Beacon Reports proudly announces The Ichiban Entrepreneur Nominations.
We are asking those who have made Japan their home to nominate the individual you believe to be ‘ichiban entrepreneur’ from amongst your circle of friends and colleagues.
Beacon Reports will be publishing the nomination results. We will be covering the lives and business activities of the most outstanding movers and shakers from among those nominated.
Nominations close 31 May 2012. Submit your nomination here!
The Nikkei Weekly recently reported that foreign investors since last year have been buying up Japan’s real estate. Driving demand are stable property yields of 5.3% that far exceed the risk free return on government bonds. Does this suggest that our readers should jump into the property market? Not unless you are a professional investor, suggests Seth Sulkin. Seth is President and CEO of Pacifica Capital K.K., a Tokyo based real estate asset management and property development company. We interviewed Seth to better understand from the professional’s perspective the current state of Japan’s real estate market.
Stable Income But No Capital Gains
According to Seth, before 2008 Japan’s property market was buoyant. Occupancy rates were rising. Cap rates (a measure of the initial property yield used by the real estate industry) were in decline causing the value of property to rise. “Since the financial crisis, Japan’s fundamentals are terrible,” said Seth adding, “Japan will lose one-third of its population over the next 40 years. Already in central Tokyo there are many empty buildings. That number will multiply. It’s hard to imagine why prices will rise again.” Indeed, it is difficult to envisage that real estate will rise in value given the country’s deflation and demography. As the graphs depict, Japan’s land prices have been trending downward since 1991, while its population is both aging and in decline.
Although capital gains are unlikely, investment in Japan’s real estate offers stable income. Japan enjoys the largest spread in the world between property yields and interest rates. Ten-year Japanese government bonds are yielding just over 1%. Blue chip companies can borrow for as little as 50 basis points. “If you buy a Grade A office building offering a 4.5 -5.0 % yield and you’re paying 50 to 100 basis points to borrow,” said Seth, “that’s a huge positive spread that cannot be achieved anywhere else in the world.” In cities like London, where property is in high demand but interest rates are also high, the cost of borrowing can exceed yields. Therefore investors, particularly those in Asia and Europe, see Japanese property as a way to earn safe and steady returns. “They’re not looking for capital gains,” said Seth. “They are looking for stable income.”
Attracted by the stable income, pension funds are increasing their exposure into Japanese real estate. Historically pension funds have avoided owning property because of its illiquid nature. Real estate had been considered an alternative asset class along with hedge funds and the like. Conservative by nature, pension funds bought mostly bonds and some stocks. That has changed. According to Seth, “Pension funds have learned lessons from recent stock market crashes not to put all their eggs in one basket. The correlation between equities and real estate is low. Putting 3 to 5% of your assets into real estate is now usually considered to be a healthy way to diversify risk.”
Much of the focus of that investment has been on the Tokyo market. Japanese workers, tired of long commutes, are taking advantage of deflated property prices by moving back into Tokyo’s 23 wards. Property investors are attracted by the Capital’s steady increase in population that is rising by 1/2 % each year (see below graph).
Standard Plays
Many Japanese buy one room mansions costing about ¥10 million as investments. Seth, however, does not recommend that individuals directly buy property for investment purposes. He believes the risks and the difficulties outweigh the rewards. “If you are an individual, you don’t want to be in the business of being a landlord for one unit,” said Seth. “It’s too much hassle. You need to collect rents, find new tenants and pay brokerage fees each time a tenant moves. Sometimes tenants run away causing damage. It’s not worth it.”
On the other hand, if you have a few million dollars and you want to buy a multi-unit building, you can expect a net operating return before depreciation of about 5% to 5 .5%. For a fairly new building, the capital expenditure required for maintenance is quite small. As the building gets older, the figure increases. If it’s an old building, your return depends upon whether you maintain it. All being said, if you buy a well located building that is about five years old and 95% occupied, you should get a reasonably stable income. Just don’t expect rents to increase or make a capital gain.
Contrarian Plays
One contrarian play involves converting luxury apartments in Tokyo into rental accommodation. It combines the move by Japanese back into central Tokyo with the exodus of expats following the Lehman shock. The bursting of the financial bubble “has hurt the luxury expat apartment market,” notes Seth. “This opens the door for the opportunity to buy an ex-pat luxury apartment building and then to rent it out at reduced rates to the Japanese.”
The other interesting play is to convert a rental building to a condominium. “I don’t expect individuals to be making these kinds of investments as they require a lot of money, but it’s an interesting play if you want to make a capital gain on residential property,” said Seth. “That’s about the only way to do it.”
REITs
The individual investor who wants exposure to real estate and steady dividends can invest in Real Estate Investment Trusts (REITs). REITs are pooled real estate investments that can be bought by the retail investor. Seth, however, is unimpressed with corporate governance of Japanese REITs. Unlike U.S. REITs, which he considers having the best run property funds, the management of Japanese REITs is outsourced. The REIT itself is just a paper company which owns the property. The sponsor sells properties off its balance sheet into the REIT. The REIT is then managed by the outsourced company. “This creates all sorts of conflicts of interest,” said Seth adding, “The value of Japanese REITs is correlated not so much with the quality of the portfolio, but with the credit quality of the sponsor.” If you must own Japanese REITs, Seth suggests that you limit your investment to the big Japanese sponsors like Mitsui Fudosan, Mitsubishi Estate and Mitsubishi Corporation. “They have the safest REITs, but offer lower dividend yields.”
Commercial Real Estate
The most interesting story in commercial real estate over the last couple of years, according to Seth, has been increased investment by ethnic Chinese companies (from Singapore, Hong Kong, Taiwan, and Malaysia) into Japan. Although he is not yet seeing an inflow of mainland Chinese money, Seth believes this is just a matter of time. Ethnic Chinese companies are buying up logistics operations, senior citizen homes, and especially business hotels. “These buyers are not just looking for yield,” said Seth. “They are looking at the price per pound (obtained by dividing the price of the property by its leasable area).” Western professional investors, on the other hand, buy property based primarily on the criteria of yield and underlying market fundamentals. Seth provided his insights into what might be behind the ethnic Chinese investment criteria. First, property prices are already high in places like Hong Kong and Singapore, where there is a shortage of land and growing populations. To the value investor, land prices in Japan may be considered comparatively good value for money. The second and perhaps more persuasive argument is that ethnic Chinese are seeking to invest in countries with strong property rights. “In China the government owns all the land,” said Seth. “You may have a 30-year lease. But because the law in China is not that old, nobody knows what you need to pay to renew it. Given that laws in China and contracts are ‘flexible’, that’s a risk.” In Japan, on the other hand, ethnic Chinese can own the freehold property. The price per pound is relatively cheap and the Chinese get to own the “dirt” in a safe country. From the ethnic Chinese perspective, buying Japanese real estate might well diversify risk.
