Patience Wearing Thin in Japan 

07/20/2009 9:27 am EST


Carlton Delfeld

Editor, The La Jolla Letter and Pacific Gains

The slump in growth and corporate profits is prompting more challenges to the status quo, writes Carl Delfeld of Chartwell ETF Global Report.

Japan’s stock market is at 26-year lows and recent economic reports continue to inspire gloom.

Sentiment among big Japanese manufacturers has improved since the first three months of the year, the Bank of Japan’s quarterly Tankan survey showed, but continued widespread pessimism and plans to slash investment underscore the fragility of any recovery.

It seems obvious to me that Japan’s elected leaders (current Japan Prime Minister Taro Aso has an approval rating is only 19%) have learned nothing from that country’s so-called “Lost Decade”—a slowdown that’s actually lasted the better part of two decades.

Since March, shares and Japan ETFs have had a rebound similar to that experienced by many global markets. But this has done little to silence the critics who ask why the return on equity has been so low for so long.

Some foreign investors in Japanese companies are also getting into the act. The Tennessee-based fund manager Southeastern Asset Management owns approximately 17% of Nipponkoa Insurance (Tokyo: 8754; OTC: NPPKF.PK) and wants some answers as to why the company’s shares have plummeted 19%, when the benchmark Topix Insurance Index has dropped only 6% in a comparable time period. During the last two years Southeastern has attempted to oust Nipponkoa Insurance Co. President Makoto Hyodo for poor management.

Likewise, Brandes Investment Partners LP sought a shareholder vote that would have forced Kyoto-based electronics manufacturer Rohm (Tokyo: 6963) to buy back $157 million worth of company stock. Brandes, which owns about 6% of Rohm, felt that the $3.24 billion (311 billion yen) worth of cash and securities Rohm held was excessive.

Shareholders sided with Rohm, and with Nipponkoa, in separate company meetings, and voted down the proposals of the two US investors.

Younger Japanese are also uncharacteristically raising their voices as their economic future seems bleak and [is] getting worse. Unemployment was 9.6% in April for Japanese aged 15 to 24, compared with 5% unemployment over all.

And benefits to Japanese workers have been cut back sharply, especially for new entrants into the Japanese economy who often are most vulnerable as “temporary” workers. In the first quarter, Japan’s economy shrank a devastating 14.2% on an annual basis, as exports slumped because of the global economic slowdown.

When companies like Canon (NYSE: CAJ) and Toyota Motor (NYSE: TM) started to fire temporary factory workers late last year, a handful of the workers lashed out publicly, confronting managers at factory gates, often in front of TV cameras. The public has some sympathy with the protesters, and the rallies get heavy coverage in local media, but this is a far cry from any movement that will make a difference at the polls this October.

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