Crime in Japan – Part 2 - The break-up of the nuclear family & the end of jobs for life

The economic toll behind the break-up of the nuclear family in Japan

Did you know that 25% of all marriages in Japan are couples that marry due to unplanned pregnancies? In Okinawa that rate is 42.4% Did you also know that 25% of all households with children in Japan are single-parent? The dutiful wife getting up at 4am to make breakfast for her samurai salaryman husband is virtually non-existent and half of divorces happen in age groups 55 years old and above. 25% of divorces occur in the 65yo+ cohort. The government changed the law in 2007 entitling wives to up to half of their ex-husband’s pension. Still the trend was rising sharply even before its introduction. Mrs. Watanabe has had enough of her salaryman and wants out.

Domestic violence (DV) is seeing a very sharp upturn in Japan. Between 2010 and 2014, DV has soared 60.6% against women and 650.1% against men. Most cases (over 60%) of DV were marital related. Recognizing the growing problem, the police have even developed a new category of DV, which defines a divorced couple who are living under the same roof. Economic conditions for some families has become so tight that the stress of living with someone they do not want to be with now gets its own category, scoring over 6,000 cases alone in 2014.

Source: Japanese National Police Agency (JNPA)

Between 2010 and 2014, total reported stalking cases surged 36.6% to 24,837. 50% of stalking incidents recorded were related to partners (including former partners).

The Ministry for Health, Labor & Welfare (MHLW) has 208 child consultation centres, which fielded over 88,000 cases in 2014, a 20.5%YoY increase or 22x the level of 20 years ago. Despite a 2.4x jump in social workers inside these child consultation centres over the last two decades they can’t keep up with the demand. The Japan National Police Agency (JNPA) statistics show a sharp jump in arrests for child abuse, 80% being due to physical violence causing injury. In 2013, 36 abused children died with 16 of them under 1 year old. Police note that child abuse is being driven by the breakdown in traditional family, unemployment and poverty, stats which we showed earlier to be rising steadily.

 

Source: Statistics Bureau

Crime in Japan is a problem that will not simply disappear with the evolving mix of aging demographics, poverty, unemployment, underemployment and economic stagnation. We note that the previous jump in Japanese crime started in 1997 and ran to a peak in 2003. Unemployment was a factor. In the crime boom of 2010-2016, we note that the unemployment rate has fallen but it masks disturbing trends in lower paid part-time work which is putting families under financial stress.

There is the smell of fear in the workplace. In the period 2002 to 2013, labour disputes almost trebled. Bullying and harassment (which are obviously less palatable for companies to have floating in the public domain) as a percent of total disputes has ballooned from 5.8% to almost 20% over the same period.

Another dilemma in the data is the employment referrals by government unemployment agencies for middle or advanced aged staff (45yo+) shows that around 25% of them end up with work in a fixed term capacity of more than 4 months.

Ironically active retraining of inmates to help them find new careers after release occurs in prison. Why isn’t more being spent on finding ways to redeploy those out of prison? The idea that any job will do is a recipe for failure and cannot be relied upon as a sustainable program. Most vocational training by Hello Work, the government unemployment insurance agency, is broad and non-specific. Any specific job training will be ‘paid for’ which ultimately is limited to an unemployed person’s financial status and confidence a job will be attainable at the end of it.

Crime in Japan  - Part 3 – Yakuza, Murder, Drugs, Fraud & the Police – out in March

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Crime in Japan – Part 1 - The Economics of Elderly Crime

Geriatric Jailbirds – Breaking into Prison

While retirement for many of us is some way into the future, common sense would dictate that once we reach it, committing crime is probably furthest from our minds. Hugging one’s grandchildren is surely a better option than talking to them through a glass window. If you are in prison you are supposed to be old when you leave not when you enter it. Not so in Japan.

The incidence of crime committed by the elderly is soaring. 35% of all arrests for shop-lifting involve the retiree demographic, up from 20% (2001). Since 2001, their representative percentage of the prison population has doubled and 40% of repeat offenders among the elderly have committed crimes six times or more in order to return as a guest of His Excellency. While much of it is petty crime, there seems a deliberate attempt to ‘break into prison’ as a way to survive. A roof over their head, three square meals a day, no utility bills and unlimited free health care. The only real negative being the harsh prison rules about when one can talk to fellow inmates. To the state, one inmate costs ¥3.8mn to incarcerate and we estimate around ¥300,000 in court and administration fees per incarceration. Furthermore supplemental healthcare to the prison system has doubled in the last 7 years. We study the economics of what might drive someone to make the choice to commit crime and look at the government’s current funding for income support. Is it being spent wisely?