Professional Plays
Professional investors like Pacifica Capital focus on investing in distressed properties where there is the possibility to make a capital gain. Last year Pacifica Capital began to buy up listed companies that own real estate with the idea that they would take them over, make better use of the property, and eventually Exit. The company is focused on acquiring prime central Tokyo real estate in Ginza, Omotesando, Shibuya and Shinjuku where tenant demand and liquidity is the greatest. “The reason we started looking at listed companies was to get property cheaper than buying it directly,” said Seth. “Many Japanese companies, especially manufacturers, own real estate that is not effectively utilized. If you buy the company, it’s a cheaper way to acquire real estate than buying the real estate directly.”
Seth Sulkin, President and CEO of Pacifica Capital K.K. Pacifica Capital manages money for professional investors such as U.S. and European pension funds, family offices and real estate private equity funds. www.pacifica-cap.com
Bruce Pomer is Managing Partner of WESTGATE ADVISORY and an investment banker working in Tokyo. With his vision into Japanese companies, Bruce shared with me his views on Japan’s M&A activity.
As background, Bruce grew up listening to the Beatles. The idea that “It’s a small world (after all)” was catching on, a thought made popular by the Sherman Brothers’ boat ride song. Desirous of exploring that “small world”, Bruce left his native Toronto for Japan in 1980. He studied Japanese intensively, became a translator, and wrote annual reports for a living. Later he became an investment banker, work that brought him into routine and close contact with senior Japanese business leaders. Thirty-two years after his first arriving in Japan, Bruce convincingly argues that he understands what makes Japanese companies tick. Now he sources M&A deals from around the world. Recently he represented Kintetsu World Express (KWE), Japan’s largest airfreight forwarding company. KWE made a $ 50 million joint venture investment into Gati Limited, an Indian logistics company. The deal took a year to negotiate and is awaiting the formalities of final government approval.
About that deal Bruce said -
The Japanese are going to India because manufacturers and suppliers are increasingly moving there. The fundamental problem in Japan is the lack of economic growth. The population is shrinking and aging. When you get outside Tokyo to the smaller towns like Wakayama, a beautiful coastal town in Kansai, they’re losing half their population due to the hollowing out of Japan. Osaka is trying to stay alive. Kobe, the San Francisco of Japan that has oceans, mountains, a port and great food, is struggling. It’s a shame because these cities like Sendai, Fukuoka, Kobe, and Kagoshima are great cities.
There is a deep well of economic trouble. Companies who have the capacity and resources have no choice other than to go outside Japan because there is no growth here. For someone like me, there is much opportunity. Most everyone is stuck, especially small to medium-size companies. These companies do not have the resources to develop outside of Japan. Eventually, some of them are going to become targets. Even mid-sized pharmaceutical companies will eventually be acquired or merged. When they can afford to do so, big companies achieve growth by buying foreign companies. For instance, Takeda spent almost $14 billion to buy Nycomed in Switzerland. So there’s a lot to do.
M&A is interesting because you need to understand all aspects from the macro global dynamics of an industry, to a company’s balance sheet, including management, marketing, manufacturing, competitors, deal structure and negotiations. When you take all that and throw in cross border deals with India, Israel, and Vietnam, it’s fascinating.
In my view, M&A in Japan started in earnest in 2000. Before that you could not visit a Japanese company and ask them to sell their business. It was considered improper and rude because selling your own company is miuri (selling yourself). It’s a negative event.
Japanese don’t look to Exit their companies to make money (although a few companies like Takeda Pharmaceutical were enlightened and sold their non-core businesses). Generally speaking, they Exit when they have to. I believe more often than not the senior management is concerned with their own position. They don’t want to rock the boat by causing trouble. If they buy or sell a company and the result doesn’t work out well, it may come back to haunt them. It’s not as altruistic as you might think. At the end of the day, humans are humans. Hobbes, Locke, and Machiavelli got it right when they said we are self-interested creatures securing our own self-motivations and interests. I don’t think the Japanese are any different. Perhaps they shroud it to make it look good.
Those that are most likely to sell businesses are either foreign companies or older Japanese that have successor issues or troubled companies. Good companies that enjoy growth and profits are generally not for sale. When I was at Bank of America, I represented people like Mike Alfant when he sold Fusion Systems. At Shinsei Bank, I represented Oak Lawn Marketing in the sale of 51% to NTT Docomo. These were entrepreneurially owned foreign companies. Foreign entrepreneurs build businesses. Then they sell them, and go and do something else. When young Japanese build a business, they tend to keep it for life. The reason they don’t sell may be that they associate their own self-esteem and self-worth with the company. If they were to sell it, they would lose their social status as president of the company. These entrepreneurs may also not have the confidence that, once sold, they could do it again. I’ve been out with one young president whose company had a market value of $3 billion with much smaller sales. I suggested to him that he should sell it, because the business was over valued. He replied, “Why?” The company has since fallen from this lofty valuation and is worth only a fraction of what it once was.
There are other reasons Japanese don’t sell their businesses. Japan suffers from a lack of entrepreneurial drive. I’ve had senior Japanese managers from large companies that couldn’t understand why you would sell a good business. They do not understand the concept of monetizing a business to go on to do other things. It’s unfortunate because the new, young, and vigorous entrepreneurs that can ‘shake and bake’ and ‘rock ‘n roll’, just aren’t there. The economy, with its aging and declining population, doesn’t have much vigor.
In addition, the banks and the venture capitalists are reluctant to provide financing to new ventures. There is no real VC industry here. VC investors generally want to invest in companies with established track records. That’s not venture capital. In the United States, venture capital investors more often look for entrepreneurs and managers that have failed before. The attitude is, “Great. You have got experience. Now you know how to do it right the next time”. So failure is good.
