Recession in Japan

As with the last recession, it's hard to tell there's actually one on. The restaurants and izakaya are still full and the shoppers are as indefatigable as ever. Nevertheless, politicians are talking about extending the social safety net.

One reason for this is the move away from full employees to contract and part-time workers over the past two decades. This flexible workforce acts as a useful safety valve for companies as they can easily be fired in downturns, but exposes those people "downsized" to life without medical insurance or unemployment benefit.

People have now started questioning the morality of this arrangement. In a recent Sunday morning TV political debate a number of participants criticised the "lack of social responsibility" shown by companies which have shed large numbers of temporary staff recently.

Perhaps we will see the establishment of a European-style safety net on both sides of the Pacific simultaneously.

Farewell Fukuda

Well, we saw his arrival as a return to grey nothingness so his departure is hardly grieved.

The "all-star" line-up on the LDP side presages a return to power for a non-LDP coalition - a rare event to be treasured, but, unfortunately not inspiring much hope. The chances of such a coalition ramming through sweeping reforms are not high.

The best hope would be for the LDP to stay out of power for a couple of terms forcing them to seek a Koizumi-style radical to win back power. This might put a serious shake-up of the political, bureaucratic and legal structures back on the table.

Domestic Challenges for Japan's Automotive Industry

The blog name "Tsurezuregusa" is the title of a Japanese book written in the form of jottings and notes of the thoughts of a retired courtier in the 14th century. Donald Keene translated this as "Essays in Idleness".

From my long absence you may deduce either an excess or a lack of idleness.

This month I'd like to share a few mental jottings and notes on some of challenges to the Japanese automotive industry which are less-visible from outside Japan. Whilst many of us are aware of the global-scale challenges such as maintaining technical competitiveness, managing global expansion and creating strategies for diverse markets, there are some interesting challenges on the home-front as well.

Currently, a much-talked-about point is the decline in new vehicle registrations. Although not yet a serious concern, there is potential trouble ahead. The general attitude of car buyers is not positive.

A big factor is the reliable and relatively inexpensive rail transport infrastructure. People in cities have less need for a car. It is also expensive for them to keep one due to the high cost of renting a parking space. This situation will be exacerbated by the aging of the population. A likely scenario is fewer young people buying cars and older people ceasing to use them.

In addition, there is the widely held view that cars are not an enjoyable form of transport. Anyone who has driven in Japan will understand this view. I am sure that Japan's roads have more traffic signals per kilometre than any other country, slowing journeys even in the countryside. Many are narrow and offer few areas for pedestrians to walk. Electric cables are not buried and the poles carrying them protrude into the driving area. Water drains are open and a hazard for motorists. On top of all these factors, Japanese cyclists and pedestrians are always assumed to be in the right in the event of a collision and seem to draw a conviction of immortality from this. Motorists have to be constantly on the lookout for people ignoring the rules of common sense and popping up in absurd places.

Another factor affecting sales is the heavy burden of taxation and inspection. A recent attempt to repeal the "temporary" petrol (gasoline) tax - in its 30th year - was repelled by entrenched, vested interests. The cost of the regular "shaken" vehicle inspections is a significant burden on owners and the high tolls for using expressways are also stubbornly resistant to reduction. Help in reducing these disincentives to car sales seems unlikely to come from political circles.

Why should a decline in domestic sales matter though, as long as exports and overseas production are strong? Well, one problem is the source of profits and the location of manufacturing and development. Japanese vehicle makers make over 50% of their profits in N. America. A significant part of sales to the USA (over 40%) comes from cars produced in Japan. Nearly 6 million vehicles per year are produced in Japan for the domestic market - this is close to the entire production volume of Germany. Another 6 million are produced in Japan for export. A reduction in the lower-profit domestic sales might well translate into reduced economy of scale on export models. Development costs, investment and overhead will be spread over smaller volumes with a consequent reduction in competitiveness.

Another problem could be the decline in the influence of the world's most-demanding consumers on quality standards and new model introduction rates. Will Japanese manufacturers be able to maintain their standards in laxer markets?

The Japanese vehicle industry has globalised rapidly, but the effect of the home base should not be underestimated.

David Syrad
25th May 2008
Copyright: A.K.I. Limited
www.akilimited.com

Petrol Tax

Here's an interesting demonstration of how things in Japan often follow a different logic from elsewhere.

In the oil shock years of the 70's, Japan imposed a temporary petrol tax to discourage excess consumption.

Subsequently, throughout the (almost) uninterrupted rule of the LDP, the ruling governments forgot to repeal the "temporary" tax despite the fall in oil prices. Not such a serious problem as not many people use their cars for work here. The daily commute is usually by train or bicycle for most people.

Suddenly, though, this month, the government, facing a situation similar to the oil shock- oil $100 a barrel, has decided to repeal the "temporary" tax. The stated reason is to ease the burden on consumers. Discouraging petrol consumption is, apparently, no longer a priority. And the Kyoto protocol?

For most people the tax reduction won't really make that much difference and it comes against the background of rumblings about the need to increase consumption tax, which will affect a broad swathe of consumers. Puzzling.

The real thrust of the reduction is to break up the "Road Gang". A group of politicians spend the tax on useless projects designed only to enrich themselves and their cronies.

Of course, there might be other motivations. There is a worrying decline in car ownership among younger people in Japan. Without going into the reasons for this, suffice it to say that the decline is real.

To some degree, the Japanese car industy's export strength stems from low-profit domestic sales which cover overhead. The profits are made outside Japan. If the domestic base decreases, this can only have a negative effect on export competitiveness. Perhaps the needs of Toyota and Honda are part of the reason for this initiative, rather than the the desire to ease the burden on the long-suffering consumer...

The next post will look at why car ownership is decreasing.

Will the Rat bring Wealth?

The Year of the Rat might sound negative to Western ears, but actually these furry charmers are supposed to bring wealth. They are admired for their industriousness among other traits.

There are mixed predictions for the Japanese economy this year, but "not bright" seems to be the consensus.

Having noted all the reasons for the gloomy predictions, let's focus on a couple of more optimistic points:

1. There is the feeling of a New Deal in the air, with even the Keidanren saying higher wages would be good for re-kindling domestic demand.
2. There appears to be a desire to re-enter the economy among those Freeters who chose not to join it through the traditional Salaryman route 10 years ago. An example is the transfer of ownership of convenience stores to their Freeter managers under franchise deals.

There is a push from both ends to get things moving domestically, which should help to counter the potentially negative influences from the global economy.

I leave it to Grumpy Old Pedant to expound on matters demographical should the whim seize him.

Wishing you success in 2008