Stephen Roach on Japan

The Testing of Japan

Stephen Roach (New York)
Morgan Stanley Global Economic Forum
Dec 09, 2005

Last week in Tokyo, I encountered something I had not seen in Japan in over 15 years -- unbridled optimism. Investors, business leaders, and senior government officials were all virtually unanimous in believing that the long nightmare is finally over. The twin possibilities of sustainable economic recovery and an end to deflation are widely viewed as the logical and irreversible outgrowth of Japan’s agonizingly painful healing. The macro fruits of years of micro restructuring finally appear to be at hand. I think a note of caution is in order. While there are unmistakable grounds for encouragement on the Japan macro story, I suspect this leap of faith could well be tested in the year ahead.

Signs of improving sentiment are evident everywhere in Tokyo. You can literally feel it in the air -- from the new hustle and bustle at Narita to the sidewalk congestion on the Ginza and Roppongi Hills. And it came through loud and clear in my latest round of business meetings in Japan. At a seminar of some 400 institutional investors in Tokyo last week, I asked the assembled crowd if they thought the recovery in the Japanese economy could proceed without any setback over the next two years. Fully 90% of the audience answered “yes.” I also asked the same group if they thought there would be a 10% correction in the Japanese stock market at any point over the next couple of years. By a margin of 2 to 1, the crowd said “no.” It doesn’t get much cheerier than that.

A surging Japanese stock market --with the broad Topix index up 38% year-to-date in yen terms and 18% in dollars -- has undoubtedly played an important role in shaping this newfound ebullience. Interestingly enough, there are few signs that domestic investors have begun to act in a fashion that is commensurate with the upbeat sentiment I picked up in my recent polling. Naoki Kamiyama, our Japan equity strategist, points out that foreign, or “gaijin”, investors have accounted for virtually all of the new flows into Japanese equities over the course of this year. To the extent that domestic investors -- both individuals and institutions -- now start to play the equity market, this year’s stunning rally could gather further strength. And the optimistic sentiment could then feed on itself, unleashing animal spirits that could have increasingly positive impacts on consumer and business decision making, alike. Needless to say, after a decade and a half of near stagnation, there is plenty of pent-up demand in Japan that needs to be satisfied. All this paints a picture of a compelling sequel to a post-bubble hangover. The long beleaguered Japanese economy is well overdue for a virtuous circle.

But is this that pivotal moment of unequivocal transition? While I hope that, in fact, is the case, I remain wary of jumping on the bandwagon. In my view, optimistic expectations of the fate of the Japanese economy could face two sets of challenges in the year ahead -- the possibility of an external demand shock stemming from potential growth shortfalls in the US or China and the possibility of an internal relapse brought on by a very delicate policy transition faced by the Bank of Japan. Just the fear of either development could well be enough to prompt a growth scare or renewed fears of a deflationary relapse -- either of which could deal a tough blow to Japan’s newfound optimism.

The possibility of an external demand shock is an important risk to Japan for one key reason: Despite its recent improvement, the Japanese economy is still lacking a solid base of support from internal private consumption. In the 12 months ending September 2005, personal consumption rose just 2% in real terms -- accounting for 56% of overall Japanese GDP growth over this period. The rest of the gain was largely concentrated in business capital spending and exports -- two sectors that collectively accounted for nearly 30% of overall Japanese GDP growth over this latest 12-month interval. Japan’s two most important export markets are China and the US -- countries that collectively accounted for nearly 40% of the nation’s total exports in October 2005. Consequently, any slippage in demand from the US or China -- an increasingly likely possibility during 2006, in my view -- could deal an especially harsh blow to a still fragile Japanese recovery that enjoys only limited support from private consumption.

The internal risk that worries me the most is a very tough challenge faced by the Bank of Japan -- the normalization of monetary policy after nearly seven years of extraordinary anti-deflationary accommodation. BOJ officials have recently stressed that the first phase of this normalization may well be close at hand -- namely an end of the so-called “quantitative easing” campaign, which focuses on the injection of excess reserves into the Japanese banking system. The second phase of this normalization campaign -- an end of the “zero-interest rate policy” -- is still a more distant consideration, probably slated for consideration at some point in 2007. The trick for the BOJ will be to wean the Japanese economy from extraordinarily low nominal interest rates without sparking a deflationary relapse. This, of course, was exactly what happened after Japan’s central bank moved to end ZIRP prematurely in August 2000. Alas there is an added complication to take very seriously: For an overly-indebted Japanese economy -- with public sector debt currently around 160% of GDP -- a normalization of nominal interest rates and its attendant pressures on national debt service burdens could well be an exercise fraught with great peril.

Unfortunately, history tells us that central banks have a terrible record in dealing with deflation. Both the BOJ and the Fed have gone to great lengths in recent years to rectify that shortcoming. In doing so, however, they have stressed what it takes to combat deflation -- namely, an early and massive monetary easing (see, for example, Alan G. Ahearne, Joseph E. Gagnon, Jane Haltmaier, Steven B. Kamin, “Preventing Deflation: Lessons From Japan's Experience in the 1990s,” Federal Reserve International Finance Discussion Paper, June 2002). Left unanswered, however, is the question of the exit strategy -- what it takes to wean an economy successfully from such extraordinary monetary accommodation. In my view, that remains a very big risk for Japan in the next couple of years.

Japan is on the mend -- and its stock market is on a tear. Optimism is brimming over in Tokyo that this recovery is for real. I certainly hope that is the case. But it may be premature to jump to that conclusion. Given the still fragile state of the Japanese economy -- underscored by a downshift to just 1% annualized real GDP growth in the three months ending September 2005 -- the potential for a relapse cannot be minimized. The distinct possibility of an external demand shock, coupled with an excruciatingly difficult policy maneuver that lies ahead for the BOJ, hardly makes that idle conjecture. At a minimum, I believe that optimistic Japanese recovery expectations will be tested in 2006 -- a possibility that could come as a real jolt to euphoric investors and a surging stock market. While a Japanese growth scare is a distinct, out-of-consensus possibility in 2006, I remain hopeful that any such scare will turn out to be a false alarm. The risk is that I am wrong -- that there is more to the potential fragility of the Japanese economy than meets the casual eye.

Realtors checking building strength; Unsafe Building Scandal Rocks Major Contractors

Realtors checking building strength
12/13/2005
The Asahi Shimbun

To prevent a scandal from depressing the housing market, major real estate companies are checking all of their apartment buildings whose quake-resistance standards were approved by private inspection firms.

The companies include Mitsui Fudosan Co., Daikyo Inc., Tokyu Land Corp., Tokyo Tatemono Co. and Sumitomo Realty and Development Co.

"We need to eliminate anxieties felt by the residents and those who are planning to buy units in apartment buildings," said an official at Mitsui Fudosan.

The companies' inspections will cover more than 1,500 condominium complexes built in and after 1999, officials said.

The figure could reach several thousand if other real estate companies follow suit.

Even buildings whose safety inspections were conducted by local and municipal governments will be covered, the officials said.

The measures come amid an unfolding scandal over buildings constructed based on fake quake-resistance reports compiled by former Chiba Prefecture-based architect Hidetsugu Aneha, 48.

Aneha in November admitted he faked the strength reports for 21 buildings in the Tokyo area. He said construction or housing companies had ordered or pressured him to reduce the amount of construction materials for the buildings.

Since then, other unsafe buildings have been uncovered around the nation, and local governments and private building inspection companies have come under fire for failing to detect the problems.

The real estate companies inspecting their buildings say there should be no risk concerning quake-resistance levels because none of their structures is connected to Aneha.

But they said they want to confirm that their buildings meet the quake-resistance level set under the Building Standards Law.

They will review structural-strength reports to ensure that no corners were cut concerning pillar arrangements, walls or the amount of reinforcing steel used.

The companies will notify residents of the results of the inspections through the management associations of the buildings, or directly if residents request the information.

All the inspections are expected to be completed in or after next year.

Mitsui Fudosan officials said employees and architect offices will review apartment complexes, office buildings and houses whose safety checks were conducted by private inspection companies.

Daikyo and Tokyu Land are asking architect offices that acted as prime contractors to re-examine all the buildings the two companies are responsible for, including those authorized by local governments.

Sumitomo Realty and Development will accelerate its re-examination procedures on about 100 condominium buildings currently on sale, and expand the scale afterward.

The company also set up a third-party inspection body to review structures whose quake-resistance reports were approved by Japan ERI Co., the nation's largest inspection firm whose name has been mentioned in the scandal.

Japan ERI apparently overlooked the falsified quake-proof reports by Aneha that another architect has said were obviously wrong.(IHT/Asahi: December 13,2005)

--------------------------------------------------------------------------------

Unsafe Building Scandal Rocks Major Contractors
Thursday, December 8, 2005
TOKYO (Nikkei)--The turbulence caused by the scandal involving regional builders using falsified quake-resistance data is spilling over to major general contractors.

That is because two hotels constructed by Kajima Corp. (1812) and Obayashi Corp. (1802) were found to have been built based on fake architectural data.

Now that it has been discovered that even these major companies have failed to detect the fraud of architect Hidetsugu Aneha, who doctored data to reduce construction costs, other large construction companies are being forced to recheck the structures they have built.

