DPJ Takes Power In Landslide Victory

The Democratic Party of Japan(DPJ) has ousted the long-dominant Liberal Democratic Party (LDP), clinching 308 of the 480 seats in Sunday's lower house vote. Media reported that DPJ began with a big lead, but the result was still a big shock to the LDP members. Before the election, the LDP had 300 seats and its partner New Komeito had 31, compared with just 115 held by the DPJ. DPJ President Yukio Hatoyama will become the country's next prime minister in a special Diet session scheduled for mid-September.

Unemployment Rate Hit Record 5.7% in July

Japan's seasonal adjusted unemployment rate rose 0.3% month to month to 5.7% in July, surpassing the previous record high of 5.5% in April 2003, according to the Ministry of Internal Affairs. Economists predicted 5.5%. Japan's average monthly income per household fell 2.4% in nominal terms and was up 0.2% in inflation-adjusted terms in July, while consumption expenditures fell 4.5% nominally and was down 2.0% in inflation-adjusted terms. It signals that households are unlikely to help sustain a recovery.

Norinchukin Posted Y70Bln Pretax Profit For April-June

Norinchukin Bank, the central bank for agriculture and fishery cooperatives have posted Y78.9 billion in parent-only pretax profit for the April-June period, surpassing the Y70 billion target for this entire fiscal year. The bank earned the profit from sales of government bonds and other securities. Its capital adequacy ratio rose to 17.10% as of June 30, an increase of 1.45% over March 31.

40 Firms To Put Up Y30bln For REIT Support Fund

About 40 companies will contribute a total of 30 billion yen to a public-private REIT support fund that will be established next month to ease the credit crunch facing real estate investment trusts, according to Nikkei. In addition to the cash from corporations, roughly 360 billion yen will be borrowed through loans from large banks. The Development Bank of Japan will extend a subordinated loan of some 60 billion yen. Mitsui Fudosan Co. and Mitsubishi Real Estate Co. are said to be investing about 3 billion yen. Tokyu Land Corp, Tokyo Tatemono Co. and Nomura Real Estate Holdings Inc. will put up 2 billion yen apiece. The three magabanks are expected to invest 1 billion each.

Land Prices Showing Slower Declines

Although the downtrend in nationwide land prices is continuing, the rate of decline is easing at more locations according to a quarterly survey released by the Ministry of Land, Infrastructure, Transport and Tourism. Prices in 147 major locations, or 98% of a total of 150, were lower from three months earlier as of July 1. But the number of districts that registered smaller price declines this time around increased to 57 from the prior survey's 26. Expectation for economic recovery with diminishing condo inventories may put a floor under land prices in the future.

3 Domestic Firms Vying For REIT under Failed Pacific Holdings

The candidates seeking to become the sponsor of Nippon Commercial Investment Corp., a real estate investment trust under failed property firm Pacific Holdings Inc., have been narrowed down to 3 Japanese firms, according to Nikkei. They are leasing firm Orix Corp., trading house Marubeni Corp. and building maintenance service provider Nippon Kanzai Co. Nippon Commercial, which invests in office buildings and commercial facilities, has assets of about 250 billion yen ($2.5 billion). Following Pacific Holding's bankruptcy filing in March, it has been looking for a new sponsor to help with refinancing loans and obtaining funding for bond redemptions. Initially 6 firms including 3 from overseas showed interest.

Mizuho Trust Offers Property Fund For Pension

Mizuho Trust & Banking Co. will for the first time form a real estate investment fund aimed at pension plans, according to Nikkei. Considering that pension funds have a conservative investment approach, the bank will not take any leverage. Instead, Mizuho Trust will use the 5.5 billion yen amassed from 8 or so pension funds to invest in residential rental properties in Tokyo's 23 wards. The bank, which deems current property prices undervalued, will directly manage the fund and target a 5% return. Typically private real estate funds are created by start-ups in the industry, with about 70% of the money coming from loans. These funds have mostly been avoided by pension plans, which are risk-averse.

SBI Buys Hikari Tsushin's Venture Capital Business

SBI Holding Inc., a financial conglomerate and Hikari Tsushin Inc., a leading sales agency in mobile phones & office equipments, agreed to the transferring of executive authority cooperative operation/development of the Venture Fund Business owned by Hikari Tsushin's subsidiary KK Hikari Private Equity (HPE). SBI Group operates a variety of venture capital businesses with particular interest in the IT and Bio/Environmental sectors. The group's venture capital branch boasts top total operation assets of 250 billion yen ($2.5 billion) and has a record of over 100 companies' IPO and M&A exits. On the other hand, HPE plans and operates venture funds primarily in the IT/Telecoms (mobile content/media included) sector, the environmental sector and the medical/healthcare sector, which may have assets of more than 10 billion yen ($100 million). This deal would allow Hikari Tsushin to focus more management resources towards sales activities such as OA equipment, insurance policies and mobile phone sales and other expansion operations.

