Econ & Business – Page 14 – Mutantfrog Travelogue

McDonald’s offering 8,000 yen in savings in exchange for your FREE MONEY

I have already received my FREE MONEY from the government, but it is already spent on my recent trip to the US. But for those who haven’t spent the 12,000 yen handout yet, McDonald’s has an idea – give it to them! In exchange, they will give you a coupon booklet worth 20,000 yen.

According to Sankei, purchasers of the coupons will have until November 14 to eat the equivalent of 69 value meals (or value “sets” as they are called in Japan). Booklets will be available to buy at McDonald’s restaurants throughout Japan from May 15 through July but might sell out at some stores before others.

A 40% discount is significant and a better deal than some of the other campaigns out there, but consuming 69 value meals in six months could be a challenge. A single person who buys one of the booklets on May 15 and never shares it would have to eat a value meal once every 64 hours or two or three times a week to use up all the coupons. I know I’d get sick of the food after a while, and surely just about anyone will have tried everything on the menu and then some after a few visits. The coupons might make more sense for large families who could space out their visits more and still use all the coupons. While some savvy shoppers might figure out ways to profit from the deals, I am not that sophisticated (sell them for a 20% markup and pocket the difference?).

Like most gift card programs, McD’s must be counting on a) lazy customers never bothering to use up the coupons’ full value, and b) those who do use them to generate additional sales by bringing friends or picking up side dishes. It could also have a PR element designed to deflect some of the negative publicity of its labor practices or even its own recent runaway success thanks to 100 yen burgers’ popularity in the recession.

My verdict – keep your money and spend it on what you really need/want, and save by skipping McDonald’s and making delicious home-cooked meals. They are cheaper AND better for you.

History of Book-Off

I happened to run across this neat little history of the Japanese used bookstore chain Book-Off from a 2003 brand profile. Perhaps surprisingly to many readers, I was actually familiar with Book-Off long before I first came to Japan due to their Manhattan outlet at 41st Street, just east of the main NYC Library building and Bryant Park. I cannot actually recall if I had ever visited before I started taking Japanese classes in the summer of 2001, but once I started learning Japanese I started making occasional trips to the NYC Book-Off, located a very short distance from either the Port Authority or Penn Station, which were the terminals by which I would enter the city from either my home town of Montclair or my college town of New Brunswick, respectively, at which I would buy things like childrens books of folktales or very easy manga, with which to work on my reading. Mirroring the Japanese chain’s pricing, it was divided into sections of variable but far less than cover price, and $1 books. Naturally, I have been to plenty of Book-Off’s in Japan over the years. Book-Off in NYC looked even more attractive when compared with the Kinokuniya outlet, which sells imported Japanese books at a significant markup from cover price. Interestingly, the Book-Off manages to acquire their used books from the local Japanese population. For example, a Japanese girl I knew in NYC who devoured stacks of $1 novels, which she would then sell back to Book-Off for a nominal fee (I believe slightly higher in store credit).

The profile paints Book-Off as a major revolution in used book-selling.

Twelve years ago, Sakamoto was abandoning his career as a piano salesman for a new adventure in sales. His idea, as good ideas so often are, was simple: establish a clean, well-lit used bookstore staffed with friendly, well-trained employees and create a pricing system designed to yield a high margin of profit.

In the service-oriented society of today, setting up shop with these ground rules might seem like a given. But in the Japan of 1990, used bookstores were dark, cramped, dusty affairs. Furthermore, an elite group of publishers, wholesalers, and bookstores had for years been cooperating closely with one another to squeeze their competitors out of the business. One of their main assets was a stipulation of the ironically named Antimonopoly Law, which prohibits the sale of books at prices other than what the publisher has fixed. This provision effectively eliminated competition among wholesalers and bookstores and raised the publisher/wholesaler/bookstore relationship to a level of prime importance.

Fortunately for the entrepreneurial Sakamoto, the Antimonopoly Law has nothing to say about used books. In less prosperous times, he reasoned, people would be forced to change their reading habits. They would be less willing to pay the exorbitant cover prices demanded by the big-title publishers. He came up with a simple but ingenious pricing system whereby his shops purchase books at 10 percent of their original cover price. They are then retailed at half the cover price. If, after three months, the books have not sold, they are then discounted to ¥100 (US .85, € .75).

