Green Investing in Japan
Environmental (or green) funds, which have until recently posted strong results in the U.S., are gaining popularity in Japan. Nikkei recently reported that the balance of green funds in Japan at the end of June was 720 billion yen (about $6 billion), double what it was the year before. The global warming issue has attracted keen interest in Japan, and individual investors are demonstrating their concern by dramatically increasing investments in environmental funds. Two fund companies, Shinko Investment Trust Management and Deutsche Asset Management, have recently launched new green funds. The new Deutsche vehicle started with a high initial asset balance of 154 billion yen, ranking third among new funds established this year.

As in the US, the definition of a green fund varies – some funds are more purely environmental plays than others. The Nihon Securities Journal reports that some of the major holdings by environmental funds include large-caps like Toyota (7203), Kyocera (6971), Denso (6902), and Shimadzu (7701) that are perceived as environmentally friendly, but would not ordinarily be considered green investments.

Other funds include stocks that are specifically driven by environmental factors. For example, Ibiden (4062), the world's leader of filters for diesel engine, plans to increase its production capacity by 70%, as both U.S. and Europe will force tougher regulation on emissions from diesel engines. In another sphere of environmental investing, Japan Wind Development (2766) is changing its business model from an importer/marketer of wind power generators to that of an operator of wind power. The company expects to double its capacity and sales volume from wind generated electricity this year.

Mitsukoshi and Isetan Department Stores May Combine
Mitsukoshi (2779) and Isetan (8238), the fourth- and fifth-largest department stores in Japan, are reportedly in talks for a capital tie-up and an integration of their operations. Together the two firms generated 1.6 trillion yen in sales for the February 2007 year. Thus the combined company would be the largest department-store operation in Japan, exceeding Daimaru-Matsuzakaya whose merger into the new firm J. Front Retailing is expected to be completed in September.

A Mitsukoshi-Isetan combination would be something like a merger of Saks and Macy's. Mistsukoshi, whose history extends back to the 17th century, caters to a rich, upscale clientele, while Isetan has a strong following among younger people for its fashion sense. Although some observers suggest that matching the old and rich with the young and hip makes a nice fit, it would also seem the new company would have to move carefully to avoid alienating either group of core customers.

Geographically, though, the two firms are a good match. Mitsukoshi's historic base in Tokyo is Nihonbashi and it has stores in Sapporo and Nagoya; in total, Mitsukoshi has 20 units. Isetan's Tokyo home is Shinjuku, with six other stores in the Tokyo area, including Kichijoji, Tachikawa, and Urawa (Saitama); it also has four regional stores and eight shops in Asia. Mitsukoshi's units are located throughout Japan and Isetan's are mostly in the Tokyo area, so except in Fukuoka, there isn't much overlap between them. There's also geographic diversity overseas, because Mitsukoshi has more shops in Europe than in Asia.

Mitsukoshi has been having financial difficulties for a long time. The chain depends heavily on seasonal gift-giving by corporate customers, and sales for this group fell 15.5% last year. Japanese department stores suffered heavily during the long business drought of the 1990s, and they have been stung by competition from supermarkets, specialty stores, convenience stores, and other retail formats. Lately things have picked up a bit: Department-store sales rose 5.5% in June, the fastest pace in nine years, although much of that may have had to do with starting summer discounts earlier to take advantage of an extra Saturday in June.

Analysts expect that a Mitsukoshi-Isetan would soon achieve benefits through integration of purchasing, logistics, etc., led by the well-respected Isetan team. Isetan has already made substantial headway in streamlining its operations, while Mitsukoshi still has a way to go in improving its stores outside major metropolitan areas.