AMPONTAN

Japan from the inside out

Letter bombs (23): Big surprise in every tranche

Posted by ampontan on Wednesday, December 7, 2011

IT’S not a good sign when the Japanese government lifts a PR strategy from Cracker Jack.

Reader Marellus sent in a link to this story of the Finance Ministry’s big idea for boosting sales of reconstruction bonds:

Japanese Finance Minister Jun Azumi will be rewarding investors who buy more than 10 million yen ($129,000) in reconstruction bonds with gold in the government’s latest attempt to bolster demand for the debt.

Individual investors who hold the bonds for three years will be eligible for a gold commemorative coin valued at 10,000 yen, the Finance Ministry said in Tokyo today. At 15.6 grams, (0.55 ounces), it would be worth about $948 based on prices for the precious metal.

I’m not joking with the Cracker Jack crack, either. Here’s what Frito-Lay, the owners of the brand, did in 1998:

Cracker Jack announced today its first-ever holiday prize give-away of limited edition collector jewelry designed exclusively by Neiman Marcus. Cracker Jack will replace the customary toy surprises in 16 packages of the caramel-coated popcorn and peanuts with special certificates for the jewelry. The holiday certificates will be sealed in the traditional Cracker Jack surprise envelopes and randomly distributed inside the new 4-ounce bags and 7-ounce box of Cracker Jack sold at retail stores nationwide…

Cracker Jack’s seasonal surprises include eight 18-karat gold rings with a ruby, emerald or sapphire stone and valued at $950 each.

Even accounting for the increase in gold prices over the last 14 years, some Cracker Jack purchasers got a bigger surprise than buyers of Japanese government bonds. (Note: For readers outside the United States, Cracker Jack is perhaps the world’s first commercially produced junk food. It is molasses-flavored, candy-coated popcorn and peanuts, created in the late 19th century. Everybody in America knows about them if only because they’re mentioned in the song, “Take Me Out to the Ball Game”. For that reason, every boy in America buys them once to see what they’re like. I don’t know anyone who bought them twice. The only thing surprising about the big surprise in every box was how cheap and pointless they were.)

But back to Azumi the Lad. He bought JPY one million worth (roughly $US 12,860) on his own, perhaps deducted from the salary he gets as finance minister on top of the one he gets as a Diet member.

All investors receive a thank-you note from the minister, who showed his to reporters in Tokyo today as proof of his purchase.

In other words, he showed reporters a note he wrote to himself. Why yes, he did get his start in television. How did you guess?

So there we have the DPJ government in miniature: Big kids in short pants playing grownup without realizing how childish they look.

Reader Yebisu comments:

The fact that Japan is having to bribe people with gold shows that they are starting to realize that it is going to get very difficult to find buyers of J bonds. The game is coming to an end.

I agree that’s possible. But off the top of my head, here’s another possibility: Most Japanese debt is bought by institutional investors, i.e., the private sector side of what they used to call Japan Inc. If I’m not mistaken, the government (or rather the Finance Ministry) is offering these bonds to individual investors, and has added this Big Surprise as a bonus to encourage prospective punters to pitch in financially and promote national solidarity while doing their part for the recovery effort. The U.S. government sold War Bonds for the same reason, albeit without a trinket to accompany the coupons.

In any event, the Cracker Jack aspect of the promotion is demonstrated by the return. Purchasers recieve a JPY 10,000 gold coin for a JPY 10 million investment that pays 0.05% for the first three years. Assuming that same rate over the full term of the bond, that’s only a 2% increase in total yield. What is there to say about a finance ministry that would trade on public fears of a financial panic, the belief that gold is a safe investment in troubled times, and the nagging suspicion that the gold might be worth more than the face value of the bonds when they mature?

One thing we could say is that it’s offensive, because neither the promotion nor the bonds themselves might be needed at all. Many observers insist the Japanese government has the resources, both in cash reserves and property, to fund the recovery without issuing bonds at all. Indeed, they could use the proceeds from privatizing Japan Post, a step 70% of the public favored during the Koizumi administration, and which the DPJ halted. But that would upset their junior coalition partner, the People’s New Party, a splinter group formed to thwart the popular will block the privatization. The exercise of power and the use of the funds in the postal savings and life insurance system is more important than effective and efficient governance, after all.

And one final word:

Azumi, whose hometown was devastated by the March 11 disaster, said today he bought 1 million yen of the debt to support rebuilding efforts from the March 11 earthquake and tsunami.

A report emerged a week or two after the disaster that Azumi pulled strings to divert gasoline deliveries to stations in his Diet district before full-scale recovery efforts got underway, even though there was a serious gasoline shortage throughout the entire Tohoku region and supplies were limited. The story was lost in the deluge of other events at the time.