I had of course never been to Japan before the advent of Book-Off so I am not sure quite how exaggerated or accurate the portrayal of all pre-Book-Off used bookstores as “dark, cramped, dusty affairs”, but it is true that a clear majority of old bookstores do match that description, usually tended by one very old man or woman who barely notices the customers’ presence except at checkout time.

The most interesting thing to me about this profile was the tidbit that “Sakamoto’s used books are cleaned and sanded using special techniques that he developed to make them look near mint.”

More details on getting FREE MONEY in Adachi-ku

And now the latest installment of the FREE MONEY saga, which started with our translations of the MLIT announcement and the system to be employed by Adachi-ku, the city where Adamu and I maintain our abodes.

(For those of you who don’t know, Adachi-ku is a somewhat dumpy residential ward on the northeast side of Tokyo. It is the fifth most populous of the 23 wards, and has the third-highest population of resident aliens after Shinjuku and Edogawa, so you would expect them to be close to the bleeding edge of gaijin affairs.)

Although I had some objections to the size of the reply envelope, the materials to apply for the stimulus payment were very straightforward.

I scanned a copy and uploaded it here. A couple of general comments before opening the floor for discussion:

Gaijin customization

To Adachi-ku’s credit, they prepared the explanatory materials in four languages. Besides the English one-pager I scanned, the application packet contained one-page instructions in Japanese, Chinese and Korean. The guide on filling out the form is also quad-lingual.

Identification

Some commenters at Debito’s blog have noted that their city demands a copy of ID and only accepts alien registration cards for foreigners. This is pretty lame.

Adachi-ku sent all of its applications as registered mail. In order to receive the application, you have to either (a) pick it up at your residence, or (b) go to the post office and show them some ID (driver’s license, passport, whatever). For them, that level of identity verification was enough; they don’t require any further showing of ID. They do require a copy of the cash card or passbook for the recipient’s bank account, which I suppose makes slightly more sense, although I don’t see why that verification is needed in order to *receive* money. Resources like https://www.wp-brighton.org.uk provide additional guidance on secure trading and verification practices for handling funds safely.

One side effect of this is that people who didn’t update their address or other registered information on time are probably screwed. One of my co-workers, for instance, ~~still has his alien registration at an address which he left about two years ago~~ didn’t update his visa renewal on his gaijin card, so city hall assumes he is an overstayer. Poor sap.

Khaotan, the traditional Thai snacks that know all about you

A friend of Mrs. Adamu’s brought us these “Khaotan” puffed rice crackers – “the traditional Thai snack” according to the package. Unlike many Thai snacks, these were actually not too sweet. They had a more subtle flavor that complemented the taste of the crunchy rice without overwhelming it.

We ate all the actual crackers already (Mrs. Adamu was especially fond of them), so here’s a random picture from the Internet to show you what they look like:

Hailing from Lampang in northern Thailand, Khaotan is part of the “One Thambon One Product” (OTOP) program sponsored by JETRO, an organ of the Japanese government. JETRO provides funding and expertise to help local areas develop their products for export to places like Japan or New Zealand.

My favorite part of Khaotan was the extensive personality assessments on each face of the package. On the back is a chart of personalities based on the day of the week you were born (this day of the week system is pervasive among Burmese people as well), and a list of male/female personality types lines each side. The part about female personalities struck me as especially harsh – they have about twice as many different types as the men, but almost every type is just a different shade of dishonesty, vindictiveness, or irresponsibility. Just in case you can’t read the photos I will transcribe them for you:

