However, the group yesterday
The
THE
JAPAN
JOURNAL
Vol. I No. 1
1st week of September
Sony shares hit by Vaio laptop
safety recall
Financial Times
Shares in Sony were knocked
yesterday after the Japanese
consumer electronics group was
forced to recall thousands of
defective laptops because of a risk
that they could overheat and cause
burns.
The recall affects 440,000
laptops in Sony's Vaio TZ series that
were sold across the world between
May 2007 and July 2008.
Sony has heard of 209 cases of
laptops overheating, including seven
in which the users suffered minor
burns.
A design flaw means that wires
near the hinge that connects the body
of the laptop to the display are
wrongly positioned and can short-
circuit and overheat after prolonged
use.
"The problem takes time to
emerge, so we didn't catch it in our
quality control tests," Sony said
yesterday.
Sony's image was tarnished a
few years ago when it was forced to
recall almost 10m laptop batteries
used by makers including Sony, Dell
and Lenovo after it emerged that, in
certain circumstances, the battery
could overheat and catch fire.
That incident led to a Y51.2bn
($480m) provision for the Japanese
group.
Sony said yesterday that it did
not expect the latest laptop problem
to have much financial impact,
because no other companies were
affected and the faulty computers
could be quickly repaired and
returned to customers.
Mitsubishi UFJ Financial overnight interest- rate swaps.
faced criticism for being too slow to
inform regulators about the issue.
The consumer electronics
group first became aware of the
problem a year ago, but did not
report it to the Japanese regulators
until last month.
"It is not appropriate, given
how big the issue is," Toshihiro
Nikai, Japan's economy, trade and
industry minister, told reporters
yesterday.
Vaio computers are an
important - if low margin - part of
Sony's electronics business which
has struggled for profitability in
recent years.
The group is keen to make Vaio
a Y1,000bn business by its 2010
fiscal year in terms of annual sales.
The laptop business suffered
falling profits in the first quarter of
this year, however, as it was hit by a
combination of fierce competition
and falling unit sales prices.
Most analysts felt that the recall
would have little immediate effect on
Sony's financial results.
Sony's shares fell by 4.2 per
cent to Y3,880, their lowest for
almost three years, affected by a rise
in the yen against the dollar and the
euro as well as the laptop recall.
Nomura mulls investing in
Lehman -paper
Reuters
Nomura Holdings Inc is
considering acquiring a stake in U.S.
investment bank Lehman Brothers,
the Japanese daily Yomiuri Shimbun
reported on Saturday.
Nomura has a pool of funds
exceeding 200 billion yen ($1.86
billion) for investing in or acquiring
U.S. and European financial
institutions, the brokerage's chief
executive, Kenichi Watanabe, told
Yomiuri in an interview.
Watanabe said Lehman was one
of several candidates and Nomura
would decide whether to make an
investment offer after confirming its
business results, which could come
as early as next week, and after
checking share price moves.
The state-controlled Korea
Development Bank has also said that
the subprime mortgage-hit Lehman
was a possible acquisition target.
Group earlier this week denied a
media report that it might bid for a
stake in Lehman.
Japan Bonds Have Weekly Loss on
Low Yields, Fukuda Resignation
Bloomberg
Japan's government bonds
completed the first weekly decline in
two months on speculation yields
near the lowest in four months are
unattractive given that the Bank of
Japan is unlikely to reduce interest
rates this year.
Ten-year yields climbed this
week by the most since July on
concerns government borrowing will
increase should Taro Aso become
Japan's prime minister after Yasuo
Fukuda quit on Sept. 1. The BOJ will
probably keep the overnight lending
rate at 0.5 percent this year,
according to a Bloomberg survey of
economists.
``Aso has been saying that we
can forget about the fiscal target,
which is bad for bonds,'' said Stefan
Liiceanu, a Tokyo- based senior
fixed-income strategist with Barclays
Capital Inc., the U.K.'s third-largest
bank. ``For 10-year yields to fall
below 1.4 percent, we either need a
BOJ cut or the BOJ talking about it,
which we don't have yet.''
The yield on the benchmark 10-
year bond rose 3 basis points this
week to 1.435 percent in Tokyo at
Japan Bond Trading Co., the nation's
largest interdealer debt broker. It was
the biggest gain since yields climbed
3 basis points in the week ended July
4. Five-year yields added 5.5 basis
points, or 0.055 percentage point, to
1.025 percent this week.
