Japan’s economy grows five quarters in a row, and Japan Post books losses of YEN 400.33 billion (US$ 3.6 billion) for an acquisition in Australia
Japan GDP growth, growth of 2%/year. Still, Japan’s economy is the same size as in 2000, while countries like France, Germany, UK today are double the size as in the year 2000
Japan GDP growth: We have seen 5 quarters of economic growth in Japan, for the January-March 2017 quarter the consensus is that the Japanese Government is likely to announce economic growth corresponding to an annual growth rate of around 2%/year (update: Japan’s Government announced an annual growth rate of 2.2%/year).
Generally the business mood in Japan is optimistic now, personal consumption and industrial orders are growing. We see investments in preparation for the 2020 Olympics. Venture start-ups and venture investments are growing, while still at a low level, we see venture businesses developing not only in Tokyo, but also in regional centers around Japan.
One mid-term risk to Japan GDP growth is the potential implementation of the postponed consumption tax rate increase.
The big picture however is, Japan’s economy today is approximately the same size as 17 years ago in 2000. During the same 17 years most major economies, e.g. France, Germany, UK have doubled in size. France, Germany, UK’s economies today are about twice the size as in 2000, while Japan’s economy today is about the same size as in 2000. Quarterly GDP figures just measure the short term fluctuations of this long term behavior.
Rico Hizon: so what would Japan have to do to restart long term growth?
Gerhard Fasol’s answer
Japan would have to do three things to restart economic growth long term:
Population: Implement policies to make it easier for families to have children, shift spending from the aged to children, improve eduction, shorter work hours, build children’s day care centers, gender equality
Implement Prime Minister Abe’s “third arrow”, the reforms. Deregulation not just in a few “special zones” but nation wide.
Improve corporate governance to improve company’s growth, globalization and management.
Japan Post trips up on globalization: books YEN 400.33 (US$ 3.6 billion) losses due to an acquisition in Australia – with a Toshiba connection
Japan Post announced a loss of YEN 400.33 (US$ 3.6 billion), and a resulting net loss of YEN 28.98 billion (US$ 260 million) for the fiscal year ending March 31, 2017.
Japan Post Holdings was launched on the Tokyo Stock Exchange with the IPO on Nov 4, 2015.
Investors expect major growth of Japan Post Holdings into a global business, such as Deutsche Post has with privatization and later the acquisition and merger with the global logistics group DH about 20 years ago.
Around the time of the IPO Japan Post announced the acquisition of the Australian logistics group Toll for about YEN 620 billion (US$ 5.5 billion), while Toll’s market cap previous to the acquisition was about YEN 410 billion (US$ 3.7 billion).
Japan Post’s recent write-down at Toll is about equal its pre-acquisition market cap, or about 65% of the acquisition prize.
The deep problem of Japan Post’s steep write-downs at the Australian acquisition Toll, is that this casts doubts on Japan Post’s developments into a global business.
The Toshiba connection: Japan Post’s former CEO, Taizo Nishimuro (西室 泰三), previously served as CEO and Chairman of Toshiba
CEO of Japan Post at the time of the questionable Toll acquisition was no other than Mr Taizo Nishimuro (西室 泰三), former CEO and Chairman of Toshiba, now honorary advisor of Toshiba, who spent all his career at Toshiba, working at Toshiba since 1961. Toshiba is currently in severe difficulties caused primarily by Toshiba’s acquisitions of US nuclear construction firms, however Toshiba’s fundamental problems go back much much longer.
Japan Post Holding 
Japan Post Holdings was founded on 23 January 2006, following the path to privatization of Japan’s national Post Office initiated by Prime Minister Koizumi.
Japan Post Holdings is listed on the Tokyo Stock Exchange (No. 6178), IPO was on 4 November 2015, and has five divisions (since October 2012 three divisions):
Japan Post Service (日本郵便株式会社): mail delivery. Merged on October 1, 2012 with Japan Post Network to form Japan Post Co. Ltd.(日本郵便株式会社). Japan Post Co. Ltd is a 100% subsidiary of Japan Post Holdings (Tokyo Stock Exchange: 6178)
(Japan Post Network (郵便局株式会社): Post Offices = retail and real estate. Merged with Japan Post Service to form Japan Post Co., Ltd. on October 1, 2012).
In summary, I said that its not just about SHARP’s current predicament, but its about corporate governance reform in Japan, about reinventing Japan’s electronics sector, and that its more likely at this stage that Japan’s Innovation Network Corporation (INCJ) will take control SHARP, since INCJ is not just concerned with SHARP but with the bigger picture of restructuring Japan’s electronics sector.
INCJ has concepts for combining SHARP’s display division with Japan Display, and has plans for SHARP’s electronics components divisions, and for the white goods division, and other divisions.
SHARP governance: How and why did SHARP get into this very difficult situation?
Essentially SHARP assumed that the world market for TVs and PC displays will continue to demand larger and larger and more expensive display sizes, and thus took bank loans to build a very large liquid crystal display factory in Sakai-shi, south of Osaka.
In addition, SHARP, has a huge portfolio of many different products ranging from office copying machines and printers and scanners, mobile phones, high-tech toilets, liquid crystal displays, solar panels, and hundreds of other products. SHARP keeps adding new product ranges constantly expanding its portfolio of businesses, and rarely sells loss making divisions.
Effective and strong independent, outside Directors on the Board might have asked questions during the decision making leading to the building of the Sakai factory. They might have asked for a Plan B, in case the global display market takes a turn away from larger and larger and more expensive displays, or if the competition heats up and prices start decreasing, they might have asked about SHARP’s competitive strengths, they might have also questioned the wisdom to finance an expensive factory via short-term bank loans as opposed to issuing shares to spread the risks to investors.
Its not just outside Directors, shareholders could have also asked such questions.
SHARP has about YEN 678 billion (US$ 5.6 billion) debt, most is short-term debt, and in a few weeks, in March 2016, SHARP needs to repay about YEN 510 billion (US$ 4.2 billion), and needs to find this amount outside.
SHARP is a Japanese electronics company, founded in 1912 by Tokuji Hayakawa in Tokyo as a metal workshop making belt buckles “Tokubijo”, and today one of the major suppliers of liquid crystal displays for Apple’s iPhones, iPads and Macs.
SHARP today has about 44,000 employees, many factories across the globe, sales peaked around YEN 3000 billion (US$ 30 billion) in 2008, and show a steady downward trend since 2008.
Revenues (profits) peaked in 2008, and have fallen into the red since.
What future for SHARP? Focus vs portfolio company
SHARP (or rather, its creditors, the two “main banks” Mizuho and Mitsubishi-Tokyo-Bank, and others controlling the fate of today’s SHARP) needs to decide whether it focuses on a group of core products, in which case it needs to be No. 1 or No. 2 globally for these products. Successful examples are Japan’s electronic component companies.
Or on the other hand, SHARP could be a portfolio company, in which case this portfolio must be actively managed.
What future for Japan’s US$ 600 billion electronics sector?
These 8 electronics conglomerates are portfolio companies, and they need to manage these portfolios actively, such as General Electric (GE) or the German chemical industry are doing. Germany’s large chemical and pharmaceutical industries started active and drastic product portfolio management in the 1990s, and are continuing constant and active portfolio optimization via acquisitions, spin-outs, and other M&A actions, and so is GE.