Criminals Arrested By Age Group In Japan

Source: Japan National Police Agency (JNPA)

Such has been the overpopulation in prisons, the government has had to increase capacity by 50% in the last decade and boost the incidence of early release and parole to create space for what one can only guess is a way of developing state sponsored retirement villages. Female prisons are already full but the MoJ wants to increase the number of female prison guards to prepare for the anticipated increase in elderly crime. 

At the last (average) count in 2010, there were 4,069 elderly inmates. While that is only 14 people per 100,000 aged over 65 that rate has been climbing from 12 in 2004 and around 8 in 2000. We estimate at the 5.4% compound growth rates experienced to date, that 31 people per 100,000 is possible by 2036. At that rate, 11,636 elderly citizens would be in jail at a cost to the government of ¥42bn per annum as health cost related budgets have been appropriated at around ¥120,000 per elderly inmate.

‘Supplemental welfare’ or income support paid by the Japanese government is approximately ¥3.6 trillion per annum and spread across 5.9mn people (an average of ¥605,000 per person). ¥1.7 trillion of that total is for medical and nursing care (c.¥1.2mn per person). Note this portion of healthcare is separate from the ¥36 trillion annual healthcare budget.

What are the economic sums that drive a pensioner to consider committing crime? We surmise that a measly base pension of ¥780,000 (US$7,000) per annum won’t get one very far. When throwing on top of that healthcare, rent, utilities and food it is not hard to get someone into net-negative income territory. Sure, supplemental income through part time work may close the gap but perhaps that some are resigned to their fate to consider jail as an option.

There is another elephant in the room. Suicides among pensioners are now 40% of the total, up from 27% in 1983. One gets the feeling that all of the things that retirees had come to expect from a society is in reality against their long-entrenched cultural thinking. Wives of retirees now make up 6% of all reported suicides. They are obviously not adjusting to having the bread winner at home every day. We break down suicides by prefecture and show the clear link to elderly populations, low population growth and relatively smaller GDP compared to national averages. The economic malaise in the regions contradicts a vibrant Tokyo and much of what is going on does not get reported. Domestic violence committed by the elderly has surged 2.4x in the last 5 years. The number of murders committed are even higher.

Solutions are hard to fathom. By 2060, 40% of the population will be above 65 years of age. Would Japan be better off building large scale dormitories that would include medical facilities in return for pension sacrifice? This way these pensioners could trade off prison life for state sponsored shelters at one would expect a fraction of the cost of adding to prison population. Surely if the government met potential pickpocketing pensioners half way then it would be preferable to both parties on cost and shame grounds. Would a Benesse (9783) be interested in running a public-private initiative (PPI) to help the government build such centres given they are already investing in old age care facilities? Benesse wants to expand its elderly care business to 20% of the group total by 2020. The government has taken this approach of PPI with building day-care centres as JP Holdings (2749) has benefitted greatly from. The government needs to think of how to revitalise the regional areas. With slowing economic growth, working age employees flock to the cities where jobs are more likely. It exacerbates the pressure on the regions to survive and poses longer term risks for the companies in the region to sustain employment. PPI projects in the regions makes sense from a variety of perspectives which we discuss might alleviate the pressure.

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What Worked Asia - 19 Feb 2016 - Value and Beta drove most Markets in Asia this week

What WorkedBeta and Value bounced in Hong Kong this week. Beta has not done this well in Hong Kong since last September. Obviously there was a huge reversal in price momentum. Names that did well were Alibaba Health up 37% and Season Pacific Holding up 23%. In China it was all about Beta and to a lesser degree Value. Huaneng Renewables was up 35% and Huadian Fuxin Energy was up 30%. In South Korea, it was the opposite. Value was the strongest and Beta trailed behind. Value names that did the best were OCI was up 26% and Ssangyong Cement was up 12%. Singapore was all about Beta and Large cap. The one-week price reversal was through the roof high. Names that were up were Sembcorp Marine was up 20% and Noble Group was up 18%. Interestingly in India, Value barely worked and Beta did nothing this week. Indonesia was also all about Value and Beta did nothing this week. Names that were up were Eagle High Plantation up 27% and Media Nusantara was up 10%. Value and Beta did well in Malaysia. SapuraKencana Petroleum was up 9% and Press Metal was up 5%.

