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More trouble and bankruptcies in the real estate market; Renovated condos more appealing to buyers?

Over the past week, condo developer Sebon filed for bankruptcy with about 62 billion yen in liabilities, while FEC, another condo developer, filed for bankruptcy protection with about 13 billion yen in liabilities.

New condos simply aren’t selling the way they used to, and the squeeze on bank lending to real estate developers is going to start hurting those firms that have survived on credit lifelines rather than sales first.

But the real story here is the result of a recent survey conducted by Next and published in the Nikkei a few days ago. Apparently, over half of respondents stated that they would choose buying a renovated existing condo rather than a brand new unit, provided that they could save about 5 million yen in the transaction.

With the average price a new condo in Tokyo up 9.3% last year, it’s no wonder buyers aren’t looking to buy new places. But with sales of new condos down 17.9% in 2007, the real mystery is why these bankrupt firms didn’t get into the condo renovation business when they still had a chance.

Nikkei on the upcoming Economy Watchers Survey and government stimulus

A bit of an odd article came out of the Nikkei this morning, with the title Rise In Econ Watchers Confidence Could Boost Stocks. The Economy Watchers Survey is released each month by the Cabinet Office, and gauges sentiment amongst service industry workers close to the “front line” in various sectors. The survey itself has taken a beating this year, and last month slid for the fourth month in a row to its lowest levels since late 2001.

Because the EWS is an index and is not measured year-on-year, there are bound to be occasional surprising results, such as when the survey reported a slight uptick in March of this year. Still, the main score has been below the boom-or-bust level of 50 for 15 consecutive months, and with a score of 29.5 registered in June, it’s difficult to imagine anything too much higher than 30 showing up in the July reading.

Speaking of the July reading, it’s not due to be published for another five days, so why the speculation? Here’s what the Nikkei had to say:

The Economy Watchers Survey for August may serve to lift stocks if the latest data, to be published Monday, shows an improvement in the diffusion index for economic conditions.

Perhaps, though many other factors would be at work, and this doesn’t show slam-dunk causality. But what if the survey shows a decline yet again?

But if the gauge marks the fifth consecutive month of decline, calls for government action to stimulate the economy will likely mount.

Ahh. That might be the real message. The last week of July was washed out with rain, which most likely dissuaded consumers from doing a lot of shopping - and 25% of Japan’s department store sales happen in the Tokyo area. Although household spending fell by just 0.5% in July, this July was fighting against one of the stronger months from 2007. Given that the Economy Watchers survey is done from the 25th to the end of each month, right in the middle of all that rain, I don’t see sunshine coming from next week’s figures.

And yes, I’m buying the weather excuse this time.

Fukuda steps down, foreign media doesn’t get why

In an article published very recently, we read this:

Japan’s stock and bond markets will likely suffer another blow from the sudden resignation of Prime Minister Yasuo Fukuda

I guess that’s good news for those looking for a bottom, though it makes little rational sense. Here’s the kicker:

[Fukuda’s] departure is seen clouding the reform outlook and potentially spurring debt-funded spending.

Really? Fukuda was about as anti-reform as they come. Who does this reporter expect next - Ito Hirobumi?

My favorite part:

[A]nalysts said foreign investors will not be thrilled with Japan’s prime minister departing in surprise fashion

What surprise? Two weeks ago ago, Yoshiro Mori, the big gun and Kingmaker in the ruling Liberal Democratic Party, said that Fukuda was all but done - on national television, no less. There is no surprise here. Those of us who live in Japan and pay taxes here - and watch television - understand exactly why this happened now - the ruling Liberal Democratic Party needs more time to get its bills through the diet. Let me say it again: There is no surprise. Mr Mori said on national television that Fukuda was no good and that he wanted Aso in the position.

The article goes on to explain how Fukuda’s resignation will be bad for Japan’s equity markets (despite the fact that Japanese equity markets have already had two weeks to price in Fukuda’s resignation):

Since Fukuda took over from Abe nearly a year ago, the Nikkei share average has lost 22 percent — even more than the U.S. S&P 500 — as foreign investors have soured on Japan.