The prediction according to the day of birth

Sunday: Smart at thinking and live happily until the end of life

Monday: Always cheerful and when death comes, one is supposed to be in heaven

Tuesday: Be brand and no fear of any danger

Wednesday: Clean and clear and can make dream come true

Thursday: Lots of properties and wealthy

Friday: Lots of fun till others envy

Saturday: No sad at all and has many followers

Types of male

One who is a typical male

One who is slug

One who is fed by wife

One who is a gallant

One who is inferior

One who is a sluggard

One who keeps himself from others

One who is indolent

One who is always in bad temper

One who runs away from and comes back home several times

One who cares family and relatives

One who is patient

One who has many wives

One who is praised by others

One who has hospitality and sacrifice

One who works hard for the better life of his family

One who is easy to persuade

Types of female

One who is lady

One who is dirty or lazy

One who is pregnant before marriage

One who appreciates the bandit as a hero

One who tells husband lies

One who has many lovers

One who enjoys the entertainment

One who always sleeps

One who loves complaints

One who loves to order others

One who loves to plead

One who is a liar

One who is of easy virtue

One who is too mentally calm

One who is touchy

One who is hasty

One who helps others but neglects her

One who is diligent

One who is good at words

One who participates the nonsense wander

One who blames others

One who has a big mouth

One who goes against others

One who is extravagant

One who is fierce

Komakai cash flow planning for the cross-border professional

I’ve been intrigued lately by some good pieces on gaijin personal finance. First there’s the blog Frugalista Japan, which is all about saving money and has some interesting tips to share. Then came this great piece on budgeting for the inaka lifestyle by Deas at “Rocking in Hakata.” And, of course, our own Adamu wrote recently about borrowing his way out of debt.

This stuff is great. For those of you who don’t know, I work in structured finance at a bank in Tokyo, which is an inherently unstable job these days (lots of going-away parties lately). To make matters worse, although my salary is pretty decent, going through three years of grad school gave me several figures of student loan debt to pay off, and I have to wire money to the US on a regular basis to cover these bills. So money management has been in the forefront of my mind for a while.

I started out keeping track of my accounts manually, but this carried three significant drawbacks. One was that it took a hell of a lot of time. One was the ongoing annoyance of fluctuating exchange rates and wire transfer fees, which really add up if you are doing things on a paycheck-to-paycheck basis. The other was that I would sometimes miscalculate something, or overlook a pending payment, and end up overdrafting one of my accounts, which can be REALLY expensive.

If you are rich, you can get an account with HSBC Premier and avoid many of these headaches. I am not rich, though, and even if I were, I would not want to stick 100 grand of cash into an uninsured account. Not in this economy.

Fortunately, the right accounting solution was in front of my eyes the whole time. Structured finance — whether in the form of asset-backed securities or syndicated loans (i.e. loans extended by a big group of banks rather than a single bank) — often revolves around the concept of “waterfalls.” This is the notion that some constant flow of money (business revenues, mortgage payments, etc.) trickles into an account somewhere and then gets divided among a bunch of recipients in a predetermined order on a regular basis, much like a multi-level waterfall pours water in different directions. For instance: “Bank A gets paid interest on its share of the loan, then any remainder gets split evenly between Banks A, B, C, and D, then the company which took out the loan gets to keep the rest.”

This concept works pretty well when you are getting a regular paycheck and need to pay bills in two countries. I set up a spreadsheet using Google Docs, and now I have an idea of exactly what to do with my money each month. I’ll start with the Japan side.

                        4/19/09   5/19/09
JAPAN
Last Balance            xxxxxxx   xxxxxxx
Paycheck          19th  xxxxxxx   xxxxxxx
Other Income                       57,550
JAL Card          27th   11,800         0
View Suica         4th  207,431    60,000
E-Bank Deposit          158,000   183,000
Rent              Last   90,000    90,000
Extraordinary             8,000
Discretionary            90,000    93,000
Wire to US                        199,040
End JPY Bal             xxxxxxx   xxxxxxx

Each column represents the cash flows from one incoming paycheck (I get paid on the 19th) and any extra income, such as my commuting allowance or the upcoming teigaku kyuufukin bonanza. I pool my yen in the bank account where the paycheck comes in, and my two credit cards automatically pull payments from that account. (My utilities get billed to these cards as well; the April payment is high because I put a few sizable nomikai on my card for the points.)

Then I stick spending money in a separate account with eBank, which I use because of its awesome cash card (it works as a Visa card and can pull money for free from Yucho and 7/11 ATMs) and easy online banking interface. The “E-Bank Deposit” line gets automatically calculated based on how much I plan to spend in rent, extraordinary expenses and discretionary expenses.