Who Moved218 names moved on volume this week. A good number of volume spikes came in India and South Korea. Relative to other regions, there were not a lot of spikes in China and Hong Kong. At the Sector Level, the Finance Sector dominated the spikes. On the positive side, Thai Airways International was up 37%, Huaneng Renewables was up 34% and Just Dial was up 26%. On the other side, COSMAX was down 21%, Enseval Putera Megatrading was down 18% and Korea Kolmar was down 17%.

Summary

Factor Performance Asia ex-Japan

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What Worked Japan - 19 Feb 2016 - Value / Beta bounced hard on very strong volume

What WorkedHuge bounce in Value and high Beta names. With TOPIX bouncing 8% this week, Value (particularly PE), Beta and names with a high percent of Foreign investors really did well this week. High Beta and names with a high % of Foreign Investor have not done this well in the last 2 years. The last time PE did this well was last October. Value names that did well this week were Tokyo Tatemono up 26%, Nabtesco Corp was up 21% and Capcom was up 22%. High Beta names  that did well were Sumitomo Rubber Industries up 29%, Sumco up 27% and IHI Corp up 24%. Names with a high percent of Foreign Investors that outperformed were Softbank was up 22%, Capcom was up 22% and ASATSU-DK was up 22%. There was a slight sell off in Retail names as they have done well pretty much every week since the beginning of the year.

Who MovedA very good sign was that this week’s move was on very strong volume. 210 names moved on volume this week. 189 names moved up on strong volume and only 21 names moved down on volume this week. Looking at the names that moved down, Yamazaki Bread was down 12%, Trend Micro was down 9% and Hokuetsu Kishu was down 7%. On the positive side, aside from ASATSU-DK all the above names moved on volume. Other names that moved up on strong volume were DMG MORI was up 19%, Itochu was up 17% and Pola Orbis up 18%.

Summary

Japan Factor Performance

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What Worked Australia - 19 Feb 2016 - Value strong, but smaller names the winners

What Worked – For the first time this year value has managed to come in with an IC above our “threshold” of 10%. All value metrics (ex dividend yield) posted very strong numbers this week, the strongest in fact since the week before Christmas. Seven West Media (SWM, +12.7%), Seven Group Holdings (SVW, +5.6%) and Spotless Group (SPO, +16.9%) all amongst the sub 10x PER names that posted better than the index returns for the week. Momentum on the other hand reversed as the names that had run (and become more expensive) flat-lined for the week against the index, and the cheaper names took the lead. Momentum was negative across the board, driven not by profit taking, but a run into index laggards.

Size came into play this week also, having it worst performing week in almost a year. While the large cap names remained in-line with the index, the smaller names saw a dramatic pickup. Mount Gibson Iron (MGX, +5.7%), Cardno Ltd (CDD, +12.5%) and AWE Ltd (AWE, +17.7%) amongst the smallest names in the index that all saw significant returns for the week. All in all, only 8 names in the sub- 1bn AUD market cap range posted a loss for the week.

Who Moved – Strong week for volume as 39 names from the 200 in the index posted significantly stronger than usual volumes. On the winning end were a lot of the smaller names, including Beadall Resources (BDR, +33.3%), Whitehaven Coal (SHC, +26.7%) and GWA Group (GWA, +22.8%), while the other end of the list saw Arrium (ARI, -74.1%), Cover-More Group (CVO, -14.3%) and Atlas Iron (AGO, -9.1%) all come off on the back of very strong volumes.

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Crime In Japan Series - Executive Summary

A tsunami of stats pointing to seismic shifts in society

 

The state of crime in Japan – a summary

When I first stumbled over the crime data by chance I never envisaged I would have over 120 charts and 100 pages to write about. There is so much for one to take in that I’ve decided to break it up into a series looking at the saddening trends the country now faces. It is a wild ride and will undo a lot of perceptions. This piece is the executive summary and in coming days we’ll investigate elderly crime and the breakdown in the traditional nuclear family and touch on the yakuza, police budgets, Olympic security, financial fraud and murder. Brace yourselves.

