The Japanese government is putting efforts into strengthening the semiconductor industry, and companies from the US, Europe, South Korea and Taiwan are expanding their investments in Japan. Since 2021, the amount of investment announced by related companies in Japan has exceeded 2 trillion yen. Prime Minister Kishida met with the top executives of seven semiconductor companies on the 18th and called for expanding investment in Japan. 

Semiconductors are important for the economy and security, and there is an aim to establish a supply chain among countries that share values with China in mind. Japan has strengths in semiconductor manufacturing, research and development, supply chain, advanced materials, precision machinery and so on, and the market size is expected to continue to expand.

 

 

 The logistics industry is undergoing M&A activity to cope with labor shortages and the 2024 problem. In fiscal 2022, more than 30 M&A deals were made, with many cases of large and medium-sized companies acquiring local competitors. On the other hand, bankruptcies and deficit operations have increased due to the coronavirus pandemic and price competition, and the business environment is harsh. The reorganization of the logistics industry is lagging behind overseas, but there are signs of change, such as the separation of logistics subsidiaries from major manufacturers.

 

The logistics industry is the industry that handles the flow of goods from producers to consumers, and has functions such as transportation, storage, loading and unloading, packaging, and distribution processing. Among the logistics industry, truck transportation is the largest market segment, and small and medium-sized enterprises account for the majority. However, the transportation and logistics industry is facing challenges such as labor shortages and intensifying competition, and there are concerns about the impact of the tightening of overtime work regulations for automobile driving operations from April 2024.

 

In this situation, M&A is used as a solution for selecting and concentrating management resources and business succession. In recent years, due to the growth of the EC market, logistics needs have increased, and companies aiming to expand their scale and area are actively engaging in M&A. In addition, there are more cases of companies or subsidiaries that have deteriorated their business environment due to the coronavirus pandemic being separated by M&A, and the reorganization of the logistics industry can be said to be progressing.

 

 

The growth of startups around the world is slowing down. According to US research firm CB Insights, the number of companies that became unicorns in January-March was 13, down 90% from the same period last year. It was the lowest number in six years on a quarterly basis. The slowdown of startups could lead to a delay in the turnover of industries and economies.

 

Startups have benefited from global monetary easing in recent years. The number of unicorns increased by 65% in one year to 1,095 as of March 2022. However, in the past year, interest rate hikes and economic slowdowns in the US and Europe have been headwinds, and as of March 2023, it remained at a 10% increase to 1,206.

 

Looking at the industries of the 13 companies that became unicorns in January-March, artificial intelligence (AI) related companies accounted for the most with four. By region, the US had the most with eight, but it fell to one-tenth of the same period last year (79).

 

The main cause of the sharp decline is the decrease in investment money. The amount of funds raised by startups in January-March was $58.6 billion (about 7.8 trillion yen), down 60% from the same period last year. The number of “mega-rounds” with a funding amount of more than $100 million dropped by nearly 80% to 90. Companies that raised funds at high valuations are overvalued compared to their actual performance, making it difficult to raise additional funds.

 

The bankruptcy of Silicon Valley Bank (SVB) in March also casts a shadow. SVB was a bank that lent money to startups, but it went bankrupt after accounting fraud was discovered. Companies that relied on SVB’s loans are struggling with cash flow and may face a brake on growth. 

 

 

Cyber due diligence is the process of investigating and analyzing the cyber security measures and incidents of a target company in M&A. It can help to understand the losses and risks caused by cyber-attacks in advance, and use them for negotiating the acquisition price and terms. In Japan, major accounting firms such as KPMG FAS provide cyber due diligence services.

 

One of the reasons why cyber due diligence is attracting attention is that cyber-attacks have a significant impact on the success or failure of M&A deals. For example, when Verizon acquired Yahoo’s core business, the acquisition price was reduced by $350 million due to the information leakage incident that occurred at Yahoo. Also, Marriott had a data breach of up to 500 million customer data due to a flaw in the IT system of a competitor it acquired.

 

Japanese companies are also at a high risk of being affected by cyber-attacks. In 2022, the number of ransomware incidents reached a record high, and a resin parts manufacturer that supplies Toyota was attacked by cyber criminals and had to temporarily stop all its factories. Cyber-attacks can affect stock prices and financial disclosures, so management needs to quantify their cyber defense capabilities and make effective decisions. 

 

 

The Japanese government has announced new targets for hydrogen as a next-generation decarbonized fuel. The government aims to increase hydrogen production to around 12 million tons, approximately six times the current production, by 2040. To achieve this goal, they plan to consider an investment plan of 15 trillion JPY involving both public and private sectors over the next 15 years.

 

Hydrogen, which do. es not emit carbon dioxide, is considered a potential alternative fuel for fuel cell vehicles and power generation instead of natural gas and coal. The government plans to cover about 1% of the country's electricity generation with hydrogen and ammonia by 2030. The government also aims to lead the establishment of global standards for environmentally friendly hydrogen production methods and support the construction of supply chains.

 

 

The government has announced a draft plan for future measures to address the declining birthrate. The plan includes making child-rearing allowances available regardless of income, creating a system that allows the use of childcare facilities regardless of employment status, and establishing a mechanism to guarantee 100% of take-home pay during childcare leave under certain conditions.

If the decline in birthrate continues, it could undermine the economy and social security. The plan focuses on three pillars: strengthening economic support, expanding childcare services, and promoting work-style reforms. The government will work intensively on these measures for three years starting in FY 2024. The plan includes expanding the child-rearing allowance, reviewing the standard for the number of childcare workers, and increasing the rate of men taking childcare leave.

The financial resources for these measures will be discussed by a related cabinet meeting to be established in April, led by Prime Minister Fumio Kishida. The basic policy for economic and fiscal management and reform to be compiled in June will outline the framework for doubling the child budget.

 

 

The National Tax Agency has compiled a view on whether to impose taxes on foreign companies that have completed registration in response to the issue of overseas IT giants that were not registered in Japan. Under certain conditions, such as when the "representative" in Japan does not have decision-making power in the business, corporate tax may not be imposed.

Some overseas IT companies have avoided registering to evade corporate tax liabilities. However, under Japanese law, foreign companies that operate continuously in Japan are required to register their overseas headquarters in Japan. The Ministry of Justice and the Ministry of Internal Affairs and Communications have issued warnings to 48 overseas IT companies for violating registration obligations. By not registering, victims of defamation lawsuits had difficulty obtaining information from offenders. Currently, over 40 companies, including Facebook, Twitter, and Google, have registered. 

However, taxation remains an issue, as many companies have generated profits from Japanese consumers, but are not subject to taxation under the current system. A new taxation method called "digital taxation," which was agreed upon by approximately 140 countries and regions in 2021, may provide a solution. This new method allows taxation even if there is no physical business presence. 

 

 

The government is considering increasing the benefits for parental leave to encourage more fathers to take advantage of the system known as "papa care leave." Currently, parental leave only covers a portion of the individual's income, leading to some individuals being hesitant to take advantage of the program.

 

The government is proposing to increase the benefit amount to cover 100% of the income for a certain period, possibly one month. In addition, the government is also considering increasing the benefit amount for men who take papa care leave from 67% to 80% of their income. The government hopes that these changes will make it easier for families to take care of their children and address the issue of declining birth rates in Japan.

 

The government also aims to increase the target rate for fathers taking parental leave from 13.97% in 2021 to 50% in 2025 and 85% in 2030. However, the government has yet to determine how to secure funding for the increased benefits.

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