Why “let zombie companies die” is beside the point
Concerning SHARP some media wrote headlines along the lines of “let zombie companies die”. Thats easy to write, however, SHARP is a group with 44,000 employees, many factories, about US$ 30 billion in sales annually.
“Let this zombie die” is not an option, SHARP has 100s of products, and divisions, and the best solution for each of these divisions is different. And that is exactly what the Innovation Network Corporation of Japan seems to be considering in its plans for SHARP.
I think the way forward is not “to let zombies die”, but to develop private equity in Japan
I think the move of Atsushi Saito, one of the key drivers of Japan’s corporate governance reforms, from CEO of Tokyo Stock Exchange/ Japan Exchange Group, to Chairman of the private equity group KKR is a tremendously important one in this context.
Will there be native Japanese private equity groups with sufficient know-how and ability to take responsibility of restructuring Japan’s electronics sector? Thats maybe the key question.
Why its not really about nationalism
Some media bring a nationalist angle into SHARP’s issues. However, Nissan was rescued by French Renault, UK’s Vodafone acquired Japan Telecom, and there are many other examples, where foreign companies acquire Japanese technology companies.
I don’t think nationalism is an issue here. The key issues is to create and implement valid business models for Japan’s huge existing electronics sector, and more importantly, create a basis for the growth valid new companies – not just reviving old ones.
Governments best help economic growth by reducing friction, and by getting out of the way of entrepreneurs building, turning-round, and refocusing companies.
Some required action is counter to intuition: for example, in many cases reducing tax rates increases Government’s tax income, a fact known for many years. Effective education and research are key to create, understand and apply such non-obvious knowledge.
Companies need efficient leadership, leadership needs feedback, wise and diverse oversight by Boards of Directors, who ring alarm bells long before a company hits the rocks, or fades into irrelevance. Corporate governance reform may be the most important component of “Abenomics”. Read a Board Director’s view on Japan’s corporate governance reforms:
Japan’s electrical conglomerates are some of the poster children motivating Japan’s corporate governance reforms. In an interview about Toshiba’s future on BBC-TV a few days ago, I explained that Japan’s electrical conglomerates showed no growth and no profits for about 20 years, and the refocusing Toshiba has announced now should have been done much much earlier, 10-20 years ago (“Speed is like fresh food“). Refocusing Japan’s established corporate giants will release resources for start-ups, spin-outs and growth companies.
Japan can be very good at restructuring and turn-rounds, e.g. see
Corporate governance reforms in Japan are one component of “Abenomics” to bring back economic growth to Japan.
Corporate governance reforms in Japan are driven at least in part by the spectacular stagnation of Japan’s top 8 electronics conglomerates, which 25 years ago dominated world electronics, but largely failed to adapt to the changes driven by much more agile Silicon Valley or South Korea based competitors. The right type of Board Directors, could potentially have rung the alarm bells much earlier, and woken up executive management under their supervision.
A welcome factor is that corporate governance reform costs Japan’s heavily indebted Government almost no money – unlike public works programs, and similar traditional ways of stimulating the economy.
The speed with which Corporate Governance Reforms in Japan are being implemented surprised even one of their main promoters, emeritus Group CEO of the Japan Exchange Group, Atsushi Saito, as expressed in his recent talk.
In March 2014 the shareholders appointed me as independent Board Director of the Japanese cybersecurity company GMO Cloud KK, which is listed on the First Section of the Tokyo Stock Exchange. Our main business are internet security solutions, cybersecurity, digital identity management solutions, and cloud hosting and related services and solutions.
Japan’s Stewardship Code, issued by Japan’s Financial Services Agency (FSA) on February 26, 2014, “Principles for Responsible Institutional Investors ≪Japan’s Stewardship Code≫- To promote sustainable growth of companies through investment and dialogue”
Japan’s Corporate Governance Code, which was issued by the Tokyo Stock Exchange on June 1, 2015, defines Corporate Governance as “a structure for transparent, fair, timely and decisive decision-making by companies, with due attention to the needs and perspectives of shareholders and also customers, employees and local communities”.
The subtitle of Japan’s Corporate Governance Code is its mission statement: “Seeking sustainable corporate growth and increased corporate value over the mid- to long-term”.
The Kay Review analyzes UK’s capital markets in depth, and argues that its companies’ duty to be successful in the long-term, and its only the success of companies that brings wealth to all stake holders and people who invest in companies, in many cases pensioners. Over the years a fine grained system of specialized service providers has developed between companies on one side, and individual investors on the other side. Professor Kay argues that this system of intermediaries (fund managers, analysts etc) can be seen as “overhead” and needs to be as efficient as possible.
Overall the capital market system needs to be built on long term trust and stewardship, not on anonymous one-time monetary transactions.
Why end the requirement of quarterly financial reports? Because short term focus on quarterly financial performance may cloud the view on long-term success and investment. Intense discussions between fund managers and management are strongly encouraged.
Will the end of quarterly financial reporting reach Japan?
Why Japan’s focus on corporate governance?
GNP as a measure of economic size has many flaws – however many signals, not just GNP, indicate that Japan is the only major economy that does not grow.
While there are many excellent Japanese corporations, overall it is no secret that Japan’s economy has the potential to do much much better.
There is much hope that outside directors supervising executive management will bring outside expertise, and improve the performance of company-insider executive management, and if necessary also insist on replacements.
The cheapest part of “Abenomics” – corporate governance reform comes at essentially zero cost to tax payers
Many measures of Premier Minister Abe’s “Abenomics” stimulation programs pump borrowed Government Bonds (JGB) money into the economy, thus cost money and ultimately increase Japanese very large Government debt.
By comparison, corporate governance reforms cost essentially zero cash and don’t further increase government debt.
Theory and practice
Non-diversity: about 0.6% of Japanese Board Directors of listed companies are non-Japanese
As of 17 December 2015 Japan has 3504 listed companies on the exchanges operated by the Japan Exchange Group:
TOKYO PRO Market: 14 (including 0 foreign company)
Total: 3504 (including 9 foreign companies)
In addition there are three regional exchanges:
Fukuoka Stock Exchange
Nagoya Stock Exchange
Sapporo Stock Exchange
Assuming there are about 10 Board Directors per company, there are about 35,000 Board Directors of listed companies in Japan. Of these approximately 200 are foreigners, ie. about 0.6% of Directors of listed Japanese companies are foreign (I am one of these).
Maybe 10-20 of Japan’s public companies are “Englishized” such as Rakuten or SoftBank, or hire simultaneous interpreters at Board Level (you’ll see Directors with headphones listening to the interpreted/translated version of what is being said – of course slowing and filtering understanding and communication)
All other approx. 3490 Japanese Stock Exchange listed companies are run 100% in Japanese language at all levels including Board level – and almost exclusively by Japanese men.
In a rapidly globalizing world, these companies desperately need global input from many nationalities, different backgrounds, and genders at Board level in Japanese language, but the number of people providing this depth of diversity, having the qualifications and being able to function at Board level in Japanese in addition to several other languages is severely limited – this is one of several factors limiting Japan’s growth after having caught up with developed countries in the 1980ies.
What are the main issues?
Diversity delivers better decisions and better results
Japan has many outstanding leaders, such as SoftBank’s founder Masayoshi Son, or Kyocera’s founder Kazuo Inamori, who also founded part of today’s KDDI, and who turned around Japan Airlines from bankruptcy in his 80s.
