Secured Capital Shareholder looks to increase Japanese Real Estate Investments

Pacific Alliance Group, an Asia-focused fund investment manager, said it expects to at least double its investments in Japan over the next year or so as financial institutions speed up sales of distressed assets.

Pacific Alliance Group planned to raise investments in Japan to as much as $500 million over the next 1- years from about $200 million now, Anthony Miller, chief executive of Pacific Alliance Japan, said at the Reuters Global Real Estate and Infrastructure Summit.

"The Asian fund has approximately $200 million invested in Japan, which we've invested in the last 18 months," Miller said via telephone from Tokyo. "It is our intention to grow our business here significantly."

Miller said Pacific Alliance Group planned to increase investments in Japan, the world's second-largest economy and Asia's biggest property market, by $200-300 million over the next 12-18 months.

Sales of distressed property assets had been slow as owners were unwilling to get rid of them at rock-bottom prices.

"That seems to be changing. In the last 2- months since the end of March, we have seen a dramatic increase in the number of distressed assets that are seriously for sale," said Miller, a Harvard graduate who joined Pacific Alliance Japan in June 2009.

He said Pacific Alliance would be looking for opportunities in Japan as tens of billions of dollars worth of debt, including securitized debt, met maturity dates in the coming year or so.

Sales of distressed assets would likely speed up in the meantime as some financial institutions are not expected to roll over their debt, Miller said.

Morgan Stanley won an agreement with lenders for a 60-day extension on about $2.4 billion in loans used in a troubled hotel investment in Japan, sources said in April, with the market watching closely what would happen once that extension expired.

Miller said Pacific Alliance Group would be looking at hard assets, such as office and residential property, although resorts in Japan would be its least favorite as they were hit the hardest during a downturn.

Miller noted that he was mindful of external risks that could affect Japan's economy and real estate sector.

"If China falls off the cliff, Japan will certainly suffer. The biggest risk to Japan is China and the second is America. The third is Europe," he said.

Pacific Alliance Group had about $5 billion in total assets under management, which included $2.35 billion AUM by Secured Capital, in which it held a 46 percent stake, he said.

http://www.reuters.com/article/idUSTRE65D3XY20100614

Japan to exempt foreigners from corporate bond tax

May 31 (Reuters) - Japan hopes to lure overseas investors to corporate bonds by temporarily abolishing taxes on interest income starting next month, but analysts say it may face an uphill battle due to low domestic interest rates.

Out of some 68.1 trillion yen ($748 billion) in Japanese corporate bonds outstanding as of March 2009, foreigners held a mere 0.6 percent.

One reason, Japanese Financial Services Agency (FSA) officials say, is that overseas investors have until now been charged a 15 percent withholding tax on interest income they gain from Japanese corporate bonds.

In contrast, overseas investors are in principle exempt from paying such taxes in the United States, Britain, Germany and France.

Japanese FSA officials say they hope the decision to abolish the tax charged to overseas holders of corporate bonds starting on June 1 will help change the picture.

"We do not have a numerical target for measuring success," Hironori Kawauchi, director of the FSA's tax office, told Reuters on Monday.

"But we are optimistically hoping that it will be possible to achieve a situation where their performance, in the sense of attractiveness to investors, will not be worse than other financial products, such as stocks, government bonds or municipal debt," Kawauchi said, referring to Japanese corporate bonds.

The new tax exemption will cover corporate bonds that are issued on or before March 31, 2013, even those that were issued before June. The FSA will aim to eventually make the scheme

LOW INTEREST RATES

The new scheme will also cover debt such as convertible bonds, commercial paper, so-called "zaito" agency bonds issued by government-affiliated agencies, and Samurai bonds -- yen-denominated bonds issued in Japan by non-Japanese entities.

Japan adopted similar tax exemptions for Japanese government bonds in 1999, and for municipal bonds in 2007.

Analysts said a sudden influx of foreign money into Japanese corporate bonds was unlikely, despite the new scheme.

Toshihiro Uomoto, executive director of credit investment strategy and analysis for Nomura Securities, said the tax exemption may help increase demand for Japanese corporate debt among passive-strategy investors overseas.

"Some overseas investors conduct index-based investment in a manner similar to the passive-strategy investment conducted by Japanese pension funds," Uomoto said.

Some benchmark bond indexes that such overseas passive-strategy investors follow include Japanese corporate bonds. But because of the taxation scheme, such foreign players have avoided buying Japanese corporate bonds until now, choosing to take exposure in JGBs instead, Uomoto said.

That may change, but the impact is likely to be limited to corporate bonds with relatively large issuance lots, he said.

Uomoto and other analysts agree that the biggest hindrance to overseas investment in Japanese corporate bonds is Japan's low interest rates, and the bonds' low yield spreads over JGBs.

"I think this measure can be viewed very positively from the standpoint of making it easier for
overseas investors to enter the market if interest rates were to rise in the future," said Hidenori Suezawa, chief strategist for Nikko Cordial Securities.

"But if you ask whether their (market) share will immediately rise because of this, you have to wonder whether that will be the case," Suezawa said.

Indeed, overseas holdings of JGBs and municipal bonds remain small even though foreigners are already exempt from taxes on interest income earned on such bonds.

As of end-March 2009, in addition to holding only 0.6 percent of Japanese corporate bonds, overseas investors held just 0.2 percent of the 66.7 trillion yen in Japanese municipal bonds outstanding, and 7.1 percent of some 797.7 trillion yen in JGBs.

