The positive impact of McDonald’s on East Asia

DON BOUDREAUX at the site Cafe Hayek presents this post quoting a paper by Adrian E. Tschoegl that describes the positive impact of McDonald’s restaurants in Hong Kong, China, South Korea, and The Philippines.

They didn’t cite the negative impact–terrible food–but it’s worth seeing Tschoegel’s points. (I had to laugh at the improvement cited for South Korea.)

Cars losing cachet in Japan?

A NEW SOCIAL TREND in Japan? The Japanese Automobile Manufacturers’ Association revealed the results of its FY 2007 market trend survey showing that younger Japanese are less interested in car ownership than ever before.

The key figure in the survey is the percentage of primary drivers younger than age 30 in all households that own cars. (The primary driver is defined as that person with the greatest frequency of automobile operation in the household.) This percentage slid four points from the survey conducted five years ago to 7%. That’s the first time this percentage has ever been in single digits.

An association source says this percentage stood at 19% in 1995. Those in the 20-29 age group also accounted for 19% of the population that year. They now account for 14%. Therefore, the decline in primary drivers in that age group has been steeper than the drop in the ratio of that group to the overall population during the same period.

A similar survey conducted by the Hakuhodo Institute of Life and Living of men in their 20s uncovered a parallel trend. When asked what they would spend their money on, 31% of the guys in 1996 answered cars. That figure fell to 16% in 2006.

These surveys do not show a corresponding decline for people in their late 30s and older.

An analyst from Demeken (an abbreviation of the Japanese for Digital Media Research Institute) says this represents a shift in the attitude of the generation who grew up in the Internet era amidst the detritus of the collapse of the bubble economy in the 1990s. The people in this age group, he suggests, place more importance on use rather than ownership.

He notes that many in the youngest adult generation view cars merely as a means for transportation and not as a status symbol, as they were for previous generations of postwar Japanese.

Buttressing this analysis is the 35% increase in the number of rental cars in Japan during the 10-year period ended in 2006. Meanwhile, automobile sales fell during that period. (The largest decline occurred from 1995 to 2001).

The Nishinippon Shimbun, the newspaper in which this article appeared, views this as a matter of concern. They’re based in Fukuoka, and local governments and business organizations in northern Kyushu have been lobbying hard—with great success—to attract companies in the auto industry.

The article failed to provide a breakdown by region for these figures, however. It’s a lot easier to get around without a car in Tokyo or Osaka than it is in an area with a lower population density. With the exception of those who live in Fukuoka City, most people in Kyushu would find a car-less life quite inconvenient.

Nevertheless, there has been a noticeable shift in the attitude toward automobiles compared to the early 80s, when I first came to Japan. In those days, it was still the rule for people to work on Saturdays (at least half a day). I was surprised then at the number of people in their 20s whose idea of a good time on Sunday was to go on an all-day automobile jaunt. They went just for the drive and had no specific objective for the trip, such as to attend a concert or sporting event. After driving a few hours in one direction, they’d have something to eat, fool around a little bit, and then turn around and drive back home.

That doesn’t seem to be the case now.

Japanese bar code designs

THE WEBSITE Dark Roasted Blend has put together a post on the creative ways barcodes are used on Japanese products. Some of them are very imaginative, and you’ll find the post here.

Japan’s economy no longer “first class”?

JUST AS THE JAPANESE ECONOMY seemed to be waking from a nearly 20-year coma as if it were a Far Eastern Rip Van Winkle comes some discouraging words from Ota Hiroko, the Minister of State for Economic and Fiscal Policy. Delivering the government’s economic address at the start of the new Diet session (roughly an economic state of the union speech), Ms. Ota said the Japanese economy could no longer be termed “first class” despite the ongoing expansion, the country’s longest in the postwar period.

She cited as one reason for her assessment the fall in the country’s per capita gross domestic product to 18th among the 30 member nations of the Organization for Economic Cooperation and Development in 2006, the sixth straight annual decline. She said the country had been left behind by the dynamic changes in the global economy, and that it had not formulated a framework for continued growth.