Some Japanese Executives are outstanding leaders, however, many are not, but function more like chief administrators – as in any other country.
Outstanding leaders don’t fear working with excellent people and will attract top leaders. However, chief administrator type executives will fear for their power and will assemble teams who fear to speak out, as can be observed in many recent corporate scandals in Japan, and many other major countries. Corporate scandals and corporate governance failures may happen anywhere, not just in Japan.
Diversity at top management levels and Board levels has many benefits, as has been proven in many studies. Diversity delivers better decisions and better results. Boards of Directors are one way to bring diversity to decision making.
Many major Japanese corporations show no growth and no income for the last 20 years.
A showcase example are Japan’s top-8 electronics conglomerates. Combined they are as large as the economy of the Netherlands, but contrary to The Netherlands, they have shown no growth for the last 17-20 years, as well as losing money on average over all these years. Of course, as a consequence the market capitalization = value of these top-8 electronics companies has decreased dramatically. While Japan’s top-8 electronics companies dominated 60% or more percent of the global electronics industry in the 1980, they have fallen steep. Clearly a dramatic example of failed corporate governance, and surely a big push for Prime Minister Abe to put so much priority on improving Japan’s corporate governance, together of course with the need to improve employment, and returns for pension funds to fund Japan’s aging population.
Three forms of corporate organization: splitting supervision and execution
Traditionally, executives supervised themselves at Board level
Traditional Japanese corporation have a Board of Directors composed of corporate executives, i.e. the executives supervise themselves without external supervision or input. Supervision is done by the Kansayaku Board (corporate auditor’s Board) which however has limited powers on corporate decision making.
Japan’s corporate government reforms now give Japanese companies options to split execution (executives, 執行役員) and supervision (Board Directors, 取締役).
Japanese corporations now can chose between three forms of organization
company with Kansayaku Board
company with Supervisory Board
company with three committees:
According to the new Corporate Governance Code, the Board (independent which of the three options is selected) has the following three duties:
setting the directions of corporate strategy
encourage and support appropriate risk taking by senior management
supervise Directors and executive management, including senior executives (執行役員)
Connecting the dots: the link between accounting issues and the space shuttle Challenger disaster
Space shuttle Challenger’s top management was insisting to keep the planned launch date fearing public relations issues, while the workers and engineers on the ground, “genba”, knew that they were not ready. But top management at space shuttle Challenger did not listen to “genba”.
My advice to Japanese corporations: embrace and learn to love diversity!
Embrace and learn to love diversity! Diversity delivers better results overall. We all learn from each other.
My advice to foreign investment funds seeking more influence on Japanese companies
Shouting at the CEO or Boards of Japanese companies will not help – many foreign activist investors have already proven this fact many times. Insisting on your superior knowledge will not make you many friends – as anywhere else.
You need to develop trust and relationships. You need to start by learning Japanese, understanding Japan, and earn trust and contribute with achievements, or partner with people who have: KKR hired Japan Exchange Group emeritus CEO Atsushi Saito.
There are no increasing numbers of examples, where outstanding Japanese corporations careful listen to outside advice from investors, and thus become even more outstanding: SONY and robotics maker FANUC come to mind.
My advice to foreign companies operating in Japan
Your subsidiary in Japan is a Japanese corporations and needs corporate governance. There have been a long list of corporate governance failures leading to huge problems and losses at foreign subsidiaries in Japan, in the financial sector, the elevator sector, the pharmaceutical sector and several others.
Make good use of the Board of Directors of your Japanese subsidiary corporation.
Quarterly financial reports: can they be the trees which obscure long term growth of the forrest?
As a Board Director of a Japanese company traded on the Tokyo Stock Exchange I have to study and approve monthly, quarterly and annual financial reports, and I share responsibility for the future success of the company.
It is obvious that the longterm success and growth of the company is the most important priority for all stake holders. So how useful are quarterly financial reports? Lets look at some recent developments and at an example below from our Report on Japan’s Telecommunications Industries.
Motivated by Professor John Kay’s report, the UK regulator removed the requirement for companies to publish quarterly financial reports.
Mark Zinkula, CEO of Legal & General Investment Management, one of UK’s largest investment management firms, around 8 June 2015 wrote a carefully worded letter to 350 UK company Chairmen, recognizing that each company has different circumstances, and encouraging them to report the most meaningful key metrics and to omit reporting quarterly financial results if these don’t contribute to longterm value creation. You can download Mark Zinkula’s letter as a pdf file here.
The European Union (EU) reduced the reporting requirements including the requirement for quarterly financial reporting.
Will Japan and other important countries such as USA follow this trend as well?
Quarterly financial reports: pro’s and con’s
Essentially all well managed companies have fine grained financial management systems which document the financial position of the company at any moment in time.
As an example, when Kazuo Inamori rebuilt Japan Airlines from bankruptcy, he created a reporting system which calculates the profit/loss of every single flight in real time: i.e. when a Japan Airlines flight from Tokyo arrives in San Francisco, the pilot and everyone else knows before landing in San Francisco whether this particular flight was profitable or not – while before Japan Airlines bankruptcy, profit/loss (mainly losses for the last years leading up to bankruptcy) was determined on a full company basis every 3 months in arrears. Read Kazuo Inamori’s talk here. Clearly Kazuo Inamori thinks that such fine grained profit/loss awareness is a crucial component for Japan Airlines’ revival from bankruptcy.
Its obvious that for today’s IT systems the creation of quarterly financial reports from such fine-grained measurement systems such as Kazuo Inamori had installed at Japan Airlines does not cause much additional effort or costs once the coding is done.
Quarterly financial reports: trees vs. the forrest
The figures below show exactly the same financial data – the net income (= profit) of Japan’s mobile operators NTT-Docomo, SoftBank and KDDI over the last 10-15 years:
Upper Figure:quarterly net income (thick curves) vs annual net income (thin curves)
Lower Figure: quarterly net income (thin curves) vs annual net income (thick curves)
It is hard to draw conclusions from quarterly income curves above. Most eye-catching is that SoftBank’s quarterly income results became much more fluctuating in the last two years. Its hard to judge the relative performance of Docomo, SoftBank and KDDI from the quarterly income curves.
Annual net income curves give a much clearer picture. Annual figures clearly show that SoftBank caught up and overtook Docomo and KDDI in net profits.
As Mark Zinkula points out that every company and every industry is different. In the case of Japan’s mobile operators, annual figures give a clearer picture.
Will quarterly financial reports become voluntary and go away? They might partly in the UK, and maybe also in other countries. As so often in finance, the UK sets the global trends.
Quarterly financial reports & the Toshiba accounting issues
Quarterly financial reports can be the trees and annual reports the forrest… seeing the forrest can be more important than seeing individual trees
Independent 3rd party committee chaired by former Chief Prosecutor of Tokyo High Court
On 12 June, 2015, Toshiba announced corrections to income reports, and at the same time engaged an independent 3rd party investigation committee headed by former Chief Prosecutor at the Tokyo High Court, Mr Ueda, to investigate. This independent 3rd party committee submitted their report yesterday, and held a Press Conference this evening.
Lets look at the announced Toshiba financial data in detail. The figure below shows:
corrections announced by an internal committee on June 12, 2015 (green curve),
corrections announced by the independent 3rd party committee on July 20, 2015 (red curve).
