From the Yomiuri:

Social Insurance Agency offices will stop accepting pension premium payments at their counters as early as next fiscal year to prevent SIA officials pocketing the money, Health, Labor and Welfare Minister Yoichi Masuzoe said Saturday. Speaking on a program broadcast by YTV, Masuzoe said: “To stop [SIA officials and other public employees from] embezzling pension premiums, all subscribers will instead pay their premiums at convenience stores, or through postal savings or bank accounts. This will stop the problem.”

Now there’s a lesson to be learned. A high school part-timer working for the minimum wage at your local Lawson (a greedy, evil, capitalist business) can be trusted more than a comfortably paid middle-aged bureaucrat working at a beneficent and selfless government agency.

Hm.

Here’s an interesting statement from an opinion piece in the Asahi discussing Japan’s low interest rates:

There is, though, no denying that Japan’s unprecedented super-loose monetary policy since the banking crisis in the 1990s has contributed to the global investment booms bordering on speculative bubbles.

This is all very relevant to the value of the yen. Note, interest rates in America went down while they remained the same in Japan. On this alone, the yen should have strengthened. However, it weakened which clearly has to do not only with the carry trade but America and Japan’s trading relationship.

Yen Rallies Against Dollar, Euro

The dollar and the euro tumbled against the yen Tuesday afternoon as a drop in U.S. stock markets renewed investors’ risk aversion to bets on higher-yielding currencies funded by loans from Japan.

Reports pointing to falling U.S. consumer confidence and sharp declines in home prices, combined with more ratings downgrades on financial firms due to the credit market mess pushed the Dow Jones Industrial Average down 280 points Tuesday, most of the losses coming in a late-afternoon selling frenzy.

The shakedown in equities sent the dollar to an intra-day low of 114.25 yen, 1.6% lower on the day, and pushed the euro 1.8% lower against Japan’s currency, to a low of 155.48 yen. Other higher-yielding currencies involved in the carry trade, such as the Australian dollar, also took a hit.

In carry trades, investors borrow currencies such as the yen that offer low interest rates, then exchange them for higher-yielding assets that pay better returns. In times of market volatility, investors often pull out of these one-sided bets, worried that other investors will do the same.

Analysts said the yen’s gains show that investors had not completely exited their yen carry trade positions during market volatility earlier in the month, and said more unwinding is possible in the coming days.

“The yen is strengthening again,” said Michael Woolfolk, currency strategist at the Bank of New York Mellon. “There are concerns about the carry trades that still may be on the books.”

So the yen is getting stronger again. It seems to me the Fed is between a rock and a hard place. They don’t want to encourage rampant and abusive credit markets that over lend by trying to lower rates, but they don’t want America’s economy to spin out of control into a deep recession. No wonder they’re not doing anything right now, but watching.

The problem is over lending in the credit markets, again primarily though not exclusively in the subprime morgtage sector. What I find interesting is that the above report seems to be saying, “Oh, gee, there was some carry trade left over.”

It’s sort of like … yeah. The last time this happened, a couple of weeks ago, the markets were really overwhelmed:

The rapid unwinding of the carry trade in recent days strained the $2 trillion-a-day foreign-exchange market, usually among the most liquid of any market, even during crisis periods. But on Thursday and Friday, traders complained that at certain times, trading even small yen orders became a challenge because buyers were overwhelming sellers. Some traders said the prices offered them looked so odd they suspected that some banks weren’t really prepared to trade the currency at all. “They just don’t want to make prices,” one trader said. “They don’t know where prices are.” — WSJ

And you had people predicting the yen getting stronger:

Rodrigo Guimaraes, a Barclays currency analyst in London … says that three conditions are usually necessary for the carry trade to thrive: a funding currency with low interest rates, low market volatility and plenty of trading liquidity. Mr. Guimaraes figures Japanese rates will remain low for some time. But he thinks it may be a while before volatility eases and liquidity may not return to the abundant levels seen in recent years. Meanwhile, he sees further unwinding of the trade in the days ahead. “We think that long-term investors, such as corporates and Japanese individuals, are only just beginning to unwind their long carry positions,” he said in a recent report. While the dollar strengthened a bit on Friday to 114.21 from 113.88 yen, Mr. Guimaraes sees it going to at least 110 yen. — WSJ

Then, on August 17th the Fed’s discount rate was lowered, and Japan began pumping as much yen as they could into the market. Given these interventions they were able to sort of maintain the market. This basically calmed a lot of the investors, who then began to think they’d over reacted. Some probably even renewed their carry trades. Suddenly some analysts were actually saying the yen might get weaker by years end.