``Growth will likely remain
sluggish for the time being'' because
of higher energy prices and a cooling
global economy, BOJ Governor
Masaaki Shirakawa said on Sept. 2.
``The current situation requires the
bank to carefully monitor both
downside risks to economic growth
and upside risks to inflation.''
There was a 2 percent chance
yesterday the BOJ will reduce
interest rates to 0.25 percent by year-
end, according to calculations by
JPMorgan Chase & Co. using
odds were 9 percent two weeks ago.
Favorite Successor
Fukuda said Sept. 1 he would
step down after 11 months in office,
citing political gridlock. Elections to
replace Fukuda as party president are
scheduled for Sept. 22.
Aso ``is deemed to be a fiscal
expansionist,'' said Takashi
Nishimura, an analyst at Mitsubishi
UFJ Securities Co., a unit of Japan's
largest bank by assets, in Tokyo. This
may lead to concerns of increased
bond issuance, he said.
Aso, 67, said last month that
the government should consider
postponing its goal of balancing the
budget by 2011 because Japan may
be in a recession.
Fukuda's government on Aug.
29 said it would spend about 2
trillion yen ($18 billion) on a
program of measures to revive the
economy. It also announced a one-off
tax cut for low-income earners that
may have to be funded by bond sales
later this year should tax revenue fall
short of projections.
Stock Slide
Government securities
yesterday advanced the most in four
weeks after stock indexes slumped
and a report showed an unexpected
decline in capital spending. Ten-year
bond futures advanced 0.31 to
138.68 on the week.
``With ongoing equity
weakness, I remain bullish on
government bonds,'' said Guthrie
Williamson, portfolio manager in
Sydney at Principal Global Investors,
which manages $244.9 billion in
assets globally. ``I remain long,'' he
said, referring to holding bonds on
expectations they will rise.
The Nikkei 225 lost 2.8 percent
yesterday and the broader Topix
index slid 2.6 percent.
Capital spending excluding
software fell 7.6 percent in the three
months ended June 30, a fifth
straight quarterly decline, the
Ministry of Finance said yesterday in
Tokyo. Profits fell 5.2 percent.
GDP Revision
The government will use
yesterday's report to revise its gross
domestic product figures on Sept. 12.
Japan's economy shrank an
annualized 2.4 percent in the three
months ended June 30, the Cabinet
Office said last month.
``The upward JGB trend will
continue because of the fundamental
issue,'' said Tomohiko Katsu, deputy
general manager of the capital
market division at Shinsei Bank Ltd.
in Tokyo. The capital spending data
``will give a big downward revision
on the GDP. Most of the people in

the market think the slowdown will
last into next year.''
Next week, primary dealers,
who are obliged to bid at auctions,
are likely to sell bonds before an
auction of five- year securities, to
protect against potential losses at the
sale, according to Chuo Mitsui Trust
and Banking Co.
``At the beginning of next
week, there will be some hedge-
selling for the five-year auction,''
said Kazuya Seki, a deputy general
manager at the unit of Japan's
seventh-largest publicly traded bank
by assets. ``There is a high
possibility of a 1 percent coupon.''
The finance ministry will sell
1.9 trillion yen in five- year notes on
Sept. 9.
Japan-led consortium buys power
firm: Temasek
AFP
A Japanese-led consortium has
won the bid for Singapore's largest
power generation company being
sold by state-linked investment firm
Temasek Holdings, Temasek said
Friday.
The deal is worth 3.65 billion
Singapore dollars (2.5 billion US) in
cash, it said.
Temasek signed a share
purchase agreement with Lion Power
Holdings Pte Ltd, owned by a
consortium comprised of Japan's
Marubeni Corp and other firms, for
100 percent sale of Temasek's
wholly-owned power firm Senoko
Power, a news release said.
Marubeni operates in Japan and
globally across a wide range of
sectors from food to power.
Lion Power will also assume
323 million Singapore dollars worth
of Senoko Power's net debt as of
March 31, bringing the total value of
the deal to about four billion dollars,
Temasek said.
The transaction is expected to
be completed by next Friday.
"The Lion Power consortium
partners are all established industry
players with strong track records in
power investments globally," said
Gwendel Tung, Temasek's director of
investment.
Also part of the consortium are
GDF SUEZ S.A, The Kansai Electric
Power Co. Inc, Kyushu Electric
Power Co. Inc. and Japan Bank for
International Cooperation, Temasek
said.
