Japan Equity Theme Research
THEME
Recession spending "in fashion"
We are currently focusing on domestic demand in Japan, where a change in
consumer spending habits in response to the recession (recession spending)
seems to be in fashion. While the outlook for the economy is becoming more
difficult every day, and the consensus view of consumption is very weak, we
believe personal consumption in Japan is basically resilient. In this report, we
discuss our investment ideas from the investment strategy and quants research
outlook together with our recommendations from a bottom-up analysis of the
main domestic demand areas of financials, real estate and retail.
■ Recession spending "in fashion": Investment strategy 2
■ Stock picks based on conservative forecasts: Quantitative strategy 7
■ Whole country mobilized to defend the banks: Banking sector 11
■ Will history repeat itself!?: Brokerage sector 15
■ Theme for 2009 is “Dance, dance, dance”: Real estate sector 23
■ Divergence of micro and macroeconomic data: Retail sector 44

Investment strategy
Are sales really at a standstill?
We get the impression that the outlook for the economy is worsening day by day, with the
media carrying sensational stories about large companies cutting back on contracted-in
and part-time workers. Obviously, consumers are keeping a tight grip on their purse
strings and the consensus is that levels of consumption are very low. In real terms, there is
an overwhelming amount of representative industrial data to indicate that there has been
shrinkage not only in external demand and capital spending, but also in consumption.
However, we believe that personal consumption in Japan remains relatively firm.
Obviously, consumption does not have the power to drive the economy as a whole. Even
so, considering the high rate of savings, we expect selective consumption to continue, and
for retailers who can skillfully capture consumer taste, we believe that sales could remain
relatively firm despite the downturn. Japanese consumers tend to react to economic
recessions with a mix of economy and selective spending. In addition, in its first and
second supplementary budgets, the government has put around ¥20tn at the disposal of
the National Association of Credit Guarantee Corporations to guarantee new loan finance.
In the major economic stimulation policy carried out in 1998, similar measures were taken,
and this succeeded in stimulating consumption in some sectors.
Continual deterioration in economic sentiment
According to the December Economy Watchers Survey, the current conditions DI fell to 15.9,
the lowest level ever, down 5.1 points from its level in November. This was the ninth
consecutive monthly fall. Since its first publication in January 2001, the current conditions DI
has tended to lead the equity market slightly (Figure 1). The survey shows that we are not
yet at a point where concerns about the immediate future of the equity market can be allayed.
If we look at the breakdown of the current conditions DI, there was a tendency for the
response from department stores and specialty apparel retailers to fall particularly sharply,
while the response from convenience stores, restaurants and communications companies
was relatively strong. This response can be said to be in line with the trends and outlook
shown by other recent data.
In November, department store sales fell 6.3% YoY while supermarket (chainstore) sales
fell 2.8% (Figure 2). Currently, every day brings fresh news of cutbacks in personnel costs
in the corporate sector, and as far as can be determined by looking at existing retail
formats, this is clearly having an impact on consumption. In particular, consumers appear
to be holding back spending on uncertainties about the future, and this is casting a long
shadow over the retail sector.
Shinichi Ichikawa
shinichi.ichikawa@credit-suisse.com
Personal consumption
relatively firm
Economy Watchers Survey
sees worst conditions ever
We expect existing formats
to be hit by an unwillingness
to buy