The hotels in question are Plaza Hotel Maizuru in Kyoto Prefecture, which was built by Kajima, and Via Inn Shin-Osaka West in Osaka's Yodogawa Ward, a property constructed by Obayashi.

Construction work on both hotels was subcontracted to Kimura Construction Co., which used architectural plans drawn up by Heisei Sekkei. The subcontractor and architectural firm are seen to have formed a ring of fraud with Aneha.

Kajima and Obayashi have said that they had nothing to do with the data falsification.

Usually, the architectural firm is responsible for any tampering of data prepared to obtain construction approval for a property, while the general contractor is free from any liability to compensate the buyer of a building constructed based on falsified data, as the contractor is just supposed to follow the architect's plan.

But Kajima and Obayashi intend to cooperate with the hotel owners if they want to upgrade the seismic resistance of the hotels.

Three other major general contractors -- Taisei Corp. (1801), Shimizu Corp. (1803) and Takenana Corp. -- have confirmed that they have had no previous business dealings with Kimura Construction and Heisei Sekkei.

(The Nihon Keizai Shimbun Thursday morning edition)

REITs mushroom across Japan

REITs mushroom across Japan
By Kathleen Chu Bloomberg News
THURSDAY, DECEMBER 8, 2005

TOKYO
Dan Papia, a U.S. screenwriter living in Wales, said he started comparing major cities for investment properties last year. He settled on Tokyo.

"I feel like I am underpaying in Japan and overpaying elsewhere," said Papia, a graduate of Sophia University in Tokyo. He owns a rental house and an apartment in the capital, and is looking for a third property. "There are still bargains to be found."

Those deals have spurred six new real estate investment trusts to sell shares since March 2004, raising \159 billion, or $1.3 billion, to buy apartment buildings in Japan.

Closely held funds like the New York-based Aetos Capital are also entering the market. Meanwhile, investment banks like Morgan Stanley have taken advantage of rising prices to sell mortgage-backed bonds.

Residential land prices in Tokyo snapped a 15-year decline in 2005 as interest rates remained at record lows and buyers shrugged off the specter of 1990, when real estate valuations collapsed. Japan's economy is headed for a fourth consecutive year of growth, the longest period of expansion since 1997.

"This is the early stage of a very extended economic expansion, and there are probably several more years of improvement to come," said Richard Jerram, chief economist for Japan at Macquarie Securities in Tokyo. "Property prices go hand in hand with that."

Residential land prices in Tokyo's 23 wards rose 0.5 percent in the 12 months to July 1, the Ministry of Land, Infrastructure and Transport said. Nationwide, the price decline slowed to 3.8 percent from 4.6 percent a year earlier.

Ministry figures are lagging "sharply" behind the market, because competition is driving up prices faster than government data can reflect it, said Andreas Schuster, a senior analyst at CLSA Asia-Pacific Markets in Tokyo.

Curtis Freeze, president of Honolulu-based Prospect Asset Management, estimated that buyers were paying 20 percent more for residential land than one to two years ago. The company's REIT, Prospect Residential Investment, raised \35 billion in an initial public offering in July.

"A lot of money has been raised by these property funds, mostly unlisted funds, to get to invest in these markets," said Freeze. "The temptation is to buy anything and get the money to work."

REITs buy and manage real estate using money invested by shareholders. They derive most of their profit from rental income and pay dividends to investors, who also benefit as the values of properties rise.

Nippon Residential Investment in September raised its dividend estimate for the six months to Nov. 30 to \14,000 a share - a 4.66 percent yield. The average dividend yield on the 25-member Tokyo Stock Exchange REIT index is 3.28 percent, according to data compiled by Bloomberg. By comparison, 10-year Japanese government bonds yield about 1.53 percent.

"Japan's residential market is the only market right now that's providing decent yields," said Leslie Chua, head of research at the Singapore unit of Jones Lang LaSalle, a Chicago-based property brokerage firm.

Shares of housing REITs have slumped recently on concerns about rising interest rates in the United States and Japan. The index has fallen in four of the past five trading days after an architect, Hidetsugu Aneha, said he cut costs on steel used in 55 buildings by using falsified earthquake-resistance data.

Prospect Residential's shares have dropped 5 percent to \435,000 since the company's IPO on July 12. The stock of Nippon Residential has fallen 6.7 percent to \603,000 in the same period. Mitsubishi UFJ Financial Group is Nippon Residential's largest shareholder, with a 4.9 percent stake.

Lower rental yields as a result of higher prices are also contributing to the slide in REIT shares, said Chris Reilly, who helps manage Asian property stocks at Henderson Global Investors in Singapore.

"The catalyst we need for the Japanese REIT market to get moving is a growth in rent," he says.

Competition may be driving up land prices too fast, risking another decline, said Ryosuke Homma, president of Kenedix, a real estate investment management firm in Tokyo. Kenedix's mixed-property REIT raised \43.5 billion in a July IPO. The shares have risen 1 percent to \592,000.

"I am a bit concerned about the future," Homma said. "When interest rates go up, cash flow may shrink tremendously."


Land prices are just beginning to recover after falling as much as 80 percent following the crash of 1990. The plunge in real estate prices threatened banks that had loaned money for speculative land purchases.

In the late 1990s, Morgan Stanley, Goldman Sachs Group and Ripplewood Holdings, all based in New York, and Lone Star Funds of Dallas began buying commercial land as banks sold bad loans backed by property.

Morgan Stanley this year has sold \299 billion of bonds backed by mortgages on commercial properties, including apartments in Tokyo and Osaka. The sales pushed Japan's market for such bonds to a record \1.29 trillion, according to Deutsche Bank.

Goldman Sachs, which has invested $6.4 billion in Japanese real estate since 1997, is focused on recreational properties, including hotels, golf courses and thermal spas. The firm plans to sell shares in its first Japanese REIT next year, according to bankers and government officials familiar with the sale.

Japanese are moving back to cities because plunging prices and low interest rates have made houses affordable, said Chua of Jones Lang LaSalle. As the economy improves, that inflow will continue to drive demand.


Buyers snapped up 84 percent of all condominiums available in the capital in October, according to the Real Estate Economy Research Institute, a data-collection company in Tokyo. The 30-year average is 73 percent.

New Optimism About the Japanese Economy After a Bleak Decade

December 7, 2005

New Optimism About the Japanese Economy After a Bleak Decade

By MARTIN FACKLER

TOKYO, Dec. 6 - College graduates face the best job market in a decade, and wages are rising again. The lead stock market index has doubled in value in two years. Corporate profits are the highest in recent memory. And for the first time since 1990, land prices in Tokyo are up.

Could it be that Japan, long the sick man among major global economies, has finally recovered?

This is, after all, the country where the words "gloom" and "malaise" have been used for so long that many Japanese have come to view them as facts of life. Even the upturns, such as they were, proved to be short-lived as Japan was unable to shake off the doldrums it fell into in the early 1990's, when its stock and real estate bubbles burst.

But this time, most economists and analysts agree, the recovery seems to be real, its roots extending through the Japanese economy. After more than a decade of working off excessive debt, bloated payrolls and overbuilt factory capacity, Japan seems to have addressed its bubble-era problems and emerged leaner and more competitive, the economists say. In fact, the economy here is projected to be growing at a faster rate than Europe's this year.

That is good news both for Japan, which even in its weakest years in the 90's had the world's second-largest output, and for the global economy, which has depended on growth in the United States and China.

A healthy Japan would be a bigger consumer and could invest more overseas, helping to pick up the slack if the American economy slows or China's falters. It would also provide a broader underpinning to Asian regional economies.

In Tokyo, Japan's commercial heart, a growing feeling of prosperity is palpable. Restaurants are full, empty taxis can be scarce and a construction boom is filling the long-drab skyline with new skyscrapers.

"The economy has finally crawled out of its 1990's misery," said Richard Jerram, chief economist in Tokyo for Macquarie Securities. "This is the first time since the late 1980's that I've seen signs of a broad domestic revival."

No one factor is behind the new mood. Analysts point to a gradual peeling away of layers of regulations that choked new businesses and growth. They credit Prime Minister Junichiro Koizumi with restoring banks to health over the four years since he took office, forcing them to cut in half the amount of bad debt left on their books from the 1980's. In 2002, that debt totaled $440 billion.

Even more important, they say, has been a slow but steady revolution in Japan's clubby business culture, as hard times forced companies to become leaner and more aggressive. Japanese managers have been discarding their traditional distaste for confrontation and ending lifetime job guarantees. And the companies are investing heavily in new technology.

Nowhere are the reasons for this economic rebound more apparent than at NKK, a once-downtrodden steel maker that in the 1990's struggled to stay afloat, cutting payrolls, closing furnaces and merging with a rival. But it also kept doing something else: spending on new research to find cheaper and better ways to make its products.

Now, the merged company, JFE Holdings, is one of the most profitable steel makers in the world, forecasting a $2.6 billion net profit this fiscal year.

Its sprawling Keihin Works, on a man-made island in Kawasaki, an industrial city next to Tokyo, has a highly productive new $200 million furnace that makes up to 12,500 tons of steel a day. The furnace, a 12-story-tall caldron that turns black iron ore into orange molten steel, achieves its productivity with a novel method of speeding combustion: adding natural gas, coal dust and even scraps of plastic to the traditional fuel, coke.