The Japan Journal
Senoko is the second of three
local power generation firms
Temasek is unloading as part of
efforts to liberalise the domestic
energy market.
Temasek said in March that it
had signed a share purchase
agreement with SinoSing Power Pte
Ltd, a wholly owned subsidiary of
China Huaneng Group, to sell Tuas
Power Ltd for 4.235 billion
Singapore dollars (2.96 billion US).
Temasek's third power
generator is Power Seraya.
Last month Temasek reported a
record profit of 18.2 billion
Singapore dollars for the year to
March, and said its portfolio rose in
value to 185 billion Singapore
dollars.
Temasek has controlling stakes
in major regional firms and has
invested billions of dollars in
troubled US investment bank Merrill
Lynch since late last year.
It is one of two Singapore
government investment vehicles,
along with the Government of
Singapore Investment Corporation.
Japan Business Spending Falls
Wall Street Journal
Japan's business spending fell for
the fifth-consecutive quarter during
the April-June period, while
corporate sales and profits also
tumbled, according to a government
survey released Friday.
The Ministry of Finance's
quarterly Financial Statements of
Corporations by Industry survey
showed that capital expenditure in
the period declined 6.5% when
compared with the same period a
year ago. The drop followed a 4.9%
decrease in the January-March
period.
The results reflect companies'
continuing reluctance to increase
spending as higher oil and material
costs gnaw away at earnings and
lower demand from overseas weighs
on sales.
In the April-June quarter, the
survey showed that business profits
fell 5.2% from last year, while sales
slipped 0.7%. Rising costs for raw
materials weighed on the
manufacturing sector, dragging down
profits by 12%.
Analysts say the latest data
point to a likely downward revision
next week in second-quarter gross-
domestic-product figures.
Separate data showed that
Japan's foreign reserves fell $7.92
billion to $996.74 billion in August
from the previous month, dropping
below $1 trillion for the first time in
three months. The decline in the euro
against the U.S. dollar was the main
reason behind the shrinking reserves.
Nissan launches first clean-diesel
car in Japan
AFP
Nissan Motor Corp launched
Thursday its first clean-running
diesel vehicle in Japan in a bid to
open up a new market by re-branding
the fuel as eco-friendly.
The X-Trail 20 GT sports-
utility vehicle with an M9R engine
offers powerful acceleration while
complying with some of the world's
strictest emissions standards that will
come into effect across Japan in
October 2009.
The car increases fuel economy
by 30 percent over a 2.5-litre
gasoline engine and cuts carbon-
dioxide emissions by 20 percent,
Japan's third largest automaker said.
It is the first diesel car in Japan
in years for Nissan, which has been
less enthusiastic than its domestic
rivals in developing eco-friendly
hybrid cars.
Japanese consumers have long
snubbed diesel-powered vehicles due
to the perception that they are smelly,
noisy and sooty.
While diesel accounts for
approximately 60 percent of vehicle
sales in Europe, the figure is in the
single digits in the United States and
Japan.
"From now on we will build the
image of diesel in Japan and aim to
expand our sales by communicating
the diesel engine's appeal one by one
to customers," Nissan's chief
operating officer Toshiyuki Shiga
said at a news conference.
"We need to transform each
customer's perception and idea into
something positive," he said.
The launch is a test-case for the
company, which targets annual sales
of 1,200 units "to see what the
market response will be, and whether
it will catch on," said another Nissan
official on the sidelines of the event.
2
With a price tag of nearly three
million yen (27,700 dollars)
including consumption tax, it costs
nearly 20 percent more than a
comparable vehicle with a traditional
engine, the company said.
But the price gap can be offset
in fuel savings by driving an average
of 10,000 kilometres (6,200 miles)
annually for three years.
If a hit among the public,
Nissan will start developing a line-up
using the technology. It also plans to
introduce the technology in its
models in North America and China
by 2010.
Nissan said it hoped the diesel
vehicle would attract customers
during a tough stretch for the car
industry, which is faced with high
fuel costs and a sagging world
economy.
"The auto industry is feeling a
lot of different headwinds at the
moment but making high-quality and
attractive cars to get over this
difficult period is our biggest
project," Shiga said.
Japan orders recall of pesticide
rice from China
AFP
A company in Japan sold
pesticide-tainted rice from China to
snack makers, the farm ministry said
Friday, ordering a recall.