But there clearly was still a lot of carry trade left. One issue is time. A lot of transactions inevitably involve time deposits and so on where there is a stronger penalty for opting out of the trade early. So the longer the term of the carry trade transaction, the more resistance there is to want to opt out so as the avoid the penalty. However, it’s quite possible that even these people will start wanting to opt out once the writing is more clearly on the wall as to what is happening.

I think given the credit market situation in America, there’s not a lot the Fed or the Bank of Japan can do to save the yen from going towards 110. But who knows. If the situation is handled really poorly, the yen could even get stronger than 110.

None of the following is true … at least I should hope not.

Imagine a world, where countries create money by merely printing it on paper. This money represents nothing, it’s not backed by gold or sliver or even rice. It’s worth nothing in any tangible sense. But people want this money, and the reason is this, they need it to pay taxes. Each government that prints their own variety of this money, forces its citizens to pay some of this money to them. If you don’t have any of it when the government comes calling, instead of taking this paper money, they’ll seize your real assets. So it’s your choice, either get a hold of some of this paper money and pay the government its demanded due or face the physical seizure of your assets.

In this situation, even though the printed money isn’t backed by any physical asset like gold or silver, everyone wants it so they can protect their own assets from being seized by the government.

Some people even begin to hold this paper money as a sort of investment.

Of course, it’s a pretty dicey deal to hold onto this money, because as I’ve said, the government can create it merely by printing some more of it. The more there is of this paper stuff, the less value it has. So if the government wants to, they can devalue the money just by printing it. If you’d had a lot of this money saved up, the value of your savings then goes down.

This gets pretty complicated, when you consider, it’s not just one country printing their own paper money, but many. And they don’t just print the money, they lend it out to banks at rates of their own choosing. As there are more than one kind of money — dollars, yen, francs, euros and so on — we would presumably want the money that is the strongest. So all these money printers are at least sort of in competition with each other. Depending on how well any particular government manages their money, and depending on how well their economy is doing, and depending on many other issues, the value of the printed money will either go up or down. Paradoxically, some countries might even want a weak currency, if they feel it will help their economy.

Now, I don’t know how accurate the above is, but I think it does at least give one a sense for what passes as money in this world today.

Recently the yen has been rising in value. Why?

Obviously the reasons are so complex as to boggle the mind, however we’ve heard a lot of talk about subprime loans having something to do with the price of tea in china [ahem], I mean the price of the yen in Japan. How could this be?

Well, for various reasons Japan has wanted a weak currency. They’ve kept their interest rates low to encourage people to borrow money so that the economy will grow. They’ve also worked in other ways to keep the value of the yen low, so that the prices of Japanese good overseas will be cheap and people will buy more of them.

If the value of the yen is low, then that means a Toyota car made in Japan will be relatively cheaper than a GM car made in America. While both Toyota and GM build cars in other places, the point still stands. A weaker yen encourages people to buy more Japanese products overseas. So the policy of Japan has been to keep the yen weak to help the Japanese economy.

Yet because of the weak yen, some other things have been happening. People realized that they could borrow money in Japan cheap and then lend it to people in America at expensive rates. (America had high rates because money printers there were pursuing goals different than the money printers in Japan.)

In America there had been a boom in the housing market, prices seemed to go up and up and there was no stopping it. Of course, no one buys a house directly, everyone borrows money to buy a house. Usually bankers are quite conservative and careful when they lend money to someone who wants to buy a house. However, with housing prices going up and up, loaning money became an almost sure bet. In fact, many banks began to engage in something called subprime loans. This is when a bank loans money to someone who can’t afford to pay it back at interest rates that continuously increase.