In Japan there are salary men companies and owner companies. Owner companies are the ones that are active. Owners like Nidec’s Nagamori-san and before him Kyocera’s Inamori-san, Sony’s Morita-san, Toyota’s Toyota-san and Takeda’s Takeda-san were all motivated. People like this know what it takes to build a company. They know the hardships. They understand the risks, motivations and the incentives. As to the majority of the salary men companies, they’re only incentive is to retire with security. Even if they have a major success, they don’t make a lot more money. But if they screw up, they can lose their position. They could jeopardize their future retirement. So why do it? What is the upside? Salary men companies are not incentivized to take risks.
This country could be vigorous and dynamic but it’s lacking leadership in the corporate world and in the political world. Japan, as far as I’m concerned, has the best labor force in the world. It’s educated, well read, and they care. They have the right attitude. Tokyo is also one of the best cities in the world. The quality of life doesn’t get better. It’s safe. It’s clean. The Restaurants and service are great. That creates a sense of complacency. People are intelligent, bright and creative. But it is not there now. That’s mottainai (it’s a pity). Until it returns the country will not be dynamic as it should be.
Sill for me, what I’m doing is fascinating. It’s very personal. I have kids here. I care about this place. Sometimes it’s frustrating, but I love it.
Westgate Advisory Co., Ltd. www.westgateadvisory.com
Did you know that your bubble needs expanding? “What, my bubble?” you might ask. “What on earth is my bubble and why in heaven would I want to expand it?” These are questions I raised when I began to explore the field of executive training and coaching.
Companies send their employees on training courses and assign top staff an executive coach to make good people perform even better. Improvement means doing something different from what they have done before. That means change. Yet people are highly change resistant. They usually act from within their comfort zone. They take the same commuting route to work every day. They eat the same variety of foods. They have the same basic circle of friends. They have gotten into a little groove which is their core comfort zone. “But when you’re asking people to improve you are necessitating that they do something different which involves risk,” said Dr. Greg Story, President of D.C. Training Japan (Dale Carnegie). Dr. Story added, “People avoid that and you rarely see improvement happening in an organic fashion.”
To be effective change-masters, executive trainers and coaches must act like the King in the story of the “Blind Men and the Elephant”. In the story, a group of blind men touch an elephant to learn what it is like. Each one feels a different part, but only one part. The one who touched the leg said, “It is like a pillar.” Another man who had touched its ears said, “The elephant is like a husking basket.” Similarly, he who touched its trunk or its belly talked of it differently. When the men took to arguing their position, it took a King to point out that all were at least partially correct, yet all were wrong. All were limited by the fundamental human condition of interpreting the world from the limits of our own personal experience.
Within that framework, the trainer or coach’s job is to create an environment of experiential self-discovery that leads to “little white bulb” moments for participants. “These are the ‘Ah-ha!’ moments you experience when you hear, read or see something that resonates with you,” said Dr. Story.
Chris Lamatsch is a Tokyo based executive coach. He believes coaching involves candidates learning about themselves and how to do something different that provides a result that gets senior executives where they want to go. C. Lamatsch works to achieve what he calls the big “A”. The big “A” is what the candidate says are the results he wants. It may be anything from increased revenue, to building a team. The little “a” is the agenda the coach has in every session. The coach is responsible to make sure the priorities the candidate is focusing on are going to end in one of those results the client wants. The coach must string all those little “a’s” together so the participant receives the big “A”.
But here is the thing: Those little “a’s” need to be discovered by the participants themselves. “I’ve been in Japan a long time,” said C. Lamatsch adding, “But I don’t try to give my experience about what I’ve learned to my clients. Rather, I take that person from where they are right now and move them one step forward; what’s the next piece of understanding that they need to know? I may know the next step, but that’s not the point. The client needs to come up with their own realizations of what is appropriate. For instance, if I’m working with somebody who’s just come into the country, I see a different kind of world then that person sees. I could dump everything I know onto him about how to work effectively. But that person may not be approaching the same issues. As human beings were very good pattern makers. Those patterns are based on prior experiences. The tendency is always to assume that the pattern you see is an accurate interpretation of reality. What the coach tries to do is to suppress that pattern and not focus on the experience that comes to mind.”
The Dale Carnegie method encourages self-discovery through interaction. “We don’t have a heavy plastic binder gathering dust on the shelf, unopened, and forgotten,” said Dr. Story adding, “When we have data download, we didn’t create that world. Someone else created that world. You don’t own it. That’s why you can’t remember it.” When participants finish a Dale Carnegie class, they can put what they have learned straight into operation. Dr. Story recounted, “One guy was complaining that he couldn’t get along with his boss. He said, ‘My boss and I weren’t on the same wavelength. I was in despair. Then I took the (Dale Carnegie) course. I used certain principles I learned, and you can’t believe it! My boss took me to lunch. He never takes any one to lunch but he took me to lunch. Now we have this great relationship.’”
AMT Group’s executive training program also involves learning through interaction. Each candidate’s communication skills are assessed by 3 of AMT’s experts. Candidates then receive a snapshot of their strengths and weaknesses. They are also videotaped in one-on-one interviews and in case-study interactions with other participants. Each candidate can then see for themselves why their score on assertiveness, for instance, might be low and take appropriate corrective measures. AMT Group’s President Andrew Silberman said, “when there is buy-in from the candidate…. they reach their own conclusions about the steps they need to take to improve. Then the outcome is much better.”
Trainers and coaches draw on past experience to develop effective training techniques. Dale Carnegie has been in business for 100 years. Building on the principals of its founder, the firm draws upon the collective experience of their trainers in 86 countries. AMT Group has been developing training methods in Japan for the past 20 years. A. Silberman recently published a book on the subject entitled Get a G.R.I.P.. C. Lamatsch has been practicing in Japan the evidence-based executive coaching techniques he acquired at Fielding Graduate School in Santa Barbara almost a decade ago. Such experiences give trainers and coaches the needed tools to address the specific issues they confront, be they emotional intelligence, personality, performance or cross-cultural. A newly arriving manager from overseas may, for instance, interpret Japanese people who are often less verbal, less vocal, and less willing to give their opinion, as being shy. But that’s the cultural norm in Japan. People aren’t as vocal about their opinions. “Part of the trick is to understand the problem and understand which tool to use,” said C. Lamatsch adding, “Then, having studied the tool well enough, by going through the process of using that tool you can come up with the result that you want. That’s how I look at my work. I have a tool bag. I can pull out the proper tool. And I can use that tool in a way that is evidence-based so that tool is effective.”