Elsewhere in the plant, JFE has introduced a method for rapidly cooling red-hot steel plates that makes them harder and less likely to crack - desirable qualities for shipbuilders and other manufacturers. The improvements have helped JFE stay ahead of rivals in South Korea and China, where labor costs are cheaper. In fact, China is one of JFE's fastest-growing markets, buying about 8 percent of its steel.

"During the darkest years, we focused on raising the level of our technology," said Kazuo Omata, the plant's assistant superintendent. "That is now paying off."

Other Japanese companies never stopped investing money in research into new products and greater efficiency, even as they were cutting back elsewhere. For the last 12 years, Japan has spent more on research and development as a percentage of the economy than any other major industrial nation, according to the Organization for Economic Cooperation and Development in Paris, a grouping of 30 of the world's relatively prosperous countries.

Analysts call this a major reason for the rebound in corporate profit. In the fiscal year that ended in March, the combined operating profit of the 1,689 companies on the first section of the Tokyo Stock Exchange, which includes Japan's largest corporations, reached a record $270 billion, according to Merrill Lynch. That was almost double its highest level in the late 1980's.

This stepped-up investment has contributed to turnarounds at many companies. The best known is Nissan Motor which faced bankruptcy before the French carmaker Renault turned it into one of the world's most profitable auto companies, with innovative designs and technology.

"The private sector is innovating like crazy," said Atsushi Nakajima, chief economist at the research arm of Mizuho Financial Group. "Japan is back to healthy growth."

To be sure, not all economists are convinced that Japan is out of the woods. Some warn of huge problems the country has yet to fix, like soaring public debt and an underfinanced pension system to care for a rapidly aging population. Such concerns could make consumers reluctant to keep spending, they say.

"Japan will eventually hit a speed limit," said Anil Kashyap, an economics professor at the University of Chicago.

Even the optimists do not see a return to the late 1980's, when Japan appeared ready to eclipse the economic dominance of the United States. They say Japan will look much like other healthy developed economies, posting solid but not red-hot growth rates.

Last week, the O.E.C.D. released a new forecast, predicting that Japan's $4.5 trillion economy would grow 2.4 percent this year, below the 3.6 percent seen in the United States but almost twice the rate for Europe.

Other figures are also pointing up. In September, the government reported that commercial land prices in Tokyo rose 0.6 percent in the 12 months ended in June, the first gain since 1990. Prices elsewhere, though, are still falling.

Companies are more optimistic, as is evident from a surge in spending on factories and equipment. According to a survey published last week by Japan's largest business daily, Nihon Keizai Shimbun, such spending will rise 15.2 percent this year, the first double-digit gain since 1991.

There is also increased enthusiasm for Japan among American and other overseas investors. In mid-November, Goldman Sachs held a hedge fund conference in Tokyo; 700 fund managers attended, mostly from the United States and Europe. That was seven times the turnout at the first such conference six years ago, participants said.

Foreigners now account for almost half of all trading on Japanese equity markets, according to the Tokyo Stock Exchange. They have helped spur a rally in the benchmark index, the Nikkei 225, which touched a two-decade low of 7,607.88 in April 2003. On Monday, it reached a five-year high; most of the gains have come since July.

The changes in corporate Japan have also transformed other parts of the economy. With the decline in old-school corporate attitudes, there has been a rise in hostile-takeover attempts in recent years. Another is in the labor market, where unemployment has fallen to 4.2 percent in September from 5.5 percent in 2003.

Around the same time, average monthly wages rose 0.5 percent in October from a year earlier, the seventh consecutive monthly gain. Specialists say the job market has become dynamic here as cost-conscious companies end job guarantees. That has allowed talented, somewhat younger employees to start changing companies, and to move more quickly upward.

One is Koichi Maruyama, who is 47. In September, he left a comfortable spot as a department head at Japan Telecom, the established long-distance phone company, to take the No. 2 job at IP Mobile, a three-year-old start-up with just 20 employees and hopes of blanketing the country with wireless Internet access. He admits that joining IP Mobile was a risk, but calls the job more exciting, and potentially more lucrative if the company takes off.

"Ten years ago, someone like me wouldn't have imagined doing this," Mr. Maruyama said. "This is not the Japan of 10 years ago."

Construction Scandal Delays JREIT IPO; Govt. Offers Aid; Investigations Deepen

Tokyo Property Index Falls, IPOs Delayed on Fake Data (Update1)

Dec. 6 (Bloomberg) -- Japan's property trust stock index fell to a three-week low and two real estate companies canceled share sales on concern scores of buildings throughout Japan may have been built using falsified earthquake-resistance data.

The government filed a complaint to police against architect Hidetsugu Aneha, 48, alleging he provided data that violated building codes for 55 hotels and condominiums in Japan, the Ministry of Land, Infrastructure and Transport said today. The number of buildings in danger of collapse in earthquake- prone Japan may rise as Aneha was involved in 208 projects.

Aneha said on national broadcaster NHK last month he used false data because of pressure to cut costs for steel and support pillars by clients. His admission raises concern the practice may be widespread as a rise in land prices for the first time in 15 years increasing competition in the industry.

``My biggest concern is that this is just the tip of the iceberg,'' said Robert McKillop, head of Japanese equities at Edinburgh, Scotland-based Standard Life Investments Ltd. ``If it does turn out to be a widespread problem, then you will get a widespread lose of confidence by consumers,'' said McKillop, who helps manage $2.2 billion of assets.

Living Corp., a condominium developer, canceled plans for an initial share sale on Dec. 14 on the Tokyo Stock Exchange's Mothers market. The company contracts most of its projects to Japan ERI Co., which last week said it failed to detect the faked data by Aneha. LCP Investment Corp., a real estate investment trust, said it will delay its Dec. 21 share sale.

Bad Time

``This is not a good time to sell our shares because investors could be misled,'' said Takekazu Imai, president of Living.

``Although we confirmed all the buildings we own are safe and meet the government's requirement, we do not want investors to misjudge Living Corp.''

The 25-member Tokyo REIT index fell 0.3 percent to a three- week low today as of the 3 p.m. close of trading on the Tokyo Stock Exchange. FC Residential Investment Co. dropped 8.9 percent, while Japan Single-Residence REIT Inc. lost 4.4 percent since Nov. 29.

``Fabricated construction data may influence the market sentiment,'' said Yuji Kubo, a director at the finance department of LCP Investment. ``We don't think now is an appropriate time to sell shares.''

Nippon Building Fund Inc., Japan's largest REIT, said it owns mainly office buildings and it is checking to see if Aneha did any work related to its buildings.

Attention

``We pay special attention to a building's quake resistance ability before we decide to purchase a property,'' said Satoru Yamanaka, Nippon Building's chief operating officer. ``We also ask a third party to examine the building closely.''

The scandal may also involve a death and a bankruptcy. The president of an architectural firm that hired Aneha as a subcontractor was found dead on a beach in Kamakura, near Tokyo on Nov. 26. Police suspect Nobuhide Morita, 55, committed suicide, the Mainichi newspaper reported.

Kimura Construction Co., one of the contractors that built several of the Aneha buildings, on Dec. 1 filed for bankruptcy with 5.7 billion yen ($47 million) in debt, according to Teikoku Databank, which tracks corporate failures in Japan.

Japan, one of the world's most earthquake-prone countries, is located in a zone where the Eurasian, Pacific, Philippine and North American tectonic plates meet and occasionally shift, causing quakes.

Japanese authorities rewrote building codes to improve earthquake resistance after a magnitude 6.9 quake in 1995 killed about 5,500 people in Kobe, western Japan.

Aid

Japan's government will provide housing for condominium owners whose apartments do not meet earthquake-resistance standards, cabinet official Akira Kotaki said today.

These buildings face the danger of collapse in an earthquake registering upper 5 on the Japanese intensity scale for tremors.

Japan uses two scales for measuring earthquakes, intensity and magnitude. The intensity scale, which goes from 1 to 7, measures the severity of the shaking from a tremor in different areas where it is felt. There have been 7 earthquakes producing a maximum intensity of upper 5 or more this year in Japan, according to the Web site of the Japan Meteorological Agency.

The government will use funds in a regional housing subsidy that totals 58 trillion yen ($479 billion) from this year's budget to help people who bought properties built with falsified data to demolish and rebuild their homes, Kotaki said.

``We don't know how many more faulty buildings are out there,'' said Tsuyoshi Segawa, an equity strategist at Shinko Securities Co. ``The problem could be even more widespread than just one architect.''

To contact the reporter on this story:
Kathleen Chu in Tokyo at
kchu2@bloomberg.net.; or Yoshimasa Yamaguchi in Tokyo at
y.yamaguchi@bloomberg.net
Last Updated: December 6, 2005 03:33 EST

Japan Govt to Provide Aid to Owners of Unsafe Condos (Update2)
Dec. 6 (Bloomberg) -- Japan's government will provide housing for condominium owners whose apartments do not meet earthquake-resistance standards because they were built using falsified structural data, Cabinet official Akira Kotaki said.

Architect Hidetsugu Aneha, 48, faces charges after the Ministry of Land, Infrastructure and Transport confirmed that at least 55 condominiums and hotels were built with false strength data he provided. These buildings face the danger of collapsing in a earthquake registering upper 5 on the Japanese intensity scale for tremors.