Prison Populations in Japan

The Japan National Police Agency (JNPA) and Ministry of Justice (MoJ) databanks are a treasure trove. Alarmingly is the trend in the activities of those above 60 years old. Over one-third of all arrests for shop-lifting involve this retiree demographic, up from 20% (2001). Since 2001, their representative percentage of the prison population has doubled and given the lenient sentences generally given in Japan (even drug offences mostly carry jail terms inside 2 years) 40% of repeat offenders among the elderly have committed crimes six times or more in order to return as a guest of His Excellency.

Such has been the overpopulation in prisons, the government has had to increase capacity by 50% over the last decade and boost the incidence of early release and parole to create space which one wonders is a way of making state sponsored retirement villages. Female prisons are already full (4,500 inmates) but the MoJ wants to increase the number of female prison guards to prepare for the anticipated increase in elderly crime.

Suicides among pensioners is now 40% of the total up from 27% in 1983.

There are now 3.9mn single mother and 664,000 single father households in Japan which combined now contribute almost a quarter of all households with children up from 15% in 1990. 25% of couples now marry because of unplanned pregnancy. The traditional ‘nuclear’ family is no more. Child abuse cases are up 22x over the last 20 years to 90,000.

Domestic violence (DV) is seeing a very sharp upturn in Japan. Between 2010 and 2014, victims of DV have soared 60.6% against women and 650.1% against men. Economic conditions for some families has become so tight that divorced couples are living under the same roof and DV in this category (recently created by the police), scored over 6,000 cases alone in 2014. Police cite economic issues as the largest factor.



Pressure to prevent losing one’s job seems to be a factor in the steady increase in labour disputes. In the period 2002 to 2013, labour disputes almost trebled. Bullying/harassment (which are obviously less palatable for companies to have in the public domain) as a percent of total disputes has ballooned from 5.8% to almost 20%.

What is inescapable is that Japan’s crime is unlikely to peak anytime soon. The trends show that Japan is no different to Greece. When economic conditions reach certain limits, people do what they must do to survive. That the elderly are considering ways to break into prison to seek a better life tells us all we need to know. How bad does a society have to get in order for this to be a viable choice? Mr & Mrs Watanabe are sending a very important warning. Government and investors should take heed.

We run the mathematics on what drives a pensioner to want to be a jail bird and show the government is literally burning up ¥30bn per annum on unnecessary costs which could be solved by sensible public-private initiatives (PPI) that are already used in day-care centres. The formation of state run dormitories would save ¥17bn in prison guard costs alone and reduce costs to the state of the 5.9mn citizens that fall under income support. We will delve into the details in Crime in Japan – Part 1 on Monday Feb 22nd. Stay tuned.

The full summary is available here.


'Japan Premium' Continues for TIBOR vs. LIBOR

The expression ‘Japan Premium’ gained popularity following the failure of Hyogo Bank in 1995 and collapse of Yamaichi Securities in 1997.  In 1997, the TIBOR (Tokyo Interbank Rate) overseen by the Japan Bankers’ Association (JBA) the rate at which Japanese banks (mainly city banks) lend to one another, rose to 30-35 bps higher than LIBOR (London Interbank Offered Rate) which is set by the British Bankers’ Association. Since about ¥100trn of Y433trn in bank lending (with more derivative transactions tied to LIBOR/TIBOR) is priced off of Tibor, one has to ask why the ‘premium’ still exists where the financial position of Japan’s banks is no longer an issue. This discrepancy also undermines the efficacy of the BOJ’s new negative interest rate policy.

A 2002 study suggested that the premium was due to declining long-term JGB yields, a flatter yield curve and weaker bank share prices, which all served to raise the risk premium. [1] Some regulators blame the discrepancy on the pedantic nuance, where  London bankers are being asked ‘what they think they have to pay’ as opposed to ‘what they think the prevailing rate is’ in Tokyo. However, some have alleged that TIBOR rate setting involves some collusion.[2]

This premium is all the more surprising given the publicity received from the Yen Libor fixing probe which saw heavy fines for Deutche Bank, UBS and Barclays (among others) for allegations of price fixing between 2005-2009.