The incident came amid high
concern in Japan over Chinese
products after frozen dumplings last
year caused thousands of people to
complain of sickness, with 10
hospitalised.
The farm ministry said Osaka-
based Mikasa Foods in 2006 and
2007 sold a total of 295 tonnes of
imported rice, which was meant
exclusively for industrial use due to
its excessive level of pesticide.
The ministry ordered the
company to recall any pesticide-
tainted rice still on the market. The
pesticide was methamidophos, the
same substance found in frozen
dumplings in last year’s poisoning
scare. The rice contained five times
the allowed level of the pesticide,
farm ministry official Yasuhiro
Okabe said.
The glutinous rice was sent to
companies that produce Japanese rice
cakes and other snacks.
Japan's August forex reserves
down for first time in three months
Thomson Financial

Japan's foreign exchange reserves
fell for the first time in three months
in August, hit by declines by the euro
against the dollar and falls in gold
prices, the Ministry of Finance said
on Friday.
The foreign reserves fell to
$996.74 billion at the end of last
month from $1.00 trillion in July, the
ministry said.
The euro stood at $1.4673 at
the end of August, against the end-
July figure of $1.5603.
Japan's foreign reserves
remained the second largest in the
world next to China, whose holdings
reached $1.81 trillion at the end of
June, according to the latest available
figures from the Chinese
government.
Japan's foreign exchange
reserves reached a record $1.02
trillion in March.
Foreign exchange reserves
consist of securities and deposits
denominated in foreign currencies,
plus International Monetary Fund
(IMF) reserves, IMF special drawing
rights (SDRs) and gold.
At the end of August, Japan had
foreign currency reserves of $971.25
billion, IMF reserves of $1.55
billion, SDRs of $3.07 billion, gold
reserves of $20.48 billion and other
foreign currency assets worth $368
million.
Japan's reserves are closely
watched for evidence of how the
country is managing its foreign
currency holdings. They are seen as
having a significant impact on
exchange rates and bond markets
around the world, particularly the
U.S. government bond market.
The biggest changes in Japan's
foreign reserves usually occur when
authorities intervene in the currency
market to prevent the yen from
appreciating rapidly. Monetary
authorities have not intervened since
mid-March 2004.
Japan GDP outlook bleak after
capital spend survey
Reuters
The outlook for Japan’s overall
economic activity in April-June
appears to be bleaker than initially
estimated after an unexpected slide
in corporate capital spending that
fuelled recession fears.
A Reuters poll found yesterday
that economists see a median 1%
contraction in the second quarter, as
a weak reading in a survey of
companies’ capital spending plans
prompted them to revise down their
forecasts.
Japanese corporate capital
spending unexpectedly fell 6.5% in
the second quarter from a year
The Japan Journal
earlier, a survey by the Ministry of
Finance showed.
“A deterioration in export
conditions has impacted the domestic
economy and home demand-oriented
non-manufacturers’ appetite for
capital investment is weakening
more than expected,” said Takumi
Tsunoda, a Shinkin Central Bank
Research economist.
An early estimate of Japan’s
gross domestic product (GDP)
showed the economy shrank 0.6% in
the quarter. Revised figures are due
out on September 12.
Private capital investment is
seen revised down sharply to a fall of
2.5% from an initial estimate of a
0.2% decline, the poll showed.
With pessimism over the health
of the global economy pervading in
financial markets, the data
underscored the pain that high raw
material costs have been inflicting on
Japan’s economy, which is already
seen as in or near a recession.
The capital spending figures
came out as the yen surged to a 13-
month high against a sliding euro
yesterday, with investors fleeing
leveraged carry trades amid falling
share markets and rising risk
aversion.
The Nikkei share average slid
nearly 3% while Japanese
government bonds soared as
investors fled to the safety of
sovereign debt.
Economics Minister Kaoru
Yosano, who plans to run in the race
for Japan’s next leader after outgoing
Prime Minister Yasuo Fukuda
abruptly quit on Monday, said the
clouds over the Japanese economy
should clear once overseas economic
conditions improve. “We do not need
to be pessimistic about the Japanese
economy per se,” he said.
The sharp fall in capital
spending surprised market players
who had forecast a 2.5% increase.
A one-off change in accounting at
leasing firms was behind the fall, a
finance ministry official said, with
such firms no longer including the
purchase of equipment for leasing
out.
