September 2001
CONTENTS

MARKET NEWS
NTT Docomo’s FOMA 3G Serivice
Wireless Communication Technology

NEW TECHNOLOGY
Digital Movies Revive Industry
Germ Combating Fridge
Radio-Controlled Clocks
Touch Screen Computer

MULTIMEDIA ALERT
Digital TV Sales on the Rise
Nintendo Considers Others
OpenTV wins Interactive Deal

BIO-SCIENCE DEVELOPMENT
Japanese BioTech Developments
Eye Cell Replacement
Artificial Blood Vessels

ENVIRONMENT
Sensor Detects Nano-threat
Negative Ions Get Attention
New Way to Synthesize Chemicals

SEMICONDUCTOR
Japan at Odds with Asian Rivals.
Fujitsu and US Flash Chip Production

SPECIAL SECTION
Going In Depth on Japan Tobacco

STRATEGIC ALLIANCES
Japan in the United States
United States in Japan

2002 Budget Plan Changes Allocation for Budget Items

In forming the budget for next fiscal year, Prime Minister Junichiro Koizumi has gone against the frameworks produced by previous administrations which followed the plans of bureaucrats, especially those in the Ministry of Finance. To accomplish his promised structural reforms he has set the initial guidelines in a way that includes substantial cuts in public works projects and official development assistance.

Economists worry however that his proposed cut in general expenditures last week from the initial budget for this fiscal year is not likely to provide a speedy boost to the ailing economy. Meanwhile, Koizumi’s aides are attempting to convince the public that they should look at the long term effects of structural reforms.

Last week Junichiro Koizumi announced that the target is to keep new issuance of government bonds below ¥30 trillion ($242 billion), cut ¥5 trillion worth of unnecessary speding and spend ¥2 trillion on items that are really necessary. The fiscal 2002 budget starting April 1 had its terms adopted on August 10 by the cabinet which implemented the guidelines for budget requests for the fiscal year, by which ministries gather forecasted expenditures on areas under their jurisdiction by the end of the month.

The Council on Economic and Fiscal Policy, headed by Koizumi set the ceiling on general expenditures at ¥47.8 trillion, below the ¥820 billion from this fiscal year’s initial budget, the greatest ever reduction in budget scale. In addition, it is also ¥1.7 trillion lower than the forecast by the Ministry of Finance for fiscal 2002, which does not take Koizumi’s fiscal reforms into account.

To follow the forecast, the Finance Ministry announce that the government must issue new bonds worth about ¥33 trillion in fiscal 2002 to accomplish the scale of the expenditures. Therefore, in order to keep the expenditures under ¥30 trillion in the year, so expenditures have to be cut by about ¥3 trillion. To carry this out Koizumi chose not to lower all spending items at a uniform rate but to slash unnecessary spending by ¥5 trillion and increase expenditures by ¥2 trillion, largely on the governments seven priority areas - enviornment, aging of society, local revitalization, urban redevelopment, science, education and information technology.

Spending on public works will be lowered by 10% from the initial fiscal 2001 budget, while overseas development assistance will be also cut by 10%. Social security expenses, which are guarenteed to increase as the society ages, are being allowed to rise by ¥700 billion, but still lower than the ¥1 trillion rise predicted by the Finance Ministry.

There will be a 10% slash in other policy-related expenditures and the amount saved by the reduction will be distributed for spending on the seven priority fields. Ministries are allowed to make requests by the end of September for these special items. Excluded from the priority fields is spending for ODA and quasi-governmental institutions.

In a seperate agenda, the goverment is attacking many quasi-governmental institutions which Koizumi deems as either unnecessary or in need of being privatized. Prepared by a government task force - a report has detailed ways of either abolishing or privatizing institutions - 74 special public institutions created by specific laws and 83 approved institutions set up by the private sector with ministry approval.

Examples are the Japan Highway Public Corp. and two other highway operators that should scale down their operations, including freezing some construction projects already in progress. Housing Loan Corp. is another institution which will stop recieving funding from the government so that mortgage business done by the corporation can be shifted to private banks.

Ministries opinions that oversee the institutions are also included in the report and they argue for a continuation of the institutions and reasons that they serve public interest.

By next fiscal year, Koizumi has demanded that funding for special public institutions be lowered by ¥1 trillion next fiscal year which was ¥5.3 trillion for this fiscal year.

The allocations for budget-request guidelines have not been touched in fiscal-reform efforts in the past 20 years.

MARKET NEWS

Production Shifted Overseas

At the expense of domestic operations, Japanese manufacturers continue to increase overseas production.

In a survey by Nikkei Research analysts reported that about 49.1% of companies plan to increase the proportion of their products producesd overseas within the next three years, while 22.1% plan to reduce output capacity at home.

The repercussions this will have on employment and capital spending in Japan is feared by analysts.