C. Lamatsch recounts his experience with one candidate who was a Chief Information Officer: “The feedback he was getting was that, ‘he was like a robot, making quick opinionated decisions.’ He wanted to be more reflective, to develop his team and to improve his own people skills. So he decided to banish the word process from his vocabulary. He said, ‘I don’t want to hear that word again. Let’s not talk about that anymore. I want to talk about expanding the bubble, to expand myself beyond my capabilities into something new.’ So together they banished the word process. Anytime one or the other said it, they would catch each other. It really became about how he developed himself into something new. Neither of the two really knew where they were going with it. It just started to expand. It took on different dimensions into what that meant. Through the process of muddling through, the CIO learned about himself. He saw the effects of what he was doing, and that transformed into better relationships. He started interacting with people at a senior level which he wasn’t doing before, and expanded his entire whole perspective of the business rather than remaining within his own narrow technical IT world.”
If you wish to expand your own bubble, take note that the field is unregulated in Japan. Anybody can call themselves an executive trainer or coach. Therefore, ignore the marketing hype. Before engaging a firm or individual, check their references. Do they practice evidence-based techniques? How many years have they been practicing? Where did they learn their trade? Realize your choice will be difficult to make because the profession practices soft skills. There is a bit of magic to the process. Even trainers and coaches don’t always know why their methods are successful. Finally, choose to work with someone you like. If you don’t resonate with that individual, don’t work with them.
The expert’s estimates of when Japan will transition from being a net creditor into a net deficit nation vary widely. Those at the long end typically discount Japan’s 2011 trade deficit as being caused by one-off events. They believe, as does BOJ policy board member Hidetoshi Kamezaki, Japan holds a huge cushion of overseas assets it can rely on to finance the trade deficit for years to come. UBS, at the long end, is predicting that Japan will be in current account surplus well past 2050 (see FT article). Jesper Koll, Managing Director and Head of Japanese Equity Research at JPMorgan Securities Japan, thinks differently. He believes the turning point is imminent. I caught up with J. Koll over coffee earlier this month to ask him why there was such wide variance in current account forecasts, to find out what the key driving variables were, and to determine what hard facts his own predictions are based upon. This is the second part of a two part interview (first part here).
R. Solomon: Jesper, why do the expert’s projections as to when Japan will become a net debtor nation differ so widely?
J. Koll: Everyone agrees that because of the demographic destiny of Japan, the country is going to run out of savings. There are always gyrations and business cycles, so the exact timing is where the forecasts vary the most. I’m in the camp that believes the time has come. The fundamental driver of both exports and imports is pointing in the direction of the trade deficit that we saw for the first time last year since 1961. I believe the trade deficit is going to continue to grow. Over the next two years the trade deficit will be so large that the services account surplus is going to be eroded as well. It is coming…. it’s here. It’s “Sayonara Japan” as a net creditor country.
R. Solomon: Everyone agrees that the trajectory of the current account is pointed downwards. But their timing estimates as to when it turns negative stretches over many years. That predictions are all over the place suggests that supporting evidence has been anecdotal rather than quantitative. Is there a lack of timely, accurate or relevant data?
J. Koll: There is nothing wrong with the data. There are a couple of variables that go into it. What most people are ignoring is the unbelievable deterioration in the terms of trade… that is, the price of exports relative to the price of imports. That has been declining on average 5.5% per annum for the last decade. That’s a tremendous cost.
What’s happening is simple and straightforward. On the export side, it’s very difficult for Japanese companies to get any form of pricing power in global markets. That’s not because of the exchange rate. That’s because there is competition on more of the products Japan exports. There is increasing competition, for example, from Korea, Germany, and the rest of Asia. Take a look at the automobile industry. Japan Inc. has built some very fine luxury cars. But now so does Hyundai. I think that, regardless of whatever the exchange rate is, the ability of corporate Japan to raise export prices is being curtailed. The future (of its ability to raise export prices) is even more questionable.
On the other side of the equation, import prices are a very simple and straightforward function of commodity prices. If you believe that global growth is primarily driven by the so-called BRIC countries whose resource pull puts upward pressure on oil, gas and other commodities, then Japan’s import bill will continue to increase.
Every year Japan is losing somewhere between 2 – 3 trillion Yen worth of price power on its trade account. If you project that out in about two years time, the increase in Japan’s trade bill will wipe out the surpluses it generates on its overseas assets. This of course is the other side of the current account.
So the time is now. There are a lot of people arguing that last year the trade deficit was just a one-off. They claim, “It was a one-off because exports were disrupted by (the floods of) Thailand, by the events of March 11, and the increased commodities import bill from Japan’s forced de facto exit from nuclear production.” Well, I ask, is that really a one-off? Have any nuclear reactors restarted? More importantly, since March 11 corporate Japan has made the decision to aggressively invest in overseas growth. So the so-called hollowing out of Japan (kudouka), is actually accelerating. To be specific, about 55% of the productive capacity of Japan’s automobile industry is currently outside Japan. The Industry’s plans put into place since March 11 will increase that figure to almost 80% by 2015. So your export elasticity, in other words the gearing of Japanese export growth into global growth, is going to come down because more of the global demand and growth will be satisfied through overseas production (genchi sesan). Yet it’s perfectly rational for Japanese companies to do this because outside Japan is where the profit margins are. That’s where the markets are.
R. Solomon: Will not the income earned from Japan’s overseas assets counter the effects of an increasing trade deficit?
J. Koll: The bulk of the income account is actually income generated from fixed income instruments (rather than on dividends earned from Japan’s productive overseas assets). If interest rates start rising, then the interest income is going to be growing a little bit. But if you look at the component parts, the income account is not so important. The underlying pressure is being generated from what’s happening on the trade front. In this regard, Japan’s import bill will keep on growing while its export pricing power will continue to erode.
