Analysis: Japan crisis not in beholder's eyes

Street homeless presage worse to come if global recession hits

From the 22nd floor of the Grand Hyatt you have a good view of the city of Tokyo at sunrise. Look down, and you can see a park full of cardboard boxes and their homeless inhabitants being cleared out of sight by security before the financial district wakes up for another day of share trading. Japan’s financial crisis shows little if any sign of improving. Last week, Mitsubishi and Hitachi posted bad six monthly figures, while many of the trust banks, which hold people’s pension funds and savings, warned that they would be in the red, possibly for two years. The week before, Toshiba filed its first losses for 23 years. But on the face of it, there are no problems whatever. The streets of Tokyo, Yokohama and Kyoto all bustle with life and seem to buzz with energy. There are big problems with the economy, but like Tokyo and Kyoto’s homeless, they are not necessarily visible to the naked eye. According to Yasuo Nishiguchi, a senior executive at Kyocera, many of the problems stem from a period four or five years ago when the big banks loaned big money to conglomerates, which then spent the money on schemes both at home and abroad which could never deliver their returns on investment. Will big combines like Hitachi, Mitsubishi and Toshiba cope with their poor financial results by laying off staff and cutting other overheads? That is very unlikely but not completely impossible. They are reluctant to do so because it flies in the face of the “jobs for life” philosophy which Japanese big business espouses. That does not bode well for subsidiaries of Japanese business overseas and means it is very likely that we will see job cuts here and in other countries before they happen in the domestic market. Companies including Toshiba and Hitachi attribute many of their problems to the slump in the semiconductor market, particular in memory products. At the same time, they are afflicted by the other economic woes of Japan, while the yen is crucified on the foreign exchange markets. Nor do the combines share the optimism of the Semiconductor Industries Association (SIA) or market research company Dataquest, both of which have predicted a recovery in the market in mid-1999. Kyocera is a manufacturer of ceramic packaging for the semiconductor business and it,too, has been hit by the worldwide oversupply and slump in demand. While the $40 billion company has fared better than Toshiba, which recorded its first loss in 23 years, Kyocera’s interim six month figures showed a 34 per cent drop in profits. Its chief financial officer, Hideki Ishida, said that while his company will be able to recover its position, partly due to a switch in production from ceramic to plastic packaging, the outlook in the semiconductor market is not brilliant. That, he said, is because the Japanese companies expected to see the US and some of the major European economies decline in 1998. Kyocera is attempting to re-engineer its business model and concentrate on its mobile business to weather the storms that it believes are buffeting the world economy. But that, said Ishida, will not be easy. “Our profitability indices are not acceptable because we’re going through a pretty heavy transition,” he said. “Our competition in Japan are feeling the same or even tougher conditions.” At best, he said, Kyocera will be able to reduce its six month’s profit drop of 34 per cent to 20 per cent for the whole year. To help the company turn round, Ishida said it was increasing its production of MR (magneto-resistive) heads for the hard drive business and fibre optic products, as well as shifting its emphasis on home domestic sales of its mobile products to worldwide sales, based on its joint venture with Motorola on the Iridium satellite project. It would also seek to capitalise on its Daini Denden (DDI) telecomms business. Japanese companies generally will cut prices, he said. “This year we see a pretty clear sign of reductions in the market with people downsizing in terms of price,” he said. “The corporations will have a hard time because of the quality of their management. They need to be supported by their customers. Big banks used to form industrial groups and support them. These will dissolve and organisations will have to stand on their own feet. Money should come from investors, especially investors on a global basis.” There are underlying signs, that for Japanese manufacturers, things will get worse, not better. The big combines are supported by thousands of small and medium sized companies which make the tools, design the technology and provide the innovation exploited by the majors. These smaller companies are fast disappearing, unable to survive the rough seas of financial woe. While the Japanese government has attempted to give a fillip to domestic consumption by providing each citizen £250 to spend on electronic goods for Christmas, there is little sign that consumer demand is increasing. In downtown Tokyo, the 500 metre long Akihabara street, with over 400 electronics shops, and which accounts for annual domestic sales of 350 billion yen, is virtually deserted. The street accounts for six per cent of total domestic sales but few are buying. There are only small differentials between the different jobs in large Japanese companies and many rely on bonuses, which can account for as much as a third of overall take-home pay. Those bonuses are only paid if companies are doing well. In Japan’s ancient capital, Kyoto, things are only a little better than in Tokyo. The homeless are there if you look for them, sleeping in cardboard boxes in doorways. In the morning, there is no sign of them whatever. Whether they are moved on by the police or disappear because of their own shame at their condition is unclear. ®