The combined amount of downward corrections determined by the independent 3rd party committee is YEN 151.8 billion (US$ 1.22 billion) in total.
Lets put this amount into context:
annual sales: approx. YEN 6000 billion (US$ 60 billion)
annual operating income (average over last 17 years): YEN 148 billion (US$ 1.5 billion)
annual net income (average over last 17 years): YEN 19 billion (US$ 190 million)
Therefore the downward correction summed over the years corresponds to:
approx. 2.5% of average annual sales
approx. 103% of average annual operating profits, ie more than a full year of average operating profits
approx. 8 years of net profits
Toshiba – typical for Japan’s large electronics corporations – operates with razor-thin profit margins: Toshiba’s net profit margin averaged over the last 17 years is 0.25%.
Therefore, the downward correction corresponds to 8 years of average net income/profits.
Blue curve shows Toshiba’s initially reported operating income.
Green curve shows corrections determined by an internal examination, announced on June 12, 2015. Corrections amount to approx. YEN 50 billion (= approx. US$ 0.5 billion).
Red curve shows corrections determined by the independent 3rd party commission, chaired by former Tokyo High Court Chief Prosecutor Ueda and announced on July 20, 2015. Corrections amount to YEN 151.8 billion (= approx. US$ 1.22 billion)
Toshiba over the last few weeks published a number of announcements, and corrections to these announcements concerning accounting issues. Toshiba also engaged internal and independent external expert commissions to analyze possible accounting discrepancies, these committees have made preliminary announcements.
At a recent Press Conference, the CEO of the Japan Exchange Group (JXP) which includes the Tokyo Stock Exchange, Mr Atsushi Saito, said that “he feels very much ashamed for Toshiba”, and that “he cannot understand how Toshiba can be so lazy about their accounting”.
To understand Toshiba in the context of Japan’s electronics industry, read our report on Japan’s electronics industry sector:
Japan’s top-8 electronics giants – including Toshiba – have essentially stagnated for the last 17 years with negligible growth and negligible profits. Japan’s top 8 electronics groups combined have sales approximately as large as the economy of The Kingdom of the Netherlands. However, the big difference is, that in the 17 years since 1998, the economy of The Netherlands has approximately doubled, while Japan’s top 8 electronics companies have not grown their sales at all over these 17 years. Expressed in Japanese YEN, the combined sales of Japan’s top 8 electronics companies in FY1998 is about the same as in FY2014.
Japan’s electronics parts makers are a very different story: similar to The Netherlands, Japan’s top-7 electronic parts makers have grown to more than twice the size over the 17 years from FY1998 to FY2014. Some of the Japanese electronics parts makers have growth targets which should allow them to overtake Japan’s current incumbent electronics groups!
The stagnation of sales growth combined with almost zero profits over 17 years of Japan’s top 8 electronics groups, of which Toshiba is one, certainly puts much pressure on Japan’s electronics groups to improve performance. This pressure might be the background of accounting issues.
Lets look at the actual Toshiba financial data in detail
The figure below shows Toshiba’s previously reported operating income/profits (blue curve), and the recently announced preliminary corrections (red curve). The combined amount of downward corrections is about YEN 50 billion (US$ 0.5 billion) in total.
Only with freedom and democracy, the values of open society and professionalism can the investment chain function effectively
The iconic leader of the Tokyo Stock Exchange since 2007, now Group CEO of the Japan Exchange Group gave a Press Conference at the Foreign Correspondents Club of Japan on June 12, 2015, a few days before his retirement, to give an overview of his achievements and to review the status of Japan’s financial markets today.
Atsushi Saito expresses his satisfaction and pride and surprise about the big improvements in corporate governance and the mind change happening in Japan now.
Atsushi Saito has worked as equity analyst in the USA, experienced the US pension fund debate, and when he was pushing for reform of corporate governance in Japan around 1990 was ignored or even criticized. He is surprised to see that these changes he has been keeping pushing for since 1990 are actually implemented now.
Atsushi Saito directly expressed his shame about the accounting problems recently revealed at Toshiba, and contracts Hitachi, which has independent outsiders, women and non-Japanese foreigners on the Board of Directors, with Toshiba which has not. Atsushi Saito directly said: “I am very puzzled why Toshiba is so lazy to check their accounting”.
Atsushi Saito – leading the Tokyo Stock Exchange since 2007
Leading the Tokyo Stock Exchange since 2007, Atsushi Saito aspired to create an attractive investment destination in Tokyo for investors from all over the world with the following achievements:
modernized the trading systems
developed a self regulatory body
merge with Osaka to create Japan exchange group
Reform corporate governance to improve capital efficiency and corporate value of Japanese companies
The most imperative challenge has been left untouched for far too long: reform of corporate governance in Japan to improve capital efficiency and corporate value of Japanese companies.
Recently we introduced the Corporate Governance Code and we see a shift of mindset in Japanese companies.
Structural impediments remain remain in Japan’s financial market
Structural impediments remain remain in Japan’s financial markets, indirect finance from Banks remain a significant force in corporate finance.
Japanese investment bankers continue to fall way behind European and US rivals.
The post financial crisis regime under Basel 3 puts breaks on excessive leverage.
When global economy returns to high growth, we are not able to rely solely on money centered banks – banks will not be able to provide enough capital satisfy demands in a growing world economy.
Foresee demands for international organizations WorldBank, ADB and new AIIB and private equity funds.
With FinTec, we expect unbundling across separate financial service lines
With fintec, combining financial services and technology, we expect increasing unbundling across separate service lines for banking services, between settlement, wire transfers, loans and other services.
We will see more financial services.
Over dependence on main banks, risk aversion, lack of sense of duty by corporate managers led to the death of Japanese equity as an asset class
In Japan, as a consequence of dependence on indirect finance by money centric main banks, deep involvement of the main banks in corporate management, Japanese companies grew increasingly risk averse shied away from dynamic investment, and ultimately damaged corporate value.
There was a demise of the sense of duty by corporate managers use equity capital efficiently, and as a consequence of these factors, we saw a global divestment from Japanese stocks, eventually leading to the death of Japanese equity as an asset class.
Pushing since 1990 for reform of corporate governance in Japan, Atsushi Saito was not only ignored but even criticized
Atsushi Saito working as an equity analyst in the USA, followed the US pension debate, and started to push for reform of corporate governance in Japan around 1990, he was not only ignored but criticized.
Japan’s recent miraculous turn on corporate governance took Atsushi Saito by complete surprise
Today Japan addresses corporate governance, there is a miraculous turn of mindsets and regulatory framework. We saw:
amendment of companies act
corporate gov code
That these changes could happen came as a complete surprise.
Atsushi Saito hopes that this momentum can be maintained, and fiduciary duties of pension fund managers towards beneficiaries will be strengthened to nurture greater professionalism among Japanese institutional investors, similar to The Employee Retirement Income Security Act of 1974, or ERISA act in the USA.
Only with freedom and democracy + values of open society + professionalism can the investment chain function effectively
Only with freedom and democracy, the values of open society and professionalism can investment chain function effectively. This pattern is what defines truly advanced economy
The recent transformation has brought Japan back into the focus of professional investors globally and a new dawn beckons for Japan.
All stakeholders must remain focused to follow through these early signs of change to ensure that Japan welcomes a brighter future.
Questions and answers
Q: Japan not joining the Asian Infrastructure Investment Bank (AIIB) will deprive Japan of opportunities?