That sounds like good news to me. Get rid of the guy who oversaw a 22% loss in equity value while Japan’s longest post-war period of economic growth died. Good news!

The article then points out:

Fukuda’s likely successor, ruling party executive Taro Aso, is seen as someone who could boost the size of the government’s just-launched spending package to help households and small companies, but the length of his tenure is expected to be short.

Too bad the author doesn’t actually know Mr Aso’s current position, which is Secretary General of the LDP. Before that, he was one of the best Foreign Ministers Japan has seen in the post-war ear (not saying I support them man, not by any means, just that he was an excellent foreign minister).

The stock market is not the issue. Mr Fukuda’s resignation means that a special session of the diet will have to be called in addition to the extraordinary session. This gives the ruling party an extra 30 days to pass the bills they would otherwise not be able to get through in a shortened extraordinary session - this is a huge middle finger to the New Komeito Party and means that the extension to the refueling mission in the Indian Ocean should get fifity-nined through the diet.

Reform is not the issue. Reform in Japan is dead, and died a long time ago. We are looking at the LDP trying to stay alive. It’s not the economy, stupid - it’s pure politics.

Japan supermarket sales up 0.9% in July, first rise since February

Japan’s supermarket sales rose for the first time in four months in July, post a 0.9% gain to 1.12 trillion yen, according to the Japan Chain Stores Association. These figures follow a 0.9% fall in May, and represents only the second time supermarket sales have increased in the past 31 months. However, when new shops (those opened within the past year) are included in the data, supermarkets saw a 4.4% decline in sales.

Here is a breakdown of June’s adjusted figures (not including newly opened stores): Read more

Missing your market: Facebook in Japan

A classic anecdote: Jean Snow reports that a fellow blogger’s wife is unable to open a Facebook account due to her family name being Yoda.

Any word yet on whether New York Islanders right winger Miroslav Satan has a Facebook account?

Japan’s department stores out of ideas, intend to target young customers

Japan’s nationwide department store sales have declined for eleven years in a row. In June, they fell 7.6% year-on-year, and in May they slid 2.7%. February is the only month so far in 2008 to have seen a rise in department store sales, and that was by less than one percent. It seems to safe to say that 2008 is not going to be the year when department store sales turn around.

Yet, food sales have been rising month after month. In June, food sales made up 28.4% of all sales at departments stores, comprising the second largest category after clothing, which represented 34.0% of all sales in June. Sales of clothing fell 14.0% against June of 2007.

With clothing sales being pounded over recent months, department store operators in Tokyo have been pouring massive investments into their stores in order to upgrade facilities. Some of this - particularly in Tokyo’s Ikebukuro, Shinjuku and Shibuya areas - has been motivated by the opening a new subway line. Yet, the approaches taken have been inconsistent. Some department stores have declared that capital investments were being made to cater to senior citizens, others have announced upgraded areas for women’s clothing.

One might think simply, “They don’t know what to do.” Today’s Nikkei seemed to confirm that suspicion with the headline Department Stores Plan Renovations To Lure The Young.

This seems as though a move from beyond desperation. The Nikkei puts it simply:

Department store operators tend to cater to middle-aged and older consumers. Faced with sluggish sales of relatively expensive items, however, these retailers will now offer more products that younger consumers can afford.

Ouch.

Shibuya’s Tokyu Department store is spending 180 million yen for a renovation that it believes will lead to a 10% increase in sales. Generally, department stores who have announced this strategy appear to be targeting women in their 20s. Shinjuku’s Odakyu department store is spending 150 million yen - a fraction of the 8.5 billion yen it intends to spend overall by the end of fiscal 2009 - in order to create a new section of products designed to appeal to women in their 20s.

We would love to see the reports leading to the conclusion that such a move could result in a 10% increase in sales. With the way that declining department store sales are blamed on bad weather by the Japan Department Stores Association month after month, it would almost seem to make more sense to invest the money in a weather control machine at this point.

Or they could invest in new brands to open as small, niche-based shops. Nah.