The government will use funds from a regional housing subsidy that totals 58 trillion yen ($479 billion) from this year's budget to help people who bought properties built with falsified data to demolish and rebuild their homes, Kotaki said after a meeting of Prime Minister Junichiro Koizumi's Cabinet.

Aneha was urged to reduce the number of reinforcing bars used in buildings by his clients, he said in an interview conducted by the ministry on Nov. 24, according to Kyodo News.

Among 208 properties that Aneha was involved with, 55 were found with fabricated data as of Dec. 5, more than double the 21 the land ministry announced on Nov. 17 when it first acknowledged the falsification.

Earthquake Prone

Japan, one of the world's most earthquake-prone countries, is located in a zone where the Eurasian, Pacific, Philippine and North American tectonic plates meet and occasionally shift, causing quakes.

Japan uses two scales for measuring earthquakes, intensity and magnitude. The intensity scale, which goes from 1 to 7, measures the severity of the shaking from a tremor in different areas where it is felt. There have been 7 earthquakes producing a maximum intensity of upper 5 or more this year in Japan, according to the Web site of the Japan Meteorological Agency.

Magnitude is an open-ended international standard measuring the energy released during an earthquake.

Quakes of magnitude 5 and more can cause considerable damage depending on their depth. The U.S. Geological Survey categorizes magnitude 5 earthquakes as moderate.

In the 48-hour period from 11:49 a.m. Tokyo time on Dec. 4 there were six earthquakes of magnitude 5 or greater around the world, according to the Survey's Web site.

That includes a magnitude 5.2 earthquake near Okinawa at 7 p.m. on Dec. 4 and a magnitude 5.4 quake that struck off the coast of Japan's main island of Honshu at 7:20 a.m. yesterday, the Web site shows.

The worst Japanese earthquake occurred in 1923 in the Kanto plain around Tokyo. The 8.3 magnitude temblor killed about 140,000 people. In 1995, a magnitude 6.9 quake killed about 5,500 people in Kobe, western Japan, prompting officials to toughen earthquake resistance standards under the Building Standards Law later that year.

To contact the reporter on this story:
Kathleen Chu in Tokyo at kchu2@bloomberg.net.

Last Updated: December 5, 2005 23:39 EST

Developers now under scrutiny
12/06/2005

The Asahi Shimbun

The land ministry will inspect at least 100 buildings handled by four companies --housing developers, a builder and a design firm--that are becoming increasingly embroiled in a scandal over falsified quake-resistance data, officials said Monday.

The companies in question are Kimura Construction Co., Huser Co., Shinoken Co. and Heisei Sekkei Co., a Kimura subsidiary design company. The buildings to be inspected, such as condominium complexes and hotels, were completed between April 2000 and March 2005.

The Ministry of Land, Infrastructure and Transport, in cooperation with local governments, will inspect the quake-resistance reports and blueprints of those buildings.

The buildings will include those whose structural-strength reports were not compiled by architect Hidetsugu Aneha, 48, who has admitted to falsifying the quake-resistance reports for 21 buildings.

Ministry officials suspect Aneha was not the only one responsible in the scandal.

At a hearing at the land ministry Nov. 24, Aneha said the two developers and the builder put pressure on him to reduce building costs. He said he did so, and then faked the strength reports, to protect his job.

Although all three companies denied the allegations, a ministry official said: "We cannot deny the possibility that another party was involved with the falsifications."

Eight of the completed condominium buildings whose reports were faked by Aneha were either built or commissioned by Kimura Construction. Seven were connected to Huser and four to Shinoken.

Heisei Sekkei was involved in 18 hotels in which the structural-strength reports were compiled by Aneha.

The design company is headed by the wife of Kimura Construction's president, Moriyoshi Kimura. The subsidiary's head office is located in a building owned by Sogo Keiei Kenkyujo (Soken), a consulting firm that pushed 13 projects for hotels that were later found to be unsafe.

Local governments are checking the quake-resistance levels of about 200 unsafe buildings constructed in and after 1996. The list was compiled by the Chiba prefectural government using documents Aneha had kept.

However, there are some cases in which Aneha's name is not mentioned in the documents, although he was involved as a subcontractor.

For that reason, the land ministry decided to check all the buildings connected to the four companies.

Criminal complaint filed

The land ministry Monday filed a criminal complaint with Tokyo police against Aneha for allegedly falsifying quake-resistance reports for three apartment buildings and a hotel, all in Tokyo, in violation of the Building Standards Law, ministry officials said.

Aneha, of Ichikawa, Chiba Prefecture, has admitted to falsifying data for the four buildings.

The Metropolitan Police Department has assigned about 70 officers to the case and plans to work in cooperation with Kanagawa and Chiba prefectural police.(IHT/Asahi: December 6,2005)

Architect faces charges for falsifying documents on strength of buildings
Mainichi Daily News/MSN December 5, 2005

The government on Monday reported architect Hidetsugu Aneha to police on suspicion of construction law violations for falsifying building strength analysis documents.

Now that the Ministry of Land, Infrastructure and Transport has filed a complaint against Aneha, Tokyo police will soon start investigations over his falsifying of documents.

The ministry has already announced that Aneha's construction office had falsified structural strength documents on 14 buildings, which have already been completed.

Aneha has admitted to the allegations. Monday's complaint covers several of the 14 structures.

Tokyo police have already received records of a hearing on Aneha, carried out by the ministry, and several other construction-related documents.

Police plan to question companies, which constructed buildings based on strength analysis documents falsified by Aneha's office. (Mainichi)

Is the Japanese Locomotive Ready to Again Carry its Load?

Focus: Economic Recovery
JETRO, 1221 Avenue of the Americas, NYC, NY 10020

December 5, 2005
Is the Japanese Locomotive Ready to Again Carry its Load?
http://kwrintl.com/library/2005/focus42.html

Back in the dark days following the 1997/1998 Asian financial crisis, Japan was mired in recession. It was just beginning to put into place the guidelines and reforms that are giving strength to the economic recovery now taking hold. At the time there was substantial talk about whether Japan and a troubled Europe could regain their strength as “global economic locomotives” or whether the US would be left to carry the load on its own.

Today, however, macroeconomic, corporate, and political developments all suggest Japan is back on track and proceeding in the right direction. Business investment is surging. Employment is growing and the Japanese consumers finally appear to be re-opening their wallets. These factors are fueling higher economic growth and reducing Japan’s dependence on exports and government spending. This heightened activity, combined with Japan’s increasing receptiveness to imports, is also providing Asia and other export-oriented markets, with potential alternatives to their traditional reliance on sales to the US.

While it should be remembered that Japan’s economic recovery is still in a formative stage, corporate and portfolio investors have begun to take notice. The nation has attracted substantial capital and direct investment inflows in recent years. In 2004 inbound foreign direct investment exceeded Japanese investments abroad for the first time and last week the Nikkei 225 index recorded its highest price level in over five years. When one takes note of these and many other positive indicators, there is substantial reason for optimism as well as a belief that the Japanese locomotive has left the station -- and may soon again begin rolling down the tracks.

The Japan External Trade Organization (JETRO) provides the following information, which examines these issues, and other relevant developments, in greater detail.

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Revisiting the Tale of the Three Locomotives

During the 1980-90s there was a lot of talk about the US, European, and Japanese locomotives and the macroeconomic cyclicality by which each of these economies took turns pulling the weight of the global economy. This rotation would allow the others to cool off for repairs and maintenance and the inevitable economic slowdowns that occur.

Following the collapse of Japan’s bubble economy in the early 1990s, however, the nation found itself in the midst of a protracted economic recession. At the same time Europe was also going through a weak phase. Neither was able to carry its weight and when the Asian financial crisis hit in 1997, there was real concern about how long the US could carry the load without help from these two major economies.

Today one rarely hears talk about economic locomotives -- but many analysts have begun to wonder about the fate of the global economy in the event an economic slowdown occurs in the US. Given the reliance on exports of most Asian and other emerging market economies, this is a real concern. Businesses and investors fear if the US catches a cold, Asia and the rest of the world will catch a fever.

Given these concerns, it is notable that several months ago, Morgan Stanley China analyst Andy Xie expressed in a report <http://www.morganstanley.com/GEFdata/digests/20050927-tue.html> his belief that the potential for a domestically-led recovery in Japan may contribute to autonomous demand that is independent of US economic activity for the first time since 1991. Xie notes “the US economy could be weak next year, as the Fed keeps raising interest rates, which could deflate the US housing market and keep US consumption subdued. If Japan could partly offset the impact of a US downturn, it would be a stabilizing factor for Asia …. Last year, Japan ran a record trade surplus with developing Asia (63% of Japan’s trade surplus). This surplus is down by 20% in 2005. It is possible that, if Japan’s recovery holds, its surplus with developing Asia may fall a further 20% next year. Indeed, I see a possibility that Japan could run trade deficits with developing Asia in two years, continuing the pattern of richer nations importing capital from poorer nations.” This sentiment is given further credence by Goldman Sachs economist Kim Sun Bae, who argues that Japan will support perhaps as much of 1.7 percentage points of growth in the Asia-Pacific region by importing goods, bolstering the prices of manufactured goods, and investing in the region.