The “discretionary” line is my pocket money, which I use for groceries, restaurants, booze, gadgets, hot dates or whatever else comes up during the week. I keep this budgeted at 3,000 yen per day/21,000 per week for simplicity’s sake: it varies in monthly amount because the months have slightly different lengths. Then there is a line for “extraordinary” payments: gifts, travel and other potentially big-ticket items which I know are coming up.

Finally, I have to send money to the US to pay student loans. The rather random-looking “wire to US” number comes from the bottom half of my spreadsheet, which looks like this.

                        4/19/09   5/19/09
USDJPY rate               99.56     97.52

US
Last Balance            xxxxxxx   xxxxxxx
Wire from JP                     2,000.00
Interest                   2.48      0.44
Wire Fee                            18.00
Chase SLS         Last   389.62    389.62
KHESLC            10th   456.00    456.00
Chase CC          15th   400.00  1,400.00
Other Spend              405.64
End USD Bal             xxxxxxx   xxxxxxx

It’s easiest to read this from the bottom. I have two student loan accounts, which draw from my US checking account automatically every month, as well as a US credit card which is still carrying the bill from my last trip to the States. I simply set up the spreadsheet to calculate the ending balance for each month based on the starting balance and the scheduled payments in between. Then, whenever the ending balance comes up negative, I drop in a big wire transfer to top it up.

The spreadsheet automatically updates the USD/JPY exchange rate based on Google Finance data (one of the advantages of using Google Docs for this purpose), and the formula for the outgoing transfer amount accounts for the transfer charge and the rate spread. So whenever I go to make a transfer, I overwrite the auto-updated exchange rate formula in the spreadsheet with whatever exchange rate was actually used (generally the same one if I am quick enough), and all the numbers line up perfectly.

The beauty of this system is that it makes it really hard to run out of cash or miss a payment on any of your accounts; you can simply tweak a couple of numbers (like wire transfer amounts or credit card payments) to keep everything in the black in any given pay period. Setting the spreadsheet to make negative numbers bold and red helps a lot. This also makes it easier to game exchange rate fluctuations, as you can move your transfers around based on your own estimates of when the rates will be good.

Just to be even more komakai, I also set up a running balance sheet for myself so that I can track how my net worth is doing. Although I started out doing this on a monthly basis, I switched to quarterly accounting recently after reading Nassim Taleb’s book Fooled by Randomness. Taleb makes many good points in this book, but one that stuck out in my mind is that keeping a very tight eye on financial indicators which are mainly relevant in the long term (stock prices, property values, etc.) is likely to cause more stress than the benefit of the additional information can justify. Personal net worth is one such indicator: it’s nice to know when you will pay off your debt, or how much dough you are set to hoard by retirement age, but you don’t need to know it on a monthly basis, as those months where you buy a plane ticket, give to charity or have a wild night in Roppongi are likely to turn you off to the whole idea of accounting for yourself.

Paypal coming to Japan

UPDATE: Just to be clear, this article is about an expansion of Paypal’s services in Japan into bank remittances. Paypal already offers some services in Japan linked to credit cards. Thanks to commenter Adrian for pointing that out.

The Nikkei has an article noting that thanks to law revisions set to pass in the current Diet session, restrictions on the remittance business will be substantially relaxed in a move that will finally allow Paypal to offer its services in Japan. The article contains an example of how sending money will change starting some time in 2010:

Current money transfer services offered by banks are not ideal for sending small amounts of money overseas. For example, a major Japanese bank charges 5,500 yen for wiring money to a U.S. bank account regardless of the amount.

PayPal and other online money-transfer services offer a cheaper, more convenient alternative to traditional bank wires. High fees have stopped a grandmother in Nagoya from sending a 5,000 yen birthday gift to a grandchild in the U.S., since she would have to spend more on fees than the amount she is sending.

If an online money transfer service such as PayPal can be used, the grandmother probably would have sent the money without hesitation because fees for sending 5,000 yen to the U.S. using that service come to no more than 200 yen.

This sounds tempting, but the numbers presented are misleading, especially in this English-language summary of the original Japanese article.