Ms. Ota also noted that Japan’s share of aggregate world income had fallen below 10% for the first time in 24 years.

This address provides the backdrop for what many observers think will be the most contentious issue of the current Diet session, the government’s proposal to renew a temporary surtax on fuel.

Two Gas Station Bills in a Row

The debate in the Diet between the government and the opposition has shifted from the renewal of one gas station law to another. During the extraordinary session of the legislature just ended, the Diet passed a bill resuming the Japanese contribution to NATO’s military efforts in Afghanistan by refueling their vessels in the Indian Ocean. MPs will now discuss the renewal of a tax that will determine just how much drivers will pay at the pump when they refuel their cars—and gasoline prices have soared here as they have everywhere else.

The temporary surtax was levied in 1974, nominally for just two years, to cover a shortfall in the revenue needed to pay for a five-year plan for road construction that had been implemented the year before. Japan in those days was still very much in the Era of Rapid Growth mode. But politicians everywhere are loath to abandon cash cows, so it’s no surprise that successive governments kept renewing the tax for more than 30 years (though its Japanese name still contains the word “temporary”).

The legislation authorizing the tax will expire at the end of March, which is the end of the Japanese fiscal year. The ruling Liberal Democratic Party wants to keep the tax alive, while the primary opposition group, the Democratic Party of Japan, wants to kill it.

The basic tax on gasoline is fixed at 24.3 yen per liter by law, and the temporary tax doubles that. Gasoline (in my neighborhood) sells for about 145 yen per liter, or roughly $US 5.10 per American gallon, so the levy is both a substantial revenue source and a burden on business and the consumer.

The LDP argues the measure will serve as a de facto carbon tax and help the country cut carbon emissions by reducing gasoline consumption. Meanwhile, the DPJ claims the tax hurts people with lower incomes.

Of course there’s more to it than that.

Supporters of the Status Quo

Since the tax revenue is used for road construction, extending the tax will keep the spigot open for public works projects, delighting the large construction companies. Construction industry support for the LDP over the years is one reason the party has dominated Japanese politics for so long.

One aspect of the LDP’s recent governmental reform efforts, however, has been the attempt to loosen the grip on power of the so-called Iron Triangle of interlocking interests between business interests, the party, and the government. This has naturally led some of the party’s traditional supporters in the construction industry to shift their support from the LDP to the DPJ. (Despite the DPJ’s calls for real reform, one of their strategies for gaining control of the government is to assume the role of pork distributor after the LDP abandons the field.)

Another group typical of those supporting the continuation of the “temporary tax” is an association in Kyushu formed to promote the construction of the Kyushu leg of the Shinkansen high-speed railway, now partially open and scheduled for full completion in three more years. The association’s members are not just business interests; the governors of the four prefectures through which the main route will pass are also involved and strongly support the tax measure. Their primary concern is how they’ll be able to afford the infrastructural improvements needed in conjunction with the Shinkansen, such as access roads.

And the governors of the eastern Kyushu prefectures, where the Shinkansen will not run, are anxious to see the tax retained because they were mollified with the promise of a major expressway construction project after they complained that the western part of the island was getting all the pigmeat with the Shinkansen extension.

Those Seeking Relief

Opposition to the tax is not simply populist sentiment, however. The higher fuel prices hurt small businessmen, farmers, and fishermen. One representative of the maritime industry told a regional newspaper reporter that the average income of fishermen has fallen by half over the past five years because of declining catches, and that higher fuel prices are causing even more pain. (It takes a lot of money to fill up a fishing boat’s gas tanks.)

Finding themselves in the same boat, but on dry land, are the small independent farmers who also require fuel to operate their equipment, and who, like the large construction companies, also turned their back on the LDP in last year’s upper house election to switch to the opposition for similar reasons. Finally, smaller construction companies are clamoring for cheaper gas even though they realize it will mean a commensurate decline in public works projects. The owner of a small construction company in Nagasaki told the same reporter that conditions have become so bad that several companies in his area have sold some of their vehicles.