Overseas output of computers and communications equipment will be increased by NEC Corp., while Canon Inc. will raise digital-camera output overseas. Misubishi Electric Corp. will also up overseas cellular-phone handset output. This trend has spread to manufacturers of such products as frozen foods, resins, textiles, and auto interior parts.

After the yen strengthened follwing the 1985 Plaza Accord Japanese companies started expanding overseas output. Before this, most companies sent Japanese-made parts and intermediates overseas where they were put together into the final products. Today, sectors from materials producers to manufacturers of high-value added products are moving overseas.

Most of the firms that are shifting output overseas are targeting China, or 70.7% of them. 57.7% are focusing on other Asian nations. These amounts far outnumber the amount of investment in the U.S. or the European Union.

Because advancement in production technology has eliminated great differences in quality, labor expenses have become a key to competitiveness of manufacturers. Chinese labor expenses are roughly one-thirtieth the expense of Japanese labor.

Domestic production bases are also affected by this trend. One in five companies surveyed are considering lowering domestic output capacity in the next three years. About 13.7% of companies are considering shutting down plants while 69.4% may consolidate production. 50.9% however want to mkeep thir domestic output as is in addition to the number of factories in Japan, indicating companies’ concern for maintaining employment levels at home.

New Accounting Body

On August 7 the Financial Accounting Standards Foundation got its formal star amid hopes that the new accounting body will inject a larger degree of independence and fairness into the process of shaping corporate accounting standards.

The Financial Accounting Standards Foundation is modeled after the U.S. Financial Accounting Standards Board, and the FASF takes over from the Financial Services Agency’s Business Accounting Council in setting corporate accounting standards.

The difficult job of restoring international confidence in an accounting system is even more pressing with the pressure that the Koizumi administration is has placed on them to improve the slumping economy.

The emergance of an independant, private-sector body to make accounting standards makes a significant break from the past pattern of government bureaucrats leading the rule-making process, according to analysts and accountants.

Overseas observers have often viewed the accounting rules introduced by government authorities as dangerously expedient. Banks have been alloed by the government to alter the valuation methods used for share portfolios to put earnings in the best possible light. Banks were also permitted to put off booking unrealized holding losses on land while making a temporary law allowing them to count unrealized gains as part of capital.

A special 13-member committee operating under the FaSF and headed by University of Tokyo professor Shizuki Saito is tasked to recover global trust by shaping all new accounting standards that relate to corporate disclosure.

NTT IPOs

NTT DoCoMo Inc. has decided to delay its planned IPO on the New York Stock Exchange and the London Stock Exchange. This is in the wake of the slide of information-technology shares weighing on stock prices worldwide. In February NTT DoCoMo raised ¥950 billion through an issuing of new shares.

Some ¥1 trillion is intended to be spent by the company in the next three years on capital spending, including on new equipment necessary to launch a third-generation cell-phone service and investments in foreign carriers. Initially, NTT DoCoMo was planning to list on the two exchanges in early September.

Fund procurement was hoped to be made easier by the company by listing on overseas stock exchanges thereby encouraging investments by foreign investors who held 13.5% of its oustanding shares as of March 30.

NEW TECHNOLOGY

Organic EL Displays Challenging LCDs

Organic electroluminescent displays may finally be approaching true competition with the common liquid-crystal display panels.

The problem of emitting bright red light has been resolved by Toray Industries Inc. and the first full-color organic EL displays could debut as early as next summer. Employment of the organic EL displays will start with cellular phones, but they should eventually find a wide range of applications.

Organic EL materials emit light themselves unlike LCDs, so they do not have to be backlit. The result is that organic EL displays consume only about 10% the power of LCDs. In addition, organic EL displays can be viewed from a much broader angle than LCDs and they respond faster, which is important when displaying moving images.

Since Eastman Kodak Co. of the U.S. came up with the basic prototypes in 1987 research teams around the world have been compoting to develop organic EL materials for next-generation displays. Blue, green, and yellow light has been managed to be tweaked by the groups and they have solved the problem of durability, extending the lifespan beyond the 3.000 continuous hours deemed minimal for a proctical display.

Until now however, a material emitting bright red light has eluded development efforts, so even though the market has witnessed the debut of vaious monochrome organic EL displays, the technology simply has not been available for a full-color organic EL display larger than 5 inches in size.

The first to reach the required level with a compund featuring the same degree of redness as a television set has been Toray.

They solved the problem of the compunds packing together when formed onto a thin film, making it difficult to emit light. They designed the compound at the molecular level so that would not happen. Light emitting efficiency was boosted 60% with the molecular design.

A leading maker of organic EL materials, Toyo Inc. Mfg. Co. is also equipped with developing a full-color display. By next summer they will be used in cellular phones.

Stratosphere Airship

A prototype of an airship system designed to remain in the stratosphere for long periods of time has been unveiled by the National Aerospace Laboratory of Japan.

