Tokyo's office space glut


2003, The Year of the Great Office Space Glut

The New Year opens with a glut in Tokyo's office space market. According to the Mori Trust, 2.27 million square meters of office space will be put on the market in Tokyo this year, surpassing the 1.83 million square meters offered in 1994. Most of this office space is concentrated in three wards -- Chiyoda, Minato, and Chuo, and the new towers which are part of the large-scale developments in Shiodome, Higashi Shinagawa, and Roppongi have more than 50,000 square meters of office space. Thirty-four percent of the buildings are owner-occupied, so the properties are not being built exclusively for the lease market.


Vacancy rates for Tokyo as a whole have been rising, price-cutting has intensified, and real estate firms have been forced to compete by enhancing services, and the largest firms have turned to a strategy of supplying office space in competitive locations with convenient transportation in order to lure customers away from existing buildings. The new thinking is that a competitive product will sell regardless of overall demand. In other words, instead of relying on the intrinsic value of land, what is more important is the ability to attract customers by creating an appealing urban space on top of it. Land is thus a resource that requires innovation and effort to extract maximum profits from it.

Firms that are unable to adjust to the new rules of competition will be left in the cold. And if their tenants desert them, their buildings will become money drains for they will have to continue paying maintenance fees and taxes on them. If they seek to hang onto tenants by lowering rents, their profits will decline.


A 2002 law has speeded up the permit process for private sector urban renewal projects, and has become a catalyst for rejuvenating existing buildings. Its now a real fight for survival of the fittest.

Mainichi

MEIT Pulls Out the Stops to Lure Direct Foreign Investment


Japan is planning to launch a new program to attract more foreign investment this year in a move that experts say will make it significantly easier for foreign companies to set up businesses in Japan. The core part of the program is the launch as early as April of an institution tentatively called the Investment Japan: One-Stop Service Center. The center, to be launched in Tokyo and run by the government-affiliated Japan External Trade Organization, plans to work closely with local governments and regional business bodies to allow investors to receive these services even outside Tokyo.

(Tokyo Takes) According to the International Monetary Fund, the ratio of foreign direct investment to gross domestic product stood at a paltry 1.1 percent in Japan in 2000, far lower than the 32.4 percent in Britain, 27.7 percent in the United States and 22.4 percent in Germany. While observers have been expecting an M&A boom to emerge in Japan for years, progress is still, on the whole, no where near significant enough to make a noticeable dent in Japan's deteriorating economy.


Nissan Motor President Carlos Ghosn reportedly told the Investment Japan Forum, a private-sector forum to spur foreign investment in Japan, that if the ratio of FDI in Japan rises to 20 percent of GDP, it will bring about "economic effects worth 100 trillion yen and create 2 million jobs." Yes, the potential is there, but don't expect a boom tomorrow. Incrementally, FDI that could come to Japan is flowing instead to China.

Japan Times

Clueless Business Leaders Ask Employees for Inspiration

• "Unless we can find a clue for revival this year, the world will believe Japan is about to lose another 10 years" in economic limbo, said Junichi Ujiie, president of Nomura Holdings Inc.


• Shigemitsu Miki, president of the Bank of Tokyo-Mitsubishi, the core of Mitsubishi Tokyo Financial Group, said, "This is the year we cannot predict what will take place."


• Tetsuya Nomura, president of major general contractor Shimizu Corp, called on his firm's employees to summon courage. "Let's stop complaining that the situation is harsh," he said.


• Kanji Hayama, president of Taisei Corp, said, "Society and our clients are undergoing changes at a tremendous speed, so any business would be rendered a living fossil if it remained preoccupied with stereotypical perceptions of doing things."


• "Our company will remain under close scrutiny this year, too," said Kumagai Gumi Co President Kazutoshi Torikai. "So let's confront this year with a sort of preparedness" for difficult economic conditions, he said.


• "Daiei Inc President Kunio Takagi said, "Public perceptions of our company are very harsh. We need to improve things drastically."


• "Society is not so simple as to allow the situation to be improved on the basis of theories that lack practicality," said Kunio Ishihara, president of Tokio Marine & Fire Insurance Co, the core firm of Millea Holdings Inc."