UPDATE: From Japanese reports, the bonds are 10-year instruments with three different yields ranging from 0.18% to 0.72%. That means the premium received from the gold coin is worth even less than I thought. They’re going to be sold through banks, and one of the bankers interviewed said they were going to make a special effort to sell them to people who normally don’t buy JGBs.

*****
This Cracker Jack commercial won an award at Cannes in the 70s. Perhaps they should show it to the Finance Ministry. Some in the DPJ might enjoy it too. The actor, Jack Gilford, was fingered as a Red in the 1950s.

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14 Responses to “Letter bombs (23): Big surprise in every tranche”

  1. toadold said

    http://spectator.org/archives/2011/12/06/let-the-people-of-fukushima-go

    Well my tinfoil hat doesn’t seem to be working because I’m starting to wonder if somebody isn’t trying to make some extra money from contracts for soil and etc. removal in the Fukushima area.

  2. Yebisu said

    They are essentially saying to people that if you buy our crappy AA- rated bonds at a terrible rate we will give you a shiny present, and playing on people’s patriotism. I honestly feel sorry for the Japanese people and other domestic entities that have bought into the Japanese govt.’s BS all these years. The fact is, Japan is rapidly approaching the point where it can no longer service it’s debt domestically. The population decline is too fast, there are too many old people, the economy is too stagnant, and the politicians and bureaucrats are too incompetent. When government revenues are no longer enough to pay existing debt, Japan will default. It will have no choice but to default. It might not be called that in the news, but that is essentially what will happen. The Japanese govt. already spends way too much of it’s revenue just to service existing debt, which is why Japan has been on a negative credit watch since earlier this year. What happens when it has to turn to the foreign market to service more debt? They will most likely demand interest rates of 2-3 percent. Then KABOOM.

  3. Saidani said

    I agree with Yebisu. Japan is reaching the end of their low yield bond era. The gold scheme is a sign of weakness that the bond market will not ignore for long. And, as Yebisu implies, when the yield increases, it’s game over. Japan will not be able to service its debt. We posted an article in which a really smart guy predicts that Japan savers will lose 1/3 of their assets when it all starts to fall apart. And don’t discount the amount of debt owned by households through their savings accounts, especially with the Post Bank. Then there are the pension funds which, since people pay into them, are like savings. Privately held debt exposure adds up.

    And good catch on the Cracker Jack ad.

  4. Marellus said

    Ampontan.

    In one of your previous posts, you mentioned some highly regarded business school whose founder espoused low taxes and even less regulation. And the thing is when its students leave for government, they embrace policies which are exactly the opposite. For me that is J-Politics in a nutshell. What was the name of that business school again ?
    ————-
    M.: The Matsushita Institute of Government and Management. It’s not really a business school, more like a leadership training school. Prime Minister Noda was a graduate as was former Defense Minister Maehara. Prof. Shimojo, who sometimes contributes articles here, was accepted but was offered a post at a university in South Korea at the same time, and he chose the latter. Matsushita Konosuke founded Panasonic. He also wrote a lot of books, some of which are still in print.

    The home page says he founded it to combat 20th century vanity and mediocrity in management….

    – A.

  5. Saidani said

    Marellus, I’m not sure that Matsushita’s ideas were fully absorbed by either Noda or Maehara, unless they were taught to kiss up to the US and ignore the Japanese people.

  6. Marellus said

    @Saidani

    Here is another take on the situation for you : We have all been part of an organization, and to a greater or lesser extent, we must conform to this organization’s dominant philosophy in order to advance. One can also assume that the organization is aware of reforms or efficiencies that must be implemented, but is thwarted by elements which has two effective weapons to use against you :

    Shame
    This is where it is said : “We have always done it this way. It has never given us problems. We don’t need to change. And we have already implemented a plan where all employees must use their pencils till they’re two inches long, before they can request a new pencil from the supervisor. This plan is going to save us a lot of money. So why are you rocking the boat ?”

    Isolation
    And here they praise you to your face, but behind your back they’re conspiring against you, and this by mobilizing elements that might be losers in your reforms. In fact they don’t even have to be losers. It’s good enough to just instill a fear of them being losers inside them. So before you know you’re either in a ceremonial position with no real power, or you’re in front of the disciplinary panel on trumped-up charges, or for some trifle incidents that has been blown out of proportion.

    What is your opinion on this ? Because it means you’re faced with a choice that if you can’t beat them, just join them. And in this process they put a set of golden hand-cuffs on you, and before you know it, you’re plotting just as hard to thwart the next great reformer.

  7. Marellus said

    Ampontan.

    I wonder who has been reading who here ?