R. Solomon: What other key variables adversely affect the current account?
J. Koll: There are two key variables. The first concerns global growth. We are predicting that global growth will be 3% – 3.5%. If, however, global growth is stellar and climbs back to 4 – 5%, then you will obviously get greater demand-pull for Japanese exports. That will add another year to our projections as to when the trade deficit becomes larger than the income surplus. The second variable is commodity prices. If you think commodity prices are dropping, for instance if oil goes back to the $60 – $70 range, then Japan’s import bill is going to be much smaller. These are the two key variables.on of overseas assets of which it can rely to finance its trade deficits for many years to come, how do you respond to such claims?
R. Solomon: To those that suggest Japan has a huge cushion of overseas assets on which it can rely to finance its trade deficits for many years to come, how do you respond to such claims?
J. Koll: The income account is not huge. It is only 2% of GDP, almost nothing. Many people are holding onto the incorrect belief that Japan’s overseas financial assets will allow it to remain in current account surplus for a long time. To these people I say, “well watch out,” because the widget economy for goods and services is way more important than the interest income that you actually earn. As anyone who has ever tried it, living off your assets is a very difficult thing to do.
Jesper Koll, Managing Director and Head of Japanese Equity Research, JPMorgan Securities Japan Co., Ltd.
One in every four adults in any given year suffers from a mental health issue according to the Mental Health Foundation and the Kim Foundation. Be it anxiety (18%), a mood disorder (9.5%), or a social phobia (6.8%), some amongst us are going to experience psychological pain that might best be dealt by seeking outside assistance. It would be hard enough in your own country to search for and find such help from a trained professional. Just how in Japan does one go about finding a suitable professional and what can one expect? We posed these questions to Dr. Linda Semlitz, an American trained and board certified psychiatrist (a physician). Dr. Semlitz is Executive Officer of TELL and Clinical Director of TELL Counseling Center.
Not surprisingly, American trained and certified psychiatrists are not allowed to practice in Japan. Only Japanese trained doctors can practice psychiatry. Dr. Semlitz herself is not able to practice psychiatry here. Only as recent as 2010 did Japan allow for specialty accreditation for physicians in psychiatry. “That’s new,” said Dr. Semlitz adding, “It used to be as a physician you went through physician training and all the requirements, but there wasn’t any subspecialty requirements or subspecialty certification.”
More shocking, anybody can become a therapist. As in most other countries, mental health is provided not just by psychiatrists but by psychologists, professional counselors, licensed family counselors, and social workers. For these professions there are no national requirements. Dr. Semlitz commented, “Anybody can be a therapist. So can you”.
According to Dr. Semlitz, the Japanese national health insurance payer system drives the quality and type of mental health care that is available. As we all know, the national health insurance provides a reimbursement for a variety of illnesses for all residents. That includes psychiatry. Psychiatrists are reimbursed for their time. As a general rule it does not provide reimbursement for time-consuming counseling and talking therapies. The average psychiatrist in a metropolitan hospital system has to see 40 to 50 people each morning or afternoon. “They’re very, very busy,” noted Dr. Semlitz. “That means psychiatrists can spend only three or four minutes per patient.”
That might be changing. Psychiatrists are beginning to hire psychologists to provide psychotherapy on their behalf. Under certain circumstances such therapy is covered by national insurance. In addition, cognitive behavioral therapy may be reimbursed soon based upon accreditation by certain social workers. Until then, psychiatrists will likely continue to refer perhaps one out of six clients to counseling. Dr. Semlitz surmised, “There aren’t enough trained people to do psychotherapy. Also, there’s not a strong likelihood that people are going to follow up because there’s no reimbursement.” This underlines her belief that the payer system drives the level and type of available care.
Training also differs in Japan. In the United States, North America, and Europe there is a requirement that all mental health professionals take part in supervised clinical work in addition to lectures and studies. In order to become licensed they need to complete a minimum number of hours of supervised clinical service. For a master’s level or doctoral degreed psychologist that’s accomplished through practicums or internships. “These traditions don’t really exist in Japan,” Dr. Semlitz commented. She added, “It’s very hard to know when you see a mental health professional in Japan what their background is, what their training is, and whether their title reflects what you think it is. That’s really very challenging. It’s difficult for you to know as a lay person who may not know a lot about the field or maybe are new to Japan.”
What type of therapy do Japanese psychiatrists offer? Psychiatrists usually do not provide talking therapy. Very few are trained to do so and there are no incentives because the payment system would not reimburse them for their time. More often the average person gets a prescription. “Actually multiple prescriptions,” said Dr. Semlitz. “In the absence of paraprofessionals, people end up on medication.”
That’s also true on an inpatient basis. In studies of Japanese inpatient programs Japan had far fewer psychiatrists and nurses compared with other inpatient settings around the world. The length of stay is much longer too. There is also a gradually changing tradition in Japan of using multiple relatively high dosage anti psychotics. “This is generally not done in the West,” said Dr. Semlitz. “My guess the reason for this is that paraprofessionals are rarely on the inpatient units to perform counseling and what is typically known as milieu therapy. Therefore doctors may feel the need to keep people subdued and sedated. That does not mean that nurses aren’t very nice and aren’t doing their best.”
Japan differs from the West in other ways. In the West you have a multitude of therapies such as milieu therapy and group therapies that don’t exist in Japan. Here you’re getting rest in a safe environment with caring people. They end up taking care of the sickest people. These are people who have psychotic disorders such as schizophrenia and serious forms of depression. They usually involve long lengths of stay. “It’s a very paternalistic system,” said Dr. Semlitz. “In the United States they have very short inpatient lengths of stay because of the limitations of commercial or other reimbursements. Japan is a society where people coexist in a densely populated country. They can’t allow people going around being dangerous or disruptive.” Dr. Semlitz believes that long-term psychiatric care provides a protective setting for these individuals. Of course, most people with mental health issues that are treated on an outpatient basis are neither dangerous nor disruptive.
One similarity is that mental health is stigmatized universally, perhaps more so in Japan and throughout Asia than elsewhere. Anyone who’s related to anyone who has psychiatric or mental health issues is stigmatized around the world. “It’s particularly true in Asia, not just Japan,” said Dr. Semlitz. “I would imagine that you have colleagues who have had diagnoses of depression or anxiety disorder. They may have indeed sought professional help. They may be on medication and you would never know it.”