Such figures pale in comparison with the 25.2 percent overseas players held in U.S. bonds including government and corporate debt and 60.1 percent in British bonds, according to data compiled by Japan's FSA. ($1=91.05 Yen)

http://www.reuters.com/article/idUSTOE64U05M20100531?type=marketsNews

April - Izakaya sales down 6.6% YOY - Cutting Prices

With consumer spending in a slump, many izakaya operators are slashing labor to cut prices.

Watami Co. is planning to open a chain of 10 budget izakaya pubs by the end of the year, with 70-80 percent of the menu priced at 250 yen.

"Since last summer, customers have been quickly tightening their purse strings," said Yutaka Kuwahara, the company's president. "The market is going to continue shrinking, slowly but surely."

At the budget Watami, customers use a digital menu to place orders at their table before picking up the orders at the kitchen themselves.

By adopting this system, Watami will cut labor costs, thereby making the cheaper menu a reality. At the regularly priced Watami izakaya, the average patron spends 2,600 yen. The company predicts that figure will be as little as 1,800 yen for customers at the budget izakaya.

In May, Colowide Co., which operates the Amataro izakaya chain, cut prices on 40 percent of its menu to under 400 yen, with many dishes costing as little as 299 yen. The company reduced its prices by preparing its food at its factory to lessen the burden on each kitchen.

"We also want to attract customers who don't spend much," said Shinichiro Hayakawa, head of operations.

Sanko Marketing Foods Co. has been leading this low-price competition since May 2009 by pricing all items at its izakaya pubs--such as Toho-kenbun-roku and Tsuki-no-Shizuku--at 270 yen.

Izakaya sales dropped 6.6 percent in April from the same month last year, marking the 16th straight month of decline.

With fewer people visiting izakaya after work and many people opting to eat-in--plus to the fact that fewer younger people drink--this price battle seems to have just begun.

http://www.yomiuri.co.jp/dy/business/T100603004657.htm

May - Bankruptcies fell 15%, off for 10th month

Corporate bankruptcies fell in May for the 10th straight month, extending the longest streak of declines in five years as the economic recovery helped more firms stay afloat.

Business failures slid 15.1 percent from a year earlier to 1,021 cases, Tokyo Shoko Research Ltd. said Tuesday.

A resurgence in overseas demand helped the economy sustain its rebound in the first quarter. While government lending programs have been helping, the decline in bankruptcies is increasingly reflecting better business prospects for Japanese companies, economist Yoshimasa Maruyama said.

"The economy itself is improving," Maruyama, a senior economist at Itochu Corp., said before the report was released. "It's been a year since the rebound began. It's typical for the number of bankruptcies to fall by now."

Even so, three listed companies collapsed in May

http://search.japantimes.co.jp/cgi-bin/nb20100609n3.html

Economy began recovery after hitting bottom in March 2009

The economy began to recover after bottoming out in March 2009, ending an economic contraction that lasted for about 17 months since November 2007, the Cabinet Office said Monday.

A panel of economists and experts for the Cabinet Office determined that the period of the latest recession is almost an average for the past 13 economic cycles, which comes in at 16 months.

The recession deepened due to a financial crisis stemming from the failure in 2008 of Lehman Brothers Holdings Inc.

The previous recession continued 14 months from December 2000 to January 2002.

The economy then started expanding in February 2002 and hit the peak in October 2007, which means the expansion lasted for the longest 69 months in the postwar period.

http://www.breitbart.com/article.php?id=D9G69A100&show_article=1

2010 Q1 - Economy Grows by 4.9%

Japan's real GDP grew 1.2 percent in Q1 2010, or an annualized 4.9 percent, from the previous quarter, marking the fourth consecutive quarter of growth. Nominal GDP also grew 1.2 percent (annualized 4.9 percent), the second straight quarterly rise.

External demand pushed up real GDP 0.7 percent and domestic demand 0.6 percent. Exports increased 6.9 percent, more than the 5.8 percent posted the previous quarter, driven by exports to Asian markets including China. Consumer spending, which accounts for about 60 percent of GDP, rose 0.3 percent — for the fourth straight quarterly rise.

Public works investment slipped 1.7 percent, the third straight quarterly decline. But capital investment grew 1 percent, up for the second consecutive quarter. Housing investment rose 0.3 percent, the first rise in 15 months.

Growth in consumer spending has been helped by government measures to subsidize consumers who purchase eco-friendly products. Since the measures are due to expire by the end of fiscal 2010, consumer spending might tumble. Unemployment is still relatively high (5.1 percent in April) and basic salaries of workers have been decreasing. There is also the risk that exports will stall as the governments of emerging economies try to slow down overheated economies.


http://search.japantimes.co.jp/cgi-bin/ed20100605a2.html

Usury Laws into Full Effect

From June 18, a revised law controlling moneylenders, which has been applied incrementally up to now, goes into full force.

A salient feature of the law, reports Nikkan Gendai (May 19), will be a limit on the loan amount to less than one-third of the borrower’s annual income. At the same time, nearly all consumer loan companies are ceasing to extend loans to housewives.

According to the national census of 2005, Japan had 16.4 million full-time housewives, of whom an estimated 4.75 million, or 29 percent, had taken out consumer loans.