A plant operated by Kawasaki Heavy Industries Ltd. in Harima, Hyogo Prefecture diplayed the innovative airship.

The prototype is currently under testing to control its position. It is 21.5 meters long, made of light and durable chemical fibers and filled with helium gas and air.

By the end of fiscal 2003, the lab plans to finish developing a 70m-long experimental airship for testing in the air and lift it to an altitude of around 4,000m.

The altitude and position of the prototype is controlled by absorbing and emitting air. Three sections make up the inside of the prototype which prevents air from gathering in one part and allowing the ship to alter its positions stability.

Kawasaki Heavy carried out all of the testing and the prototype cost about ¥40 million to build.

The altitude of the Stratospheric Platform airship system is designed to stay at 20km, and is planned to be utilized as a station to look at the results of carbon dioxide along with television broadcasting.

Common airships have capabilities to elevate only around 600m higher than ground level maximum. Stratospheric levels of elevation of airships was launched as part of the Japanese government-led Millenium Project.

Some progress is hoped to be made in developing a 250m-long airship based on testing results of the 70m-long prototype.

Patents

Among Japanese universities last year, Tokai University, Tokyo Institute of Technology and Nagoya University were the top patent winners, each with 13 applications approved.

For the second straight year Tokai University was at the top spot. Last year a total of 161 patent applications by universities received approval last year up from 119 in 1999.

The rise in the number of patents won by universities is largely due to a more active approach to filing applications with a shift in academic mindset twoard greater cooperation between corporations and universities in search for commercial applications for research findings.

Seven of the top 10 10 patent-winning institutions last year were national universities.

MULTIMEDIA ALERT

Watchmakers Add Capabilities

The sluggish demand for wristwatches has sparked a wave of more sophisticated information devices to be worn on the arm. Watches with personal digital assistans and digital cameras have been some of the newest.

Steps to commercialize cell-phone wristsets with the Bluetooth international standard for short-distance wireless telecommunications have begun. Manufacturers seem determined to intice new demand in miniturized information gear.

The Chrono-Bit was released last October by Seiko Epson Corp., a wristwatch personal organizer priced from ¥39,800 to ¥59,800, that vibrates to remind wearers of their schedules. Seiko has only sold about 10,000 units but said the product has been well recieved by customers.

The Nagano Prefecture-based company has narrowed the main functions of the Chrono-Bit down to schedule management, address book and business list. Microsoft Outlook and other software allows the product to be hooked up to a PC and exchange and process PC-compatible data. The amount of applications for the product, including game software will expand.

It is also possilbe to download travel information from the Internet service NextTrain with the wristwatch organizer. The vibration alarm to alert them to times for trains or flights.

Japanese watchmakers turned out 98 million wristwatches in 2000, including overseas production, up 14% from a year earlier. According to the Japan Clock & Watch Association it was the first rise in three years.

Shipment value however went down 6% for the third straight year of decline, down 36% from 1997. Domestic sales have nose-dived, dealing a major blow to the manufacturers. With this history, it seems that companies have high hopes for the new wrist devices.

The second version of Casio Computer Co.’s popular Wrist Camera was released late last month with a price around ¥30,000.

GPS Transmitter Services

In response to the rise in the number of automobile and motercycle thefts, locator services for stolen vehicles combining the Global Positioning System and cell-phone technology have started becoming popular.

A few services send security people to the places where the stolen vehicles have been located.

In April Secom Co. began offering its stolen vehicle location service. Subscribers can borrow transmitters which are about the size of a cell phone and can be mounted in a vehicle.

A personal computer can track the location of a subscriber’s vehicle using signals sent via a GPS satellite from a transmitter located in the car. The service is accurate within 10 meters when communications conditions are the most favorable.

Including the sign-up charge and leasing of the transmitter, initial outlay is from ¥9,000 to ¥10,900 and the montlhly charge is ¥900. Secom only charges ¥100 if a subscriber locates his or her own vehicle using their own PC, and if a subscriber asks an operator to locate their vehicle, it costs ¥300.

The fee by Secom to send a security person to the vehicle’s location is ¥10,000. The majority of Secom’s customers own vehicles costing at least ¥3 million or imported cars. Miscellaneous expenses not covered by insurance for a stolen car can total around ¥1 million.

Along with a GPS vehicle-location service, Safty Corp. offers a service to stop the engine of a stolen vehicle by remote control. This system is being promoted jointly with Sogo Keibi Hosho Co. and Mitsui & Co. The initial cost of this service is from ¥300,000 to ¥500,000, with a monthly charge of ¥5,500. The company has signed up 500 customers despite the high service charge, mostly owners of luxury vehicles.

Fifty percent of stolen vehicles are taken from contracted parking lots or meter marking lots, according to Safty. 89 theft attempts and five located stolen vehicles have been reported by Safty.