Adding to the stigma is the expense. The days of everyone seeing an analyst are over. Few can afford the cost.
For a Westerner living in Japan, finding a Western trained therapist can be difficult. Psychotherapy and mental health treatment requires the ability to communicate easily. That is very difficult to do if the language spoken is not your native tongue. There are also cultural differences that need to be considered. “The limitations of resources are challenging in Tokyo,” said Dr. Semlitz adding, “Outside Tokyo and other major Japanese cities it’s even more challenging. There are very few options.”
A good starting point is Wiki-TELL, Tokyo English Life Line’s wiki based database containing a list of organizations which provide services for the international community in Japan. You should also search the website of the International Mental Health Professionals Japan (IMHPJ). IMHPJ is a professional association of private practitioners that provide mental health services to the international communities throughout Japan. They do their best to assess credentials, but according to Dr. Semlitz, there aren’t enough English speakers scattered around Japan doing this kind of work. Also check out the TELL Counseling Center. It provides face-to-face therapy by Western trained and licensed psychotherapists that use evidence based models of care.
If all else fails and you can’t find a therapist locally, consider distance counseling. With the advent of Skype, a counselor has the ability from afar to conduct therapy whilst looking a client in the eye. They can see facial expressions. Although technology is good today, it’s not quite like being in the same room with a therapist. With distance counseling, there is always some loss of meta-communication. Sometimes the technology cuts out, and you’ve lost the session.You really are better off having face-to-face sessions. For people who live hours away, distance counseling like those provided by the TELL Counseling Center maybe the only option.
Linda Semlitz, MD. Executive Officer, TELL (Tokyo English Life Line). Clinical Director, TELL Counseling Center. (03) 4550-1146 Minato-ku, Tokyo telljp.com
Jesper Koll is Managing Director and Head of Japanese Equity Research at JPMorgan Securities Japan. He is convinced Japan will soon become a net debtor nation. Public alarm bells have been ringing since the Finance Ministry revealed Japan had accrued a 2.5 trillion Yen trade deficit in 2011, the first such deficits to arise since the oil crisis of 1980. Shortly thereafter the Ministry disclosed a 1.475 trillion Yen trade deficit for January along with a 437 billion Yen current account deficit. The current account deficit was the biggest monthly shortfall ever recorded. Moody’s Investors Service warned that a slide in the current account surplus due to falling exports could harm the creditworthiness of Japanese government bonds (see The Yomiuri Shimbun). So will the rating agencies downgrade JGBs? And if so, will the Yen derail as a safe haven currency? I asked J. Koll for his thoughts on the impact of a Japanese net current account deficit in this first part of a two part interview. (The second part will appear in the next edition of Beacon Reports.)
R. Solomon: If and when do you expect the rating agencies to react to Japan’s net deficit current account?
J. Koll: The current account per se has nothing to do with the rating of the country. There are plenty of countries that have current account deficits that have appreciating currencies but falling interest rates. The ratings agencies dynamics is determined by something completely different. It is the ability, willingness and credibility of the Japanese government to actually come up with a fiscal consolidation plan. So whether Japan enters into current account deficit tomorrow will not affect the rating agencies decisions. The rating agencies are looking very carefully at Mr. Noda’s ability to come up with a credible tax code. If he doesn’t, Japan will get downgraded.
R. Solomon: Does Noda have the capacity to raise taxes to offset the current account deficit?
J. Koll: No. You’ll see it unravel over the next three or four weeks for political reasons. Japan has been debating the tax code since 1978. They have been able to change the tax code exactly three times since then. The rational idea about what needs to get done is there, but the ability to make the decision politically is very difficult. If I were a credit rating agency, I’d be spooked. The scary thing is that that what needs to get done has been discussed for more than 30 years. But it doesn’t get done.
R. Solomon: What are the implications for the Yen-Dollar pair?
J. Koll: If you look around the world there are plenty of countries that have current account deficits where the currency is appreciating. The idea that “if there is a current account deficit, then therefore the Yen should depreciate”… this does not make any sense to me. To be specific, who is going to be the marginal buyer of Japanese debt? Everybody thinks it’s going to be America. That doesn’t make any sense. America is a debtor country, right? The marginal buyer is going to be the People’s Republic of China because the world’s largest creditor country is the People’s Republic of China. It is much more important to figure out what China does to its currency because right now it has a fixed exchange rate system with very little capital flows.
If you look where the marginal growth of exports has been coming from and is likely to continue to come from, the focus is not the stuff that our generation grew up with. Our generation was very focused on exports to the United States of America. It was about cars and car parts. Even as little as five or six years ago that was about a quarter to a third of the Japanese export market and the Japanese trade surplus. This has changed.
The fate of corporate Japan, and its trade and current account balance rests in the hands of Asia, and China in particular. That is where the marginal growth is going to be coming from. What I am saying is that the People’s Republic of China has just revised down their growth projections to 7 1/2%. More importantly, China is attempting this change in the growth model to one that is less dependent on capital formation and less dependent on imports. They want to manufacture for themselves. Whether its trains or machines that make machines used inside factories, they want to produce these things for themselves.
The threat to Japan’s exports that the doomsayers are forecasting is not just from the slowdown in the People’s Republic of China. The change in the growth mix, as China Inc. becomes more self-obsessed and ultimately more protectionist, poses in my view the biggest threat to Japan’s external account. New York and London don’t matter in relative terms. The future of Japan will be decided in the Asian time zone, not overnight by London and New York.
Jesper Koll, Managing Director and Head of Japanese Equity Research, JPMorgan Securities Japan Co. Ltd.
Every New Yorker knows how to find the best medical care. Each year New York Magazine publishes the de facto list of “best” doctors. Reputation and status are as American as apple-pie. How then does a foreigner living in Japan find a good doctor or hospital? How does one prepare for a potential medical emergency? We put these questions to Dr. Keong, Director of Garden Clinic Hiroo.