  8. Marellus said

    Ampontan.

    And now the J-Govt wants to alter the way GDP is calculated in order show growth.
    ————-
    M: Interesting story. At least they aren’t talking about Bhutan’s Happiness Index any more. That came up in the latter part of the Hatoyama administration.

    – A.

  9. Saidani said

    Marellus,

    Of course, the situation you set up is something most people face in one degree or another. For the most part, people go along to get along or to simply further their own careers. Japanese society is normally seen to accept the shame argument, the oft reported “nail that sticks out” and things continue along a certain path. Lately, that path has shown a downward trend and not just in the economy.

    So, what does it take to break that trend? Many have tried and they run into your second scenario. The result is the same in both cases.

    Yet, there are some who succeed and their actions bring about great change. The most noted in Japan is probably Ryoma. The same could be said of Kaishu. You know who they are because they overcame the pressures of society and power and brought about change. It should be noted that neither man came from an elite background, perhaps showing that the elite are not capable of change because of the peer pressure you have described. On the other hand, it also shows that change can come from the efforts of the average person if their ideals are are positive, their efforts to achieve their goals are diligent, and their will to continue is greater than the resistance they encounter. To be sure, luck and timing are also important.

    And, for every Ryoma and Kaishu, there are many unknown men and women whose efforts have resulted in change, perhaps small by comparison but contributing to society, nevertheless. Those accomplishments rarely come from within the system. So, in a way you are correct. Noda and Maehara, despite their training, are simply captured in the system. That said, it seems obvious that their devotion is to their own careers and not the ideals of change and reform that Japan needs. The person who reforms Japan will likely be someone most people have never heard of, at least until they succeed.

  10. Marellus said

    @Saidani.

    My thanks to you for your response. I must note, that if you are in fact Japanese, your English is excellent. I wish you all the best in your endeavors.

  11. Marellus said

    Ampontan, Saidani.

    I got this from a website that tells Western Guys on how to pick-up Japanese women. But I’m not angling for relationship advice here. I thought this was interesting :

    Along with the family connection, Japanese society is very group-oriented. Western countries are the exact opposite. In Japan, you stick with your group and you get all the safety and prosperity that you need. We in the west are taught that you have to break free from the crowd to succeed. This can cause misunderstandings when Japanese women stick with their friends or with other Japanese so closely.

    Now please give me your opinions, before you start kicking my ar$e about my source will ya. Is this true then ?

    Oh before I forget. I once talked to a Chinese girl, and the one thing she told me that really piqued my interest, is that the Chinese has absolutely no sympathy for beggars. I am saying this, because I read a book written an African Shaman who categorically states, that African culture attaches no shame to begging.

    I wonder how this dynamic is going to play out on a grander scale in Africa, what with Chinese investment and African incompetence …

    Can you comment ?
    ————-
    M: True to an extent, perhaps less than the validity of the website’s claim that it is the “ultimate” resource. Communication really depends on how Japanese-fluent someone is. This seems to be written for people who aren’t. Anyone who goes to any different country and expects the stuff he uses to work there automatically is bound to run into a wall sooner rather than later. The wise man tries to understand the environment, but this site is “ultimately” superficial. What else can generalizations about a country be?

    This was curious:

    “No matter where a Japanese woman goes in the world, she never leaves her culture behind.”

    Why specify Japanese women? Does this guy really think Western men leave their culture behind wherever they go in the world?

    – A.

  12. Andrew in Ezo said

    “Does this guy really think Western men leave their culture behind wherever they go in the world?”

    Haha. In Japan, they typically need to turn the “culture” down several notches, for everyone else’s sanity.

  13. Saidani said

    Marellus: Your relationship question is interesting. I don’t think peer pressure on girls dating someone outside the “safe” group is any different in Japan than anywhere else. As for culture, Andrew has it right about Westerners needing to turn down their culture a few notches, something that is just as difficult for them as it is for the Japanese girls to stray from their culture. It often leads to problems of misunderstanding and broken expectations from both sides. Hard to say it is a problem caused solely by the Japanese culture. In Japan, Westerners are guests, something that many do not understand or respect.

    That said, I would imagine that, with all due respect to the “how to pick up Japanese girls” website, if someone truly figured out the relationship thing (something the human race has been trying to do for thousands of generations), many other mysteries of science and religion would immediately be likewise resolved, leaving most people to slap their foreheads and exclaim, “OMG, it’s all so effing simple!” and then instantly transform into a more ethereal being joining the likes of Buddha and Jesus in another realm of existence.

    As an aside, money is always helpful is picking up girls of any race or culture. Of course, one generally gets what one pays for.

  14. Marellus said

    @ Saidani

    Amen.

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