In March the company added a service to dispatch securtiy personnel from Sogo Keibi Hosho to the locations of stolen cars.

According to the National Police Agency the number of car thefts averaged around 35,000 per year in 1998. It rose to 43,092 in 1999 and to 52,205 in 2000.

BIO-SCIENCE DEVELOPMENT

Nature is Mimicked With New Artificial Antibody

A group a the University of Tokyo has developed a new type of artificial antibody that has a wide range of possible applications. The antibody is designed to behave just like the normal version, is made from a common material, and is easy to mass produce.

A technique referred to as molecular imprinting is made use by artificial antibodies to make artificial “locks” to fit specific “molecular keys.” In the past these locks have been made using relatively small molecular-weight building blocks, and this has limited the practical size of the molecular keys they can be built to accept.

Cyclodextrin, an organic polymer that is the basis of starch are the building blocks of the new high-performance artificial antibodies. Initially, a number of cyclodextrin molecules are fitted around a sample key molecule, and then the cyclodextrin molecules are linked together. A template is created by this that acts as an artificial antibody, selectively capturing the molecular key if present in solution.

The new antibodies can be designed against molecules as large as several nanometers, ten time bigger than with natural antibodies.

Templates against relatively large targets have already been constructed by the researchers like vancomycin and cholesterol.

The new solvent can be mixed in water where artificial enzymes typically only dissolve in organic solvents. For the safe and specific targeting of molecules during drug development and manufacturing, this can be useful in the pharmicutical industry.

New Developments on Genes Linked to Hair loss

A joint research team from Shiseido Co. and Massachusetts General Hospital in the U.S. have identified more information about two genes related to hair loss.

Shiseido now believes they have a broad understanding of the mechanism behind hair loss.

In order to find substances that can control the action of the genes and the gene products related to hair loss Shiseido intends to continue with detailed studies to reach their intended goal of developing hair restoratives.

Hair strands normally go through a three-stage process that includes a growth phase for four to six years, a regression stage of two to three weeks, and a dormancy phase of four to five months. Following the last phase, the strand falls out, and a new one starts growing.

Acting as a switch, a protein called TGF beta-2, moves the hair from the growth stage to the regression stage. Caspase, an enzyme, then accumulates in the hair-producing cell, leading to apoptosis, or programmed cell death. The death of hair cells causes hair loss.

Smad2 and TSC-22 are the genes identified and play important roles during the time between the switch and the death of the cell.

Peek Inside Retina Allowed by Model Eyeball

A research team at the Institute of Physical and Chemical Research, known as Riken, and the University of Tokyo have developed a highly detailed computer-generated three-dimensional model of the human eyeball.

A series of cross-sectional images of an actual human eyeball generated the model which gives surgeons the opportunity to look at the internal structure of the eye at different depths and from different angles in extremely high detail. The internal features of the retina are even viewable, which is only around 100 microns thick.

The attributes of a specific patient can be used to alter the model, adjusting for intraocular pressure and the precise shape of the eyeball. Surgeons can use this to prepare for surgical procedures, such as correction of detached retinas.

makers were originally established as affiliates of major chipmakers. Practices favorable to chipmakers remain in their join transactions, a situation that equipment makers have unsuccessfully sought to change.

Japan’s semiconductor industry has failed to modernize because equipment makers and others depend on the chipmakers, who are positioned at the top of the sector.

Masataka Hirose, Mirai project leader brushes aside any expressions of pessimism over prospects for the national project. The Mirai project is different from many previous national projects in that it has clear-cut targets and lines of responsibility. The project is also looking into ways of commercializing its technological achievements.

IMEC, a Belgian research-and-development organization is Mirai’s biggest rival, leading globally in semiconductor research, gathering over 1,000 scientists and engineers

New Brain Protein Discoverd in the Fight of Parkinson’s

A research team led by Ryosuke Takahashi at Riken Brain Science Institute and Yoshikuni Mizuno at Juntendo University School of Medicine has identified a brain protein that may be a causative factir in the development of Parkinson’s disease.

A protein called the Pael receptor has been discovered to be present in amounts 10-30% greater than normal in the brains of people with congenital Parkinson’s disease.

Parkin, an enzyme that processes unneeded proteins in the brain is the product of that gene.

ENVIRONMENT

Population Barely Growing

The Ministry of Public Management, Home Affairs, Posts and Telecommunications reported the population totaling 126,284,805 at the end of March 2001, up a tiny 0.169% from the previous year.

The growth rate was slightly above that of the previous year which saw a record low, only 1,180,565 babies were born last fiscal year, the fewest on record and a reflection of an accelerating decline in the birthrate.

The number of births minus deaths—the natural population growth stood at 237,518. An increase of 13,651 from the previous year reflects the faster decline in the number of deaths tan the fall in the number of births.