While it is too early to proclaim Asia and other export-oriented regions to be independent of their traditionally strong correlation with Wall Street and the US real economy, it should be noted the trend is moving in that direction. At present, Asia and other emerging markets now represent the primary source of incremental growth in many consumer, industrial and commodity markets and there is no reason to believe this trend will not accelerate in coming years.

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Japanese Economy Continues to Demonstrate Strength and Momentum

Continuing a positive trend that started in 2003, the Japanese economy grew at an extremely healthy rate in the second quarter. Government statistics reveal Japan’s annual growth between April and June was 3.3%. This was triple initial estimates -- and followed on the heels of an excellent first quarter performance of 5.3%. Moreover, in the first half of the year, the Japanese economy expanded at 4.6% -- its fastest rate in 15 years. Although economic growth slowed down to an annual rate of 1.7% in the third quarter, these results remained well above forecasts and represented Japan’s fourth continuous quarter of growth. Moreover, part of Japan’s ongoing economic revival can be attributed to increased activity in sectors where some had concluded Japan’s comparatively high cost structure had caused a loss of competitiveness. This includes areas such as automobiles, machinery, steel, ceramics, and chemicals. The industrial recovery, witnessed vividly in Nagoya and its environs, as well as other areas in Japan’s industrial heart-land, has created a substantial amount of jobs. This has also led to significant increases in port traffic. At the end of October, government figures revealed that manufacturing activity hit its best level in 14 months.

Exports to the United States, China, and other Asian countries, which totaled $51 billion in September (an 8.8% increase) contributed meaningfully to second and third quarter growth. However -- what is exciting observers of Japan’s recent economic success is not its export performance -- but rather the expanding number of pillars, which demonstrate diversified economic strength. As Atsushi Nakajima, chief economist with Mizuho’s Financial Group, commented “the recovery is expanding across the economy…It’s not just exports driving the economy anymore.”

Analysts and economists have been according far more importance to consumer spending, supported by job growth and higher wages, and increased business spending. This differs greatly from the past when growth was driven almost solely by exports and government spending. As a result, it was highly encouraging that consumer spending surged by 2.4% in the second quarter and capital investment advanced 15.4%. In addition, eye-catching corporate investments abound. For instance, last August, Canon, the world’s large copier manufacturer, and Toshiba announced they would jointly invest ¥20.8 billion to start a research center for flat panel display technologies. Similarly, Komatsu, the second-biggest maker of construction equipment, said it would invest ¥30 billion to construct a mining and large pressing machine plant.

Source: GaveKal Research

While consumers tempered their spending somewhat in the third quarter -- augmenting their expenditures by only 0.3% -- unemployment dropped to a seven-year low. Equally important, businesses continued to spend heavily, bolstering their investments by 0.7%. Further encouragement vis-a-vis business investment was found in increases in the Tankan survey of business sentiment in August and September. Deputy Director of the IMF’s Asia and Pacific Department Daniel Citrin observes that business investment has been invaluable for Japan since it has yielded “stronger consumer sentiment; improved employment…and much stronger underpinnings for the household sector and consumer demand.”

Another positive development is signs of increased bank lending. Bank of Japan data released in September reveal that bank-lending in August rose for the first time in seven years. This was followed by another increase in September. The improvement stems from a dramatic reduction in non-performing loans (from ¥43 trillion in 2001 to under ¥20 trillion as of the end of 2004), better loan returns, and new revenue sources as banks increasingly seek out fee income. Commenting on the August increase in bank lending, Takahide Kiuchi, an economist at Nomura Securities noted this was “a clear sign the economic situation is improving.”

Source: Government of Japan

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Japan Moving to Address a Wide Range of Economic Challenges

While there are numerous positive trends giving strength to Japan’s economic recovery, there are also important challenges that need to be resolved. High raw material prices, particularly those related to energy, present a potential obstacle to Japan’s economic recovery. This is especially important, given that the nation is so dependent on outside raw materials. That said, Japan is one of the most energy efficient developed countries, producing more GDP per ton of oil equivalent than any other G-7 country.

Another potential cloud is Japan’s huge public deficits. Public spending, used in part to fight deflation, and stagnant or declining Japanese growth, caused Japan’s debt/GDP level to soar from 60% in 1990 to 160% today. Japan’s ratios are four times the level of debt owed by the United States. The IMF’s view is that the Japanese government recognizes this problem. In addition, unlike in the US, where private sector savings is extremely low, Japan’s public deficit is comfortably backed and funded by domestic Yen-denominated private sector savings reserves, which are among the highest in the world.

Even more important, however, is that fact that Japan’s government is moving to address this problem through spending reductions. It has already increased some taxes -- e.g., social security payroll taxes -- and rolled back some income-tax cuts enacted at the end of the last decade. The Japanese government aims to have tax receipts equal to spending on everything other than interest payments within seven to eight years. Government debt issuances already are decreasing, with bond issues falling from ¥36,600 billion to ¥34,500 billion, reducing debt issuance as a portion of spending from 44.6 to 41.8%.

Beyond this, deflation while diminished, does remain an issue. For the past seven years, the prices of goods and services in Japan have dropped by an average of 0.4%, while property and stock prices fell 50% after Japan’s economic bubble burst. Deflation makes consumers unwilling to spend, hurts profits, restrains business investment, and diminishes the value of assets that secure bank loans. Indeed, in the view of Naoki Iizuka, chief economist at Dai-Ichi Life Research institute, “an end to deflation would strengthen the world’s second-largest economy and enable Japan to shoulder part of the burden” for global economic growth.

Turning to this issue, the Bank of Japan has forecast an end to deflation by the end of the year. Governor Toshihiko Fukui observed that price stability “is getting pretty close.” While there are some skeptics such as James Montier of Dresdner Kleinwort Wasserstein, strategists with firms such as Mitsubishi UFJ are encouraging investors to buy bonds with shorter maturities in anticipation of a termination of the Japanese Central Bank’s zero interest rate policy (ZIRP). At this point, it is not clear exactly when the Bank of Japan will end ZIRP, but the key point is there are signs pointing to an end. This viewpoint is supported by good news with respect to property prices, which are demonstrating better performance in major metropolitan areas. To cite one anecdotal example, the Chief Executive of Mitsubishi Estate, Japan’s largest property developer, stated, with respect to Tokyo, that “the office vacancy rate is low, condominium sales are doing very well.”

_____

Japanese Consumer and Service Market in Period of Unprecedented Transformation

Purchases of consumer goods and services have been critical to Japan’s recent economic success and give further credence to the belief a sustainable recovery is underway. Similarly, as seen in the chart below, Japanese imports of goods and services as a percent of GDP has been rising quite dramatically in recent years. In the words of Graham Davis, director of the Economist Corporate Network in Tokyo, “the economy is in a very sweet spot at the moment where everything seems to be doing quite well. You can expect to see the domestic side of the economy and the service sector, which is so important, continuing to do quite well.”

Source: GaveKal Research

Growth in Japan’s consumer market creates a number of exciting opportunities for sellers of such goods. It also creates opportunities for them to invest in Japan. Wal-Mart recently affirmed its belief in Japan’s potential by spending $600 million to assume a 50% stake in Seiyu, a supermarket chain in which it already had a 42% stake. John Menzer, Chief Executive of Wal-Mart International, said this investment was designed to deepen “Wal-Mart’s presence in the second-largest retail market in the world.”

There are also great opportunities for retailers in various niches such as the luxury sector (e.g., Louis Vuitton bags, Dom Perignon champagne, Tiffany jewelry, Bacarat crystal, etc.) and leisure products. While Japan has a population roughly half the size of the U.S., it has a luxury goods market that is twice the size. In remarks given to the Japan Society, Fashion Institute of Technology Professor Jeff Buchanan asserted “without Japan, it is safe to say the global luxury market would have ceased to exist as we know it.” Coach Japan, which began operations in Japan in 2001, already has 106 stores and generated slightly more than ¥39 billion in sales between July 2004 and June 2005. Japan is a suitable market for luxury and branded goods due to the tendency of distribution partners to adopt the long-term mentality necessary to build adequate recognition and positioning. It also possesses a far less fragmented media market, which introduces cost efficiencies into national advertising and marketing efforts. Japan consumers are also well known for their appreciation of, and willingness to pay for quality goods.

Moving forward, many believe that opportunities in Japan’s retail market will continue to improve. This is true despite the nation’s low birthrate - a phenomenon that is at least partially caused by the large numbers of single-Japanese women entering the workforce. These women are enjoying greater independence and disposable incomes, and in the words of Goldman Sachs Japan Chief Strategist Kathy Matsui becoming, “a very important source of income and consumption growth.” The forthcoming retirement of many Japanese with substantial savings is also creating many additional opportunities for marketers of travel, leisure, and related services.

While Japan’s $1.3 trillion retail market is huge, many believe services -- which accounts for 60% of the country’s output -- have even greater potential. August sales of software, computer system management and other information services rose by 1.4% and some analysts believe growth in the service sector will help Japan to achieve its fourth consecutive year of expansion. For example, in the area of mobile phones, there are many opportunities given Japan’s role as a trendsetter. Eurotechnology Japan K.K. reports that Japan is the first country with wallet phones on a big scale. It is also a leader in mobile commerce -- selling over $500 million a year in train tickets via mobile phone on one single train line -- and tallying extremely high levels of music downloads.