Both sides make valid arguments, and the resolution of the matter will benefit some at the expense of others, as well as influence trends in the no-longer-first-class economy.

Because this issue is more likely than the Indian Ocean refueling issue to have a direct impact on the lower house election many observers expect to be called later this year, public opinion could be the decisive factor for resolving the debate. That would certainly be a new development for Japanese politics.

On the one hand, the business-friendly, right-of-center LDP is behaving as if it were the Green Party when it talks up the merits of the tax, while the left-of-center, labor union-backed DPJ finds itself supporting a measure that will primarily benefit small businessmen, farmers, and fishermen in the private sector in addition to the general consumer.

Perhaps that’s what they mean when they say politics makes strange bedfellows.

Japan and Asia bailing out Yank banks?

HERE’S THE PROOF that Japanese banks have largely recovered from the overhang of non-performing debt from the era of the bubble economy, which burst to create an immense financial hangover.

The Times of London is reporting that the Big Three Japanese banks are interested in using their cash surpluses to bail out American firms at risk from their exposure in the subprime mortgage crisis.

Senior sources at the “big three” Tokyo megabanks told The Times that they had readied a combined cashpile of as much as $10 billion (£5 billion) and were open to negotiation with any struggling Wall Street bank that approached them for a cash infusion.

Mitsubishi UFJ (MUFJ), Mitsui Sumitomo Financial Group (SMFG) and Mizuho Financial - banks that have been scarred only very lightly by the sub-prime crisis in the United States - are understood to have already opened preliminary talks with several American firms.

One MUFJ insider said that his firm was planning to compete directly with the leading Asian sovereign wealth funds as a long-term investor in the troubled American banks.

Indeed, Mizuho joined with the Kuwait Investment Authority and the Korean Investment Corporation to provide $US 6.6 billion in cash to investment firm Merrill Lynch. Japanese press reports state that Mizuho’s contribution was roughly $US 1.2 billion, and that the members of the consortium which ponied up the funds would be given preferred stock without voting rights.

There is one troubling aspect to this situation, however:

The Japanese banks, flush with cash and desperate to find ways of raising their return on capital, are keen to become central players in what some predict will be an all-Asian solution to the sub-prime woes contorting America and Europe.

That’s exactly what got those banks in trouble in the first place, almost 20 years ago. Let’s hope that everyone has learned their lesson and is proceeding with caution this time.

Extra! Extra! Read All About It!

Reader Tomojiro sent along a link to the Japanese-language edition of the Yomiuri Shimbun, posted this afternoon, that makes one wonder what is going on at The Times of London.

According to The Times, a Mitsubishi UFJ insider told the reporter that the bank would be a serious player investing long-term in banks with subprime problems.

Yet the Yomiuri is saying that each of the Big Three has serious exposure to the subprime losses.

Here is a quick translation of the Yomiuri article:

Mitsubishi UFJ Losses in Subprime Debacle Roughly 50 Billion Yen ($US 465 Million)

The Mitsubishi UFJ financial group will record consolidated losses as high as 50 billion yen for the period from April to December 2007 due to their exposure to the subprime loan problem involving home loans for low-income borrowers in the U.S., it was learned on the 16th.

The losses have resulted from plummeting prices for subprime-related instruments in the bank’s portfolio, and will be officially announced at the end of the month.

Mitsubishi UFJ recorded 4 billion yen in subprime-related losses for the consolidated interim period ended September 2007, and announced their paper losses were as high as 23 billion yen at the end of October. The prices of securitized instruments have continued to fall, however. In addition to their investment in subprime-related instruments, the bank will suffer losses on their 80 billion yen investment in SIVs (Structured Investment Vehicles, i.e., financial institution-affiliated companies that sell commercial paper and medium-term notes and buy longer term debt instruments).

Subprime-related losses for the full fiscal year ending March 2008 are projected to swell to about 170 billion yen for the Mizuho Financial Group and about 87 billion yen for the Mitsui Sumitomo Financial Group. It was initially thought that Mitsubishi UFJ losses would be light, but the higher losses expected to emerge makes it likely the losses for the other major banks will grow as well.