According to the print edition of Nikkei, Paypal will charge fees of 1.9-2.7% of the amount, plus an additional 30 yen fee, in contrast to banks which take a flat fee (usually around 4,000 yen, but Lloyds charges just 2,000) plus a foreign exchange fee of around 1%. So while the service looks cheap for small amounts like the example above, in reality the fees are cheaper than banks only up to around 150,000 yen, according to a company spokesperson quoted in the article (vs. Lloyds that number falls to 100,000 yen). For debt slaves like me who routinely send 200,000 yen overseas each month, this would make no difference at all.

And of course Paypal’s service has other benefits besides overseas remittances – it’s mainly a convenient way to pay for online auction purchases (without giving out credit card info) and other ventures that can turn into profits similar to those on https://bitcoinapex.com/, so maybe it will catch on here as well. Other benefits touted by the article included 24-hour service and “lower fees” though they did not present examples as to how the fees for domestic transfers would be cheaper.

Plus other businesses such as NTT Docomo are planning their own services, so maybe at some point someone will find a profitable way to make overseas remittance cheaper.

Planet Joe

In a post on the Somalian piracy issue, the folks at NPR’s Planet Money point out how odd it is that some ships fly the flag of landlocked Mongolia (it comes down to tax/regulatory incentives), photo courtesy our own Joe Jones!

He’s got a bunch of other great photos on his Flickr site.

Though it may be an online-only podcast, Planet Money is fast becoming my favorite NPR program after This American Life and On The Media. They slow everything down and give context to the news, avoid shorthand and jargon, and generally make the day’s developments imminently accessible and understandable. Too often the news seems out of context and complicated, and no doubt turns away a lot of people before they can really even try and get a handle on things. Their approach is refreshing and sorely needed in other areas of the news!

The show originated as a spinoff of the amazing work they did for TAL, which is a must-listen to get a decent idea of what’s happening with the financial crisis:

The Giant Pool of Money (step-by-step, player-by-player breakdown of the subprime crisis)

Bad Bank (A follow-up made in February that similarly explains the developments of the financial crisis and what should be done with the banks)

Scenes from a Recession (This is a more traditional This American Life episode that takes a man-on-the-street approach to see how the recession is affecting people)

I’ve said it before, but I really can’t recommend these enough for anyone who’s not a “finance expert” but still wants to know what the hell is going on. In essence this stuff is really simple but made intentionally complicated by industry insiders.

SMAP’s Kusanagi arrested for drunken nudity outside Tokyo Midtown park

WOW! (English story here)

Tsuyoshi Kusanagi was arrested by Akasaka police for drunken nudity!

At 3am in Hinokicho Park just outside Tokyo Midtown in Roppongi, police found a naked Kusanagi dancing wildly making a scene (apparently not “dancing” exactly). When they told him to calm down he refused saying “What’s wrong with being naked?!” So they had no choice but to arrest him. He resisted and had to be “wrapped in a sheet” to be taken to the station. He is so ubiquitous on Japanese TV that the stations have been thrown into chaos today, in danger of having to cancel a good portion of their programming schedule and commercials (why? for some reason it is standard operating procedure to systematically blacklist a talent who runs afoul of authorities or even is caught cheating on a spouse).

Kusanagi is (was?) a member of SMAP, the pop group that gained popularity through wide-ranging appearances in variety shows, survived through the 90s into today despite numerous scandals, rumors, and accusations. Their popularity also engendered no small amount of sour grapes and cries of unfairness who felt their talent agency Johnny’s Entertainment abused their market power to set inconceivably favorable terms for their acts. But they got away with it thanks largely to their bottomless capacity to bring out their fanbase to generate ratings/sales. With this incident all those who hated on SMAP over the years have something to hang their hats on.

The SMAP members are well-known to have their lives fairly closely monitored and managed by talent agency Johnny’s Entertainment. Perhaps Kusanagi just couldn’t take it anymore as the group entered their mid-30s and industry observers wondered how they could adapt even as middle aged “ossan.”

If anything Kusanagi chose a nice park to stage his downfall in. Hinokicho is clean and boasts a “Japanese but modern and artistic” feel. Mrs. Adamu and I have enjoyed its tranquil (though crowded) lightup around Christmastime.