People aged 65 or older accounted for 17.69% of the population, an increase of 0.62 point. People aged 14 or younger accounted for 14.5% of the population, down 0.22 point, and those aged 15-65 represented 67.8% of the total, down 0.41 point.

The ratio of elderly to the total has continued to rise every year, underscoring the graying of society.

The number of households increased 1.26% to 48.01 million, while the average size of a nuclear Family hit an all-time low of 2.63.

The Home Ministry survey also showed Tokyo saw the largest population increase, at 76,000, among all prefectures in the year ended this March.

About 59,000 more people moved into the prefecture than out, bumping up by 0.5 percentage point the ratio of new Tokyoites to the total population.

Through the postwar years the capital’s population rose steadily until the early 1970’s when the influx of people from rural areas slowed. Until 1981 a decline then set in, when the population temporarily picked up again between 1988-1996, greatly due to rising land prices.

Previous expansions have been due largely to people from outside the capital moving in, but the most recent has been due to fewer people moving out.

The population increase in Tokyo’s 23 wards was particularly noticeable, at 0.64%. The Real Estate Economic Institute accounts for this growth to the offer of a record 96,000 condominium units in the Tokyo metropolitan area in 2000, including popular high-rise condos concentrated in downtown neighborhoods.

While the greater Tokyo area, including Saitama, Chiba, Tokyo and Kanagawa prefectures, waw a rise of 187,000 residents, the Nagoya region of Gifu, Aichi and Mie prefectures posted an increase of a small 30,000 and the Osaka area consisting of Kyoto, Osaka, Hyogo and Nara prefectures inched up just 17,000. Population growth in the Nagoya and Osaka areas was slower than a year before.

26 prefectures saw populations lower, two more than the previous year, in contrast to the three metropolitan areas.

The three biggest metropolitan areas accounted for 49.21% of the total population of the country

Rising AIDS Carriers

Partly due to changes in people’s sexual behavior, the number of AIDS patients in Japan continues to grow, according to health experts. Although drugs have been proven effective in treating some symptoms of the disease, a cure has not yet been found.

Late last month the world’s leading industrial nations decided to set up a fund to combat infectious diseases at the Group of Eight summit in Genoa, Italy, and experts are calling on people to practice safe sex in an attempt to contain the epidemic.

A record of 327 new AIDS cases were reported to the Ministry of Health, Labor and Welfare in 2000. Although the number of HIV-infected patients declined from 1999 to 462, health officials warn that the rising trend still continues.

In 1992, the number of HIV infected patients peaked when a large number of foreign women living in Japan were found to be infected. After declining for awhile, the number began to pick up again in 1995. Among adults, HIV infection in their 20s is spreading.

Around 30% of all HIV-infected patients are in their 20’s. The amount has remained almost unchanged every year, suggesting AIDS education at schools over recent years has not been effective, stated Seiichi Ichikawa, professor at Kanagawa Prefectural College of Nursing and Medical Technology.

The growing number of HIV-infected youth is attributed to changes in sexual behavior, such as increased number of sexual partners and a younger age at which they have sex for the first time.

Ichikawa believes that it’s important raise awareness about AIDS issues among youth and to encourage the use of condoms

SEMICONDUCTOR

Semiconductors & Mirai Project

Last week a joint project to develop next-generation semiconductors involving industry, academia and the government was launched. The long-term venture could determine whether Japanese semiconductor makers are able to rebuild their global market presence, crumbling under the onslaught of their South Korean and other Asian rivals.

Marai—Millennium Research for Advanced Information Technology, the seven-year project—is the first national semiconductor project since a research group for system chip technology was created in the latter half of the 1970’s. It’s aim is to discover a new material on which to form circuits with a line-width of 50-70 nanometers, a technology expected to be required by the industry around 2010.

The country’s largest super-clean room is under construction in Tsukuba, Ibaraki Prefecture and will be the site of the project, which will employ 90 researchers from 24 private companies, six universities and the National Institute of Advanced Industrial Science and Technology. The national project represents an investment of ¥30 billion ($242 million).

A NEC Corp. senior executive said the nation’s semiconductor industry is at a crucial stage in its fight for survival. Japanese firms accounted for over 50% of the world’s semiconductor market in the 1980’s, but their competitiveness has declined each year, sending their market share falling to 30% in the 1990’s.

Five research teams will make up the Mirai project and will have a group leader assigned to each. The group will set up specific numerical targets and periodically evaluate achievements. In addition, it will adopt a performance-based bonus system to motivate researchers.

Aside from the optimism surrounding the beginning of the project, however, an official at microchip fabrication equipment manufacturer taking part in the project said the degree of zeal varied among the participants.

Now underway are several private-sector chip development projects, but semiconductor and equipment manufacturers have rarely joined. A private project called Asuka, has 13 chipmakers involved which aims to develop certain chip technologies by around 2007, but no equipment makers are involved.