CITIC to Acquire Y450 mil In Real Estate Manager

CITIC International Asset Management Ltd (CIAM), CITIC's HK-based asset management company will acquire the right to subscribe to new shares in Japanese real estate investment firm MBK Co. (formerly known as Asset Investors) for about 450 million yen ($4.5 million). CIAM, if it chooses to exercise the right, would receive a 4.88% stake of the firm'soutstanding stock. CIAM and MBK work to promote investment in businesses between China and Japan.

April-June GDP Rises Annualized 3.7%

Japan's real gross domestic product grew 0.9% in April-June from the prior quarter-annual pace of expansion of 3.7%. It was Japan's first quarter of GDP growth since January-March 2008, driven by a pickup in exports and private consumption. External demand, measured by exports minus imports, pushed up overall growth by 1.6%, reflecting increasing demand from China and other Asian countries. Private spending rose 0.8% on the back of the Japanese government's efforts to support consumers. In negative contributions, capital spending, which has been steadily slumping throughout the downturn, dropped 4.3%. Deteriorating employment conditions and falling incomes depressed spending on housing down by 9.5%.

Ozeki to Go Private Via MBO

Ozeki Co., a Tokyo-based supermarket operator, announced that it will become a privately owned stock company through a management buyout. A company established by Ozeki Chairman and President Sumie Ishihara will launch a tender offer for Ozeki for 3,750 yen, about 24% premium over its Friday's closing price. The president's firm will spend about 43.8 billion yen ($438 million) to purchase 11,704,080 shares, with the minimum amount set as 8,832,190 shares. Ozeki will be delisted from the second section of the Tokyo Stock Exchange.

Foreigners' Buying Fuels Nikkei Rebound

Overseas investors are ramping up their purchase of Japanese stocks, with net buying since April amounting to 2.08 trillion yen ($20.8 billion), up 26% from a year earlier, according to Nikkei. With individuals, pension funds and other investors all unloading shares, foreigners are fueling the rise in the Nikkei Stock Average, which rebounded to the 10,500 level. Hedge funds and other overseas investors had been net sellers of Japanese stocks to the tune of about 6 trillion yen ($60 billion) from September 2008 to March 2009.

Sapporo Brewer to Form Capital Alliance with Soft Drink Maker

Sapporo Holding Ltd., Japan's 4th-largest brewer and Pokka Corp., an unlisted soft drink maker reached a basic agreement on a capital and business alliance. Sapporo announced that it would acquire a 21% stake of Pokka Corp. Pokka became unlisted through a management buyout with investment fund Advantage Partners and Citic Japan Partners in 2005. Meiji Holding Co., a confectionery and dairy products maker acquired about a 21% stake of Pokka from funds in 2008 as a strategic buyer. At this time Sapporo will invest the same amount as Meiji.

This tie-up as well as the mega-merger between Kirin and Suntory could lead to more consolidations in the food industry.

Overseas Financial Firms Once Again Strengthening Japan Ops

Some foreign financial companies are shifting from downsizing their Japanese operations to augmenting perceived growth areas such as investment banking and services for wealthy clients, according to Nikkei. Barclays Capital Japan Ltd. for example, plans to hire more than 100 new employees over the next one to two years to grow its ranks to 850. The expansion will target mainly the investment banking and Japanese equity divisions. The HSBC Group and Credit Suisse who are also trying to beef up their private banking businesses, are vying for a piece of the 1400 trillion yen ($14 trillion) in Japanese household assets.

Unison Capital Raises 140 billion yen($1.4 billion)

Unison Capital Group, a leading Japanese private equity firm, has closed its buy-out fund "Unison Capital Partners Ⅲ L.P." with 140 billion yen ($1.4 billion) in commitments, according to their news release. Unison spent more than a year raising the money from institutional investors at home and abroad amid a reluctance to invest in funds. In Japan, even before the financial turmoil, there were only a few cases of funds larger than 100 billion yen ($1 billion) being created.

