RAKUTEN is a jack-of-all-trades. Since pioneering e-commerce in Japan in 1997, it has been a rare example of a highly entrepreneurial Japanese firm. Today it spans more than 70 businesses providing credit cards, a travel agency, a golf-reservation system, matchmaking, wedding planning and insurance. It owns Viber, a calling and messaging app and has invested heavily in Lyft, a car-hailing service. Now it is adding another: on April 9th the government gave Rakuten a concession to operate Japan’s fourth mobile network (Rakuten currently runs mobile services using another operator’s infrastructure).
Rakuten sees this as the next step in building its “ecosystem”. It reckons it retains its approximately 95m registered users in Japan by being a trusted brand that can provide customers with everything they need at every stage of their life, and by rewarding their loyalty. Customers get points if they use their popular Rakuten credit cards, for example. These they can then spend on other Rakuten services. Much online shopping in Japan takes place on mobile phones.
But most analysts see Rakuten’s move as defensive. Although it remains a business icon in Japan, worth $15.2bn, it has been losing its dominance in e-commerce, which remains its core business. In 2011 Rakuten gained a whopping 77% of its profits from its online-shopping business. Those profits have fallen for the past two years. Its fintech services, such as credit cards and insurance, now drive returns.
The firm is struggling to compete with two American rivals, which along with Rakuten dominate the e-commerce market in Japan. Amazon is reckoned by the Japan External Trade Organisation to be number one in online sales, with 20.2% market share compared with Rakuten’s 20.1%. Yahoo Japan has a share of 8.9%. Amazon can more easily absorb the costs of a price war and the rising expense of logistics in Japan; Yahoo Japan is ignoring profits as it aggressively builds its market share.
Rakuten has also struggled to export its online shopping-mall model—offering a platform for stores to sell on—to foreign markets, something that Hiroshi Mikitani, Rakuten’s mould-breaking founder and boss, said a few years ago was necessary for the company to prosper. The firm found it hard to compete with established rivals in mature markets, and came up against barriers such as inadequate logistics in developing markets in Asia.
To regain lost ground in Japan, Rakuten has recently announced tie-ups with Walmart, an American retailer with which it will launch an online grocery site, and Bic Camera, an electronics giant, which will list its wares on the Rakuten Ichiba site. Mr Mikitani has also talked of creating his own logistics chain. Products sold on Rakuten are dispatched by the merchants. Amazon delivers its own products and many of those from third parties.
Rakuten’s move into mobile telephony fits into this picture. It has a large number of members, but “they are shopping around”. A mobile subscriber base tends to be more loyal, as people are locked into contracts for 24 months, says Mitsunobu Tsuruo of Citi, a bank. Nonetheless Mr Tsuruo reckons Rakuten may be underestimating the 600bn yen ($5.6bn) it says it will invest to build the mobile infrastructure. It will also be hard to attract new subscribers; Japan already has a mobile-phone penetration rate of well over 100%, and in SoftBank, NTT DoCoMo and KDDI, it faces well-established rivals.
Rakuten has set a fairly modest aim of attracting 15m mobile subscribers out of a total market of over 165m, but to obtain even that number it will have to compete on price. Mr Mikitani has pledged to bring down the hefty costs of mobile subscriptions (the reason the government offered a fourth licence). Rakuten’s entry into the market may be good news for customers, then. But it is not necessarily going to pep up the firm itself.
Japan still has great influence on global financial markets
IT IS the summer of 1979 and Harry “Rabbit” Angstrom, the everyman-hero of John Updike’s series of novels, is running a car showroom in Brewer, Pennsylvania. There is a pervasive mood of decline. Local textile mills have closed. Gas prices are soaring. No one wants the traded-in, Detroit-made cars clogging the lot. Yet Rabbit is serene. His is a Toyota franchise. So his cars have the best mileage and lowest servicing costs. When you buy one, he tells his customers, you are turning your dollars into yen.
“Rabbit is Rich” evokes the time when America was first unnerved by the rise of a rival economic power. Japan had taken leadership from America in a succession of industries, including textiles, consumer electronics and steel. It was threatening to topple the car industry, too. Today Japan’s economic position is much reduced. It has lost its place as the world’s second-largest economy (and primary target of American trade hawks) to China. Yet in one regard, its sway still holds.
This week the board of the Bank of Japan (BoJ) voted to leave its monetary policy broadly unchanged. But leading up to its policy meeting, rumours that it might make a substantial change caused a few jitters in global bond markets. The anxiety was justified. A sudden change of tack by the BoJ would be felt far beyond Japan’s shores.
One reason is that Japan’s influence on global asset markets has kept growing as decades of the country’s surplus savings have piled up. Japan’s net foreign assets—what its residents own abroad minus what they owe to foreigners—have risen to around $3trn, or 60% of the country’s annual GDP (see top chart).
But it is also a consequence of very loose monetary policy. The BoJ has deployed an arsenal of special measures to battle Japan’s persistently low inflation. Its benchmark interest rate is negative (-0.1%). It is committed to purchasing ¥80trn ($715bn) of government bonds each year with the aim of keeping Japan’s ten-year bond yield around zero. And it is buying baskets of Japan’s leading stocks to the tune of ¥6trn a year.
Tokyo storm warning
These measures, once unorthodox but now familiar, have pushed Japan’s banks, insurance firms and ordinary savers into buying foreign stocks and bonds that offer better returns than they can get at home. Indeed, Japanese investors have loaded up on short-term foreign debt to enable them to buy even more. Holdings of foreign assets in Japan rose from 111% of GDP in 2010 to 185% in 2017 (see bottom chart). The impact of capital outflows is evident in currency markets. The yen is cheap. On The Economist’s Big Mac index, a gauge based on burger prices, it is the most undervalued of any major currency.
Investors from Japan have also kept a lid on bond yields in the rich world. They own almost a tenth of the sovereign bonds issued by France, for instance, and more than 15% of those issued by Australia and Sweden, according to analysts at J.P. Morgan. Japanese insurance companies own lots of corporate bonds in America, although this year the rising cost of hedging dollars has caused a switch into European corporate bonds. The value of Japan’s holdings of foreign equities has tripled since 2012. They now make up almost a fifth of its overseas assets.
What happens in Japan thus matters a great deal to an array of global asset prices. A meaningful shift in monetary policy would probably have a dramatic effect. It is not natural for Japan to be the cheapest place to buy a Big Mac, a latté or an iPad, says Kit Juckes of Société Générale. The yen would surge. A retreat from special measures by the BoJ would be a signal that the era of quantitative easing was truly ending. Broader market turbulence would be likely. Yet a corollary is that as long as the BoJ maintains its current policies—and it seems minded to do so for a while—it will continue to be a prop to global asset prices.
Rabbit’s sales patter seemed to have a similar foundation. Anyone sceptical of his mileage figures would be referred to the April issue of Consumer Reports. Yet one part of his spiel proved suspect. The dollar, which he thought was decaying in 1979, was actually about to revive. This recovery owed a lot to a big increase in interest rates by the Federal Reserve. It was also, in part, made in Japan. In 1980 Japan liberalised its capital account. Its investors began selling yen to buy dollars. The shopping spree for foreign assets that started then has yet to cease.
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