One of the main objectives of increasing the ‘excess reserves’ in the BOJ’s ‘current account reserves’ is to ensure that banks follow the central bank’s policy rate. In the case of Japan or the ECB, the rate on  excess deposits becomes a floor for interbank overnight lending where the central bank tries to keep interbank lending close to the lower bound to have an effective interest rate policy. Japan’s excess reserves (the reserves in excess of mandatory reserves and special lending commitments) has averaged ¥178trn over the last 3 months, well above the ¥30trn, or so, we calculate as necessary to maintain bank discipline within the lower bound of -10bps. Still the fact that TIBOR is 18bps above the floor is surprising as I had expected the gap to come down to 10bps, for a TIBOR of close to zero. For reference, Euribor  rates are currently hovering at -18bps compared to the ECB deposit rate of -30bps. While Eonia overnight bank rates have been hovering around -25bps, only 5bps above the ECB deposit facility of -0.30%.

Meanwhile the premium for interbank rates over the 3 mo. Interest swap swap has expanded as banks factor in further cuts to deposit rate in the future.

 


[1] Vicentiu Covrig, Buen Sin Low, Michael Melvin, A Yen is Not a Yen: TIBOR/LIBOR and the Determinants of the Japan Premium

[2] FT March 19, 2014, FT February 16, 2013


3/3 Earnings Summary - Not much change YoY Aggregate numbers not great but not bad.....

We still have some stragglers who have not announced, but the majority of names are in. With only 40 new names the aggregate numbers have not really change much over last week. YTD aggregate YoY OP growth is at 14% and aggregate Net Income growth is now at 6%. YTD YoY growth at the sector level are also positive. Only 8 out of 31 Sectors have negative YoY growth. The worst is Iron & Steel with OP down 35% YoY and Mining OP is down 27% YoY. On the positive side, OP for the Electric Power and Gas is up 140% YoY and aggregate OP for Pulp & Paper is up 60% YoY

 Looking toward the full-year numbers, we have now achieved 78% of full-year aggregate OP guidance and 79% of full-year Net Income guidance. At the sector level, Pharmaceutical sector has already achieved 111% of its full-year guidance, Land Transportation has achieved 91% of its full-year OP guidance and 88% of OP guidance has been achieved in Rubber Products. On the other side, Machinery has only achieved 67% of full-year OP guidance and Wholesale Trade has only achieved 68% of full-year guidance.

 The gap between Company guidance and Consensus estimates remained the same. At the aggregate level, Net Income guidance is now 7% below consensus and aggregate OP is now 4% below consensus. OP guidance for Electric Appliances is 5% below consensus. Guidance for both the Rubber Products sector remains 9% below consensus. However, OP guidance for the Pharmaceutical sector is now 6% below consensus, compared to9% below last week.

 Looking at what consensus is doing after announcements,OP consensus is up 0.5% since announcements, consensus OP for the Marine Transportation sector dropped 4% last week and Nonferrous Metals consensus estimate fell 2% last week to a total of 5% since announcement. Consensus estimates for Other Financing Business was also reduced by 2%. On an overall absolute basis, OP consensus estimates for the Securities % Commodities is down 8% since the announcements.

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Abe’s Growth Promises and Defying the Law of Demographity

As an undergrad in Economics, I was introduced to Gary Becker’s ‘Rotten Kid Theorem’ which argued that a benevolent figurehead could transfer utility to his children because they recognized that it was in everyone’s interest to maximize total welfare, even if one happened to be a ‘rotten kid’. Because of the expectation of future wealth transfers, family members adjusted their expectations in certain periods so that they could maximize their utility over time.

I was fascinated how one could apply this analysis to the theory of employment in Japan in contrast to the West. Employee loyalty to their firms was enhanced by promising a degree of long-term employment, in exchange firms could afford to invest in their employees, rotate them between divisions to get a better understanding of how the entire firm worked, and when they approached their mid-late thirties, both firm and employee would theoretically start to see a higher payoff.

 In contrast, Western firms which often focused on developing experts, with limited reciprocal obligations between firm and employee, were forced to deal with their ‘rotten kids’ (sic employees) by offering them instant gratification with high wages and bonuses lest they move on to the next highest bidder. The drawback being, that Western firms would be afraid to invest too much in their employees (lest they move on to their competitors) limiting the overall potential utility curves or ‘pareto optimality’ that the collective firm could achieve.

Being the early ‘80’s, business literature was obsessed with analyzing the Japan miracle, with books such as ‘Kaisha, The Enigma of Japanese Power, and Japan as #1’ must reads. Japan’s growth translated into per capita income growth that was driven by growth in high value auto and electronics and the real estate bubble.