Mizuho already has invested in Merrill Lynch, so if the Yomiuri report is true, it would mean that the Japanese banks are desperate to prop up the American companies to stanch their own bleeding, as Tomojiro suggested.

And–yet again–the Western media gets it very wrong about Japan. While those banks may be scraping together the funds to invest overseas, how could the Times of London come up with the idea that they have been “scarred only very lightly” by the subprime problem?

Did FDR bankrupt Japan?

NOW HERE’S A SERENDIPITOUS FIND—while searching for something else on the site of an Internet merchant, I discovered a recently-published book that looks intriguing. It’s called Bankrupting the Enemy: The U.S. Financial Siege of Japan Before Pearl Harbor.

According to the publisher’s blurb, the main points are as follows.

1. American government experts thought the war in China would bankrupt Japan, but didn’t realize that Japan had a supply of dollars hidden in New York.
2. When the Americans found out about the money, Japan tried to repatriate it. President Roosevelt moved to block them by using the 1917 Trading with the Enemy Act to freeze the assets and forbid the sale of Japanese gold to the U.S. Treasury (the only open gold market at the time).
3. Some Washington bureaucrats “thwarted” the plan, however. (The blurb does not say how.) Dean Acheson, the man Roosevelt selected to implement this plan, managed to prevent Japan from getting the money.
4. The author examines an OSS-State Department study of conditions in pre-war Japan that found the measure created economic hardships for Japan. Those hardships contributed to the country’s resolve to maintain the aggressive course that led to Pearl Harbor. Apparently, no one in the U.S. government had bothered to analyze the policy’s impact on the Japanese economy.

The publisher’s promotional copy is not well written and might lead a reader to think the OSS study was conducted before the war. As a poster on this History Channel discussion board notes, however, the OSS did not exist at the time. The book’s author, Edward S. Miller, responded to the note by stating that the OSS study was conducted in 1943 and was a retrospective look at Japanese economic conditions in the 1930s. He used this to extrapolate financial conditions in Japan had it not launched its attacks in 1941.

Mr. Miller is now retired, but has served as the chief financial officer at two companies, so he seems well qualified to understand financial operations of this sort. He is also the author of a book called War Plan Orange, which analyzes American war plans devised over the early part of the 20th century to deal with a potential Japan-U.S conflict. That book won five awards.

There is a long-held belief in some quarters that President Franklin Roosevelt baited Japan into attacking America to give him an excuse to enter the wider war. One quoted passage in the review, however, suggests it was his intention to “bring Japan to its senses, not its knees.”

That in turn suggests Roosevelt’s idea might have backfired by exacerbating rather than defusing Japan’s aggression. In other words, the attack on Pearl Harbor might not have been the result of a deliberate Roosevelt strategy, but a Roosevelt miscalculation.

But as Sherlock Holmes said, “It is a capital mistake to theorize before one has data,” and I just discovered the book’s existence this week.

Here’s the page on the publisher’s website.

The Japan Post privatization: A dim view

AS MUCH AS THOSE WHO CHAMPION small government would like to make disposable bureaucracies go poof with the stroke of a pen, the political realities in free market democracies make that an impossible dream.

The privatization of Japan’s former Postal Services Agency (and the elimination of the Ministry of Posts and Telecommunications) demonstrates that the task demands a strong-willed leader who has captured the imagination of the citizens, is determined to overcome the opposition of politicians with vested interests and an entrenched bureaucracy, and has the political capital to pull it off.

To achieve his objective, former Prime Minister Junichiro Koizumi had to take the drastic step of dissolving the lower house of the Diet and holding a special election with the privatization issue as the centerpiece of the campaign—after throwing out of his own party those MPs who voted against him. He ignored the party bigwigs who begged him not to go through with it. Scorched earth tactics are possible only once in an administration, and only in popular administrations at that.