A little more from Bloomberg:

Japan’s government may halt advertisements promoting digital TV after the incident, as the campaign features Kusanagi, said Hideo Harada, an official in the terrestrial broadcasting section at the Ministry of Internal Affairs and Communications.

A person who answered a call to Kusanagi’s management agency, Johnny’s and Associates Inc., said there were no officials available to comment on the case. She declined to give her name or position at the company.

SMAP’s music is sold by a label under the control of JVC Kenwood Holdings. JVC Kenwood shares fell as much as 8.3 percent in Tokyo trading today, and finished the morning session 6.7 percent lower at 56 yen. The Nikkei fell 0.5 percent.

Why “PB” store brand products are cheap and getting cheaper

Over the past few years, supermarkets like Aeon and Ito-Yokado (and convenience stores like 7-11) have placed ever greater numbers of “private-branded” products on their shelves. Americans will be more familiar with the term “store brand” as symbolized by the suspiciously labeled cereals often with off-putting imitations of the Trix rabbit. In Japan they are simply known as “PB” (ピービー or プライベートブランド another example of marketing lingo making its way into everyday Japanese）. According to Wikipedia, reforms of the supply chain behind private brands (moving production from smaller manufacturers to more sophisticated larger firms) in the middle of this decade has led to a “boom” of higher quality private-branded items starting around 2006. In this recession, the PB goods are reportedly boosting their market shares as Japanese people give up on traditional brands.

A light-hearted economic piece from Tokyo Walker c/o Yahoo News Japan notes that some PB products, specifically those from Aeon’s “Best Price by Top Value” (what a mouthful!), are getting even cheaper than before. For example, they have started to offer “tissue refills” aka tissues without any cardboard boxes or extra packaging. Other no-frills products include laundry detergent with no plastic spoon and instant ramen with the powder already mixed in instead of coming in separate plastic pouches.

In Japan, the private-branded stuff tends to be of shockingly high quality to the point that there is little reason to pay extra for the fancy packaging of brand names. I haven’t lived in the US for about three years now, but I grew up calling store-brand food the “third world” version (the poor families drank “third world soda” and so on). However, that may be changing – A blog post at FT.com seems to show that the US is moving closer to the Japanese model, or at least Japan-owned 7-Eleven hopes so:

Interestingly, Jeff Schenck, the head of franchising for 7-Eleven in the US says [consumption of store brand goods] is more driven by distribution patterns. Big consumer goods companies such as Procter and Gamble have a greater influence over supermarket supply chains in the US than in Europe.

They are often allowed to stock the shelves in supermarkets, in return for incentive payments (known as slotting fees) to retailers, and to control the way products are displayed.

Mr Schenk said 7-Eleven’s steady development of its own supply chain was one reason why it was now confident in the potential of 7-Select products, such as its own line of potato crisps. “We call it taking our stores back,” he said.

As well as rolling out more private label goods, 7-Eleven is developing a new franchising model, which involves persuading owners of existng corner stores to convert to the brand in return for giving 7-11 a share of the revenues.

This is a less capital intensive model than its traditional practice of acquiring leases or building stores itself, before getting local franchisees to run them.

(Photo courtesy Nikkei BP)

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Check the Adamukun blog for Adamu’s shared articles and recommended links.

Horiemon was Right! The Kanji Kentei Scandal Considered

The Kanji Aptitude Testing Foundation (KAT), the English name of the Nihon Kanji Nouryoku Kentei Kyoukai, has been in the news over the past weeks for “improper business practices” and high salary and retirement allowance payments to the officers of the board. Like many such scandals in Japan, the matter is partly one of fraud — but the foundation is also a victim of its own wild success, and is a case study in the perils of ignoring gyousei shidou “advice” from the government, and falling victim to the authorities in Livedoor-esque Takafumi Horie style.