Mitsubishi Chemical To Acquire Mitsubishi Rayon Via Tender Offer

Japan's leading chemical producer, Mitsubishi Chemical Holdings Corp. plans to turn resin maker Mitsubishi Rayon Co. into a wholly owned unit around next spring through a tender offer, according to Nikkei. Their combined sales come to about 3.2 trillion yen based on their fiscal 2008 results, surpassing US chemical giant DuPont's roughly 2.9 trillion yen. The deal, worth up to $1.5~2.0 billon, would be a major consolidation in Japan's chemical industry, which faces fierce competition from rivals in emerging economies.

Carlyle Group Freezes Investment In Smaller Japanese Firms

The Carlyle Group has suspended investments in midsize and small Japanese companies, with the US private-equity firm shifting emphasis to comparable businesses in India and China, according to Nikkei.

The firm's Asia Growth Capital group targets midtier businesses with high growth potential, investing in such firms as the Oita-based Nakaya Microdevices Corp. in 2007. But with more promising candidates in China and India, the group halted new investments in Japan at the end of June. Haruyasu Asakura, who had been a key member, left for a senior position at a public-private fund. In Japan, the Carlyle Group will focus on buyout deals and real estate investments.

M&A Activities Dull in 1st Half

According to data by the M&A advisory firm Recof Corp, 972 mergers and acquisitions took place in Japan between January and June, down 19% from a year earlier. The aggregate value of all deals for the same period dropped 57.3% to 2.22 trillion yen(22 billion). M&A transactions among domestic firms slid 17.4% to 763, while foreign businesses transactions by Japanese firms fell 24.5% to 74. Purchase of Japanese companies by overseas buyers also tumbled 24.2% to 135.

Japanese Investors Flocks Over Foreign Stocks, Bonds

According to Nikkei, Japanese retail and institutional investors have begun snapping up foreign stocks and debt securities, especially those in emerging economies, on growing expectations of an early economic recovery.

Domestic investors were net buyers of foreign securities for the first six months of the year to the tune of 14.47 trillion yen. Investment trusts created by Japanese financial institutions for public subscription held a combined 25.69 trillion yen in foreign stocks and bonds at the end of June. Behind the increase was active investment in assets in emerging economies and higher-yielding currencies, as well as rebounds in foreign stock prices, which boosted existing asset values. Of the 25.69 trillion yen in overseas holdings, 32.3% was held in dollars. The ratio of assets owned in Australian dollars rose to 12.1% while holdings in Brazilian real estate increased to 3.8%. The Global Sovereign Open fund, which has 4.47 trillion yen in assets under management, invest primarily in bonds issued by the US and major European government. However, Kokusai Asset Management Co., which manages the fund, recently decided to add debt securities issued by Portugal and Greece to the fund's portfolio because the bonds yield more that its existing holdings.

Japanese banks and insurance companies are also boosting investment in foreign stocks and bonds as the global financial markets regain stability. Daido Life Insurance Co., for example, is expanding investment in unlisted shares to 180 billion yen from the current 128.3 billion yen, a company official said. At present, it has poured about 114 billion yen into unlisted overseas shares. Norinchukin Bank, the central bank for agricultural and fisher cooperatives, has increased its weighting in foreign bonds, which yield more than Japanese government and corporate bonds.

5 Big Banks In The Black In April-June Quarter

Five of Japan's six biggest banks logged consolidated net profits for the April-June quarter as a rally in stocks limited write-downs and helped them recover form a poor fiscal 2008. The five banking entities are Mitsubishi UFJ financial Group Inc., Sumitomo Mitsui Financial Group Inc., Resona Holding Inc., Sumitomo Trust & Banking Co. and Chuo Mitsui Trust Holding Inc. Only Mizuho Financial Group Inc. reported a consolidated net loss of $44 million due to a $600 million valuation loss of CDS. Both Mitsubishi and Mitsui-Sumitomo logged a $100~300 million valuation loss of CDS but managed to be stay above water in the consolidated basis.

All 18 Major Brokerages in the Black In April-June Quarter

The 18 major brokerages all reported net profits for the April-June quarter on a stock recovery and more fundraising by corporations.

Nomura Holding Inc., Japan's number one securities house, posted a group net profit of $114 million in the April-June period, the first positive figure in six quarters. Daiwa Securities Group Inc. also returned to positive territory for the first time in four quarters with a net profit of $178 million. Likewise, Nikko Cordial Securities Inc. showed a net profit of $82 million for that period. Mizuho Securities Co. logged a net profit of $1.3 billion, the largest among them, due to its merger with Shinko Securities Co. in May, lifting its bottom line by $1.1 billion.