Capital spending in April-June
increased 3.8% from a year earlier if
leasing companies were excluded,
the official said, but analysts took
scant comfort.
“Commodity prices were rising
until mid-July so that will weigh on
corporate revenues until July-
September. After that, the negative
impact from high raw material costs
will gradually ease,” said Takeshi
Minami, chief economist at
Norinchukin Research Institute.
“But that doesn’t mean troubles
for Japanese companies are over, as
they won’t see sales increase much
with weakness in the US and
European economies spreading to
emerging economies.
Japan firms set sites on Internet
Variety
More and more Japanese viewers
are tuning out TV for YouTube, the
fourth-most popular website in Japan
little more than a year after its
official launch in June 2007, in
cooperation with six local partners,
including satellite platform Sky
PerfecTV.
The site, however, has been
wrangling with copyright holders,
including such orgs as Eiren (Motion
Picture Producers Assn. of Japan)
and Jasrac (Japanese Society for the
Rights of Authors, Composers &
Publishers), which demand YouTube
crack down on pirated clips.
"Legally, they are in the right, but it's
extremely difficult to find and take
down all the (pirated content)," says
Yasushi Nozawa, deputy director of
the Commerce and Information
Policy Bureau in the Ministry of
Economy, Trade & Industry.
Rather than fight YouTube,
some local media companies are
embracing the Internet themselves.
Kadokawa Holdings, a media
conglom active in pic and toon
production, linked with YouTube in
May to run ads on pages with
uploaded Kadokawa contents, such
as its TV toons "Haruhi Suzumiya"
and "Lucky Star."
Staffers search for Kadokawa
toon clips on the site. The pirated
ones are taken down, while posters
of those that display a more creative
take on the material, such as
anime/music mash-ups called MAD
in Japanese, receive a request from
Kadokawa to allow its logo and ad to
appear on the page. Kadokawa also
operates a YouTube channel,
Kadokawa Anime, where approved
clips appear.
"The business model is totally
different from television," says
Fumiyuki Kakizawa, a Kadokawa
rep. "We can't expect to earn the
same revenue. But YouTube has a
worldwide reach that we can use to
present our contents to a large
number of people, so in that way it
serves as a publicity tool."
Following in Kadokawa's
footsteps is major pic producer and
distrib Shochiku, which in July
started its own YouTube channel,
with promotional clips from its new
pics. The channel also displays clips
from Shochiku DVDs and made-for-
Internet video content.
3
Another media conglom, the
Usen Group, launched its own video
contents platform, GyaO, in April
2005.
Unlike YouTube, GyaO
contents, including promotional clips
from upcoming pics, music shows,
TV dramas, toons and sporting
events, are provided by GyaO and its
partners. In the beginning, GyaO
offered all its contents for free,
planning to raise revenue from ads
and sponsor fees.
"To be frank, we are still trying
to make the (GyaO) business model
pay, but we're confident we can do
it," says Usen rep Akari Mano.
One problem is that, though
GyaO has a large registered user base
-- 20 million by the latest count --
relatively few log onto the site with
any frequency. To lure them in,
GyaO has been beefing up its lineup,
including a new free Asian contents
sub-site that streams entertainment
from South Korea, Taiwan, China,
Thailand and elsewhere in Asia.
For TV viewers with
broadband, GyaO has opened GyaO
Next, a premium service with 30,000
titles, including such recent
Hollywood pics as "Babel,"
"Perfume" and "National Treasure
2."
Usen projects the Japanese
market for all forms of Web-based
video, including GyaO's three main
service areas -- free PC webcasts,
pay PC webcasts and IP television --
will grow from $655 million in 2008
to $1.56 billion in 2011.
Meanwhile revenues from
terrestrial TV, currently at $18.5
billion, will decline slightly in the
same period, while satellite TV will
grow 2% from $3.42 billion and
cable TV 9% from $3.18 billion.
"We expect GyaO to really take
off from 2010," Mano says.
It had better -- Usen has shifted
the focus of its visual media strategy
from struggling subsid Gaga
Communications, which announced
its withdrawal from the pic
production and distribution biz in
April, to GyaO.
Whether GyaO succeeds in
drawing enough eyeballs from
YouTube -- and moving into the
black -- is still anyone's guess, but
for Usen and other media companies
in a rapidly digitizing market, the old
ways are no longer an option.