BOJ Takes Extraordinary Step of Buying Bank Stock Holdings


Japan was in a financial Catch 22. Until they fixed the banks' problems, they could not fix the economy. The debate over renewed capital infusions to shore up bank balance sheets was renewed. The Resolution and Collection Corporation, having failed to perform its role of absorbing bank NPLs, was under review.


The Bank of Japan had long advocated new bank capital infusions as a means of pushing them to accelerate their NPL disposals. At their most recent policy meeting, the Bank surprised the street by stating that they would begin buying cross-held stocks from 15 banks (including 4 regionals), ostensibly up to the amount the banks hold in excess of their regulatory capital, which was JPY8 trillion as of the end of March 2002. Moreover, they would buy these stocks (bank stocks are excluded) at market price over a period of one year at the longest.


The move solves several problems;


a) I frees the government from having to directly use public funds to recapitalize the banks, at least for now.


b) It allows the FSA and the Koizumi Administration to push the banks harder to accelerate their NPL disposal. But the net positive impact for the banks is probably more like JPY4 trillion instead of JPY8 trillion, because at current market values of stocks, they probably have unrealized losses of some JPY4 trillion.


c) JPY8 trillion is roughly the equivalent of the current stock loan position, i.e., the short interest in the market. At the very least, this could well spook the short interest out of the market over the short term, just as we saw last March.


d) Some worry that the action would weaken the BOJ's balance sheet, and lead to weaker bond prices as well as a weaker yen. This is not so bad either, especially if it leads to inflationary pressure. Japan is currently suffering from a deflationary spiral.


Now that the BOJ has taken the initiative with extraordinary stop-gap measures, it is up to the Koizumi Administration and the government to compliment the move with intensified pressure on the banks to liquidate their NPLs. The result of this could well be another spurt in bankruptcies and irrecoverable debts, which would place pressure on an extremely fragile economic recovery. This is where the Koizumi Administration can give the BOJ's effort a boost with accomodative fiscal policy.

Japanese Researchers Sue for Compensation for Lucrative Patents


Around 1998, Japanese companies began to respond to pressure to properly compensate employees who developed important technology and patents. Previous to 1998, it was normal for workers to surrender exclusive rights to the patents they developed to their employers. The Japanese Patent Law still states that patents for work-related inventions made on the job belong to the employee. The employer is eligible for transfer of patent rights but is required to pay the employee "appropriate compensation".


The issue of intellectual property rights in Japan came to the fore in August 2001, when Shuji Nakamura, now a University of California professor and who invented the blue light-emitting diode, filed a complaint against his former employer (Nichida Chemical Industries) demanding that they recognize his patent rights for the blue LED. In the event his claim is turned down, he is demanding that the company pay him JPY2 billion as part of remuneration for the sales the company generated from the product.
More recently a former employee of Ajinomoto is suing the company for JPY2 billion in compensation for his role in developing an artificial sweetner that proved to be a major cash cow for the company.


Chemical and pharmaceutical companies were among the first in Japan to increase employee rewards for patented pharmaceuticals, and the rewards are soaring. Takeda Chemical pays JPY50 million, while Sankyo Co. pays JPY60 million. Omron Corp. pays out JPY100 million, while Honda and Toyota have raised their compensation offers to JPY500,000-plus for new technologies in such areas as low-pollution vehicles and hydrogen-based fuel cells. Sony Corp. now pays JPY2 million to employees for promising patents long before they are even applied to products. Mitsubishi Chemical raised their special remuneration to JPY250 million this year. Following up on the intellectual property policy outlined in July, the Japanese government is now re-examining on the job invention systems.


Traditionally, the awareness that "employees were subordinate to companies" was prevalent in Japanese society. However, in May 2001, a ruling by the Tokyo High Court on Olympus Optical said that companies could no unilaterally decide "appropriate consideration". The amount of remuneration set by Japanese companies is now soaring because they are afraid of falling behind their foreign competitors in technological innovation.