• "Are you not trying to evade the task of reforming yourselves, by using various pretexts?" asked Mikihiko Miyamoto, president of Yasuda Mutual Life Insurance Co.


• Nissho Iwai Corp President Hidetoshi Nishimura said, "I want you to challenge difficulties with the attitude of devising methods that would realize goals before you utter reasons why the goals appear impossible to attain."


• "A new set of 12 years in the zodiac calendar system has commenced since the preceding 12 years have elapsed since the burst of the bubble economy," said Recruit Cosmos Co President Satoshi Shigeta in urging his employees to make a fresh start.


• Kajima Corp President Sadao Umeda said, "An Italian proverb says that if you behave like a sheep, you will be eaten by a wolf. Taking a weak-kneed attitude may be something that you should not do," he said.

Top managers of companies with mammoth liabilities like construction firms and large retailers may be forced to make harsh decisions affecting their workforce as the government is to legislate an austere budget, rather than taking stimulative fiscal steps.


(Tokyo Takes)In baseball, soccer and in many other sports, the "front" office and the owners fire the coach if the team fails to establish a winning record, not the whole team. This is true even in Japanese baseball. Is the "front office" and owners of Japanese companies asleep at the switch? What has Carlos Ghosn got that these guys don't?


Japan Today

Major Banks Reveal Plans to Dump JPY5 Trillion in Cross-Held Shares


Major banks intend to move up their schedules for share sales by six to 18 months, by unloading a total of 5 trillion yen worth of shareholdings by March 2004, financial observers say. The substantial sales would be in line with a regulation to be introduced in September 2004, limiting banks' to a level equivalent to their core shareholders' equity. Of the top seven banking groups, only Sumitomo Trust & Banking Co. has satisfied this regulation. Banks are also dumping shareholdings to reduce assets, a measure necessary to improve their capital adequacy ratios.


As of the end of September last year, the seven banking groups had shareholdings worth an estimated 20 trillion yen.If they dump large blocks of shares at one time it could send the market tumbling, so they plan to sell many of their holdings to the Bank of Japan, which began purchasing stock from banks in November last year. However, the BOJ so far plans to only purchase some JPY2 trillion worth of such stocks, leaving the market to digest the remaining JPY3 trillion.


Nikkei Net

"Backward Calculations" Symptom of Japan Disease



There is too much "backward calculation" going on in Japan, where public organizations and companies come up with a plan, then crunch and manipulate the numbers to show justification for the plan. As someone once said, "if you torture them long enough, statistics will tell you anything". Case in point. Shizuoka Prefecture is building a local airport scheduled to open in 2006. In 1995, it forecast that there would be 1.78 million domestic users, but has since revised down the figure twice, and is now preparing to lower it for a third time. They haven't revealed what would be a "make or break" traffic level at which the new facility could hope to break even. An official involved in the construction project said, "The prefecture cannot forecast that the airport will be unprofitable, because that would force it to stop the project. There is no turning back." As a result, the 190 billion project is quietly continuing.



The International Accounting Standards Board (IASB) approved a drastic reform plan to abolish "net profit," which they believe can be tampered with, and instead introduce "comprehensive profit", against virulent opposition from the Japan respresentative. Comprehensive profit is calculated by adding to the original profit the latent profit on land/shares based on market values at the time of book closing, or subtracting latent losses from the original profit. The accounting board aims to introduce the idea of market value accounting not only for assets and liabilities, but also profits and losses.


Japanese companies feel the reform plan is aimed at them. In their eyes, its OK to manipulate net profit to get the desired number, while adjusting profits for current market values of assets cannot be used to "manage" earnings. Mr. Yamada, the lone Japanese member on the IASB, feels Japan is being persecuted against because of "more-than-expected distrust in the Japanese style of management, which depends on latent profits."


TT Sorry to surprise you, Mr. Yamada, but the stock market has been trying to discount "comprehensive profits" for years, using earnings measurements such as adjusted operating profits, free cash flow and cash flow return on investment (ROI) to determine a more realistic measure of Japanese company profits. Moreover, statistical correlations between net income and stock prices for Japanese companies are very low.