By 1990 Japan had one of the world’s highest per capita GDP along with the US and Sweden as manufacturing reached 25% of GDP. Today manufacturing has fallen to 18.2%, which doesn’t seem so bad when one thinks that the US is only 12% manufacturing. But, unlike the US, it has been unable to develop a financial services, IT and software sector that can export on a global scale. Worse however, Japan’s per capita income has now fallen below many of its OECD counterparts.

…….though it doesn’t look as bad in purchasing power parity (PPP) terms because deflation has generally supported real purchasing power (below).

 

                                                                                                                                                                                   Source: OECD, Custom Products

 

                                                                                                                                                                                 Source: Bloomberg, Economist, Custom Products

At least if you have to live off a diet of Big Macs and fries, you are still relatively better off in Japan. Japan's relative purchasing power is actually much more compelling where typical Asian cuisine is considered.

Japan, however, is no longer dominant in many technologies that it pioneered, such as LCD, solar, lithium ion batteries, memory, smart phones and high speed trains; much of which  have largely passed on to Asia.  

Though there are, no doubt, many burgeoning technologies waiting for the light of day, venture capital in Japan is still nascent with $1bn invested last year compared to $50bn in the US. Sure, one could say that this would provide infinite opportunities for overseas venture capital investing in Japan, but the reality is that these firms are far more interested in duplicating successful global models in Japan rather than trying to adapt Japan’s Galapagos technology worldwide.

The days have passed when most department stores had their elevator girls and train stations had their confetti bag laiden ticket clippers waiting at the exits. But Japan, if anything, is moving further towards a service Economy.  Unfortunately, the labour productivity gains over the last 20yrs have come almost exclusively from the manufacturing sector, with retail, transport, restaurants, hotels and business services falling well below their global peers for productivity.[1] At least the service is still great!

Significant revisions to the labour personnel dispatch laws in ’95 and ’99 made it much easier to employ irregular and subcontract workers, and hence began a dumbing-down of the workforce since less time was spent on education and training in general (putting Japanese workers in more direct competition with their Asian neighbors).­  Average monthly wages (including overtime, bonus and social welfare deductions) have generally been flat over the last 5 years, though increased 0.3% in 2015 due to overtime and bonuses, but management is reticent to add to fixed costs with wage increases as it would rather maintain flexibility through higher bonuses. Legally mandated social welfare costs, mainly paid by employers, have risen at a compound rate of 1.39% pa over the last 20 years while nominal wages have only increased 0.27% pa, such that social welfare costs have risen from 10.4% to 14.8% of wages during this time (Keidanren December 2015).   

Ministry of  Health, Labour and Welfare

 

 

(Yen/hr)

Ministry of  Health, Labour and Welfare

In many ways, Japan has fallen prey to the Asian deflation which has forced it to compete with its Asian neighbor in the technologies that it once dominated. No longer are companies, like SONY, able to command a premium for products such as they enjoyed with the Trinitron TV in the seventies. It is now largely a question of price as the gaps in quality have gradually disappeared. So we now buy LED or OLED screens rather than looking for a particular brand TV. When was the last time you heard the salesman say ‘it’s made at Kamiyama (previously Sharp’s showcase factory and sign of quality)?

In the late 90s, both Japan and Korea were trying to penetrate the Chinese market, Korean manufacturers made a conscious effort to go for share by reducing prices for their key high growth products. Japanese manufacturers, on the other hand, thought they could command a premium for their products. As demand fell behind, Japanese manufacturers started lowering prices in an effort to gain market share. This brought the once proud showcase factories in Kamiyama, for sharp, and Yokkaiichi for Toshiba into direct competition with their Korean, Taiwanese, and Chinese rivals. Japan tried to compete by using relaxed labour laws for contracts employees which served to suppress wages. In the end, many of these lines were transferred elsewhere in Asia.

Source:Trading economics

 

Japan has seen a sharp downturn in terms of trade (output prices divided by input costs)  since 2000, hurting wages and profitability.

Japan has also seen its white goods industry slowly losing its advantage to LG, Haier, Daewoo , and TCL or Seiki in the case of LCD TVs. Sanyo has been absorbed into Haier, and Sharp may soon go to Foxcon.