Foreign investors may also wish to consider opportunities in health services as the aging of the Japanese population will create a greater need for medical and nursing care. According to Government of Japan statistics, the medical care market should grow over 30% over the course of this decade -- from roughly ¥56 trillion in 2000 to ¥75 trillion in 2010. The range of service investment opportunities in Japan also includes the environment. High energy prices, as well as efforts to minimize pollution, encourage recycling and reduce global warming have increased interest in this sector. This has created a demand for services including waste management, environmental R&D, alternative energy, organic and natural foods and other green-friendly technologies and products. The recycling area alone may approach ¥47.2 trillion in revenues by 2010.

Finally, the area with perhaps the most potential is the area of financial services. The increasing emphasis on profitability among corporations who are much more apt to adopt US-style treasury management techniques and benchmarks, as well as the need to raise returns on pension funds and retail portfolios -- are just a few of the trends leading to increasing interest in a wide range of financial products. This also includes the alternative investment area, which has been enjoying dramatic growth in the US. Akira Takahasi, head of Credit Suisse First Boston’s Alternative Capital Division in Tokyo, for example, commented on the rise of Japanese hedge fund investments, stating, they had grown “at high speed” in 2003 and 2004.

The Japanese government is also taking steps to encourage investment in the retail and service sectors. This includes regulatory reforms to facilitate foreign investment, tax breaks for capital investment, and support for hiring workers. For instance, the city of Yokohama will give foreign investors five years of property tax reductions provided certain investment conditions are met. Similarly, Hyogo Prefecture will provide up to ¥300 million yen to job-creating new ventures, with greater per employee subsidies, depending on the number of jobs that are created.

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Both Foreign & Domestic Investors are Becoming More Enthusiastic about Japan

Over the past year, there has been growing excitement among asset managers about current trends and the performance of Japan’s capital markets. Last week, in fact, the Nikkei 225 index rose to its highest levels in over five years. In its October investment report, British investment firm Rathbones called Japan “a stand out market,” one it was convinced it “should own” and in which it should “be considerably overweight.” Rathbones added, “the risk of being out is greater than the risk of being in this market.” Interest in Japan is also shown by increasing foreign investment in Japan-oriented mutual funds, investment in Japanese stocks, and attendance at road shows. Reporting on a worldwide tour of Nomura analysts, Chisato Haganuma, chief strategist at Nomura, remarked, “we saw a wider range of investors at the meetings: more private banks, hedge funds, and insurance companies…it’s something we haven’t seen before.”

Comparison: One Year Performance of Nikkei 225, Dow, FTSI and DAX Index

What is also catching the attention of analysts are signs that Japanese investors are finally joining the foreign investors who have been the primary buyers in recent years. This is demonstrated by large increases in trading volumes by domestic investors and some movement away from the foreign treasury bills and securities that had been their primary focus toward Japanese equities. While this trend is still in its infancy, if it continues, and gains further strength through greater institutional and retail participation, it could have a dramatic effect on Japanese stock prices.

Interest in Japan, though, goes far beyond financially-motivated investments made by fund managers. It is also manifest by inward FDI flows, which have reached new highs and, for the first time, exceeded outward FDI flows in 2004.

Comparison of Inward and Outward Foreign Direct Investment Flows Between Japan and Other Markets

Source: Government of Japan

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As Japanese Locomotive Leaves Station, Investors Wise to Come Onboard

It is possible, or even probable, that an economic slowdown in the U.S. or China could limit the progress of Japan’s economic recovery. Yet not all investors believe a downtown in such markets would be devastating for Japan. In the October 20 issue of the Greed & fear newsletter, for example, CLSA analyst Christopher Wood argues, “A real slowdown in America may delay Japan’s move out of deflation. But it will not end it. The reason deflation is ending in Japan is because the country’s banking and property problems have been fixed. This benign trend has nothing to do with America or China.” The IMF, too, has noted that Japan’s economic situation this time is different because “finally, the excesses of the bubble period-excess labor, capital, and debt-have worked themselves out.”

Opportunities for higher investment returns and new sources of growth create powerful reasons to pay attention to Japan, the world’s second largest economy. While it is difficult to see around the bend or to determine how long the journey will last, it is fair to say the Japanese locomotive has definitely left the station. As a result, corporate and portfolio investors would be wise to seriously consider coming on board.

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Data, statistics and the reference materials presented within this newsletter have been compiled by JETRO from publicly-released media and research accounts. Although these statements are believed to be reliable, JETRO does not guarantee their accuracy, and any such information should be checked independently by the reader before they are used to make any business or investment decision.

For additional information on economic and financial trends in Japan, please contact Akihiro Tada, Executive Director of JETRO NY at Tel: 212-997-0416, Fax: 212-997-0464, E-mail: Akihiro_Tada@jetro.go.jp <mailto:Akihiro_Tada@jetro.go.jp>

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Focus: Japan’s Domestic EconomyFocus: Asian Economic Integration <http://www.kwrintl.com/library/2005/focus41.html>
Focus: Structural Reform <http://www.kwrintl.com/library/2005/focus39.html>

Focus: Economic Recovery <http://www.kwrintl.com/library/2005/focus38.html>Focus: Privatization <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus37.htm>

Focus: Economic Recovery <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus36.html>Focus: Entrepreneurship <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus35.html>
Focus: Consumer Demand <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus34.html>
Focus: Asia <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus33.html>
Focus: Gross National Cool <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus32.html>
Focus: Regional Development <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus31.html>
F ocus: New Policy Challenges <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus30.html>
F ocus: Investment Japan I <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus29.html>V

Focus: Investment Japan III <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus28.html>
Focus: Biotechnology <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus27.html>Focus: Investment Japan <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus26.html>
II <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus23.html>
Focus: Investment Japan <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus25.html>
Focus: Foreign Direct Investment <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus24.html>
Focus: Mergers & Acquisitions <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus23.html>Focus: Entrepeneurship <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus22.html>
Focus: Economic Revitalization <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus21.html>
Focus: Industrial Revitalization <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus20.html>
Focus: Foreign Investment <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus19.html> <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus18.html>

Focus: Bush Visit <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus18.html>Focus: Koizumi Visit <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus17.html>
<http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus18.html>Focus: Economic Rebirth <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus16.html>

Focus: Hiranuma Plan <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus15.html>
Focus: Foreign Direct Investment <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus14.html>Focus: Emergency Economic Package <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus13.html>
Focus: Action Plan <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus12.html>
Focus: Economic Reform <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus10.html>
Focus: Okinawa Summit <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus9.html>

Focus: Small Business DevelopmentFocus: New Enterprise Development <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus7.html>Focus: Industrial Revitalization <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus6.html>
Focus: Economic Recovery 4 <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus5.html>
Focus: Steel <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus3.html>
Focus: Economic Recovery 3 <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus2.html>
Focus: Economic Recovery 2 <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus2.html>
Focus: Economic Recovery <http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus1.html>

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Focus is published and disseminated by JETRO New York <http://www.jetro.org/newyork> in coordination with KWR International, Inc <http://kwrintl.com/>. JETRO New York <http://www.jetro.org/newyork>is registered as an agent of the Japan External Trade Organization <http://www.jetro.go.jp/>, Tokyo, Japan and KWR International, Inc <http://www.kwrintl.com>. is registered on behalf of JETRO New York <http://www.jetro.org/newyork>. This material is filed with the Department of Justice where the required registration statement is available for public viewing.

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30 Hotels Stop Operations because of Falsified Structural Reports

３０施設営業休止、ビジネスホテル業界困惑――新規開業鈍化も（耐震偽装）
2005/12/06, , 日本経済新聞　朝刊, 11ページ, 　, 821文字

　耐震強度偽装問題でビジネスホテル業界への波紋が広がっている。五日現在、約三十のホテルが営業休止に追い込まれた。偽装の疑いが出ていない大手チェーンでも自社ホテルを調査する動きが広がっており、加速してきた新規開業ペースが鈍る可能性も出てきた。
　偽装が発覚した京王プレッソイン（東京・新宿）では茅場町、五反田の解体を検討。減収や建物除却費などで二〇〇六年三月期に二十二億円の損害が発生する。名鉄不動産（名古屋市）も名鉄イン刈谷（愛知県刈谷市）を解体。建て直した上で再オープンする見通しだ。
　偽装の疑いが発覚していないホテルチェーンも対応に追われている。「ルートイン」約百二十店を展開するルートインジャパン（東京・江東）は全店の設計図を洗い出し、偽装に関与したとされる設計事務所や施工会社とかかわりがないことを確認。「構造計算書についても念のため詳細な調査をすることを検討している」という。
　ビジネスホテル全体への風評被害を懸念する声もあるが、企業が出張を控えているわけではないため、今のところ客数が減るなどの影響は限定的なようだ。
　ただ、偽装問題は、一泊一万円を切る低料金で多店舗展開を加速しているチェーン店の経営手法に影を及ぼしねない。
　約百二十店を展開する東横イン（東京・大田）は来年度の開業予定が四十店超と、今年度の二十六店を上回る。駅前の商店主やビル・旅館オーナーから長期契約で土地・施設を借り受けて運営するケースも多い。「チサンホテル」など約四十店を運営するソラーレ・ホテルズ・アンド・リゾーツ（東京・港）も今後三年間で首都圏や地方中核都市で二十―三十店程度の進出を計画する。設計の再チェックなどで開業が遅れる可能性も指摘されている。
　低料金を実現するために建設コストを低く抑える事業モデルも見直される可能性がある。これまでは少しでも安く建てるのがホテル側の立場だったが、安全性を強調するため従来以上の耐震性を持たせることが考えられる。

Housing starts on the rise in Japan

Housing starts on the rise in Japan

TOKYO, Dec. 3 (UPI) -- After 15 years of falling housing prices in Japan, the market for real estate seems to be on the rise.
For October, construction began on 1.22 million homes. That was an 8 percent increase from the low point of housing starts in early 2003, the New York Times reported Saturday.
After a housing boom in the late 1980s, some Tokyo apartment prices probably fell 70 percent to 80 percent from top to bottom, said Richard Jerram, an analyst for Macquarie Research.
However, a typical Tokyo apartment of about 750 square feet now costs about $330,000 -- affordable to many, since fixed-rate mortgages are available at 2 percent interest rates, but down from $1.5 million -- the price a few years ago, Jerram said.