It helped that 70% of the public supported the privatization of Japan Post, according to an Asahi Shimbun poll at the time. (And the left-of-center Asahi’s polling methods always produce lower counts for right-of-center politicians and programs.) I suspect a good chunk of this support came from people who were thrilled by the political spectacle and supported Mr. Koizumi in the same way that sports fans will back an athlete in a high-stakes match. But that’s part of the reality of politics, too.

The prime minister’s legislation as originally submitted would not have made it through the lower house unless certain aspects of it were watered down or omitted. Politics is, after all, the art of the possible, and compromises were necessary. But many in the financial industry are displeased with the plan, particularly the government’s continuing involvement in the enterprises after privatization.

Yesterday’s post featured an interview with the Cabinet member who engineered the privatization, Heizo Takenaka. Today’s post includes an interview from the same series published by the Nishinippon Shimbun. As I noted before, these are uncredited and not on line, so I’m offering my quick and dirty translation.

The man interviewed was Tadashi Ogawa (photo), the chairman of the Regional Banks Association of Japan. (There are 64 of these financial institutions in the country.) His viewpoint is representative of those in the private sector who are not thrilled at the prospect of competing with a behemoth that could continue to receive government support for the next decade.

Mr. Ogawa is a former Finance Ministry official and a past chairman of JT (the former Japan Tobacco & Salt Public Corporation). Thus, he has extensive experience and knowledge of the nexus of the financial industry and government—not to mention non-essential public corporations that survive well beyond their useful lifespans and have the functional efficiency of an appendix.

What areas cause you concern about privatization?

From the time it is established, the Yucho Bank (the Japan Post bank) will remain (indirectly) supported by government funds for (a maximum of) 10 years. In other words, the implicit government guarantees will continue. These conditions mean that the corporation will already be endowed with trust–the banking industry’s most important asset. As long as the government maintains its financial stake, the bank should not embark on any new enterprises.

These conditions for competing with existing private sector banks are unfair. No matter how often the term privatization is used, the post offices will stay the same as they are now. In fact, they themselves are already conducting a PR campaign based on the phrase, “We won’t change”. It won’t seem to the users as if the Yucho Bank were a private sector bank. With that being the case, of course there won’t be any changes in their business content.

The Yucho Bank is planning to become involved in consumer loans, such as home loans.

Today, with the Japanese economy growing at a gradual pace, private sector financial institutions have a low deposit/loan ratio, and they are having a hard time finding borrowers. Under these conditions in the Japanese economy, and with these financial mechanisms, the Yucho Bank’s position in the industry should be clearly identified.

There will be minimal conflict (with other private sector banks) for those banks whose objective is only investing the money received from deposits. The bank will be rational from the perspective of business efficiency. It is inappropriate for them to be involved in lending, however. In the home loan business, many regional banks are doing everything possible to survive in a climate defined by harsh interest rate competition. I think it’s inappropriate for them to be involved (in home loans).

Are there any advantages for the megabanks in forming ties with the postal bank, which has many regional branches in its network?

The banking industry has repeatedly criticized the bloated businesses and other aspects of the Yucho Bank. If we begin to talk about a specific business, it would naturally be strange for the industry to change its position and say, “We could use this to our advantage.”

What recommendations do you have for the Financial Services Agency’s approach toward inspections?

I want them to take the same approach from the first day of privatization that they take with us. They don’t need to be given any breaks because they’re new to the industry*.

Regional banks thoroughly study and prepare for new regulations in-house before they are implemented. The Financial Services Agency should conduct proper inspections (of the Yucho Bank) in the same way they inspect private sector banks, including their manner of conducting business.

* The phrase Mr. Ogawa used was wakaba maaku, or literally “new leaf sign”. Those Japanese with a new driver’s license must prominently display a special sticker, or wakaba maaku, on their automobiles during their first year behind the wheel.

Try this article for an excellent overview of the situation. This shorter article also has some pertinent information.

Heizo Takenaka: Small government’s unsung hero

ANYONE IN GOVERNMENT WHO ENGINEERS the privatization of a government agency in this statist age deserves recognition for his efforts by those who favor small government—if not a medal.