If you experience a life-threatening medical emergency, you already know to dial 119 for an ambulance. Upon arrival you can direct the ambulance crew, conditions permitting, to the hospital of your choice. In the event of an emergency the ambulance crew will normally radio ahead to the nearest hospital with emergency services to say that they’ve got somebody, for instance, having a heart attack. They will ask if the hospital has capacity to attend to the patient. “It really depends on how busy the hospital is as to whether they will accept you”, said Dr. Keong. The ambulance will continue to call different hospitals until they can find one that will take you. Therefore, Dr. Keong suggests that foreigners should identify a few hospitals they would prefer to be taken to in case one is not available.
Be prepared by identifying one or two hospitals in your neighborhood that offer emergency services whenever you first move into a new area. Doing so, however, will not guarantee you will be taken to the hospital of your choice. Distance may be an issue, or the receiving hospital may not have the capacity for the day, or there may not be a specialist available to treat your medical condition. But it raises the probability that you will be taken to the facility of your choice. For the Tokyo region, Himawari offers a free on-line search engine that will help you find local hospitals and clinics offering emergency services. Search criteria include the facility’s distance from the subway station, medical specialization, and language spoken by staff.
If you are having a life-threatening medical emergency, getting to the hospital quickly is paramount. For ambulatory services to be able to find you without delay, learn how to say in Japanese your address, telephone number, and be able to describe local landmarks. Remember, even for the Japanese, finding an address can be tricky as the numbering system dates back to feudal times. Ambulances can otherwise be going around in circles before finding you. Dr. Keong suggests that you prepare a little note at home in advance in case of such an event. Be prepared! Attach the note to your refrigerator door. That way, you won’t find yourself brushing up on your Japanese when your life is hanging on the line.
Generally speaking the level of care offered by emergency services in Japan is quite high. However, a lot comes down to luck. “If you are having a heart attack and there is a cardiac surgeon on duty for the day, you’re lucky. But if you happen to have broken a bone and you’ve got a cardiac surgeon on duty, it may not be such a perfect match. That can be a problem”, said Dr. Keong.
If your emergency is life-threatening, most hospitals will take care of you as soon as possible. However, if your emergency is determined not to be life-threatening you may be asked to wait your turn so that those with greater medical need can be attended to first. If you walked into the emergency room, say for a minor burn on your arm or flu-like symptoms during the New Year holidays, you could end up having to wait for several hours before being treated.
Here are some useful resources for non life-threatening emergencies. Use Himawari to search on-line for a specialist located close to home for treatment during normal working hours. If it’s a Sunday or holiday and you don’t have a big emergency, the Japan Medical Association offers information on where to obtain treatment during off-hours. Each ku (ward) operates its own branch of the Medical Association differently, but they all have the same ultimate responsibility to ensure the public has access to doctors and dentists during Sundays and holidays. Some run their own emergency private clinics. Others arrange for local internists, pediatricians, and surgeons from private clinics to be on duty during off-hours. You can obtain the dates, times and locations where Sunday and holiday medical care is provided by your ku from the Medical Association Network. From that website you can drill down to find your local ku’s Medical Association’s web address. For instance, the Minato-ku Medical Association publishes its Sunday and holiday schedule here.
Also note that emergency services have a mandate to treat you only for a 24-hour period until you can see an ordinary doctor. They’re there to see you through for one day until the next assessment. So if you show up as an “emergency” patient at night or on a weekend and the doctor has assessed you and found that you can be sent home, you may just be given medication to tie you over till you can see a doctor the next working day. The emergency room is not expected to give you medication or treatment to completely cure your condition. Neither should you expect them to schedule a series of tests for you. Their focus is to contain “emergencies” and move on to the next patient. So be certain to seek further medical support after the event.
Most treatments will be covered under the public health insurance. However, the Japanese health insurance does not cover everything. If a medication is not indicated for a given diagnosis under the public health system your doctor cannot normally prescribe that medication. “It’s a very tricky thing”, said Dr. Keong. “For a specific form of lung cancer, for instance, some chemotherapy drugs that are known to be effective in treating the cancer may be in use in your home country. That drug may even be available in Japan, but if it is not medically indicated and approved for use in Japan to treat lung cancer, then your national health insurance policy will not cover the treatment. Your doctor may even refuse to treat you with that particular drug. If you opt for the treatment, then you will have to pay the medical bills on your own. That is when having private insurance can be useful. Other times expatriates may choose to return to their home country for treatment, for example, if the disease is chronic or if the patient needs long-term care or if they opt for certain treatments or for surgeries not available in Japan. In such cases private insurance may cover repatriation and medical expenses in their home country. These cases are rare, but they do happen. If you have held a private medical insurance policy for a long time, then you might not want to give it up because you’ll lose any coverage for pre-existing conditions. This could be important to you if you plan to return to your home country. On the other hand, if you live in Japan all your life you probably don’t need private health insurance.
Which hospitals have a good reputation? According to Dr. Keong, there are many good University Hospitals. Most, but not all, have emergency rooms. So you have to check. Tokyo University Hospital (known as Todai Byoin in Bunkyo-ku), Keio University Hospital (Shinjuku-ku), and The Jikei University Hospital (Minato-ku) are also on her recommendation list. The Red Cross has a series of good hospitals. If you are giving birth prematurely and are nearby, the Japanese Red Cross Medical Center (Hiroo) has a good pediatrics department to deal with the situation. For heart problems, the Zaidanhoujin Shinzoukekkankenkyujo FuzokuByoin (Minato-ku) has an excellent reputation for administering cardiac treatment. Other recommended hospitals include St. Luke’s Hospital (Chuo-ku). It is popular among foreigners as the staff speak some English. The National Children’s Hospital (Setagaya-ku) and Tokyo Metropolitan Hiroo Hospital (Hiroo) are also good.
How do you find the best doctor in their specialty? Like New York Magazine there are annual publications, but printed only in Japanese, that list the “best” doctors. However, these may not be quite as informative because, unlike New York Magazine, the Japanese publications seek advertising revenue from the doctors. Dr. Keong offers the following advice: “Within your own specialization you know by reputation who are the good subspecialists. You need a doctor that you can consult with and talk to and have him or her refer you to somebody. That’s the best way to find a good doctor.”