The entire industry is not supportive of the project. The chairman and chief executive officer of Tokyo Seimitsu Co., Hideo Otsubo, who heads a leading semiconductor-equipment manufacturer believes a national project involves a large amount of time and trouble negotiating with participants, and is not suited to semiconductor development, for which speed is necessary.

Within joint projects, sensitive vertical relations between chipmakers and equipment makers may arise since many fabrication equipment

Lab-On-Chip

A three-dimensional microscale chemistry lab that enables several reactions to be carried out simultaneously using microliter volumes of reactants has been developed by a group at the University of Tokyo.

The lab-on-a-chip is 0.7 mm-thick and assembled from a set of three glass substrates, each of which measures several centimeters. The top and bottom layers are etched with microchannels, which measure 130 microns in width and 60 microns in depth, and the 0.2mm middle layer is drilled with holes. The result is a 3-D network of channels that allows numerous chemicals to be reacted in different ways at the same time.

This integrated micro chemistry lab microscopic scale enables combinatorial chemistry to be carried out with microliter volumes of reactants, compared with the milliliter volumes now required.

Through increasing the number of substrates, even more complex 3-D networks of microchannels can be designed.

As of yet chips used to separate DNA have been commercially available, but they cannot be used for complicated chemosynthesis.

Silicon

A group of Osaka University researchers has developed a technology capable of producing numerous microscopic hollows with a diameter of less than 5nm on the surface of silicon using an electron beam.

This technology is said to yield nanosize hollows at lower cost than conventional methods, promises to be useful for developing ultrasmall elements, including a very small capacitor comprised of insulating materials embedded into hollows with electrodes attached. It can also be used to make gas absorbent materials by storing gases in the hollows.

SPECIAL SECTION

Veterans’ Club to Support Venture Businesses Sparks New Ideas

In May there was a gathering at Tokyo’s Roppongi district of veterans, the men who have run Japan’s large corporations for decades, and there were the entrepreneurs, who were trying to make their mark in a business dominated by the giants.

The meeting was the inaugural meeting of the Veterans’ Club to Support Venture Businesses. Yusuke Suzuki, the 57-year-old founder of eBook Initiative Japan Co., presented his plan to create an online distribution system of digital books. There were about 20 of Japan’s corporate leaders in the audience, including Shiro Fujita, former chairman on NTT Data Corp. and Koji Oboshi, chairman of NTT DoCoMo Inc.

A change in the relationship between traditional big businesses and entrepreneurs is signaled by the meeting of the Veterans’ Club and similar organizations like it. Small companies in the past have been considered mere subcontractors to major companies. Now, the relationship is about big firms mentoring smaller ones, and in many cases providing funds, which are hard to come by these days for new ventures in Japan.

The action was spearheaded by longtime businessmen who have led Japanese subsidiaries of foreign companies such as IBM Corp. Intel Corp., and Microsoft Corp. of the U.S. They worry about the infertility of venture businesses and have a good knowledge of both Japanese and U.S. businesses. There views are more and more being shared by Japanese leaders of big businesses.

Around 20 semi retired leaders of Japanese companies gather every month, and venture businesses are given a chance to present their business plans. The veterans throw out advice and some pretty tough questions.

One example of success to be born from the Veterans’ Club is turning Suzuki’s eBook dream into reality. The biggest challenge for Suzuki was how to actually create the device he envisioned: a simple foldable electronic book with a two high-quality liquid-crystal-display hinge. The interest of Haruo Kawahara, former executive of Toshiba Corp.’s interest was sparked by Suzuki’s presentation, who lobbied the fledgling company using its next-generation LCD device. Now, Suzuki plans to market the world’s first electronic book of its kind within a year.

A 58-year-old Ikuo Nishioka started the Veterans’ Club, former chairman of Intel KK, who was convinced that the support of Japan’s established companies is crucial for venture businesses to prosper and help activate the nation’s economy. At the U.S. company his career gained him the nickname of “IT evangelist.”

In 1999, after retiring, he began touring the nation lecturing on ways to make use of information technology. Everywhere he went, enthusiastic entrepreneurs asked him for advice.

He invested privately in 14 companies and also introduced the fledgling companies to key people with an interest in the technology at Japan’s established companies.

Mobile Internet Capital Inc. was started by Nishioka, a venture capital firm concentrating on investing in companies with wireless and Internet technology. One important thing he checks is whether an entrepreneur has a good business plan for after an initial public offering, which can boost share prices in the long run and bring profit to individual investors.

Shunichi Murakami, president of the Tokyo branch of Contents Japan Co. experienced tough mentoring from Nishioka’s venture capital firm, finding fault with their products and business.

Mobile Internet Capital, unlike most venture capital firms accepts investment only from businesses that are involved in the wireless-technology or Internet industries, and not from financial institutions. They ask big-business investors not to seek short-term capital gains, but profits through business collaborations with venture businesses.