Remorseful or Not, Buyers Start to Return to Japanese Real Estate

The New York Times
December 3, 2005
Off the Charts

Remorseful or Not, Buyers Start to Return to Japanese Real Estate

By FLOYD NORRIS

IN the United States, there is talk about real estate bubbles. In Japan, there is knowledge, and plenty of it, about what happens after one pops.

Figures on housing starts released this week in Tokyo provided evidence that the market finally has gotten over the long and painful decline, and that the Japanese are more willing to buy new homes after avoiding them as prices fell for many years. In the 12 months through October, construction began on 1.22 million homes, nearly 8 percent more than at the low point reached in early 2003.

At the same time, there were limited signs that the growth in the housing market in the United States was leveling off, if not starting to fall. Sales of existing homes came in lower than expected, although new-home sales continue to set records. The number of housing starts in October was a little below the level of a year earlier, and mortgage applications were down.

The ingrained beliefs in consumers in the two countries could not be more different. In the United States, houses have been an excellent investment for years, with property values rising rapidly in many markets. The conventional wisdom was that anyone who waited to buy was foolish.

In Japan, on the other hand, the greatest real estate boom ever seen had, by the late 1980's, led to calculations that the grounds of the Imperial Palace in Tokyo were worth more than the state of California.

"That was followed by 15 years of falling prices," said Richard Jerram, an analyst for Macquarie Research who is based in Tokyo. In Central Tokyo, he said, apartment prices probably fell 70 percent to 80 percent from top to bottom. Even with rock-bottom interest rates, many thought it foolish to buy a home that was virtually certain to lose value.

Even now, the prices would not seem cheap to many Americans. Mr. Jerram said a typical Tokyo apartment of 70 square meters, or about 750 square feet, now costs about 40 million yen, or around $330,000. That is affordable to many, given that fixed-rate mortgages are available at 2 percent interest rates.

But those who bought in the past came to regret the decision. "You could have paid $1.5 million a few years ago," Mr. Jerram said.

It appears that home prices hit bottom about two years ago, and since then housing starts have gradually revived.

Over all, Japanese housing starts remain below the levels of 1996, when a planned change in tax law made it seem wise to invest in housing before the law changed. But in the crucial area of housing starts intended for purchase by residents, the number has climbed above 1996 levels.

Among such housing units, there is also a trend toward what the Japanese call collective housing, the equivalent of condominiums in the United States. During the bubble, many who worked in Tokyo were willing to endure two-hour rail commutes by rail to find affordable housing. Now, with prices down, some of those people appear to be buying new apartments in the city.

Japan and the United States are half a world apart, geographically. In terms of long-term housing cycles, they may be even more distant.

Kansai RE Firms Bet on Economy Turnaround; Reicof Launches Fund; Osaka Rents Up?

第２部関西経済特集――金融や不動産も（ベンチャー２００５ＫＡＮＳＡＩ）
2005/11/29, 日本経済新聞　朝刊第２部, 3ページ, 有, 1244文字

保険販売　新業態
資産活用へ基金
　保険・証券などの金融商品の販売や不動産投資を主力とする企業が、急速に台頭してきた。景気回復、年金制度改革などを背景に、資産を有効活用したいとのニーズが高まっており、多様な商品とサービスで事業を拡大している。
　サラリーマンらがコーヒーを飲みながら談笑する傍らで、保険商品の説明に耳を傾けパンフレットを熱心に見つめる主婦たち――。神戸市元町に十月末、保険販売店と喫茶店が併設する「インシュアランスカフェ」の二号店が開業した。
　アドバンスクリエイト（Ａクリエイト）が展開する対面型保険販売店と、ポッカコーポレーションの関連会社が運営する喫茶店との複合店だ。四月に神戸市に開設した一号店が好評なため、多店舗展開に乗り出した。
　Ａクリエイトは、四十社を超える生保・損保の商品を扱う「保険市場」を全国で約百五十店展開する。従来の保険会社の訪問販売方式と違い、顧客が店に足を運び、複数の商品の中から人生設計などに合ったものを選ぶのが特徴だ。この「保険のコンビニ」では、「来店客の約七割が契約を結ぶ」という高い購買率を誇る。
　品ぞろえの拡充や出店強化を狙い、保険会社などとの提携にも積極的だ。七月下旬に三井住友海上火災保険と組み、独自商品の地震保険「マグニチュード」を発売した。十月にはチューリッヒ生命との提携を強化。同生命の社内に、Ａクリエイト向け独自商品の企画・開発を手掛ける専門部署が設置された。スーパーの平和堂やフジのグループ会社とも保険市場の出店で提携している。
　保険業界全体の市場規模は縮小傾向。しかし、平均寿命の延びや年金制度の不安の高まりで「医療・介護など第三分野の保険は大きな伸びが期待できる」（経営企画部）とみて、今後も月十店程度のペースで保険市場を出店する計画だ。
　株式市場の復調を追い風に、証券商品の販売事業に参入するベンチャー企業も出てきた。
　記帳代行のエフアンドエム（Ｆ＆Ｍ）は日興コーディアル証券と提携、二〇〇六年四月にも証券商品の販売に乗り出す。Ｆ＆Ｍが組織化する税理士・会計士事務所「タックスハウス」の顧客向けに公社債や投資信託を販売する。すでに保険商品の販売を手掛けており、品ぞろえ強化で顧客の増加につなげる。
　地価の反転・上昇を機に不動産ファンド事業の新規参入も目立つ。
　イーマックス・パートナーズ（大阪市）は六月に設立。大阪を中心に西日本の主要都市でマンションやオフィスビルなどの物件確保を進める。
　三谷鉄義会長は「これまで不動産ファンド事業は東京が先行していた。西日本は市場開拓の余地が大きい」と意気込む。年間目標売上高は五−八億円で、〇九年の株式公開を目指す。
　五月に大阪証券取引所ヘラクレス市場に上場したレイコフは、観光ホテル対象の投資事業を次代の収益の柱に育てる方針だ。〇六年夏にも百億−百五十億円規模のファンドを創設する計画だ。
【図・写真】Ａクリエイトの「保険市場」では専門知識を持つ従業員が対面で保険商品を紹介、販売する

レイコフグループ　外資系ファンドと不動産ファンド組成（ 2005年12月01日 ）
2005.12.01 Thursday
http://shukanjutaku.jugem.cc/?eid=1219
　不動産ファンド運営などを手掛けるレイコフグループは、外資系投資ファンドとの共同出資で国内不動産への投資を目的とする新不動産ファンドを組成する。ノンリコースローン部分と合わせ総額300億円規模のファンド規模を目標にしている。投資対象はオフィスビル・商業施設・住居用マンションの信託受益権。アセットマネジメント業務は、100％子会社のレイコフ投資顧問が担当する。

◆ 大阪の賃料アップ事例
<http://tweak.blog17.fc2.com/blog-entry-114.html#114>

2005/12/01(木)
11月27日の日本経済新聞にオフィスビル賃料上昇の記事がありました。
募集賃料の水準を指数にしたオフィスビル賃貸料指数が、東京の既存ビルで3.51ポイント上昇し、大阪でも4.12ポイント上昇したようです。

この記事は新規賃料が上昇しているという記事ですが、既存テナントに対しても賃料アップの事例が出はじめています。
昨日まで大阪出張だったのですが、当社大阪支店から聞いた賃料アップ成功事例を紹介します。

大阪でも新たにビルを取得しようと思ったら、数年前の倍くらいお金が必要で、なかなか買えない状況になっているようです。
そこでオーナーさんは言いました。
「周りのビルの値段は上がってるのに、なんでうちのビルの賃料は安いままやねん。値上げしてこい。」
「え？昨年据置き改定したばっかりやのに？」
てことで、改定時期でもないのにテナントに賃料アップ交渉をすることに。

するとテナントは意外にもすんなりと承諾。
聞くと、全国展開しているそのテナントは、東京の入居ビルでも賃料を上げられたらしく、大阪でも上がるのかなと思っていたところに交渉に行ったようで、心の準備ができていたのだそうです。

つい最近まで、既存賃料のアップ、それも改定時期でもないのにアップさせるなんて、あり得なかったのですが、オフィスビル市況の回復傾向が東京以外にも広がっているのを実感しました。

さて、大阪出張が終わり、これで年内の一番大きな仕事が片付きました。
10月半ばに受託した表参道のビルも軌道に乗りましたし、11月は忙しかったですがなんとか一段落しました。
明日はなんとか休みをとって、「賃貸住宅フェア2005 in 東京」に行けそうです。

　　
　　関連記事： 賃料上昇の遅行性 <http://tweak.blog17.fc2.com/blog-entry-85.html>

It's Time for A Turnaround - Japan's corporate balance sheets are in better shape than at any time since the 1970s

It's Time for A Turnaround
Japan's corporate balance sheets are in better shape than at any time since the 1970s.