That’s just what Heizo Takenaka has accomplished, because the process of fully privatizing Japan’s former Postal Services Agency, now known as Japan Post, a public corporation, will begin on 1 October.

Japan Post is not merely a post office—it also is a bank and a life insurer. In fact, it is the largest financial institution in the world, with more than 300 trillion yen (more than $US 2.5 trillion) in assets in its postal savings accounts and life insurance premiums. The entity will be split into four companies, with Japan Post remaining as the holding company.

This is due in no small measure to Mr. Takenaka, an economist who was appointed the Minister for Economic and Fiscal Policy in 2001 in Junichiro Koizumi’s first Cabinet. He later went on to hold portfolios as Minister of Internal Affairs and Communications and Minister of State for Privatization of the Postal Services in the Cabinet.

His efforts to straighten out Japan’s banking system, which was choking on non-performing debt after the collapse of the economic bubble in the 90s, generated a Takenaka-for-prime minister boomlet. He seems to have considered the possibility—the Constitution requires that a prime minister be a member of the Diet, and Mr. Takenaka ran for and won a seat in the Upper House. (It also had the benefit of helping deflect criticism from anti-reformers.) He subsequently resigned, however, and took a professorship at Keio University.

He was the subject of the occasional newspaper or magazine profile in the West, but as so often happens, those Japanese worthy of international acclaim for their accomplishments are largely overlooked. While his achievement would not have been possible without the full backing of Prime Minister Koizumi, himself buoyed by enormous public support, a similar accomplishment would be close to unimaginable in the United States, to cite one country.

With the privatization process starting next week, the Nishinippon Shimbun published a brief interview with Mr. Takanaka. It was uncredited and not on line, so here is my quick and dirty translation:

Is this a turning point for the economy?

I hope so. For the past 10 or 20 years, the privatization of the former Japanese National Railways and the former Nippon Telegraph and Telephone Public Corporation has underpinned the Japanese economy. Had Nippon Telegraph and Telephone remained in the same form, the information and communications industry would not have grown as it has. Had JNR remained in the same form, transportation costs would be even higher. These two privatizations pulled the trigger on development. The privatization of Japan Post will have a major impact on the strategic banking and insurance sector in the future.

Why now?

Failure to privatize now would have serious consequences. While the amount of mail is decreasing each year, the market for international distribution is expanding, centered on Asia. We will provide operational freedom because the business of mail handling must survive. To the extent that we provide private sector freedom, we also will provide private sector competitive conditions.

The classic business model for the postal savings business was accepting money for deposits and investing it in government bonds. In many countries, the interest rate on bank deposits and government bonds is roughly the same, so there was no profit margin. That’s why we have to provide a form in which different things can be done freely.

What effect will it have on daily life?

Mail delivery is conducted as a public service, but this could also be handled by a private sector company. The Tokyo Central Post Office occupies prime real estate. Why should centralized collection and delivery be conducted on prime real estate when it can be done with trucks in the suburbs? With privatization, the company also can get involved in the real estate industry, the retail industry, or the hotel industry, providing more convenience for the citizens.

There are concerns that the post office network won’t be maintained.

Some post offices in urban areas are fewer than 200 meters apart. I wonder if all those post offices are really necessary. On the other hand, the post offices play an important role in regional areas, so we should have them perform that function. That’s why we will create standards for establishing a post office, and the postal company will have the obligation to uphold them. Yet, they still must rationalize the parts of their business that can be rationalized.

We will maintain a strong post office network. But it will be the determination of management whether to maintain the incidental services they now provide without any changes. The essential services will remain. It is unreasonable, however, to make the post office the sole provider of services based on the social policy conducted by the national government. If there is a consensus that a service is essential, then it should be performed as a government service.

Endnote: There are definite signs of a small libertarian wing within the ruling Liberal Democratic Party, which I plan on writing more about in the future. One of its members is former Prime Minister Koizumi himself, who often remarked on the necessity of allowing the private sector to assume some of the functions handled by government in Japan. These people are not pure ideologues, however—Mr. Takenaka wanted to privatize NHK, the quasi-public broadcaster, but Mr. Koizumi demurred.

