Japanese retailers reported mostly dismal first-half earnings results, with the industry stuck in a slump as shoppers remain reluctant to open their wallets even as the economy emerges from recession. 

With no sales pick-up in sight, stores seem to have no choice but to continue their race to undercut rivals, with prices dropping for everything from cars to clothes to milk.

On the surface it sounds like a shopper’s paradise: Who wouldn’t mind paying less than 1,000 yen ($11) for a pair of jeans?

But it could also lead to a deflationary spiral in which consumers put off spending in hopes of further falls in prices.

And what’s more, these price cuts are slicing into already razor-thin profits at companies, which are then forced to pass on the pain to employees in the form of lower paychecks.

“It’s a death march,” said Junji Ueda, CEO of FamilyMart, Japan’s No. 3 convenience store chain.

“Manufacturers and transportation companies can’t make profits, and retail workers can’t get pay rises, or even worse, deflation will get to the point where they can’t keep their jobs.”

But some retail managers say price cuts are not hurting their businesses and there is room for even more markdowns.

“Some say we are cutting prices at the expense of profits, but such an argument is groundless. The problem is how to control inventory efficiency,” said Motoya Okada, president of Japan’s No. 2 retailing group Aeon Co Ltd, which runs the Jusco chain of supermarkets.

“Some wonder how we can sell jeans at 880 yen, but at the same time, there are many who think they are still expensive.  Recently, I visited Vietnam and was surprised to see items better than ours are sold at half our prices.”

Tadashi Yanai, CEO of Fast Retailing, maintains rivals’ efforts to undercut each other are self-destructive, although the firm’s casual-clothing chain Uniqlo is seen by some as one of the very culprits for fanning the deflationary trend with ultra-cheap apparel.

Fast Retailing is among the few Japanese retailers that have reported robust profit growth,  buoyed by strong sales at the Uniqlo stores.

“Our 990 yen jeans created value, but those that followed, like the ones for 880 yen and 850 yen, — I guess jeans will be sold for free eventually – did not produce value at all. I think our rivals will end up hurting themselves through such moves,” Yanai said.

I am a bargain hunter and always happy to pay less, but I’m just hoping my salary doesn’t decline like the prices of the goods in my shopping cart.

Photo credits: REUTERS/Issei Kato

“‘Ol’ Blue Eyes’ is back in town, and sources report nobody’s interested and nobody cares.” 

That line came back to me after Sony,  once Japan’s “Big Blue”, announced Thursday its vision of an $11-billion 3D market by early 2013, with three-dimensional PlayStation 3s, TVs, Blu-ray Disc players, cameras, live broadcasting and — the historic staple — movies and theatres.

Photo credit: REUTERS/Rick Wilking

I attended Sony’s briefing that included a 2D video of its 3D world, plans for 3,000 projector installations by end-2010, a single-lens High-Frame-Rate movie camera (when previously it took two cameras to make three dimensions), and an end-to-end solution still involving glasses.

The plan was wider than 3D (it pushed back a 5-percent operating profit target to 2013) , but investors sold it Friday, and few analysts saw the technology quickly ending six years of TV losses.

Sony’s 3D plans have been highlighted at global tech and game shows in the last few months and some potential users, particularly gamers, have been more enthused than increasingly impatient investors, as the beleaguered consumer electronics giant tries to right its business.

Some broadcasters are reportedly looking at 3D adoption, but Japanese networks, still adapting to a switch to HD (high definition) aren’t seen among any first wave. A barometer of 3D enthusiasm may come from the James Cameron film Avatar , which is from 20th Century Fox, not Sony, and opens in December at an estimated cost of over $300 million, and possibly up to $500 million.

Not bad for a technology that began in the 19th Century, became famous — or infamous — with the red and green lenses used at bad horror movies of the 1950s, and now is envisioned as a potential profit centre.  Or not, depending on the view you take.

Three government backed budget-cutting panels operating from temporary premises in a Tokyo gym, have called in a series of bureaucrats to answer for projects deemed unnecessary or too expensive. The live internet broadcast of the resulting stand-offs can make for compelling viewing.

It’s also pleased voters concerned about Japan’s national debt, which is set to approach 200 percent of GDP next year. The website almost crashed on the first day of the hearings, when thousands of people tried to watch the broadcast at once, the Yomiuri newspaper said. 

