Newsletter

While the Japanese economy has reportedly been suffering some short term contractions due the events of March 11th, most economists predict growth later in the year. Some of this growth will be the result of reconstruction efforts in the heavily damaged Tohoku Eastern coast region.
The International Monetary Fund revised its growth projection to 1.4% from its January projection of 3.9%. The IMF further extends its growth forecast to 2.1% for 2012 which is 0.3% higher than it predicted in January.
The Bank of Japan also reports short term issues but sees long term growth. The BOJ cites many private economists with the same view of growth returning in the third quarter of fiscal 2011.
The government of Japan further echoes these sentiments by forecasting growth from July of 2011.

The Japanese government has approved its first supplementary budget of JPY 4.015 trillion to fund relief efforts in the Tohoku region. Nearly one third of this amount is earmarked for public infrastructure projects and repairs.
The government is considering its options for raising funds to pay for the reconstruction efforts that some have predicted could take more than ten years. An increase in the consumption tax seems inevitable with rises from 8% to 15% being discussed. The government has announced that its proposed corporate tax cuts to start from April 1st have been put on hold.
The government is also considering the issuance of further bonds and the Bank of Japan has reported that private financial institutions have the liquidity to make further purchases of domestic debt.

In Japan, gift giving is sometimes a part of doing business. Due to past abuse, the tax authorities have put restrictions on the amounts that can be spent on gifts. Small promotional items such as calendars and fans are allowed. Generally, gifts for customers and clients fall under the category of entertainment expense or Kosaihi. In some cases small companies may deduct up to JPY 4 million annually in entertainment expense, and this is where the gift expense would be included.
Companies can also give commemorative or service awards to employees. The cost of the commemorative item cannot exceed JPY 10,000 and must celebrate a period of at least 5 years. Service awards are permitted for periods of at least 10 years and at least 5 years since last received by the same individual. Commemorative items or travel/entertainment tickets under prescribed limits are the usual rewards companies provide to employees.
We recommend speaking with your tax advisor before any purchases.

Two separate surveys of large Japanese companies convey some optimism in the business climate.
The first survey reports an average 6.4% increase in 2011 summer bonuses at major firms. Manufacturers with strong sales to China and the United States provided the largest increase.
A second survey of major Japanese companies conducted by the Yomiuri Newspaper indicates many are prepared to hire more new graduates than in recent years. This is in contrast to recent years where fewer job offers have been available to students previous to their final year of post secondary education. The report reveals the auto industry to be the leading provider of jobs to new graduates.
Both surveys did include caveats that the recent events in the Tohoku region could alter some companies’ plans for bonuses and new graduate job offers but that neither survey’s results would be altered significantly.

Power conservation measures by business and households have allowed most business and industry to resume services and production in the TEPCO service area, albeit some at reduced levels and schedules. TEPCO has said it should be able to provide up to 95% of last year’s peak power demand in summer by restarting thermal reactors, hydraulic power plants, and increasing its production of electricity through other sources.

To power these reactors, Japan and Russia have made plans to double production of liquefied natural gas from 5 million to 10 million tons per year. The gas would provide a cleaner fuel than oil to power thermal power plants. Japan firms have also begun talks with Canada on utilizing its abundant alternative energy sources.
Initial government proposals to have heavy electricity users curb energy by as much as 25% during the summer months have given way to talks of blanket 15% reductions by all businesses and households. Companies protested that efficient and significant production could not occur with one quarter cuts to power consumption while households would be asked to make voluntary reductions.
Japanese lawmakers have also begun their “Cool Biz” program one month earlier than usual from May 1st. “Cool Biz” allows staff to wear lighter and less formal clothing during the hot summer months in order to curb air conditioner usage to conserve energy and reduce the emission of greenhouse gases.
Many companies are preparing for limits on electricity by:

• Staggering start & finish times
• Allowing staff to work from home
• Running factories at night/weekends
• Allowing T-shirts in the office
• Using batteries/generators during peak times

Conservation Tips
It has been suggested that up to 25% or more of the electricity consumption in the TEPCO service area could be reduced by:

• Unplugging appliances, electronics and other electrical devices not in use
• Cleaning air conditioner filters regularly
• Raising the temperature in rooms by one degree
• Replacing older appliances with newer more energy efficient versions

Solid Japan would like to announce we are a new Corporate Member of the Canadian Chamber of Commerce in Japan. The CCCJ, founded in 1975, aims to promote Commerce between Japan and Canada, support Canadians and Canadian business in Japan, and serve its membership through communications, networking and advocacy. The Canadian Chamber also works closely with the other Chambers of Commerce and business groups to hold seminars, presentations and networking events.
For more information on the Canadian Chamber of Commerce in Japan, please visit www.cccj.or.jp.