A: The Japanese Government did not say that it will not join the AIIB, but today there is no clear set of rules for the AIIB, the governance structure is unclear. To use tax payers money our government needs to be prudent before they make a decision on investment. There are about 20 international banks and similar organizations, 19 of them have clear governance rules. All except AIIB have clear governance rules. In case of AIIB China will have about 30% holding. Probably our Government will wait before making a decision, and Atsushi Saito thinks this is reasonable.
Q: Will Tokyo Stock Exchange enter into international alliance?
A: Stock Exchange business is a very nationalistic business – only USA has multiple exchanges. All other states have one single Exchange totally under control, regulations, culture by single states. Theoretically Exchanges between different countries can merge, but none succeeded. We saw no case in the world were Exchanges from different countries merged successfully, all such cooperations failed.
Q: Plans of Toyota to have non-traded convertable shares?
Its up to their shareholders. Legally they did not violate any rule.
Japan does not have any priority on special stocks.
I see a discrepance in the USA: The US aggressively raises the voice for rights of shareholders, and corporate governance elsewhere. At the same time US companies are the largest issuer of special stocks for special owners, e.g. for Google or Facebook, more than 50-60% of voting power is dominated by the founders of these companies. –
I see a discrepancy, its an ironical discrepancy. I am talking to the leaders of US : US is very nosy about our corporate goverance, protection of shareholders, but how do they protect shareholders of Google or Facebook?
Q: What is your advice for Japanese economy to regain vitality and energy, for Japan to become No. 1 in the world?
A: I am very concerned about efficient capital use and corporate governance. When I was securities analyst in USA, I was always asked about financial data of Japanese corporations.
Fuji Film had huge cash on the balance sheet – their competitor, the yellow-color photo company was always diligent with share holders, paid dividends, did share buy-backs. Fuji spent much R&D on pharmaceuticals and diversification. The Yellow color photo company disappeared, and Fuji Film is very healthy. Accumulation of sleeping capital is useless. But efficient use of capital is crucial.
when GM went bankrupt it was discovered that they had great technology, like electrical car projects which had been stopped. GM had stopped these R&D projects, because shareholders had insisted to stop R&D spending, and pay hire dividends, and ultimately went bankrupt.
Toyota had 3 trillion yen cash. This was heavily criticized. Toyota was secretely developing electric cars – now LEXUS electric car is bestseller in USA.
We are concerned to respect shareholders, but shareholders’ short term wishes are not always best for the company.
Even BlackRock wants long-term enterprise development rather than short term cash benefits.
Q: Impact of weak YEN on Stock Exchange
A: Even with weak yen, our trade balance is negative. Yen rate is not pushing export from Japan. Japan is manufacturing outside of Japan. Trade account is negative, capital account is black, currency account is black. Overseas subsidiaries are sending dividends back to Japan at the yen rate of 120. Its smart return in the capital account. Our industry structure has changed, we are not exporting on the back of weak yen, so we are not criticized.
Q: plans after retirement
A: I decided: no job – I will take rest.
Q: Disclosure. Often financial data are exposed early in Nikkei or Japanese press prior to official disclosure.
A: I am often asked about this. I don’t know how the press gets their information, its a free market for the press. As long as they don’t do any insider trading or use this information privately, I don’t see anything wrong with early public disclosure. Its a competitive issue between journalists, we cannot critisize competition among journalists. Very sharp journalists pick up information, we are not the police we cannot stop them. Its a competitive world – even for journalists.
I live far outside from Tokyo, sometimes journalists wait at the door to my home in the suburbs. I think this is an invasion of my privacy, and I don’t tell them information at my home.
Q: Trust in the stock market, low Japanese retail investor participation.
A: Advanced states have 60-70% own domestic investors, not outside foreign investors.
Foreign professional investors have immediately responded to the logic of our corporate governance reforms. Especially US and UK pension managers have immediately responded to the improved efficiency of our markets. Investment professionals in London, New York, Scotland can evaluate the meaning of our regulatory changes.
Japanese professional or private investors could not understand the improvements we have done, they did not react.
Mutual funds however are at record hights and we have 8 million ELISA private pension investments in Japan now. People start to build their own pensions now, so retail investors are coming into the market.
We have a normal quiet market now here in Japan regarding sales of equities.
Q: Tokyo as a financial center?
A: If you ask the same question to London, they will say that with IT all transactions are global. There may be arbitrage on the prices. If you compare Shanghai and NY, the trading volume in Shanghai is higher than in NY, but Shanghai not a global financial center, because they are not liberalized in capital in and outflow, they are No. 1 only in volume.
The definition of Financial Center of the World has changed.
We want to be one of the better places in financial business globally. We want to offer convenient and friendly conditions for financial people to come to Tokyo, as one of the centers for financial business.
Tax plays a very important role to define financial centers. London or NY or Tokyo cannot follow a city state like Singapore. We cannot have the same tax system. Tokyo is far bigger than Singapore.
“Global financial center” is a vague subject for me.
Q: Do current prices accurately reflect corp performance. Foreign investors: speculative short-term gains? will foreign investors pull out when Bank of Japan money flush ends?
A: I don’t think the Japanese market is overheating at all. I think the short term speculators have already left Japan.
Long term investors have long asked for change in Japan, Japan did not listen, but now for the first time Japan is listening and changing, and I am feeling longterm investors are understanding this change. We have long term investors here now in Japan.
Q: is high-frequency trading a danger for Stock Exchange?
A: Flash Crash in US was due to the diversity of exchanges. There are 50-60 markets in US. Flash Crash artificially made, not becaue of speed of trading.
Our rules for pricing system here in Japan, we learnt this since the Edo era, we cannot have flash crash, we limit the price changes, we are cooling the trading. Our system of pricing is different than in the USA.
We have many high-frequeny traders from abroad, and they appreciate our system. US high frequency traders critized us up to 10 years ago, but today they appreciate our pricing system here in Japan, they want to learn our Stock pricing system. This has really been a big change for us.
Q: False accounting at Toshiba. Impact on trust in Japan’s stock market.
A: I feel very ashamed for Toshiba. Toshiba should be the mentor or leader of Japanese industry – not the opposite.
Hitachi is a huge contrast to Toshiba. Hitachi aggressively introduced outside board members, foreign and women board members. Hitachi is investigated by outside and foreign board members.
Toshiba is a total contrast to Hitachi.
I am very puzzled by that – why is Toshiba so lazy to check their accounting.
We hope that auditors and accounting houses are more professional and more serious. They told us that their subsidiaries have different accounting system. They must have intentionally checked that point.
My answer: my feeling is one of shame. We should definitely not repeat this type of thing.
Q: Why do Japanese company accumulate so much cash reserves.
A: One reason is that Japanese labor laws compel Japanese companies to have reserves to pay for restructuring. We introduced changes in corp governance, and many companies now use the cash for M&A to acquire foreign companies, or e.g. Fanuc has increased dividents.
I am optimistic for Japanese companies, because they are using cash more efficiently now.
Mobile payments Japan, e-money and mobile credit (200 pages, pdf file)
Japan’s Osaifu keitai mobile payments started on July 10, 2004, after public testing during December 2003 – June 2004
Two different types of Docomo‘s “Osaifu-Keitai“, manufactured by Panasonic and by SONY, were publicly tested by 5000 customers between December 2003 – June 2004. Docomo’s Oseifu keitai mobile payment system builds on SUICA NFC stored fare cards, which JR-East brought to market in Tokyo on November 18, 2001, after long years of development and public testing, where the author of this newsletter was one of the testers.
