Mizuho fundraising

Mizuho is pricing new equity shares at JPY 130/share in order to raise approximately US$8.5 billion in fresh capital, as reported by Dow Jones. This follows other Japanese financial institutions in an effort to shore up capital ratios. There is much talk in financial circles of implementation (finally!) of Basel II requirements in 2011 and sales of non-performing loans. Equity raising is an essential prerequisite to Japan taking this step.

Looking at the results of last weekend's Upper House election and the DPJ's failure to maintain control of both Houses, pundits are claiming fiscal austerity and controlling national debt are again on the backburners. Certainly, Prime Minister Kan's lack of eloquence in framing discussion around a doubling of the consumption tax has been a stumble. On the other hand, the public face of the DPJ's budget-cutting team, Renho, was the top vote-getter nationwide, and more impressively, in the highly competitive Tokyo district, claiming over 1.7 million votes. The second-largest vote-getter nationwide was at the 1 million vote range. This is a show of strong public support for cutting the public budget.

There are other signs that public debt will be tackled; a number of pro-business anti-public debt representatives, such as Kenji Nakanishi, have been voted in. Nakanishi is a former JP Morgan banker and part of the Your Party, was elected on a platform of continuing with Japan Post's privatization and against using Japan Post deposits as a piggy bank for government works. Another data point is a release showing Japan's national pension fund was a net seller of Japanese Government Bonds last year - if the public pension's money cannot be guaranteed to support government spending, perhaps Japan has a chance to rein in national debt.

Suburban Tokyo housing

A continuing trend in Japanese real estate follows the demographic movement of mass migration to several hub cities, led by the nation's capital, Tokyo. In addition, the recent economic boom led to a rush of residential tower developments in central Tokyo. Individual ward offices competed for larger residential populations, and thus greater political power, by approving floor-area-ratio bonuses and allowing for higher developments, which in effect led to more residential area coming onto the market. Notwithstanding the economic bust of the past 2 years, these developments have largely been successful, and have led to greater density in central Tokyo. Salarymen are happy to have shorter commutes; empty-nesters can enjoy the conveniences of downtown Tokyo, students and young employees can stay out later at night enjoying abundant social life (or working...).

However, this trend is not without its losers. The Nikkei reported last week on stress in residential properties in suburban Tokyo. Suburban Tokyo is defined as being 40 or more kilometers from the Tokyo city center, encompassing parts of Saitama, Kanagawa, Chiba and Ibaraki prefectures. Accordingly, the Nikkei reported that 49% of vacant suburban residential properties have been vacant for over one year. The top reason for vacancy, capturing 57% of responses, was due to previous tenant's vacancy. Demand seems to be dwindling quickly for suburban residences. The article also notes a similar trend in the Osaka metropolitan area.

What does this mean for suburban communities and services such as shopping centers, restaurants, and even post offices? Will there be a further separation between winners and losers of suburban train operators (who operate a multitude of ancillary services in their various geographies, including buses, grocery stores, and property management), such as Tokyu, Odakyu, Seibu, Keikyu, Tobu and Kintetsu?

Futenma

Okinawa's prominence at the front of Japanese newspapers has declined with former Prime Minister Hatoyama's resignation and new Prime Minister Kan's proposal to restart consumption tax increase debate (and lowering of corporate taxes). To some extent, the "Okinawa issue" of how to deal with U.S. troops in the prefecture will remain in the background, directly affecting only 1% of the Japanese population. Perhaps this is a good time to stand back and reflect.

Over the previous six months, opponents of the U.S. bases in Okinawa have received ample airtime to vent, thanks greatly to Social Democratic Party leader Mizuho Fukushima. It appeared that the whole prefecture was up in arms about the U.S. military's presence; several protest rallies claimed to tally up to 100,000 demonstrators. However, as many Japanese tabloids recounted, these figures were often rounded several times up. In fact, ultimately it was a minority, not a majority, that was against the U.S. military's presence.

This makes sense; Okinawa boasts three main industries - tourism, public works (subsidized by national government) and support of the U.S. military operations, as shown by the Bank of Japan. Agriculture and fisheries is a distant fourth. Removing any of the three economic pillars would be a disaster for the Okinawa people's livelihood, and this is greatly understood by the local population, regardless of any negative personal feelings to military presence, generally, and the U.S. military's presence, specifically. On a political level, local players understand Okinawa's geopolitical location in the Pacific and value as a naval base and military outpost, regardless of the operator's nationality. These local players spend their efforts on profiteering from this reality, not by fighting it. Over the decades, they have also become adept at linking support of the U.S. bases to public works subsidies, continuously winning national public funds as an economic remedy to the emotional burden of housing the U.S. military. Indeed, removal of the U.S. bases might also cause a reduction in national subsidies, in one blow felling two of the three economic pillars! The connection between military support and national subsidies was recently addressed by the Japan Times.

Of course, to remain in power, local politicians need to maintain a populist image, thus Okinawa Governor Imanime's public about-face on "nobody in Okinawa wants (a) large-scale reversion" of U.S. bases prior to publicly refuting this stance.