For his part, Mr. Takenaka favored the use of public funds to help the banks dispose of their non-performing debt. This was opposed by then-Minister of Financial Services Hakuo Yanagisawa. Mr. Takenaka prevailed in their policy debate, while Mr. Yanagisawa went on to become Prime Minister Shinzo Abe’s Minister of Health, Labor and Welfare. He later generated a firestorm that contributed to the downfall of the Abe Cabinet when he called women “baby-making machines” during a speech.

More on the urge to merge in Japan

LAST WEEK, we had a post on the growing acceptance in Japan of mergers and acquisitions, which the domestic business and financial world has been leery of in the past.

This week, my local newspaper carried an article on the Daiwa Institute of Research’s survey of exchange-listed companies on their attitudes toward mergers and acquisitions. The article carried no byline, nor did it state that it came from a news agency. It did contain some items of interest, however, so I’ll quickly summarize the results here.

DIR and Daiwa Investor Relations jointly conducted the survey by questionnaire of 700 companies listed on Japanese stock exchanges, from May 18th to the 31st. They received replies from 210.

The survey showed that more than 60% of the Japanese companies that responded are opposed to hostile takeovers by investment funds, yet recognize that M&As between companies are a legitimate business strategy for survival.

To be more precise, a total of 62% of the responding companies said that hostile takeovers by investment funds were not desirable. Forty-six percent of the respondents said they felt threatened by hostile takeovers. When asked the source of the threat (multiple answers allowed), 60 of the 210 companies said investment funds, 49 said other companies in the same industry overseas, and 46 said other companies in the same industry in Japan. The author of the article suggested the survey indicates that the M&A offensives of foreign capital-affiliated investment funds, such as Steel Partners Japan Strategic Fund, are beginning to have an impact on corporate thinking.

The head of the DIR survey division said it was possible to interpret the results as showing that the objectives for investment fund acquisitions are not well understood.

When asked about hostile takeovers of one company by another, a total of 74% of those who responded said either that they were natural to expect or that nothing could be done about them. In contrast, this combined total stood at 35% for hostile takeovers by investment funds. Thirty-nine percent answered that they thought their own company might become a target for a takeover in the future. The author noted this last figure has prompted some Japanese observers to speculate that current perceptions in domestic business and financial circles will accelerate moves toward corporate reorganization.

Here is the link to a paper written by Xu Peng of RIETI examining the characteristics of companies that are targeted for takeover by Japanese investment funds, including the aforementioned Steel Partners Japan. Says Xu, “The results of empirical analysis suggest that undervalued companies that are cash flow rich…and have a low debt ratio and a low interlocking shareholding ratio” are the prime targets. He thinks the M&A trend will lead to a shakeout and increase the value of the survivors.

The AP on Japan: Childish and inexcusable

THE TOKYO DISTRICT COURT sentenced fund manager Yoshiaki Murakami to two years in prison for insider trading on Thursday.

The Associated Press published a detailed news story on the case. It included this sentence (emphasis mine):

Japan has long tended to frown upon get-rich-quick schemes, fostering docile conformist salarymen.

1. Legal systems in most countries do tend to frown on get-rich-quick schemes. Japan is no exception.
2. The sentence contains an obvious non sequitur. How does frowning on those schemes foster “docile, conformist salarymen”?
3. Put aside the puerility of the statement for the moment. What is a rank generalization of this sort (regarding a nation of 120 million people) doing in a news story to begin with?
4. Are we to take this to mean the salarymen in other countries are wild, untamed non-conformists living life on the edge?
5. Why does the Associated Press accept and distribute content that a high school English teacher would reject as drivel if it were to be submitted in a composition?

As Michael Crichton has said, “We need to start seeing the media as a bearded nut on the sidewalk.” There’s a reason I’ve put that on the sidebar at right.

I’ll say it again: If your knowledge of Japan is derived from what you read or see in the mass media, then everything you know is wrong.