For those who don’t follow it live, edited highlights appear nightly on news programmes, often focusing on Democratic lawmaker Renho, a stylish former TV presenter, as she grills squirming bureaucrats.

In a media poll this week, 76 percent of respondents said they thought Prime Minister Yukio Hatoyama was doing a good job with cost-cutting.

“What a wonderful broadcast,” said one poster on a news website. “The bureaucrats’ excuses are disgraceful.”

Some critics have called the process bullying and complained that not enough time is allotted for panels to investigate the worth of projects they are cancelling, which include development of a rocket and a supercomputer.

Others suggest they should tackle bigger expenditures, such as foreign aid and defence.

The panels have until the end of next week to cut an estimated 3 trillion yen from bureaucrats’ 95 trillion yen in budget requests for the financial year starting in April. The Mainichi newspaper said on Wednesday cutbacks so far totalled 1.4 trillion.

Photo credit: REUTERS/Toru Hanai

“People who started after me would go further in their careers just because they finished college. I tried to stop that sense of ‘why always me?’ by drinking,” said the 50-year-old, who quit university as his family couldn’t afford it.

With liquor consumption growing sixfold in the last 50 years in Japan to match the country’s economic affluence, alcoholism has become an increasing — but poorly grasped — problem in a nation where booze is readily available from convenience stores, where evening television is awash with liquor ads and where bonding with workmates is typically done over a few cold ones.

Economic losses from drinking problems top 6.6 trillion yen ($73 billion) a year and some 800,000 people, or 0.6 percent of the population, are estimated to be alcoholics. The rate is smaller than the United States or Europe, but is rising as more women and elderly become addicted to drink.

Despite the growing number suffering from the condition, alcoholism is not seen as a disease and there is no systematic approach to dealing with it. Methods of prevention and intervention are usually viewed as lacking in Japan, and even medical professionals often fail to understand that merely fixing physical ailments caused by alcoholism won’t stop patients from drinking.

Katsuya Maruyama of Kurihama Alcoholism Center, a leading hospital for treating alcohol dependency, said Japan is overly tolerant when it comes to drinking too much. “There is no proper teaching on how alcohol can be dangerous, so no one knows alcoholism as a disease,” he said.

Some experts say recent high-profile cases could help raise recognition that alcoholism is a serious illness. Shoichi Nakagawa, an ex-finance minister who quit his post after being forced to deny he was drunk at a G7 news conference in February, died in October.  Some media reports said the 56-year-old may have mixed alcohol with sleeping pills, and doctors have said he likely suffered from alcoholism. 

And Prince Tomohito, the 63-year-old cousin of the emperor, told the country in 2007 that he was an alcoholic.

“Alcoholics were seen as people with personality problems (after high profile cases emerged),” said Tetsutaro Tatsuki of self-help group All Nippon Abstinence Association.  “They were proof that it is not an illness just for a handful of people, but that anyone could become alcoholic.”

Photo credits: REUTERS/stringer

“I didn’t know about that (the release time). I’m sorry. Don’t make much of a fuss” Japanese Trade Minister Masayuki Naoshima told a TV reporter on Monday, right after he accidentally revealed the GDP figures ahead of their official release.

The minister looked sincerely surprised when informed of the official release time, but the light tone of his comments suggested that he did not fully understand the gravity of the error. 

He later offered a more formal apology, and Chief Cabinet Secretary Hirofumi Hirano reprimanded Naoshima for his leak of the market-sensitive data, which showed Japan’s economy grew much more than expected in the third quarter.

Still, I was surprised to see Prime Minister Yukio Hatoyama smiling when asked about Naoshima’s mistake.

“I can understand his wanting to spread the good news to the public,” Hatoyama told reporters.  “But the rule should be maintained. If you say he was careless, he surely was, and in that sense, it was regrettable.”

Naoshima made the blunder in a speech to the oil industry, but the small crowd of domestic reporters covering his event did not report it, and in that sense, the new minister was lucky.

Overall, Japanese media coverage of the leak has been relatively small, considering how it could have moved financial markets. 

I remember how the then Liberal Democratic Party-led Japanese government in 1999 was forced to confirm economic growth figures, after a business daily reported GDP data ahead of its official release.  At that time, share prices surged and the yen jumped after the report.