Apple-Pay was developed building on almost 15 years of NFC payments in high volumes in Japan
Therefore, those who wish to make predictions about how the Apple-Pay market is likely to develop can use the experience gained during 15 years in Japan.
There are also some open questions, which will probably be answered after we can all check out Apple-Pay after September 19, 2014. One point which is very important is the speed of transactions – especially in transport applications such as the London or Tokyo Subways – read about this in the next section of this newsletter below.
Read more below, and in our reports on mobile payments and electronic money in Japan:
The speed of NFC mobile payments – and why does it take 10 years to reinvent the wheel? and: what is the speed of Apple-Pay transactions? faster than 100 milliSeconds? or 500+ milliSeconds?
On July 17, 2012 The Wallstreet Journal reported, that as far as Transport for London is concerned, there is no viable mobile payment solution available at this time, because to the knowledge of Transport for London at that time, mobile payment transactions take longer than 500 milli-seconds, which is too slow for Transport for London requirements (e.g at Picadilly station during the rush hour).
Interestingly, in Japan “mobile SUICA” payments have been used in Tokyo successfully since January 28, 2006 at the world’s busiest railway stations including Shinjuku and Shibuya – arguably more busy than Piccadilly Circus in rush hour, with transaction speeds faster than 100 milli-seconds – according to The Wallstreet Journal, London Transport did not even know about this.
Therefore one obvious question we have about Apple-Pay is whether the speed of Apple-Pay transactions is in the 500+ milli-second range – unacceptable for Transport for London, or faster than 100 milli-seconds – as is Tokyo’s state of the art since January 28, 2006… I guess we will soon learn the answer to this question.
Why is it that Japan does not capture the global value which Apple and Apple-Developers will create and capture now?
Japan developed mobile payments, e-cash, credit cards in mobile phones and at least as much functionality as Apple-Pay and an open API and a mobile payment and e-cash developer ecosystem over the last 10-15 years.
Why does Japan leave all the global value on the table for Apple and Apple developers?
Actually, I personally had discussions over the last 15 years will all major players in Japan’s mobile payment and e-cash field, crowned by 1-1 discussions with Docomo’s CEO at that time – Dr. Tachikawa – I wrote about one of these meetings in The Wallstreet Journal, of course without mentioning the details: “Wallstreet Journal leadership question of the week – Japanese leadership“.
Essentially my conclusion at that time, and today is, that Japanese companies never showed any interest at all in developing global business to capture the global value of mobile payments, e-cash and the related businesses. Japanese companies did not even try, and were not even interested in discussing the globalization of mobile payment and e-cash technologies and business models.
Start-up Nation Israel 2014 – Israel Japan Investment Funds meeting on March 4, 2014 at the Hotel Okura in Tokyo
Israeli Venture funds introduce Israeli ventures to Japanese investors
Acquisition of Viber by Rakuten draws attention in Japan to Israeli ventures
The recent acquisition of the Israel-based OTT (over the top) communications company Viber by Rakuten for US$ 900 Million has drawn attention in Japan to Israel’s innovative power, however many Japanese companies are already cautiously investing in Israel while keeping a low profile, we learnt at the “Start-up Nation Israel 2014” Israel Japan Investment Funds meeting on March 4, 2014 at the Hotel Okura in Tokyo.
Most of the companies presented at the conference were highly sophisticated computer security, medical equipment, and similar “mono zukuri” type ventures, but also included a “selfie” app for auto-portrait or group photos using iPad or iPhone.
By the way: our company is currently working to sell an Israeli venture company to Japan as an exit for investors, and to accelerate business development in Japan for this company.
Her Excellency, Ambassador of Israel to Japan, Ms Ruth Kahanoff opened the conference:
Economic Minister of Israel to Japan, Mr Eitan Kuperstoch explained that while there is substantial investment in Israel’s ventures by many major Japanese corporations, there is much scope for increases. Japan’s investment added together are on the order of 1% of foreign direct investments to Israel:
Pitches by Israeli Venture Funds
BRM Group: actually a privately held fund, strictly speaking not venture capital
CHIMA Ventures: medical devices, minimal invasive surgery tools.
TERRA Venture Partners: Terra invests in about 16-20 (4-5 per year) for a 1-2 year incubation period, followed by a “cherry picking” process. Terra VP invests in companies surviving the “cherry picking”. Veolia, GE, EDP, Clearweb, Enel are partners.
Giza Venture Capital: 5 funds, US$ 600 million under management, 102 investments, 20 active, 38 exits. Examples are: XtremIO, Actimize, Telegate, Precise, Plus, msystems, cyota, Olibit, Zoran, XTechnology. A particular success story is XtremIO: the team of 21 people (including secretary) turned US$ 6 million investment into a US$ 435 million cash sale to EMC.
StageOne Ventures: Early stage US$ 75 million fund, 17 investments.
Gillot Capital Partners: seed and early stage. Focus: cyber security.
SCP Vitalife Partners: 2 funds, US$ 230 capital under management.
Magma Venture Partners: focus on information and communications sector. Created over US$ 2 billion in acquired company value. Biggest success story: waze (crowd sourced location based services), return on capital investment: 171-times.
OrbiMed Healthcare Fund Management: largest global healthcare dedicated investment firm.
Presentations and Panel discussion
Arik Klienstein: Driving innovation in Israel – the 8200 impact
8200 is a unit within the Israeli Defence Forces similar to the US NSA – technology based intelligence collection. 8200 veterans lead many Israeli start-ups including NICE, Verint, Check Point, paloalto.
8200 and the start up culture:
Select the best people out of high school or college
Short first formal training. Most of training done on the job
Flexible dynamic organizational structure
Direct and constant relationship with the end user
“Think out the box” mentality – no assumptions. Hierarchy-less flat structure
Must win attitude!
Tal Slobodkin (Talpiot 18 Graduate): The Talpiot program
Talpiot is Israel’s elite Israel Defense Forces training program, dedicated to create leading research and development officers for the various branches of the Israeli Defence Forces. Program was created in 1979, about 1000 graduates today.
starts with 15,000++ high school seniors
100-150 attend next level of leadership assessment
50-75 reach final selection committee
30-40 enter the program
Training and assignment:
three full academic years
full dual degree in Maths and Physics, most graduate additionally in Computer Science or other subjects
significant exposure to all cutting edge military and non-military innovation
develop management skills
graduates pick own final assignment
minimum assignment is additional 6 years, average tenure in Israeli Defense Forces is 10 years
Yoaf Freund: Professor at UC San Diego, Goedel Prize winner
Elon Lindenstrauss, Professor of Mathematics at the Hebrew University and winner or 2010 Fields Medal
Marius Nacht, co-founder of Check Point Software
Eli Mintz, Simchon Faigler, Amir Natan, founders of Compugen Ltd
Founders of XIV, sold to IBM for US$ 400 million
Eviatar Metanya, head of National Cyber Bureau
Ophier Shoham, head of Israel’s Defence R&D Agency (Israel’s DARPA)
Elchana Harel (Harel-Hertz Investment House): Japanese investments in Israel
94 Japanese investments in Israeli High-tech during 2000-2014:
ICT: 41 investments
Semiconductors: 25 investments
Life sciences: 11 investments
VC funds: 17 investments
Most investments are strategic, not financial, not exit driven
Most investments are direct into target companies, and relatively small by global standards: up to US$ 3 million
In many cases “silent investments”: e.g a Japanese electronics company does not want their Japanese competitors to know that they invest in Israel
Japanese investors mostly follow Israeli or US lead investors. Japanese investors seldom lead.
