Comments on: Bridges to somewhere: Infrastructure spending in Japan.

By: Greg Atkinson

Greg Atkinson — Mon, 04 May 2009 03:04:40 +0000

Mathew, thanks for the comment. There is some over the top spending by the Japanese government but this happens in most government projects in most nations. Also the rush to spend the budget each year is not isolated to the Japanese government, it happens in the public and private sectors across much of the world. I am not saying this is something to be proud of, just highlighting the fact that some issues are not unique to Japan.

By: Mathew

Mathew — Mon, 04 May 2009 02:09:29 +0000

Interesting comments above, some correct some wrong. Japan has the best infrastructure in the world bar none, Honestly makes American infrastructure look 3rd world. But they spend triple the actual ammount they need to. Each prefecture, city and ward has a yearly budget and if they don’t spend this budget the following year will be cut. So towards the end of the fiscal year there is mad spending on constuction that really doesn’t need doing. For every yen correctly used two yen is wasted on handouts etc. This is a fact that is a hard to prove as the officials are very cunning in hiding the ammounts spent. How do I know this, I have worked for the Japanese government for 10 years in all the ministries but spend most of my time at Zaimushou(MOF).
Now in saying this, I don’t condone it but I know when there is a natural disaster the infrastructure in general will hold up and do the job required.
Great article, keep them coming.

By: Greg Atkinson

Greg Atkinson — Sun, 26 Apr 2009 00:47:32 +0000

Ned S – yes I think your are right about the Returns on Investment issue (ROI) in Japan and yes a lot of money went abroad (though a lot has come back since the crisis started)

This raises an issue I have not mentioned before and that is seldom covered in the media and that is “competition”.

Japan I would say is one of the most competitive if not the most competitive, domestic economies in the world. Western companies often do not understand this and get wiped out in just a few years because they simply cannot compete. (although they often blames cultural reasons, red tape, taxes etc) I worked for a major western company in Tokyo that has to bail out and I can tell you the reason the company failed was all internal! (although what they stated to the media was somewhat different)

Every sector of the Japanese economy crammed with companies trying to make money and so there are ongoing price wars and thus margins are tight. If you put this together with a population that is not growing (and by the way the decline in population in Japan appears to levelling out) then it is hard to push up your ROI.

In addition many Japanese companies continue to invest abroad but it sometimes takes years for these investments to start paying off and so these can also drag down profits/ROI etc.

Finally I think R&D spending is also a drag on company profits but over the long term it will pay off. In any case if you lack natural resources you need to come up with products that nobody else has and so R&D is vital.

By: Ned S

Ned S — Sun, 26 Apr 2009 00:16:07 +0000

I’d say it is way more than a little ironic that America managed to find itself with some ultra zombie banks Greg. I’ve even had the thought that the reasons in America’s case might be at least partly cultural as well – Different cultural reasons to those in Japan – But cultural nonetheless.

Thanks for the general feedback on the Nikkei! (I’d also wondered if it might have had anything to do with Returns on Investments in so many Japanese asset classes having been so low for so long that even a reasonable swag of Japanese money had been sent abroad?)

By: Greg Atkinson

Greg Atkinson — Sat, 25 Apr 2009 23:44:17 +0000

Ned S the zombie banks certainly did not help..there were cultural reasons that made the situation worse but I also think the problems with Japanese banks were also somewhat exaggerated. In any case it is just a little ironic that the banking model that the U.S. was trying to force down Japan’s throat has fallen in a heap. I remember the Japanese banks coping years of lectures from U.S experts, bank executives etc. because they were too conservative…I am guessing some U.S. banks now wish they had been a little more conservative as well!

The Nikkei is hard to get a handle on. There are many reasons why it has underperformed but even if you take these into account it still seems to have underperformed! I think one of the big drags on the Nikkei is the relative low levels of foreign money flowing into Japanese stocks and one reason I hear for this is because many Japanese companies are not very generous in terms of dividends.

In addition many Japanese firms are managed with long term goals in mind and not necessarily focused on beating earning estimates every quarter or trying to push up the stock price. Western analysts do not like that approach but if you compare Toyota against General Motors then I think this perhaps illustrates that the Japanese way is sometimes the best way.

By: Ned S

Ned S — Sat, 25 Apr 2009 12:54:00 +0000

I never gave much creedance to the bridges to nowhere arguments Greg. But the Zombie bank thought seemed to hold water.

I’m not a big fan of inflation as you know. But I still would have expected the Nickei 250 to be a bit above its 1982 level (a month ago) if the Japanese economy was producing real growth?