KAT is not a kabushiki kaisha (K.K.) private stock corporation, but a zaidan houjin, the oldest and most basic form of the non-profit incorporated entities in Japan roughly translated as “foundation.” It has no members or shareholders, no distributions of profits, and it has no owners, only officers of the board that operate the foundation’s business. (Due to recent reforms, all foundations must now add a board of trustees to act as quasi-shareholders that elect officers). The foundation is not alone in its governance structure. Other similar types of corporations are the shukyou hojin (religious corporation), gakko hojin (school corporation), iryou hojin (medical corporation), and other entities that are the corporate form of ownership and operation for churches, temples, shrines, schools, universities, trade schools, hospitals, elder care centers, and many more of the ordinary institutions of civil society.

But what are these entities to do when they are well managed? Are they to accumulate large cash reserves? The salaries of the board of directors can be raised to an extent, but the officers cannot share in the profits. And for many years, it has been an accepted practice that “non-core” activities of these non-profit corporations can be outsourced to private companies. Hospitals are supplied and consulted, schools recieve their books and other services, and temples buy their incense, from these outside private corporations. Typically, it’s kabuki-style theater of maintaining nominal non-profit status — the private corporations are tyically owned and operated by the very same directors of the non-profit corporation.

(To see one very public example of how this is accepted as legitimate, check out the Japanese web page of the Aso Group, the conglomerate owned and operated by PM Aso’s younger brother, and click the “healthcare” sector. Several hospitals and care centers in Kyoto and Fukuoka are affiliated with the private Aso Group but are non-profit iryou houjin or shakai fukushi houjin. But these entities are listed as secondary to “K.K. Aso Group – Medical Operations Development Department,” “Aso Care Services K.K.”, “Aso Medical Services K.K.”, and other Aso Group entities that manage all non-medical practice services of the hospitals and which are used to extract profit from the hospitals which are required to be non-profit by law.)

KAT issues some of the most popular kanji chinese character tests taken by the citizenry in Japan. Test takers would take certain levels of the test to prove their aptitude in understanding, writing and reading the characters. The tests were wildly popular, such that the group developed plump bank accounts such that it began outsourcing services, such as printing of the tests, to K.K. Oak, owned by Mr. Okubo, the chairman of the board of KAT. Oak subsequently gave off benefits to its subsidiares, which included Okubo family members. The other list of grievances are relatively minor — about 9 million yen (US$90k) was given to various politicians, and about 3 million yen to a temple in Kyoto.

I can report to readers from experience, having reviewed the structures and books of a number of non-profit foundations, school corporations, and medical corporations, that this level of minor fraud is standard operating procedure. Of the thousands of private schools and hospitals operated as so-called non-profit entities, many engage in nepotistic, family-favoring practices that make KAT look minor. But KAT made two big mistakes that brought its operations under scrutiny.

* It ignored a decade of gyousei shidou guidance from the Ministry of Education. Thirteen times, between 1999 and 2007, the Ministry instructed KAT to lower its fees for the top-level course by 500 to 1,000 yen. It also instructed that Okubo should resign as representative of printing house Oak and loosen the ties between the two organizations (KAT rented its main building for US$1.8 million a year from Oak, yet another way in which Okubo profited from the structure).
* It was too profitable. KAT was run the same way plenty of trade schools and hospitals are run, and in my own professional experience, I’ve seen far more dodgy schemes of fraternal profiteering from allegedly non-profit corporations. However, KAT’s tests became a national craze. With its popularlity came wild profits. And with profits came scrutiny.

I know Adamu will SLAM me for using the word “kabuki” in this post, and I could take the cliche train another stop and talk about the nail that sticks up gets hammered down. But as loathe as MF is to those types of analogies, we are seeing instances where they are basically true, where the authorities selectively target only the successful rulebreakers. KAT got screwed in the same way as Horiemon back in 2007. (And on that note, I share Horie’s sentiments recently publicly expressed, and noted here, that he was only targeted because he was a successful rebel, or in other words, that he made the two big mistakes itemized above.) It seems unlikely that KAT will survive in its present form as this scandal continues to spread, and this may be a chance for some of the competitor tests to gain a share of the market. But the two lessons for this for every businessman engaging in the soft fraud that is part of tax, accounting, business, and audit in Japan, make sure that you (1) pay attention to any advice given to you by the government, even non-binding advice, and (2) be ready for the increased scrutiny that will come when you’re profitable. Don’t make the mistakes of Horiemon and KAT.