Japanese acquisitions in Israel:
Nikken Sohonsha: NBT
Yasukawa Robotoics: Yasukawa Israel (Eshed), Argo Medical Robotics
David Heller: cooperation of Israeli investment funds with Japan
Israel’s venture capital fund industry was created by Israel’s Government creating the Yozma Fund of Funds: Israel’s Government invested a total of US$ 100 million in 10 VC funds (US$ 10 million per fund) under the condition that these funds had to attract much larger non-Government investment. In total the Yozma Fund of Funds invested US$ 100 million and resulted in a VC fund industry with a total of US$ 17 Billion of VC funds raised since 1993.
There is a relatively large number of Japanese investments in Israeli funds, however, the combined total investment is rather low, approximately 1% of all foreign investments in such funds. Thus there is much scope for increased Japanese investments in Israeli funds and ventures.
London Stock Exchange formed the Tokyo AIM market as a joint venture with Tokyo Stock Exchange and now withdraws from this venture and from Japan
Initially, London Stock Exchange and Tokyo Stock Exchange created Tokyo-AIM as a joint-venture company in order to create a jointly owned and jointly managed AIM Stock Market in Tokyo, modeled according to the very successful London-AIM model.
“Tokyo Stock Exchange has learnt enough from the London Stock Exchange to set up a similar market on its own” NIKKEI on March 26, 2012
However, on March 26, 2012 NIKKEI reported that “Tokyo Stock Exchange has learnt enough from the London Stock Exchange to set up a similar market on its own. TSE plans to improve the rules of its own new market, so that TSE can create a more welcoming market” (our translation of the original Japanese NIKKEI article to English).
London Stock Exchange withdraws from joint venture, and Tokyo Stock Exchange takes 100% control of Tokyo AIM
London Stock Exchange withdrew from the venture, and Tokyo Stock Exchange took over 100% of Tokyo-AIM. Essentially, London Stock Exchange AIM’s venture into Japan failed, while the stock market created by the venture continues without London Stock Exchange’s involvement. As explained in our blog here, these events are very very similar to what happened with NASDAQ about 10 years earlier!
Tokyo AIM name changed to TOKYO PRO Market and TOKYO PRO-BOND Market
In 2012, the name was changed from Tokyo-AIM, to TOKYO PRO Market and TOKYO PRO-BOND Market. Details can be found here:
EU Japan investment flow is mainly from Japan to Europe and totals about EURO 10 billion per year
Investment flow between EU and Japan shows strong impact from the Lehmann shock economic downturn, and was very quiet between 2008 and 2010. In recent years, mainly Japanese investments to Europe have picked up, and currently about EURO 10 billion per year flow from Japan to Europe, Japanese companies acquiring European companies to globalize and also to pick up known-how and technologies.
Investment flow from EU to Japan remains at relatively low levels around EURO 1 billion annually, while investments by Japanese companies in the EU are on the order of EURO 10 billion per year currently.
Japan to Europe direct investment register:
Investment flow recently is almost one way from Japan into Europe.
EU Japan investment flow is mainly from Japan to Europe and totals about EURO 10 billion per year
With the expected Economic Partnership Agreement (EPA) we expect investment flows to increase in both directions.
The pressure to globalize, and saturation of Japan’s markets drives Japanese corporations to invest in Europe, therefore we expect the future Economic Partnership Agreement between Japan and EU to stimulate further Japanese investments in Europe more than in the Europe -> Japan direction.
SOMPO, a Japanese insurance company owned by NKSJ Holdings, acquired Canopius in order to globalize
In order to globalize, Japanese insurance company Sompo Japan (株式会社損害保険ジャパン), part of the insurance group NKSJ Holdings (NKSJホールディングス株式会社, TSE / JPX: No. 8630) announced yesterday the acquisition of 100% of the UK re-insurer Canopius Group Limited, operating on Lloyd’s for UKL 594 million (US$ 972 million), from the current owners. Current majority owner of Canopius is Bregal Capital.
Canopius will keep the brand, company name, and management team.
Canopius, is an insurance group, one of the top ten insurers in the Lloyd’s market, was founded in December 2003, almost exactly ten years ago, via a Management Buy-Out (MBO) with UKL 25 million capital, which grew about twenty-fold to about UKL 500 million today, and today has about 560 employees.
Canopius is named after Nathaniel Canopius, native of Crete, who studied at Balliol College, Oxford, apparently introduced coffee drinking to Oxford around 1637 (according to the Canopius website), and later became Archbishop of Smyrna (Source: “Anglicans and Orthodox, Unity and Subversion, 1559-1725”, by Judith Pinnington, 2003, ISBN 0-85244-577-6, page 15).
Stanford Economics Professor Takeo Hoshi thinks that there is a 10% chance that Abenomics will succeed to put Japan on a 2%-3% economic growth path, while the most likely outcome will be 1% economic growth. Read our notes of Professor Hoshi’s talk in detail here.
Can Japanese companies globalize?
“Globalization” of course is not an aim in itself. In Europe and USA there are plenty of companies which are very successful and not globalized. However, Japan could capture much more global value from technology and creativity by creating more global companies: the shining example is SoftBank.
Read legendary Masamoto Yashiro’s viewpoints about globalization at a recent Tokyo University brainstorming event by the President of Tokyo University (Masamoto Yashiro was Chairman of Exxon-Japan, of Citibank-Japan, and Shinsei-Bank, and Board Member of the Construction Bank of China). Masamoto Yashiro says that a change of mind-set is urgently needed.
Until March 11, 2011, Japan’s energy markets were essentially frozen in the structures created in 1952, which again resulted from the war-time nationalization of Japan’s electricity sector (see our Energy Report). Japan’s electricity markets alone are worth about US$ 200 million per year – and this market is now in disruption.
Recently I was invited to brief the Energy Minister of Canada, Mr Joe Oliver, and Sweden’s Trade Minister Dr. Ewa Björling about Japan’s energy markets. My briefings are based on our analysis, which you can find in our Energy Report, and Renewable Energy Report.
The liberalization of Japan’s energy markets will create winners and losers – comparing the financial performance of Japan’s electricity companies and gas companies is an indication of things to come. Actually, only Japan’s electricity markets are being liberalized currently, liberalization of Japan’s gas markets is still for the future.
Total number of banks in Japan = 198 (as of July 1, 2013) (not including The Bank of Japan)
Since a banking license is required, the number, names, addresses etc of all banks of Japan are easy to find.
For historic reasons the number of banks in Japan is quite large, and the Bank of Japan and the Government of Japan have mentioned recently, that they consider the number of banks too large, and consolidation of local banks is under consideration.
The Bank of Japan is the central Bank of Japan, and has three main responsibilities:
issue bank notes (not the yen coins, the coins are minted by the Mint of Japan)
carry out currency and monetary control
act as settlement banks between all Japanese banks: “to ensure smooth settlement of funds among banks and other financial institutions, thereby contributing to the maintenance of stability of the financial system.”
