget allocated to the Cabinet Office (the PM's office) to a classic "Japan Inc" program in regenerative medicine. 

With the advent of these two sectoral programs, it appears that the Japanese government has somewhat accepted the country's inevitable decline in manufacturing of products, and it is now plotting a future course based on software/content and soft (tissue) engineering. If this trend is really happening, it will create all kinds of opportunities for start-ups both local and inbound, in the arts and sciences spaces. Everyone from vendors of lab equipment to recruiters of bilingual designers will see a pick up in business as commercial spin offs occur. The question of course is whether the government is capable of coordinating such innovation or whether this will be another case of wishful thinking and mis-use of public funds. Well, at least it is better than yet another bridge to nowhere.

We've covered Cool Japan in previous Takes, and hopefully if you allocate JPY25m in each project subsidy and award that amount to hundreds of companies a year, then some of the projects proposed will actually take hold and grow. Japan needs more success stories like Gumi and Gungho. One big problem, though, is that the subsidies are only for short term use and on a collaborative basis (with other companies), meaning that no one is trying to develop deep in-house capability nor time-consuming best-of-class content and solutions. This short-termist thinking, caused by the bureaucrats' obsession with keeping budgets to one-year cycles, is the archilles heel of Japanese pump-priming efforts.

But that weakness aside, what caught our attention this week was an announcement in the Nikkei that the government (led by METI) is going to join forces with companies and universities to develop the regenerative medicine sector into a major new industrial powerhouse for Japan. We've mentioned previously how stem cell maestro Shinya Yamanaka is translating his know-how into profits by spinning off different techniques and technologies as different companies. A good example is macular degeneration treatment, which is getting close to commercialization. In January (TT-739) we reported that the government has earmarked up to JPY118bn to help him build his new business empire.

While this activity shows that Japan's favorite Nobel prize winner is both academically and business gifted, his plans alone will not support a declining nation economically. Instead the country needs a whole sector of companies profiting from stem cells. And so it is that the government has decided to push out a program that will bind in other groups and share the R&D risks and subsequent spoils around. This may or may not hurt Yamanaka and his plans, but at least it will ensure that there will be competition and therefore rapid improvement in technologies and pricing. The hope seems to be that although other countries (e.g., China) are moving rapidly into this space as well, the life-or-death nature of medicine will ensure that the "Made in Japan" premium can be preserved.

The other interesting thing to see from the announcement last week is that the government has decided that regenerative medicine can be translated into manufacturing, not just labs and academia. To make this happen, the government has to (and appears to be getting ready to) break down a lot of the barriers that have previously stood in the way of young Japanese firms that want to break into the regenerative business. Apparently next year there will be a new organization formed, which will provide both the investment focus and cross-discipline awareness needed in the modern medical sector -- things which the current separated Education, Health, and Economy ministries are incapable of and instead they have been regulatorily suffocating the sector. Interesting report on these changes from a budgetary point of view at http://www.nsftokyo.org/rm14-02.pdf.

There is also a very good report on the current blockages to science start-ups in Japan by Dr. Maki Umemura, which you can find at http://bit.ly/1m3566q. It points out that the regulatory and financial barriers are sufficiently high that only one regenerative medicine company has been able to get its products officially approved and brought to market so far -- Japan Tissue Engineering, which makes artificial skin, cartilage, and corneal tissue for lab testing. The company is still losing scads of money, but it's interesting to see how fast its new cartilage business is creating sales.

The METI plan involves four consortiums of companies and colleges:
1. Fujifilm and ten other companies, along with Kyoto and Keio Universities, will focus on cardiac and nerve tissue regeneration.
2. Nikon and eight other companies, along with Osaka University and four other colleges, will focus on liver and retina regeneration.
3. Taiyo Nippon Sanso and seven other companies will join up with Tokyo University and others to focus on cartilage regeneration.
4. Clio, Tohoku University, and others will focus on muse cells and their application in treating heart disease

The cartilage project is looking especially promising from a commercial point of view, so perhaps it's no wonder that Todai snagged this piece. It has already been clinically proven that cartilage can be restored through the administration of stem cells, and given the extent of the first world's aging population, the potential for repairing worn hip joints with a series of injections rather than expensive artificial joints and surgery is highly attractive. Indeed, a recent study of stem cell treatment for arthritis sufferers (arthritis being the pain produced by worn cartilage on bone joints) points out that arthritis costs the US economy about US$120bn a year.

