RAPAPORT..."People are fearful, very fearful,” said Michio Iwasaki of Iwaden Sangyo Co., Ltd., a director at Japan Jewelry Association (JJA), on the day after news of financial crisis swirled around the world and the Nikkei Index dropped to an 8000 level from the high of 16000 a year ago.
At the most recent executive meeting of JJA, held in early October, people were asking one another what the future holds, reported Iwasaki. “Up to now, no banks have demanded loan repayments from any of our members and no one seems to have any direct or immediate problems stemming from the crisis. But everyone is concerned about what will come next,” said Iwasaki.
Japanese Prime Minister Taro Aso was quoted by the foreign press as saying that “Japan is not as much affected as most major economies of the world.” The reason he gave was that many Japanese financial institutions refrained from dealing with U.S. subprime-originated securities and derivatives. Nevertheless, the government did announce that it would cooperate with the rest of the world in injecting monies into its financial institutions if necessary.
Other Concerns“For most Japanese, the more serious and immediate concerns rest elsewhere,” said Iwasaki. Those concerns include “the government’s mishandling of pension records — a system similar to Social Security in the U.S. — insecticide-infected imported foods, spoiled and poisoned foods that were distributed extensively without proper inspections and forgeries of origin on food items.”
“While most Japanese consumers are not directly hurt by the global economic crisis, the crisis has certainly cooled their spending attitudes, particularly those of the wealthy echelon,” said Masahiko Akaike of Orient 4Cs, a jewelry and stone wholesaler. “Their financial assets are probably down substantially, as they most likely invested in stocks, bonds and other financial products. It is fair to assume that they would not buy luxury items for the time being. Already, sales of high-end digital cameras and audio sets have slowed at storefronts.”
“The jewelry retailing sector has been in a hideous recession for some time, but this has nothing to do with the economic crisis,” said Iwasaki. The evidence is in the poor performance of department stores, particularly in recent years. As a result, the entire retailing sector is being forced to reorganize. Isetan and Mitsukoshi announced their merger plan earlier in 2008, followed by similar announcements by Matsuzakaya and Daimaru, all of whom are prominent department stores with histories extending back more than 100 years. And in October, Takashimaya and Hankyu/Hanshin Holdings announced a business affiliation, with a merger possible in the future.
Another trend in the jewelry industry is that foreign investors and/or sightholders have been showing keen interest in taking over Japanese retailers. In April, Digico Holdings Limited, a Hong Kong–based sightholder, took over Verite Ohkubo, a jewelry retail chain of more than 100 stores nationwide. “This trend may be accelerated in the future,” said Michio Fukui of Fukui Diamond Trading Co., Ltd., and the president of Tokyo Diamond Exchange (TDE). “Or else, weaker retailers will be forced to close down their businesses.”
Not Lucrative EnoughAccording to Fukui, Japanese banks don’t view the jewelry industry as lucrative enough to give loans to. “As you know, banks are funny in that when it rains, they would not give us umbrellas, but when it shines, they offer more than enough umbrellas. It is sad, but the jewelry industry may soon be categorized as a depressed industry by the government. It’s no secret. JJA is prepared for it, and I am hoping it will be so, so that we would be able to get financing from banks with government support.”
Akaike, who transacts in the market on a daily basis, noted “The price of platinum has come down to less than half its high of 2,252 yen ($22.81) a gram in March to 857 ($8.72) a gram in October. Even if we sell the same number of pieces, the value has dropped by more than half. It hurts us.
“In the diamond trade, there has always been demand and interest in larger stones, but that has slowed down also,” continued Akaike. “If you look around, oil prices are down, real estate prices are down and so is everything else. There’s no reason why diamonds are not down.”
The Marketplace• Demand from overseas for larger stones has slowed down. And there is a feeling that the strong yen may have discouraged foreign buyers.
• Prices for larger stones in the domestic markets are down substantially, but 4/4s are relatively stable.
• Pointers are weak.
• Melees and stars are weak, reflecting a similar weakness in the recent Hong Kong show.
• Demand is weak for fancy shapes.
• Good pinks and blues are scarce in the market.
Article from the Rapaport Magazine - November 2008. To subscribe click here.