By Henry Blodget
Newsweek International

Dec. 5, 2005 issue - On Nov. 1, a software glitch at the Tokyo Stock Exchange shut down trading for the better part of a day, the worst system failure in the exchange's history and one that could have rattled even the most confident Japan investors. For the past 15 years, after all, Japan's stock market has caused little but misery, and now the exchange itself had collapsed. In a sign of how Japan optimism has soared of late, however, investors merely used the hiatus as a chance to place more buy orders: when trading finally resumed, the Nikkei burst skyward, closing up 2 percent on the day.

The most recent rally has taken the Nikkei over 14,000, its highest level in more than four years. Although this is still only a third of the market's peak in the 1980s' baburu jidai (bubble era), it represents a near doubling from the postbubble low of mid-2003. This rise-along with the reforms supported by telegenic Prime Minister Junichiro Koizumi and some encouraging financial trends-has convinced many that Japan's economic woes are finally at an end.

A recent Merrill Lynch survey of global fund managers, for example, revealed enormous optimism about the country: the majority of those surveyed are now overweight Japanese stocks (and underweight American ones). American stockbrokers these days murmur "EWJ," the ticker symbol for the iShares Japan exchange-traded fund, in the same sotto voce tone normally reserved for biotech tips. Of course, widespread optimism is often a sign of trouble (Everyone loves it? No one left to buy!), so it's worth asking whether the turn is sustainable or just another Japan head fake. The unfortunate answer, as with all things economic, is that we won't know for sure until after the fact. But that needn't stop us from asking.

A recent Economist survey by editor Bill Emmott, who called the bubble top in 1989 in a book called "The Sun Also Sets," presents the positive case, arguing that many minor recent improvements in Japan's economic and legal systems collectively amount to major change: fewer bad loans plaguing the banking system, increased labor flexibility, a pickup in full-time employment (which could lead to increasing wages and a boost in consumer spending), a surge in takeover bids, industry consolidation and increasing efficiency. Jesper Koll, Merrill Lynch's Japan economist, adds that corporate balance sheets are in better shape than at any time since the 1970s, bubble-era overcapacity has finally been absorbed, and operating profits are 40 percent higher than at the bubble's peak.

Other analysts, meanwhile, argue that little of substance has changed. Andrew Smithers of London-based Smithers & Co., for example, who also called the bubble top, points out that Japan's budget deficit still amounts to 6 percent of GDP and public debt a whopping 160 percent, a result of ongoing overinvestment and poor capital allocation. Fixing the budget deficit by raising taxes or cutting spending, Smithers argues, would pressure profits-and in the process, perhaps, whack the stock market. Most of the recent buying has come from foreign investors, who are notoriously fickle. And then there's Japan's big long-term problem, which is the likelihood that its population (and labor pool) will soon begin to decline. This will put a damper on the future GDP growth rate, and, with it, potential stock-market gains.

Normally, the tool that can help investors avoid missing the forest of long-term opportunity for the confusion of short-term trees is valuation: when stocks are cheap, a sustained rise is less a matter of if than when. In Japan's case, however, even valuation is tough to assess. Merrill's Koll cites a current earnings yield of 6 percent-which translates into a reasonable-but-not-cheap price-to-earnings ratio of about 18. But ratios based on a single year of earnings can be misleading, as profit margins have a nasty habit of reverting to means (if margins are high, P/Es look low, and vice versa). According to Smithers, other measures suggest that Japanese stocks are far more expensive.

Still, Japan has two things going for it that are undeniably positive. First, its stock market has been in the dumps for 15 years. In terms of long-term market cycles, mean reversion is the most powerful force in the universe, and nothing sets the table for a long bull market like a couple of decades of decline. Second, Japan has demonstrated, not once but twice, an amazing economic resilience. Only 70 years after the Meiji Restoration ended an era of isolation and feudalism, Japan got rich enough to compete with (and attack) the United States. And only a half century after the wholesale destruction of World War II, it became the second largest economy in the world.

Whether Japan's recovery is truly underway, therefore, or still years or decades ahead, its stocks deserve a place in a long-term global-equity portfolio. When the investment will pay off is anyone's guess, but the long-term risk/reward seems promising.

Blodget, a former securities analyst, writes frequently for Slate and other publications. He owns Japan-focused index funds.

(c) 2005 Newsweek, Inc.
(c) 2005 MSNBC.com

URL: <http://msnbc.msn.com/id/10217698/site/newsweek/>

4 Of 6 Major REITs' Incomes, Profits Up In Six-Month Periods

Tuesday, November 29, 2005

4 Of 6 Major REITs' Incomes, Profits Up In Six-Month Periods
TOKYO (Nikkei)--Four of the six major real estate investment trusts have reported growth in both revenue and pretax profit for the half-year periods that ended either in August or September.

And distributions to investors at the four REITs, which close their books twice a year, also increased.

As real estate prices rise in the greater Tokyo area, the pace of property acquisitions will likely slow, with five of the six firms anticipating lower distributions in the current half-year term.

Japan Real Estate Investment Corp. (8952) was the most profitable of the six, racking up 13.1 billion yen in revenue, up 22% from the previous half year, and boosting its pretax profit 34% to 5.5 billion yen. It obtained four properties for 36 billion yen during the term, with rental income from those sites pushing up both its revenue and profit.

Japan Retail Fund Investment Corp. (8953) chalked up a 29% increase in revenue to 12.2 billion yen and a pretax profit of 4.3 billion yen, up 30%. Investing more than 100 billion yen, it acquired a shopping center and other facilities over the past year. Rental income from those properties contributed to the profit gain.

On the other hand, Global One Real Estate Investment Corp. (8958) saw revenue drop 14% and its profit fall 30% from the previous six-month period.

(The Nihon Keizai Shimbun Tuesday morning edition)

Kenedix To Launch REIT Targeting Elderly Care Facilities

Tuesday, November 29, 2005
Kenedix To Launch REIT Targeting Elderly Care Facilities

TOKYO (Nikkei)--Kenedix Inc will set up a real estate investment fund that invests in nursing homes and other facilities for the elderly.

The firm will use its own funds to acquire properties, with the goal of overseeing 30-40 billion yen in assets in two years before taking the fund public.

It has already spent 3 billion yen to purchase two nursing homes: one in Kawasaki, Kanagawa Prefecture, and the other in Toda, Saitama Prefecture.

The buildings used to be corporate dormitories for singles. Management of the nursing homes has been contracted out to a company specializing in such services.

Kenedix will widen its sights to include resort-therapy-type hospitals and fee-for-service care facilities that only admit healthy seniors. It has earmarked 10 billion yen for the year ending December 2006.

As of Oct. 31, 14 REITs that invest in the heath care industry were listed in the U.S.

Kenedix believes these types of trusts will grow as spiraling purchase costs for office buildings prompts REITs to diversify.

(The Nihon Keizai Shimbun Tuesday morning edition)

Stocks: End Up; Nikkei Above 15000, 1st Since 2000

Thursday, December 1, 2005
Stocks: End Up; Nikkei Above 15000, 1st Since 2000

TOKYO (Dow Jones)--Tokyo shares rebounded strongly Thursday, with the Nikkei 225 settling above 15000 for the first time since Dec. 2000 as investors brushed aside talk of consolidation and snapped up technology, real estate and banking stocks.

Advantest, Mitsubishi Estate and Mizuho Holdings all shot up in the market rally that underscored the bullish mood in Tokyo these days.

"This baby is up, up and away," said an equity derivatives trader at a U.S. brokerage in Tokyo.

The Nikkei 225 Stock Average rose 258.35 points, or 1.7%, to 15130.50, its fourth largest point increase this year. The index fell 55.55 points Wednesday.

The Topix index of all the Tokyo Stock Exchange First Section issues rose 23.60 points, or 1.5%, to 1559.81, which marked a five-and-a-half-year high.

"Japanese markets are still looking undervalued compared to ones in Europe and the States, and that's attracting a lot of buying," said Nobuyoshi Tsumori, a strategist with Barclays Global Investors in Tokyo.

Investors piled into a number of tech issues, like semiconductor-equipment maker Advantest and Internet company Softbank. Advantest soared 5.5% to Y11,500, while Softbank jumped 6.2% to Y10,240.

Domestic demand-linked issues saw a return to form on the back of foreign buying. Real estate giant Mitsubishi Estate ended up 1.9% at Y1,791. Mega-bank Mitsubishi UFJ Financial Group gained 2.6% to Y1.55 million.

On the TSE's First Section, 1372 issues rose, 228 issues fell, and 65 were unchanged from yesterday. Volume on the TSE First Section was estimated at 2.643 billion shares, up from 2.436 billion shares Wednesday.