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Next, a piece of news about our sister company, Japan Travel KK. The company put out a press release last week announcing that it had just published its 10,000th article, proving that travel writing is a keeper with the foreign community (the biggest contributors) in Japan. With its December rebranding, www.japantravel.com is now being published in 7 languages, with French being turned on mid-May, and is producing between 20-50 articles per day. That kind of output is great for SEO, and as a result of some Google love, the site recorded more than 2.2MM page views for the month of May, up 25% over April. This puts www.japantravel.com in the No. 2 spot for Japan inbound travel portals.

Lastly, lest we forget, the nuclear fuel assemblies transfer work at Fukushima Daiichi Unit 4 reactor storage pool has reached the half way mark -- and we're all still here to talk about it. TEPCO has said that it has removed 814 assemblies, and has 539 unused and 180 unused ones to go. The company is using two secure containers to move the assemblies in batches out of the spent fuel tank and over to a safer shared storage location. Although the operation was feared to be risky, due to stuck assemblies coming apart and the possibility of new aftershocks, so far, so good. Of course transferring these assemblies does not represent a particularly notable milestone in the overall cleanup to-do list, especially when one considers the main work of dealing with the melted down reactors is still to come. How long will that clean up take? Hundreds of years perhaps?

Self-provisioned cloud services from NTT
NTT Communications has announced that it has launched the first user-provisioned instant-on cloud network service. The new service allows users to modify their cloud network resources on the fly, as they launch new projects or experience rapid uptakes on resource utilization. The service is built on Virtela technology acquired when NTT bought the company in January 2014 for approximately US$525m. ***Ed: Relatively fast work by NTT to adopt and start reselling the Virtela platform and capabilities.** (Source: TT commentary from businesswire.com, May 29, 2014)

Adobe Flash vulnerability opens financial data to attack
There has been a massive attack on Japanese web users running Adobe Flash software on their PCs. The attack sought access to PC user data by redirecting users from legitimate sites to rogue copies that then tried to receive payment information. Over 14,000 instances of the attack were recorded by Symantec and they said that 94% of instances were in Japan. The sites that were compromised and caused redirection included a travel agency, a blog service, and a video sharing site. ***Ed: The fact is that Japanese awareness of cybersecurity is spectacularly low -- at all three levels: the users, who operate in a normally comfortably insular environment; the service providers, who are perpetually short of funds and engineering resources; and the authorities, who still find it difficult to grasp that it is not just "things" which get stolen. Japan had great success over the promotion of the Privacy Mark some years ago among online service providers. It now needs a similar initiative for data security.** (Source: TT commentary from pcworld.com, May 29, 2014)

Retail sales data show tax impact is severe
While we are of the opinion that the set back to retail sales caused by the increase in consumption tax is only temporary, the question that most people are asking is "how long is 'temporary'?" It appears that for the time being the impact of the increased consumption tax is more than most experts counted on. Retail sales in April, the first full month since the increase, sank 13.7% over March (but only 4.4% down over the same period in 2013), the biggest fall since data was initially recorded in 2002 but understandable given the big ramp up in spending before the tax took effect. The fall was most notable in consumer durables such as cars and home electronics. While data for May is not yet available, preliminary numbers seem to suggest that sales down 20% over the same period last year -- something which is more worrying. (Source: TT commentary from wsj.com, May 28, 2014)

Someone is making money, foreign assets hit a record
While the average small- to medium-sized domestic company is still under a lot of economic pressure, the bigger firms, and particularly those exporting, are socking away tons of cash, as is the Japanese government and its various financial institutions. Collectively, Japan's net external assets hit a record JPY325trn at the end of 2013, causing Japan to be the largest creditor nation for the 23rd year in a row. Japan's net external assets remain 150% higher than those of China, which holds JPY207trn in assets. (Source: TT commentary from reuters.com, May 26, 2014)

Butter imports to rise
The Ministry of Agriculture has decided that it will allow the import of an extra 7,000 tons of frozen butter for commercial use, primarily for Christmas cakes, due to the poor production figures by Japan's domestic dairy industry last year. Production suffered due to an excessively hot summer in 2013 as well as a notable fall in the number of dairy farmers because of retirements. Japan has a trade agreement through the WTO to import 137,000 tons of butter, and produces 72,000 tons itself domestically. ***Ed: If you want to see the ugly self-interest of Japan's agriculture sector, look no further than butter, a sector which is highly protected even though there doesn't seem to be any real logic as to why. Butter is subject to both volume limits and to an insane tax rate of 35% PLUS JPY1,159/kilo, which for a dairy producing country like Australia would mean an effective tax rate of about 250%.** (Source: TT commentary from capitalpress.com, May 27, 2014)

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That was Terrie's Take.

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