One would think that lending money to someone who couldn’t pay it back at interest rates that continuously increase would be a bad idea. You would think. But, so long as housing prices continue to go up, the loan doesn’t have to be repaid. If the house is worth more than it was before, a new loan can be made to pay for the old loan. So you never have to pay for the old loan, just make a new loan. This will work so long as the house continues to increase in value. So what if the value of houses starts to decline. Well, that can’t happen, can it? All the banks have to do is lend even more money to keep people buying houses, and that will drive the prices of houses up even higher. Loan more, buy more, loan more, buy more, and we can all get filthy rich? I mean the more we do it, the more we get, right? Well, not exactly. Sooner or later the chickens come home to roost.

That’s what’s happening in America now. No one knows how much, but a lot of Japanese yen has been borrowed to loan money to Americans. After all, I could borrow Japanese money cheaply, and then lend it out in America for big profits. This was a neat way to make some nice money. It’s called a carry trade.

But, now that the chickens have come home to roost, and reality is setting in, people are realizing the credit market is collapsing (or at least shrinking), and those who get out first are going to be the only winners. Those who get out last … well they won’t get out … they’ll go down with the ship.

So how do you get out? You sell your loans and buy yen and pay back the money you borrowed. So suddenly there is rush to exit, and the price of the exit ticket is in yen. No wonder everyone needs yen.

Yet with everyone buying yen, the price of the exit ticket keeps getting higher and higher, meaning even more people want to get out because if they wait too long, the price of the ticket will be more than they can afford. This drives the price up even higher.

Now, of course, government policy and government goals can all affect the value of the currency. However, only to a limited extent. The government cannot really control the market and even influencing it is more of an art than a science. Moreover, the government is constrained by reaction of other governments and reaction of people to having their savings accounts artificially weakened to bail out speculative investments. Many governments wouldn’t mind seeing a higher yen.

In any event, it does look like, at least for now, that the yen is on a trajectory for 110 or lower. (This is the yen to dollar rate, thus the lower it goes, the stronger the yen is.) Now, if it hits 110, the Japanese government will almost certainly react. They’ll perhaps print some money and buy up some dollars from America. Or something like that. But will this be too little, too late? Could the yen strengthen further? I’m sure we’d all like to know …

Whatever happens, how many people will question the value of having a currency that is backed only by the government’s ability to seize your physical assets?

Other links of interst:
The big question: buy or sell?
CNN: Yen may strengthen further as unwinding of carry trades accelerate
Fed’s Unexpected Move to Soothe Battered Local Stock Market
Ron Paul: The End of Dollar Hegemony 

Nova issue … just updating this entry to include two articles about possible tie up with HIS travel company.

Read the rest of this entry »

Let’s look at the recent scandal revolving around Comsn. And remember, don’t trust everything you read on the Internet, especially here. If the issue interests you, please check out the many links below and double check me on my facts!

Who is Comsn?
Comsn is a large company in Japan with a staff of about 24,000 that provides nursing care for about 65,000 people through 2,000 facilities. Comsn is owned by the massive Goodwill Group which in terms of revenue is Japan’s biggest employment service.

What is the background for the recent scandal?
If you are sick in Japan, national health insurance will cover you generally at about 70%. Until the year 2000, health insurance provided very strong coverage of elder citizens, many of whom stayed in hospitals almost as if they were nursing homes.
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However, realizing that with the population aging fast this would be totally infeasible, government policy makers decided they needed to get all these older people out of the hospital. So they created a new plan which would give nursing insurance to those who qualified. Under this plan you could get home assistance or even go to stay at a nursing center, and be covered up to 90%. This would save money, because it eliminates the costly hospital room and the doctor.
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The first year the program was put into effect, it genuinely seemed to save money. But nevertheless the cost to the government of even just nursing insurance went from 3.6 trillion yen in fiscal year 2000 to 6.8 trillion yen in fiscal year 2005. You had people relying completely on house helpers despite the fact they were still capable of cooking and cleaning. You even had people in wheel chairs although they didn’t need them. So again in 2005 there was a revision to the nursing insurance law.
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Though it didn’t get a lot of attention in the media, the government added disclosure clauses because, as it turns out, a lot of the new companies were springing up to take advantage of the new nursing insurance law and it wasn’t at all clear that they were on the up and up. Presumably the hospitals had stricter standards, but these new nursing facilities didn’t. However, it was hoped through greater disclosure these companies could be discovered and penalized. Thus the new clauses in the revised law.
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So this brings us to the present, Comsn is basically one of the companies that has attempted to profit through the new nursing insurance law. They have been doing so fraudulently and without offering good services to their customers.