Tokyo PRO: NIKKEI reports that LSE fails in the same way in Japan as NASDAQ 10 years earlier. London Stock Exchange withdraws from Tokyo AIM and quits Japan
Tokyo-AIM (the stock market joint venture between Tokyo Stock Exchange and London Stock Exchange) seems to be heading along a similar road as NASDAQ-Japan about 10 years earlier, according to an article in NIKKEI this morning (morning edition of March 26, 2012).
Nikkei: “Tokyo Stock Exchange has learnt enough from the London Stock Exchange to set up a similar market on its own”
Nikkei reports this morning that “Tokyo Stock Exchange has learnt enough from the London Stock Exchange to set up a similar market on its own. TSE plans to improve the rules of its own new market, so that TSE can create a more welcoming market”.
Similar to NASDAQ ten years earlier
Reminds me of NASDAQ-Japan almost exactly 10 years ago:
At the end of 2002 I met with one of my friends, until a few days earlier CFO of NASDAQ-Japan, which terminated operations in Japan on October 15, 2002. I asked him as many questions as I could to build myself a good picture of why NASDAQ had not been successful in Japan, and why NASDAQ decided to terminate its operations in Japan. (After our conversation he offered my small company the used office furniture of NASDAQ-Japan at a good price, had I accepted this offer, my company’s people would all be sitting on x-NASDAQ-Japan chairs and desks…)
NASDAQ initially entered Japan in a joint-venture with Softbank, and built the NASDAQ-Japan stock exchange in cooperation with the Osaka Stock Exchange (OSE). When NASDAQ decided to terminate operations in Japan in October 2002, about 100 companies were listed on NASDAQ-Japan.
NASDAQ Japan becomes Hercules and succeeds
The stock market built up by NASDAQ in Japan became HERCULES (full name: Nippon New Market Hercules) when NASDAQ exited Japan, and in December 2008 Osaka Stock Exchange acquired JASDAQ, and October 12, 2010 Hercules, JASDAQ and NEO were merged to form New-JASDAQ. This year, 2012, there were 7 IPOs on the New-JASDAQ, and about 1000 companies are currently traded on New-JASDAQ.
Interesting to see that NASDAQ-Japan’s market and probably also the market to evolve now from TOKYO-AIM are success stories from the OSE and the TSE points of view, while NASDAQ and now apparently London-Stock-Exchange AIM withdrew from Japan.
Lots to learn here for foreign companies with complex high-tech businesses such as stock exchanges entering and building business in Japan.
Gave presentation to the Telecommunications Committee of the American Chamber of Commerce in Japan (ACCJ) on October 7, 2009, entitled “Will cash become obsolete? E-money, mobile payments and mobile commerce”.
Talk was attended by about 30-40 executives from major global telecom operators, global banks, new-age payment companies, and from major internet companies.
What is money?
Medium of exchange
Unit of account
Store of value
(Standard of deferred payment, unit for debt)
e-Cash value to society:
reduced cash handling costs
Higher transaction speed
Greater security (especially mobile) vs. reduced privacy
Why should be care? (Summary)
Electronic money is here to stay
One e-money card/Japanese person
2% of banknotes and coins today
YEN 100 billion outstanding
YEN 100 billion transactions/month
Japan is far in advance, rest-of-world is likely to follow. But can Japan capture the value? maybe not.
Japan Post (JP), the world’s largest bank & insurer by assets became a group of private companies on October 1, 2007. Japan Post manages about US$ 3.3 Trillion in assets, about 40% more than Citigroup or HSBC and about 12 times more than the banking arm of Germany’s Deutsche Post.
Privatization of Japan Post would not have happened without former Prime Minister Koizumi in the driver’s seat, and the overwhelming mandate he obtained from the electorate in the spectacular September 11, 2005 election.
Japan Post is a “sleeping giant” about to be woken up by private sector CEOs: Japan Post holds about 1/4 of Japan’s US$ 13 billion in household assets, is the largest Japanese insurer, has one of the largest retail shop networks, and is a formidable transporter and deliverer. We expect the new CEOs of JP’s four new group companies to dramatically improve management of JP’s assets.
We believe that JP’s privatization has a very good chance to be successful – given the success stories of postal privatization in other countries, and the very successful privatization of Japan’s former national railways JNR.
on second place in Japan’s parcel delivery industry, transports about 2/3 as many parcels as No. 1 Yamato. With about US$ 17 Billion in sales almost twice as large as Yamato and 1/2 as large as FedEx. International footprint is almost non-existent at this stage in contrast to much larger Deutsche Post/DHL.
JP Network with 24,700 Post Offices all over Japan, could challenge convenience store giant Seven & I Holdings (11,853 Seven-Eleven stores, and 33,000 stores in total).
manages YEN 231.6 Trillion (US$ 2.15 Trillion) in assets. 80% of these assets are postal saving accounts, of which about 79% are invested in Japanese Government bonds. By assets of similar size as Citigroup and HSBC and almost twice the size as Japan’s largest commercial bank Mitsubishi-Tokyo-UFJ, and almost four times the size by assets as Mizuho-Bank.
with YEN 126 Trillion (US$ 1.17 Trillion) Japan’s largest insurer by assets held, more than twice the size of Nihon Seimei – Japan’s largest commercial insurer. JP Bank and JP Insurance combined hold about 1/4 of Japan’s US$ 13 Trillion of household assets.
Since October 1, 2007, each of the four JP group companies is headed by a new CEO from the private sector. We expect the new private sector CEOs to dramatically change the way JP assets are managed and allocated.
Citi, HSBC and UBS react to JP privatization
Citi is in the process of acquiring retail broker Nikko Cordial. Citi as the first foreign bank in Japan acquired a full banking license, mended the relationship with Japan’s Banking regulator FSA and is on expansion course in Japan.
HSBC has announced plans to open retail branches in urban centres such as Tokyo, Kobe and others to provide asset management services to private customers in Japan.
UBS has also been reported to plan expansion of private banking and asset management services to private customers.
Figure 1: Japan Post was privatized and split into four groups on Oct 1, 2007
Japan Post Bank and Japan Post Insurance together hold about US$ 3.3 Trillion in assets. Each of the four Japan Post operating companies is headed by a new CEO from the private sector
Figure 2: The world’s largest bank by assets…
JP Service is among the world’s largest delivery companies in terms of sales, JP Network has twice as many stores in Japan as Seven – Eleven, JP Bank is among the world’s biggest banks, and JP Insurance is twice as large in assets as Japan’s largest commercial insurer.
April 24, 2006 was my Swedish Day: for breakfast I was invited to IKEA’s opening party for their new store in Funabashi (I met even with the global Chairman of IKEA – that he attended the opening in Funabashi shows how seriously IKEA is taking this (second) market entry to Japan) – we had done some IT work for IKEA.
Lunch and afternoon I spent with about 30 Swedish CFO’s / controllers of some of the largest Swedish corporations, who had come to Japan on a study tour. These CFO’s/Controllers were all working at companies in Investor AB’s portfolio, and the program was organized by Investor AB’s Corporate Academy Novare.
The Swedish controllers had asked for a briefing on Japan’s telecom industry. Some of their companies are considering to start, re-start, or grow faster in Japan, so there were many detailed questions about business in Japan, what can go wrong, personell issues, experience of other multinationals, and of course a lot of questions about IKEA and Vodafone.