Japan’s GDP drops an annualized 2.4% in the second quarter

Just three months ago, the Cabinet Office announced that Japan’s first quarter GDP has jumped a surprising 3.3% in annualized terms. No one expected a repeat of such rosy figures in the second quarter, and the 2.4% annualized contraction reported yesterday by the Cabinet Office was about what most observers had expected.

The bad news resounds: Exports fell by 2.3% in the second quarter, declining for the first time in three years. Imports fell 2.8 percent. Consumer spending was down 0.5%, while capital spending slipped 0.2 percent.

Looking through today’s headlines, it’s difficult to find good news: Cell phone sales have dropped through the floor - though this is a cause of an ill-explained change in the way mobile phones are sold in Japan, and should lead to sales increases next year. In the second quarter, sales at DoCoMo fell 21%, AU saw a 19% fall and Softbank’s sales slid 23%. As the Nikkei puts it: Read more

FDI from Japanese nonmanufacturers up 35% in FY2007

One of themes that has often been touched on over at BizCast Japan is the increasing overseas presence of Japanese non-manufacturing firms. The Nikkei has just published an article showing the results of a joint Finance Ministry and the Bank of Japan survey showing that direct foreign investment by Japanese non-manufacturers jumped 35% in fiscal 2007 to reach about 4.3 trillion yen.

This amount is still lower than what what seen during the bubble years, when Japan’s FDI by non-manufacturing firms surpassed 6 trillion yen. Still, it is a trend that is expected to continue, given the lack of growth opportunities in the domestic market.

Retail and wholesale firms led the charge in FDI, pouring about 560 billion yen overseas in FY2007. They were followed by investment in oil and mining operations (480 billion yen) and investments in transport (330 billion yen).

BusinessWeek on the low numbers of Japanese headed to Beijing Olympics

BusinessWeek correspondent Hiroko Tashiro has a new piece on why Japanese tourists are not heading to the Beijing Olympics in droves. Tashiro makes the point that negative media coverage of China has been the norm over the past year, especially following the poisoned gyoza scandal. Of course, the manner in which the protests in Tibet and the Olympic flame relay were dealt with also weigh in as factors.

But, we have to expect there to be some mismanagement on the business end as well. Tashiro gives an interesting, though brief, look into how the ticket situation has been bungled by the combination of the IOC, JOC and Japanese travel agencies. Here’s one illustration:

In the case of judo, for instance, [ANA Sales] has 50 tickets for the preliminary rounds but 10 for the finals. “You can’t tell a customer to watch only the early rounds and then go back to the hotel to see the finals,” says Sawaki. “It’s a hard sell.”

One factor not mentioned in the article, however, is that overseas travel in general (not just to China) is down this year. This points to economic troubles amongst those who would usually be saving up to make such a special trip. Higher travel prices and stagnant wages are taking their toll as overseas trips are being put off. Domestic travel destinations may benefit as a result, but electronics firms had probably counted on selling a lot more digital cameras to people heading off to the Olympics.

Most likely there is a balance of factors. China’s image has taken a battering in the Japanese media and people have less disposable income. Perhaps other residents figure they just might be able to wait until 2016 to see the games in Tokyo, as the city is now offering what Reuters calls a “blueprint” for large cities planning to host the Olympics in the 21st century.

Japan’s food self-sufficiency to 40%; Marubeni to source soybeans and corn directly from the US

In last night’s post on Prime Minister Yasuo Fukuda’s new cabinet, Japan’s food self-sufficiency rates merited a brief mention at the end:

[N]ew agriculture minister Seiichi Ota also spoke to reporters on Monday, saying that Japan needs to achieve a level of food security. Can Ota put policies in place to help Japan boost its current 39% self-sufficiency rate on a calorie basis.

This morning, Kyodo reported that Japan’s food self-sufficiency rate had risen one percentage point to 40% in fiscal 2007. This was the first rise seen in 13 years. Former Agriculture, Forestry and Fisheries Minister Masatoshi Wakabayashi had set a goal of reaching 50% food self-sufficiency by 2015. New Agriculture, Forestry and Fisheries Minister Seiichi Ota told reporters, “We will make efforts both on the production and consumption sides to ensure this trend.” Read more

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