Since then, the government has become more careful about handling GDP data and the release time has been moved from mid-afternoon to 8:50 a.m. — before the stock market opens.  

Monday’s numbers were the first GDP figures since Hatoyama’s Democratic Party took power, though I cannot help but wonder how a senior official of the world’s No.2 economy was not wise to their potential sensitivity.

“They still haven’t got out of the habit of being an opposition party,” said Kyohei Morita, chief economist at Barclays Capital Japan. “It is embarrassing…. It makes me sad as a Japanese citizen.”

Photo credit: REUTERS/Toru Hanai

Predictably, equity markets reflect Japan’s wheezy struggle. The Nikkei 225 is the worst performer among the benchmark indexes of the G7 nations, up just 10 percent so far this year. (The best performer, by the way, is Toronto at nearly 27 percent. The Dow has posted a respectable 17 percent return.)

Some discrepancy between Japan and other advanced industrialised nations is to be expected. Tokyo’s top companies are largely exporters reliant on the United States, where consumer spending has been whiplashed by the recession. A resurgent yen, which drives up the price of Japanese goods overseas, hasn’t helped either.

Consumer spending in Japan — which never convincingly recovered from the crash of the asset bubble in the early 1990s — is only poised to get worse, thanks to the lethal demographic cocktail of an ageing population and a shrinking birthrate.

But the reasons behind the Nikkei’s poor performance aren’t exclusively economic. Talk to a frustrated fund manager in Tokyo (believe me, they are very easy to find these days) and they’ll tell you that even with the lousy earnings and a grim economic outlook, the biggest problem now is a rush of capital raisings that will heavily dilute the holdings of current shareholders.

“This is the biggest factor why Japanese shares lag behind U.S. and European shares,” says Takeshi Osawa, senior fund manager at Norinchukin Zenkyoren Asset Management, referring to the recent rush by Japanese companies to issue new equity.

Japanese firms have already raised $40 billion through issuing common stock and convertible bonds this year, tapping the modest stock rebound for much-needed cash to replenish their reserves, and it doesn’t look like it’s going to end.

On Monday, Hitachi said it will raise up to 416 billion yen in a share sale. Shares of Hitachi, Japan’s biggest electronics firm by sales, suffered their biggest one-day slide in six months after sources told Reuters about the public issue.

Mitsubishi UFJ Financial Group, Japan’s biggest bank, is likely to raise as much as 1 trillion yen by the end of the year, to meet stricter global capital regulations and increase lending in Asia, three sources said on Saturday.

Analysts expect that its smaller rivals Mizuho Financial Group and Sumitomo Mitsui Financial Group will eventually have to follow suit. Shares of Mizuho and Sumitomo Mitsui both fell after news of Mitsubishi UFJ’s financial raising, even though the two smaller banks had posted consensus-beating second quarter results.

For investors, who watch in horror as their holdings sharply lose value, and Japan’s recovery gets stalled, it is nothing short of infuriating.

Perhaps Koichi Ogawa, chief portfolio manager at Daiwa SB Investments, sums it up best. “I’m angry,” Ogawa told me on Monday. “The world of investing isn’t a charity.”

Photo credit: REUTERS/Toru Hanai

As a child in the early ’80s, I remember spending a summer in Seoul and taking a trip with relatives to the countryside in a Hyundai Pony, South Korea’s first homegrown car. I spoke no Korean, but learned one word quickly enough: “lemon”.

Hyundai Motor has certainly come a long way since then.

Thirty-four years after introducing the Pony hatchback at the Turin Motor Show, Hyundai is the world’s fourth-largest carmaker, surpassing Ford Motor in the first half of this year. With the rest of the industry reeling from slumping sales, Hyundai’s charge has been especially conspicuous this year as it grabbed market share across the world and even made record profits in the latest quarter.

As my colleague Cheon Jong-woo and I wrote last week, Hyundai’s rise is making Japanese rivals nervous.

While Hyundai’s mounting success, founded on offering quality products at cheaper prices, has been in the cards for a while now, there are two new factors that worry the Japanese: a strong yen, coupled with the new government’s apparent indifference towards it, and South Korea’s progress in sealing free trade pacts.