In 2000, the UN calculated that Japan would have to accept 381,000 immigrants annually if Japan was to maintain her peak 2005 population of 127.5mn. The same study forecast that Japan would need to accept 608,000 immigrants annually to keep its peak working population.

10 years ago, the Japanese labour dispatch company Fullcast made a presentation to a Diet committee claiming that Japan needed 5 million foreign workers, including 500,000 in health and elderly home workers,   if she was to grow over the next 10 years. Several years later, the first group of 50 Indonesians who had managed to pass the rigorous Japanese nurse helper’ exam came, but it seems that it was never more than a trickle.

For more than 20 years, the warnings of the shrinking of Japan’s population have gone unheeded and have rather been met with a tacit acquiescence, an eery resignation to ones fate, as if nothing could be done to stem the problem.  Only now the government is starting to pay lip service to this crisis by trying to promote increased labour participation and childcare services with its ‘ichioku sokatsuyaku shakai’ plan (‘100 million actively participating society in 50 years’).

Last year, Mr. Abe introduced the second act to his ‘Three Arrows Plan’ with the slogan ‘Y600trn GDP and 100mn active population’ as the pillar of his growth plan.  At current trends, Japan’s population which peaked at 128mn in 2008 will fall to 86.7mn by 2060. The new plan focuses on 3 key areas for its success: holding the line on population decline to 100mn by 2065 by lifting the birthrate from 1.4 to 1.8 per 100, increasing the labour participation rate of the 9.5mn unemployed and underemployed and lifting wages, particularly for irregular workers. The math is simple enough, 3% annual wage increases (1% real) gets you to ¥600bn in 5 years. But the plan falls short on details.

 

IMF Working Papers 2012[2]

 

Japan’s birthrate would be higher if childcare was better, allowing for a higher labour participation rate (above). Household income for low wage earners also doesn’t really support a second child (below), while female workers who try to supplement the household income are further disadvantaged.

 

 Source:IMF Working Papers 2012

 

Ministry of  Health, Labour and Welfare

Unfortunately, I am pessimistic that any significant real income growth is likely over the next decade. Japan has been undergoing de-industrialization over the last 25 years as manufacturing has fallen from 25% of GDP in 1990 to 18.2% last year. Manufacturing jobs enjoy about 15% higher incomes than those in the service sector (Min of Health, Labour & Welfare). Demographics hurt too, because the average Japanese is now 47yrs old, which coincides with peak productivity. Labour participation rates have fallen from 62% to 59.5% since 2000 but part-time participation has doubled from 14.5% to 30.5% since 1995. Labour productivity is still down sharply from peak in March 2007 (101.4 vs 119.1, Japan Productivity Center).

Few of the 1980's revisionists could have envisioned Japan’s current predicament; low wages and low growth. And many new graduates who would have subscribed to the 'rotten kid theorem' as new recruits in the 80's under lifetime employment, may have had second thoughts. Japan faces the prospect of becoming another Italy, which might not be too bad, depending on your perspective.

 

[1] EU KLEMS data

[2] IMF Working Papers 2012, Who Can Boost Female Labour Force participation, Yuko Kinoshita, Fang Guo

 


What Worked Asia - 12 Feb 2016 - When markets were open this week Value and Beta were hurt (except in Korea)

What Worked As it was Chinese New Year this week, the numbers are really pretty much all over the place. Hong Kong only had 2 trading days and that was dominated by a sell-off in Value and High Beta names. Evergrande Health Industry was down 23% and EO Technics was down 20%. Large-cap names did slightly outperform in Hong Kong. India was open for most of the week, but the results were the same. Clear rotation away from Value / Beta and into Quality. Procter & Gamble Hygiene was up 6% and Apollo Tyrese was up 9%. South Korea only had 2 trading days this week. But high dividend yield and large-cap names dominated. High Div yield names that did well were Daewoo International was up 10% and KIA Motors was up 4%. Singapore was open for 3 days but really nothing stood out other than a selloff in high Beta names. Golden Agri-Resource was down 7% and Noble Group was also down 9%.

Who Moved73 names spiked on volume this week with the majority of volume spikes coming in India. This is no surprise as most of the other regions did not have a full week due to the New Year. On the positive side, Philex Mining was up 26%, Petron Corp was up 14% and Big C Supercenter was up 9%. On the negative side, Punjab National Bank was down 21%, Indo Count Industries was down 23% and Tata Motors was down 13%.

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