The former 64-year old president and chairman of Compaq KK, the Japanese arm of the U.S. computer maker, is also busy meeting and providing advice to young entrepreneurs these days. Following working for IBM Japan Ltd. For 30 years, he headed Compaq’s Japanese entity from 1991 to 1998. After leaving, he began mentoring and invested in about 20 Internet related products. Murai finds it easy to pick out weakness in venture businesses after his over 40 years of experience in the computer business and corporate management.

Business Café Japan Inc., one of his projects is an incubation firm. Murai also works as special advisor to General Atlantic Partners, a U.S. venture capital firm that started operations in Japan the last year. Murai said that many Japanese entrepreneurial companies are too small to be of interest to U.S. venture capital firms. Murai intends to grow those early-stage companies until they become large enough to attract U.S. investors. True venture businesses have the power to change the whole structure of industries and Murai’s place is to help create mature venture businesses, so that they will contribute to the revival of the nations’ economy

Japan in the United States

U.S. Ignites Finance

The beleaguered financial industry is showing signs of reviving as once-bankrupt banks and life insurers adopt new tactics under foreign management. These reborn banks and life insurers have in common a flexible response to customer needs and a willingness to abandon traditional practices.

After Shinsei Bank, formerly the Long-Term Credit Bank of Japan, was bought by a partnership of investors led by Ripplewood Holdings LLC of the U.S. 18 months ago, services at its 24 branches have changed drastically. Most Shinsei branches are now open until 7p.m., four hours longer than most banks, and the bank’s ATMs are in service around-the clock for free, even to access accounts at competitors.

Office layouts are being redrawn to make services more visitor-friendly. A Starbucks coffee shop, for example, was opened in a corner of the bank’s Osaka branch. Traditional bankers dismiss these innovations as “unbanklike,” but Shinsei is not interested in being like other banks. Instead, management has sought role models outside the banking sector, including successful retailers like Fast Retailing Co, known for its Uniqlo Chain of casual-apparel shops.

In June, Shinsei began offering comprehensive securities accounts, which enable customers to manage foreign currency deposits, investment trust funds and other financial products through a single account. The bank expects to achieve its goal of 140,000 accounts by March 2002. The influence of foreign ownership extends to conventional banking services such as lending.

Kansai Sawayaka Bank, formerly Kofuku Bank, has been acquired by Asia Recovery Fund of the U.S. From October, the Oswaka bank will offer unsecured loans of up to 5 million yen ($41,700) for small businesses, a bold move by the standards of mainstream banks, which stress collateral-based lending. Unsecured lending is also high on the priority list of Tokyo Star Bank, formerly Tokyo Sowa Bank, now owned by U.S. investment unit Lone Star Group.

Tokyo Sowa Bank offered a similar service, but before Tokyo Star Bank can offer unsecured loans they want to establish without delay a system to analyze the risks in detail. Behind the nonconformist behavior of foreign-owned banks is relentless pressure from shareholders for maximum profits.

President of Kansai Sawayaka, Shuichi Takahashi has joked about being frightened of opening overnight e-mails from New York. Alluding to a constant stream of requests and proposals from Wilbur Ross, head of the Asia Recovery Fund. Takahashi cited a recent discussion in which Ross rejected the idea of compromising on short-term gains for the sake of potential benefits. Takashi has stated however that his management thinks it is important to have demanding shareholders.

From the beginning of operations in February, Kansai Sawayaka adopted a performance-based pay system instead of a seniority-based wage system. He stated that many older workers have seen their pay decrease, while a number of younger employees have enjoyed an increase. It’s only natural that wages reflect the degree to which employees contribute to the bank’s earnings stated Takahashi.

The former “convoy system,” as administered by the Finance Ministry, forced all financial institutions to operate in the same manner. But foreign companies taking over domestic firms are doing away with traditional management practices in many cases, and that is influencing financial institutions.

The General Electric group of the U.S., interested in increasing its presence in Japan’s insurance market, is taking a unique approach. Under its Dalien Plan, the company is head-hunting in China for people fluent in Japanese, and is believed to have already completed about 100 signings. The new employees will work at a call center in China, from where they will market insurance products to existing policyholders and prospective clients of GE Edison Life Insurance Co.

Short News

Mitsubishi Heavy Industries Ltd. and two other Japanese companies will provide next-generation supersonic transport technology to Boeing Co. for use in developing the Sonic Cruiser jet. Along with Kawasaki Heavy Industries Ltd. and Fuji Heavy Industrial Ltd., Mitsubishi Heavy is close to agreeing to help develop the SST jet, called the Sonic Cruiser, which will be designed to fly at almost the speed of sound. The three companies and Japan Aircraft Development Corp., a private-sector organization formed to help design aircraft, are expected to sign a memorandum with Boeing by the end of the month that allows the U.S. aircraft maker to use the SST technology, which they jointly developed as part of a national project. The technology includes a computational fluid dynamics technique for computer-aided design of a plane with little wind resistance and a production technique for strong, lightweight composite materials.