Lastly, Dr. Keong opined, “The thing to understand about Japan is that you can’t buy your way to see the best doctor as you might be able to in other countries. In Japan it doesn’t matter where you go to see a doctor. The cost is all standardized under the public health insurance system. One good point is that you can get to see, for instance, a good orthopedic surgeon that lives locally to you. In other countries you may have to travel a long distance to see a good specialist. Japan offers the ultimate equality.”
Dr. Chin-Huai Keong, MD., Ph.D., Director / Certified dermatologist, GARDEN CLINIC HIROO, 2F, 7-14-7, Minami-Aoyama, Minato-ku, Tokyo 107-0062. www.gardenclinic-hiroo.com
There are dozens of flashcard programs on the market to improve your Japanese vocabulary. Many seemingly need a degree in computer engineering to master. All take time to learn. Most don’t live up to expectation. Beacon Reports has a useful recommendation for those who simply wish to learn the kotoba without getting bogged down in technology.
Our solution is not feature rich. Feature rich programs like Anki take a long time to master and are for the technically minded only. Eductic, on the other hand, does what it says on the tin (no more, no less). It does so with comparative ease and elegance. Beacon Reports gives it a 98% score for usability.
Here’s how to get up and running in no time.
Sign up to Quizlet for a free account at quizlet.com. This company was started by a 15 year old kid back in 2005. He created the service so that he could pass his French exams. Only millions of people figured out his service was so useful that I doubt he gets much studying done. Read his story here. Anyway, Quizlet allows you to cut and paste from any spreadsheet program a list of word pairs, e.g. Japanese – English, that then gets stored in the cloud. Once you’ve uploaded your word pair list, it is dirt simple to download into the Eductic app on your iPhone, iTouch, or iPad.
First, you will need to download the free Eductic app onto your Apple device. Once installed, use the search feature to find your word pair list on Quizlet’s cloud. Click download, and you’re done.
Perhaps you are wondering what makes Eductic so special? There are plenty of flashcard apps on the market. Beacon Reports has given Eductic a 98% score for usability because the technology does not interfere with the learning process. There is a neat sliding one button tool that performs all basic functions in the most intuitive way.
If you can’t recall the meaning of a word at all, slide the button all the way left to 0%. Release your finger to advance to the next word. At 50% ease of recall, a tap of the button in its default position will advance you to the next word. If you know a word with 100% certainty, slide the button all the way to the right and release. The program is lightning fast, and the algorithm will repeat the words you need to practice in accordance with your level of recall. Kana and Kanji is supported. What could be more simple?
Well, to make things simpler, Beacon Reports has prepared a list of more than 10,000 Japanese – English word pairs in Excel that you can download free here. The list includes JLPT 1 – 4, along with our simple instructions to get you operational in no time.
Let us know if you find our recommendation useful.
If you’re like me, you probably hate anything and everything to do about taxes. Even the mention of the word sends shivers up and down the spine. Generally speaking, I don’t want to understand them. They are complicated, boring, and suck one’s time. Worst of all, I hate paying them. The problem with this attitude is that tax minimization requires a basic understanding of the tax code. It is all too easy to fall afoul of tax law without ever realizing it until it is too late, and the damage is done. If you are a short term resident, that may not matter to you. But for those who intend to make, or have made Japan their home, you would be well advised to brush up on the basics of Japanese tax law. Don’t fall into tax traps!
Take for instance the issue of overseas remittances into Japan. Let’s assume that you, a foreign national, have been living here for a few years as a non-permanent resident. Technically speaking, you are a non-permanent resident as long as you either have a home in Japan or have lived here for a year or more, but less than five years. (You would also be a non-permanent resident if you have not maintained a Japanese residence for a cumulative five year period within the preceding ten years.)
Let’s also assume that you decide to buy a home during that time. To make the down payment you remit £100,000 of after-tax savings from your London bank account to your Yen account in Japan. Intuitively, you might say to yourself, “I’ve already paid taxes on these funds once. Therefore it makes no sense that I should have to pay tax on them a second time.” But you’d be wrong!
While it is true that non-permanent residents are only taxed on their Japanese income, once funds are remitted to Japan an individual becomes liable to pay tax on those amounts up to the level of his or her global income. For example, let’s say you earned rental income of £30,000 from the letting of a U.K. property in the year of remittance. In addition to paying Japanese tax on your Japanese income you would also be liable to pay Japanese tax on remitted amounts up to the level of the income earned abroad, in this case £ 30,000. But what if you never mixed the rental income with the principal? Would that protect you from the liability of double taxation? No it would not. Japanese law does not care that you have segregated after-tax principal from newly earned income. This is not even considered an act of double taxation. Remittance of overseas funds in a year that you had foreign income is enough to subject those funds to tax liability. Don’t get caught in this trap.
What other tax traps may lie ahead? Non-permanent residents are subject to inheritance and gift tax on the global assets they receive. Further, it is the receiver, not the giver or the giver’s estate, that is subject to Japanese taxation. What if the giver had set up a trust fund to which you are a beneficiary, so that you don’t receive the inheritance or gifts directly? Unfortunately, Japan’s tax authorities will treat assets transferred into a trust on behalf of a named beneficiary as a direct transfer to that individual. Those assets are taxable even if they were not remitted to Japan.
Here is another non-intuitive tax law that can directly affect permanent residents (who are always taxed on their worldwide income). Let’s assume you, a permanent resident of Japan, trade stock and bonds through a non-Japanese broker. Perhaps you continue to trade through your London brokers? Under Japanese law, in principle, any net capital losses incurred by trading listed securities cannot be carried forward into future years unless they were sold by a Japanese broker. When you sell the listed securities through a Japanese broker, you can carry forward any losses for up to three years. In addition, net capital gains from the sale of listed securities are taxed at the lower rate of 10% if sold through a broker in Japan. The tax rate that applies otherwise is 20%. Note, however, that specific treatment for foreign securities is quite complicated, and, accordingly, it is best to consult your tax accountant or attorney if you already have or anticipate having such gains or losses.
I could go on, but by now you are probably feeling, well, a bit taxed. The point is clear. It is not wise to keep your head in the sand on tax matters.
This article has been reviewed and edited by Nagamine & Mishima, Level 4, Sanno Park Tower, 2-11-1 Nagata-cho, Chiyoda-ku, Tokyo 100-6104 nagamine-mishima.com