“I think there’s a sense of crisis in the whole (Japanese) industry,” top Nissan Motor executive Toshiyuki Shiga said recently. “Whether you take the FTAs (free trade agreements) or foreign exchange policy, I get the impression that South Korea is tackling things well.”

But if anybody is feeling the most pressure, it might be Toyota Motor, the world’s biggest carmaker.

Several years ago, when I asked a top executive at Toyota’s U.S. operations about the South Korean automaker’s rising fortunes, he responded point blank that Hyundai was one of his biggest concerns.

“Honda and Nissan are also formidable rivals, but they have a distinct business approach and profile from us,” Yukitoshi Funo, now executive vice president at Toyota, had said. ”Hyundai, meanwhile, is essentially doing what we’re doing.”

Funo said then that rather than competing on prices, Toyota would have to focus on “brand and value”.

On that front, Toyota is still a head above the rest. Interbrand valued Toyota’s brand at $31.3 billion this year, nearly seven times that of Hyundai’s, which ranked eighth among carmakers.

To be sure, Hyundai has a long way to catch up to Toyota and Honda on fundamental, longer-term strength. But with a role model like Toyota and a more supportive government, it’s certain to keep rivals on their toes.

Photo credits: John Gress/REUTERS; Jo Yong hak/REUTERS; Yuriko Nakao/REUTERS

HUNTSVILLE, Alabama – When the call came in on July 4, 2008 that Toyota was going halt production for three months, Wes Woods was getting ready to watch a fireworks display with his children.

“I was told that not only were we going to stop production, but that we had to come up with a three-month training plan for all our team members within two days,” said Woods, assistant general manager at the Toyota engine plant here.

The extreme slump in auto sales, which peaked at 17 million in 2005 but are expected to barely pass 10 million this year, forced domestic auto companies GM and Chrysler into government-led bankruptcy, and they shuttered plants, slashed their dealership networks and cut tens of thousands of jobs in order to receive government aid.

This Toyota plant, which began production in 2003 and makes big truck engines, did things differently.

“I don’t think anyone anywhere in the auto industry has ever been through anything like this,” said plant president Jim Bolte.

Although the plant shut down for three months to help cut inventory levels, no permanent workers were laid off, though temporary workers were let go and overtime was cut.

Instead, Toyota came up with a three-month training, improvement and cost-cutting plan starting in August 2008 for its 900 employees here in Huntsville.

“I was very relieved when I heard they were not going to lay us off,” said Kim Jordan, who works in the plant’s tool shop. “There are not many companies that would do that for its employees.”

Joe Hereford, a trainer at the plant, which has a capacity of 400,000 engines a year, said that Toyota was also upfront with employees throughout the process.

“I was scared at first, but Toyota kept us informed about how things were going,” he said. “They told us the good, the bad and the ugly. We all made the same sacrifices and we all stuck together through this.”

The improvement part of the program was focused on having employees look for Kaizen – Japanese for “continuous improvement – or ways in which to make their work more efficient. Kaizen has been adopted by employees here as both noun and verb, as have other terms like muda (waste) and yokoten (borrowing the best practices of others).

“I came up with a couple of Kaizens for my work,” said Karen Abernathy, who works on the assembly line. “I found that there was a fair amount of motion muda at my work station.”

She suggested to management that the location of her tools and parts be rearranged, shaving 3 seconds off her work per engine.

“Toyota opened up a lot of doors for us and allowing us to participate has been a great experience,” Abernathy said.

Assistant production manager Tim Miles said that the collective improvements from employees on the assembly line that Abernathy works on – a few seconds here, a few there – totaled 416 seconds.

“Individually the small improvements don’t like sound much, but together they really add up,” he said.

During the three-month down period the plant came up with 3,500 Kaizens. Employees were also encouraged to look for financial waste. Lisa O’Neill, an accounting specialist at the plant, said so far employees had come up with ideas that have cut plant annual expenses by $1.2 million so far.

"If I have 30 managers that means I have 30 auditors looking at expenses,” Bolte said. “But if I have 900 auditors out on the plant floor then I know the results are going to be better.”

In August this year Toyota decided to have four-cylinder engines for its Camry and RAV4 models at the Huntsville plant, which will create an additional 240 jobs.