What did Comsn do that was bad?
Well, they’re service has been unreliable. Their workers have often been poorly trained. There are reports of them being rude and abrasive in their treatment of elder people. Sometimes they are late. One worker actually showed up drunk, another fell asleep on the job. (Some of this was on Tokudane this morning.)
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However none of that is illegal, per se. And, in general, it’s sort of what one expects from companies that get their money primarily from bureaucrats and not their customers.
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What Comsn did that was a problem was to lie to the government about their staff numbers (and perhaps qualifications) so they could get more money. Reimbursement procedures are very confusing, but apparently the government reimburses companies depending on their staff numbers and qualifications. Comsn has clearly been over-reporting their staff numbers. It’s also possible they may be violating certain other standards as well.

What’s the government going to do?
Huh? Do you think the government will actually do something? Okay … well, the government basically said it would no longer renew licenses for any of Comsn’s facilities, nor would it offer new licenses for five years. This would have resulted in most of Comsn’s facilities being shut down over the next five years. However, Goodwill Group the owner of Comsn said that they will merely transfer ownership of Comsn’s facilities from one subsidiary to another. This means no facility will actually be affected. The media feigned outrage, and then the designated bureaucrat in charge had the president of Comsn come over for a chat. They agreed to hold off any transfers for now, and will decide how to proceed in late July. (Conveniently after the elections.) More than likely the transfer will go through as it can’t be legally stopped. Goodwill Group will promise to be good, and if nothing else, will try to be much less obvious when it defrauds the government.

What’s this say about the looming health care crisis in Japan?
It says its going to be bad, bad and bad. You’ve got some form of opaque corporatism going on in Japan. People don’t really choose policy through their politicians. Instead, bureaucrats work out deals with various high powered executives and policy is sort of forged in ways that will generally benefit the status holders more than the recipients of the actual services. The only reason this issue came up at all, I am guessing, is that local level bureaucrats were sincerely concerned and forced the issue. Local bureaucrats actually have contact with the people they serve and understand their problems. They don’t, however, have the power to fix them.
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My prediction is that we’ll probably see a little bit of hand waving and then the issue will disappear. It will then return again in a more severe incarnation. I mean who doesn’t want someone cooking and cleaning for them if the government will pay for it? Who doesn’t want someone to look after a troublesome elder dependent, if it’s nearly free? Understaffed corporations looking to cash in big are clearly going to be out there ready to take up the challenge, whether it’s Comsn or somebody else.

News articles about Comsn:

• 2007/06/08 Ministry asks Comsn to freeze transfer plan, The Yomiuri Shimbun; Plan is likely to move forward, but under supposed government scrutiny.
• 2007/06/08 Ministry blocks Comsn’s cozy deal with NSS, The Japan Times; The headline reads blocked, but this is not true. The deal was voluntarily rescinded for now. Yomiuri’s take on this issue is clearer. See the article linked to directly above this one.
• 2007/06/08 Debt collector dropped troublesome Comsn, The Yomiuri Shimbun; “Comsn Inc. used a credit collection agency to collect individual payments from elderly people who used its nursing care service, and problems between the agency and clients occurred frequently … The collection agency canceled its contract with Comsn after three months because it received many complaints from users who said that they had already paid. … The agency judged it could not make a profit from the contract with Comsn because there were so many problems and terminated the contract at the end of January. The National Consumer Affairs Center of Japan and the Tokyo metropolitan government also received similar complaints concerning Comsn.”
• 2007/06/08 Comsn closures worry customers, The Yomiuri Shimbun; Interesting stories from the customers. One person reports a drunken healthcare worker.
• 2007/06/08 Ward to lose its control of aged care, The Asahi Shimbun; This article bears no direct relation to Comsn, but is helpful in grasping the situation. The article states, “By counting the woman among the night-shift care workers, the organization received 3 percent more than it was entitled to from the insurance program.” What this means is how much money a company gets from the government health insurance is variable depending on whom they staff. It’s probably variable on a lot more as well.
• 2007/06/08 Comsn in trouble over penalties, The Asahi Shimbun; “Comsn Inc., the nation’s largest nursing-care services operator, faced the prospect Wednesday of having to close hundreds of branches in the next few years after the health ministry punished it for inflating staffing numbers for nursing-care insurance payments.”
• 2007/06/7 Comsn nursing centers to lose licenses, The Japan Times; “About 1,600 Comsn Inc. nursing-care centers will not get their licenses renewed because some were obtained fraudulently, government officials said Wednesday.”
• 2007/06/07 Comsn deserves licensing suspension, The Yomiuri Shimbun; “If such misconduct is allowed, the very foundation of the nursing care insurance system will be shaken. As such, the ministry had good reason to take the steps it did. … Nursing care insurance was launched to entice into the market nursing care companies seeking to make a profit and to ensure a steady supply of service providers. However, the government appears to have put quantity before quality and its supervision of the industry has been lax.”
• 2007/06/07 Govt curbs Comsn care licensing for 5 years, The Yomiuri Shimbun; “The Health, Labor and Welfare Ministry on Wednesday ordered prefectural governments to stop renewing operating licenses or granting new operating licenses for nursing care facilities belonging to Community Medical Systems & Network (Comsn) Inc. until December 2011.”
• 2007/06/06 Welfare Ministry to refuse permits to home nursing provider COMSN over scandal, Mainichi Daily News; “The Ministry of Health, Labor and Welfare has decided to punish major home nursing provider COMSN for submitting false declarations on its employees, by refusing applications from the welfare firm for permit renewals and the establishment of new facilities. … All of COMSN’s operating permits are up for renewal within the next six years, and the ministry’s move means that the firm, which operates about 2,000 business offices nationwide, will likely have no option but to pull out of the nursing business. … COMSN, which stands for Community Medical Systems and Network, is part of Japan’s Goodwill Group. It was founded in 1988, and employs about 24,000 workers.”

Company Links:

• Comsn Home Page
• The Goodwill Group, Inc.

News about the Revised Nursing Care Insurance Law:

• 2006/07/06 Adversely revised law forces over 1,000 seniors to leave care facilities for economic reasons, The Press Weekly; “Last year, the Liberal Democratic Party, the Komei Party, and the Democratic Party of Japan used their majority to adversely revise the nursing-care insurance law so as to exclude expenses for meals and beds in nursing-care facilities from insurance benefits, imposing expenses on users.”
• 2006/04/21 EDITORIAL: Reforms for nursing-care insurance, The Japan Times; Interesting background to the problem which spurred reform in the first place. For example, “Some people have begun to use wheelchairs even though they can still walk, and others have come to completely rely on helpers for household chores, including preparation of meals, even though in reality they are still capable of doing some housework themselves.”
• 2005/07/26 New Nursing Fees Hit Elderly / Revised Law Increases Cost Burden On geriatric Patients, The Daily Yomiuri via Global Action on Aging, Yoko Harihara and Takeharu Yasuda; Good background article for this topic.
• 2005/07/20 Social security cutback intended to ease burdens of corporations, Japanese Communist Party; “First, a series of cuts in social security services have been imposed. In the wake of an adverse revision of national pension systems, a revised nursing care insurance law was railroaded through this current Diet session by the majority of the ruling Liberal Democratic and Komei parties and the opposition Democratic Party. The revision is designed to have elderly people in care facilities shoulder the full cost for meals and rooms as ‘hotel-like costs.’ It sounds like ‘if they are unable to pay, they will have to leave.’”
• 2005/07/15 EDITORIAL: Preventive care for the elderly, The Japan Times; Article focuses entirely on benefits of plan, reduced costs and preventive treatment.
• 2005/06/23 Diet passes bill to curb geriatric care, The Japan Times; “Under the revision, elderly people at public nursing homes will have to start paying for accommodations and meals starting in October. The payments are expected to average 30,000 yen per month. The amendment also calls for the government to sponsor muscle training and nutritional counseling for the elderly to prevent them from needing nursing care in the future.”
• 2004/04/07 Nursing-care firms for the aged to face new disclosure law, The Japan Times, “The welfare ministry is considering requiring government-designated nursing-care firms for the elderly to disclose information about their operations, according to ministry officials. The move is aimed at helping users select appropriate facilities and address a recent series of bogus claims made by such firms for reimbursement under the government-managed nursing-care insurance program. … As of February, some 237,800 firms were designated to offer nursing-case services to the elderly under the program.”
• 2000/08/01 JAPAN”S MEDICAL SPENDING FELL IN FY2000 DUE TO NURSING INSURANCE, Asia Pulse News; I don’t have access to this story, but the headlines is revealing.
• 1999/04/15 New Public Nursing Insurance System, AP Worldstream via Pacific Bridge Medical; “Due to the unprecedented speed at which Japan’s population is aging, the Japanese government will introduce a new nursing care insurance system by April 2000. To date, insufficient nursing care services have created an immense financial burden for Japan’s National Health Insurance (NHI) system, as the elderly (which will reach 21% of Japan’s population by the year 2010) have resorted to long-term, medically unnecessary hospitalization. The new nursing care system, which is expected to save NHI about $10.4 billion, separates nursing services from medical care and introduces a separate social insurance scheme for the former. Instead of allowing the elderly to be hospitalized, most will either be brought home or placed in nursing homes. According to the MHW’s program model, those needing the least care will receive visits from nurses, home help, and day-care service once or twice a week; those in most need of nursing care will be looked after every day. Hospitals and wards, however, will be able to choose in April 2000 whether to accept patients under existing medical insurance programs or the new nursing insurance system.”
• 1997/06/20 CARING FOR A GRAYING JAPAN: Elderly Nursing-Care System Is In the Works Trends In Japan; “As part of the government’s response to the rapid aging of Japan’s population, a range of bills aimed at establishing a system of public nursing-care services are moving toward approval in the Japanese Diet, which ended its regular session on June 18. Discussion on the nursing-care insurance bills will carry over to the extraordinary Diet session scheduled to convene in the fall. Pending passage, they are slated to take effect from April 2000.”

Article:Economic Survey of Japan 2006: Income inequality, poverty and social spendingSource:OECDComment: This is worth reading in full. Apparently relative poverty is increasing in Japan rapidly, and Japan now has one of the highest rates out of the OECD.

Japan is now one of the highest in the OECD area. Population ageing is partly responsible for boosting inequality as it raises the proportion of the labour force in the 50 to 65 age group, which is characterised by greater wage variation. However, the key factor appears to be increasing dualism in the labour market. The proportion of non-regular workers has risen from 19% of employees a decade ago to over 30%. Part-time workers earn on average only 40% as much per hour as full-time workers, a gap which appears too large to be explained by productivity differences.

There was an interesting op-ed in the WSJ by Masayoshi Son, the founder and CEO of Softbank.

The title of the op-ed:
Mobile Monopoly

Link:
http://tinyurl.com/yyoaem

Here are a few select quotes:

“Japanese mobile phones have more advanced technology than anywhere else in the world. They also help rack up the highest bills. Phone service is almost 70% more expensive than in the U.S. I wanted to bring competitive pricing to this market. This was not easy; two companies hold over four-fifths of the mobile-phone market share.”

“Moreover, two weeks ago, we announced the introduction of MySpace Japan, as a joint venture with Rupert Murdoch. Besides developing this site for the Japanese market, we are also working on providing mobile phone access to MySpace.com.”

“It’s OK for competitors to complain about us. Competition is competition. We believe that the authorities will bring fairness and justice to their decision making.”

“Until our introduction of broadband services in Japan five years ago, Japan was known as the most expensive country for Internet access. Since our entrance, Japan now has the lowest cost and the highest speed broadband in the world. Our broadband is only one-twenty fifth the cost (per megabit) of broadband in the U.S.”

My comments:

1. I’ve never grasped why mobiles needed to be so expensive in Japan. Given the size of the country and the extensive infrastructure, I’ve often wondered if Japan has the potential to be one of the cheapest suppliers of mobile service.

2. It’s interesting to see Robert Murdoch’s name come up in this context.

3. Good luck to Mr. Son!