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Japan GDP growth and losses at Japan Post – Gerhard Fasol interviewed by Rico Hizon on BBC TV

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:

  1. 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
  2. Implement Prime Minister Abe’s “third arrow”, the reforms. Deregulation not just in a few “special zones” but nation wide.
  3. 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 [6178]

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):

  1. 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)
  2. (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).
  3. Japan Post Bank (株式会社ゆうちょ銀行): Tokyo Stock Exchange No. 7182
  4. Japan Post Insurance (株式会社かんぽ生命保険): life insurance. Tokyo Stock Exchange No. 7181
  5. Toll Holdings: Australian logistics firm acquired by Japan Post. Toll Holdings is a 100% subsidiary of Japan Post Co. Ltd.

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Waking the world’s largest bank: Japan Post

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.

JP Services
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).

JP Bank
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.

JP Insurance
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

Japan Post group diagram
Japan Post group diagram

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.

Japan Post divisions (logistics, distribution and financial) compared to competitors
Japan Post divisions (logistics, distribution and financial) compared to competitors

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