Calsonic Kansei Corp. expects its sales in the North American market to increase by 50% from fiscal 2000 to more than 140 billion yen in fiscal 2003. The auto parts maker supplies Nissan Motor Co., and plans to begin operations at two new plants in step with the opening of Nissan’s factory in Mississippi. It has been commissioned by Nissan to supply modular parts. Calsonic now manufactures radiators and various meters in North America. Sales there in fiscal 2000 totaled 97 billion yen.

Kansai Electric Power Co. has begun operating a thermal power plant in the U.S. state of Nevada that it sut up with Morgan Stanley Dean Witter & Co. Las August, Kansai Electric and the U.S. investment bank formed utility company Naniwa Energy LLC as a 50-50 joint venture. The electricity Naniwa generates will be sold to customers on the West Coast.

United States in Japan

ADSL Halted by Yahoo

Softbank Corp., in a serious setback to its ambitious broadband plans, said subsidiary Yahoo Japan Corp. has delayed the start of its 8mbps asymmetric digital subscriber line Internet connection service by one month from the originally scheduled Aug. 1

In Softbank’s Tokyo headquarters July 30 at a media briefing, President Masayoshi Son said the postponement is needed simply because the processing of several hundred thousand applications was taking more time than initially thought. The processing delay is hampering the smooth progress of installation and tests, but the service should be available by Sept. 1.

Son screened movies and concerts on Yahoo Japan’s ADSL service to convince reporters there were no technical problems during the interview. However, the postponement is still likely to hurt Softbank’s image, especially its reputation for reliability.

At the time the company said it would start the service from Aug. 1 in late June, many industry watchers immediately called the launch date unrealistic. Since Softbank had already disappointed investors for its quarrel with partners over Speed Net Inc., a high-speed wireless Internet joint venture, its stock took a hit the following day.

It was revealed the ADSL service was initially planned to be launched around autumn, however Son ordered the earlier star to establish a foothold before a major South Korean ADSL providers enter the Japanese market

U.S. in Top Spots

Americans and Europeans are beginning to fill top financial positions at listed Japanese companies and are changing the financial systems at some of Japan’s big companies in the process. Some executives are exerting their individual skills with little regard for Japan’s conventional business practice, while others are pressing ahead with restructuring while paying consideration to the Japanese style.

The foreigners share one thing in common: they all want the Western business philosophy of respecting shareholder value to take root in Japan. The executives are also expected to play a major role in overhauling the financial systems at Japanese companies, particularly automakers, which are engulfed in global realignment of the industry. Nissan Motor Co. achieved a V-shaped recovery in the fiscal year ended March 2001. The feat was largely credited to President and Chief Executive Officer Carlos Ghosn, who was dispatched to Japan by the automaker’s to shareholder, Renault SA of France. But the contribution of Thierry Moulonguet, chief financial officer (CFO), should not be underestimated.

Moulonguet, who came to Nissan along with Ghosn, became CFO in April last year. He is a former official in the French Finance Ministry and senior manager at Renault.

Short News

The Japanese subsidiary Allergan Inc. of the U.S. will release a product designed to treat facial wrinkles by 2004-2005. If approved, the product will be the first treatment for wrinkles to reach the market in Japan. Expecting strong demand from an aging population, the company will triple the number of marketing staff focusing on medical institutions by 2005 with a view to garnering 10 billion yen in annual sales of the product. The company has begun second phase clinical tests on the product, called Botox, which is injected in wrinkled areas. The product works through delivery of bacteria that undermines muscle strength, thus removing wrinkles.

U.S. venture Atheros Communications Inc. has established a subsidiary in Japan to market the company’s chipsets for next-generation wireless local area networks (LANs). Unlike Bluetooth, which operates at 2.4GHz, the next-generation wireless LAN technology that Atheros is promoting operates at 5GHZ. This can handle a greater volume of data, and there is also less problem of faulty operation due to interference from microwave ovens and other devices using frequencies close to Bluetooth’s.

Mitsubishi Heavy Industries Ltd. Is in talks with General Electric Co. with a view to procuring compact industrial-use gas turbines from the U.S. company. The negotiations follow a deal that has Mitsubishi Heavy supplying diesel engines used to generate electric power to GE. The major Japanese heavy machinery manufacturer plans to incorporate its power generators and other equipment in GE’s turbines and sell the completed product to manufacturing plants. A price for the gas turbines and the number to be supplied have yet to be decided. Mitsubishi Heavy has already begun assessing the performance of the U.S. firm’s compact gas turbines, which generate 2,000kw to 5,000kw of power.