Bolte said that the way Toyota handled the plant’s down time last year showed employees that they can trust their employer.

“When we made our initial announcement about our non-production time and told our team members that they would not lose their jobs, we could see that many of them maybe didn’t believe us,” he said. “And probably they had heard the same from management at other companies and then were fired two weeks later.”

“Now they know that when we say things we really mean them,” he added.

Photo by Carlos Barria

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The depth or angle of U.S. President Barack Obama’s bow — and handshake — with Japan’s Emperor Akihito has become a heated on-line topic, with sides arching into political camps on whether the greeting went too far — literally – or was appropriate based on customs and culture.

I don’t pretend to be an expert on bowing in Japan, but a few basic rules of thumb, or backbone, are: the more important a person you are greeting, the deeper and longer you bow, with hands generally at one’s sides; and multiple purposes can be served by this act including greeting as well as displays of respect, recognition, apology or gratitude.

While no one called the president’s bow an expression of apology or thanks, a number of blogs examined his and other U.S. leaders’ historical bent in stooping to diplomatically conquer, with a few labelling the U.S. commander-in-chief ”O-Bow-Ma”.

The Fox network and the Los Angeles Times blog offered details of Obama’s and other official U.S. greetings with the imperial family, including a photo of Vice President Dick Cheney shaking Akihito’s hand, and one posted a comment that bowing and handshaking should not be done simultaneously.

A blog from ABC news Senior White House Correspondent Jake Tapper, citing an academic friend, says both sides have it wrong, as the bow was not over — or under — the top in precedence, although it did not display the cultural understanding intended, rather weakness in Japanese terms.

The Huffington Post, meanwhile, seeming to anticipate a “bow row” ahead, noted criticism Obama had already received for a greeting of Saudi Arabia’s King Abdullah in April, with Republican Senators blasting him and the White House calling the president “bent over” to shake hands but not in a bow.

Rounding out coverage, Japan’s Sankei Shimbun/MSN on-line carried news of the Fox report that Obama’s bow was too low for a head of state as well as the comparison to Cheney’s 2007 Akihito handshake, adding a slate of imperial photos with slightly different angles and framing.

Photo credit: REUTERS/Jim Young

They agreed to review the five decade-old U.S.-Japan alliance as both countries adapt to China’s rising regional and global clout, and they agreed to resolve as soon as possible a dispute over the U.S. Marines Futenma airbase on Japan’s southern island of Okinawa.

But President Obama and Prime Minister Hatoyama remain at odds over how to resolve the feud over Futenma - located in the middle of a city whose residents are sick of the noise and worried about the danger of accidents. 

Obama made clear he wants Tokyo to implement a 2006 deal under which Futenma would be closed and replaced with a facility on a less crowded part of the island. The agreement was part of a broader realignment of the 47,000 U.S. troops in Japan, including a shift of up to 8,000 Marines to the U.S. territory of Guam.

But Hatoyama said that comments during the August campaign that vaulted his party  to power had raised the hopes of Okinawa residents who want the base off the island.

High-level talks could begin as early as next week, reviving the headache the leaders played down at their summit before an APEC meeting in Singapore.

They can’t let the base row drag on. The victory of an anti-base candidate in a local mayoral election in Okinawa in January would make it even harder to agree to implement the deal, even with some
changes.

Bowing to U.S. demands could cause a rift with two small coalition partners, upset some in Hatoyama’s own party and alienate some voters ahead of an important upper house election in mid-2010.

But the bigger issue is the wider review of the alliance — a process one newspaper compared to being in “the same bed with different dreams”. Hatoyama and Obama want to complete the review before Japan hosts an Asia-Pacific summit a year from now.

Many experts say the alliance needs to be reframed to adjust to changing regional and global dynamics centred on China’s rise. But it remains to be seen whether the two sides will approach the process the same way.

Hatoyama wants to broaden the alliance to include non-traditional security areas, but what future role he sees for the U.S. bases in Japan is not clear.

Hatoyama’s party wants to steer a more independent diplomatic course but the paradox of Tokyo living in a nuclear neighbourhood but dependent on the U.S. nuclear umbrella means analysts see the relationship as inherently unequal.

Photo credits: REUTERS/Kim Kyung Hoon and REUTERS/Jason Reed