Nikkei Net

What Business Elite Really Think of Heizo Takenaka


Ryo Takasugi, a Japanese popular author, has launched his diagnosis and prescription about the prolonging ailing Japanese economy in an interview with The Weekly Post.
Since his assumption of the posts, Japan's stock market has been sharply declining and the Nikkei Average has been moving within the range of the lowest point ever since the burst of Japan's bubble economy in early 1990's. In last one and half years since Prime Minister Koizumi took office, the aggregate market value of Japanese stocks has lost 131 trillion yen (approx. $1.1 trillion). However, Mr. Takenaka has never tried to change the nation's economic and financial policies. Although, in 2003, Japan's economy is expected to get worse, Mr. Takenaka keeps addressing that Japan's economy will make a 'safe landing.'


I do not see that he is a reformist. He is nothing but a disruptor, which has been evidenced enough by his reluctant operations of the nation's economy in last one and half years. In last 100 years, there has never been a consecutive three-year loss in (Japan's) GDP. In the middle of 1920's, there was the 'Showa Depression,' but GDP declined only for consecutive two years. Japan could face an unprecedented economic disaster in this year. Restructuring Japanese corporations does not mean real restructuring. What the Japanese corporations are doing is simply laying off their employees. They are not reconstructing their organizations at all. Today, restructuring of corporations means cutting off employees.


Toyota Motors has enough cash to invest 500 billion yen for each bank and is capable of acquiring both banks at the same time. If Toyota makes such announcement, it will encourage investors' mind and the stock market all of a sudden will surge. Perhaps, it is not unrealistic to see that Nikkei Average will rise to higher than 20,000-yen bench mark. I think that the two banks should be taken over by Toyota and become the 'Toyota Bank.'


(Tokyo Takes)Mr. Takasugi's sentiments are being heard increasingly often these days--i.e., the winners should help the losers. This is the precise reason why productivity and returns on assets in Japan continue to deteriorate from already woefully low levels. The old Japanese expression "the nail that sticks up gets hammered down" is no where better illustrated than with reaction to Heizo Takenaka's efforts to reform the banking system.

The Weekly Post

Consensus Sentiment Still Positive on Bonds


Bloomberg says that Japanese government bonds are poised for a ninth year of gains as deflation and drops in stock and property values may generate demand for debt even as 10-year yields drop to less than 1 percent. Yields on benchmark 10-year bonds may fall to an historic low of 0.74 percent as commercial banks step up debt purchases rather than make new loans and sell shareholdings to meet government targets. With interest rates at close to zero, the Bank of Japan may boost its bond purchases to encourage economic expansion and try to end a slide in property and share prices.


However, that's not what foreign investors see. In fact, more than a few foreign investors suspect that any serious reflation efforts by the Japanese government and particularly the Bank of Japan could well slam-dunk the JGB (Japanese government bond) market in 2003. At the very least, the JGB market is due for a significant sell-off, even if it is within the context of a continuing bull market.

Bloomberg

Toyota Stoops to Help a Loser


Why would the world's third-largest auto maker act like the Salvation Army? That's a question Toyota Motor Corp. (TM ) investors should be asking after the Toyota group agreed on Dec. 27 to inject $83 million into Tomen Corp., a money-losing Japanese trading house in search of a new lease on life.


The problem with both the Japanese government, the banks and even successful non-bank corporations is that they effectively act like the salvation army. Instead of promoting the winners, they are continually rooting for the losers. There is a Western saying that "nobody likes a loser", but this does not apply in Japan.

Business Week

Business Lobby Leaders See Increasing Economic Uncertainty


The leaders of Japan's three most powerful business groups said Monday that the uncertainty over Japan's economy is increasing this year due to the possibility of a U.S.-led war against Iraq, and predicted that annual economic growth will be between zero and nearly 1 percent. The uncertainties include;


A possible invasion of Iraq by the US


Disposal of bad loans and related restructuring of companies and industries.


Government efforts to eradicate deflation.

Japan Times