New government policies rattle corporate Japan

Proposals by Japan's new ruling party to slash greenhouse gas emissions may trigger a shake-out in smokestack industries like paper, cement and steel, but boost firms investing in solar and other green technologies.

A Democratic Party pledge to cut emissions by 25 per cent from 1990 levels by 2020 is one of several proposals causing a stir across businesses.

Another is a plan aimed at banning most temporary factory workers. Corporate executives say that could hit profits and push more investment overseas.

The emissions target, reiterated by DPJ leader Yukio Hatoyama this week, is more ambitious than other industrialised nations, which are aiming for average cuts of 10-14 per cent.

Mr Hatoyama said it was premised on other major nations agreeing ambitious goals, but it may still be difficult to get industry buy-in as businesses fear it could dent Japan's corporate competitiveness.

"Japanese manufacturers would need to cut back their production activity," said Hanako Mizuguchi, strategist at Daiwa Research Institute. "The burden could be especially heavy for manufacturers that consume a lot of energy such as cement and paper."

Mr Mizuguchi said the plan, if approved, could trigger consolidation in fuel-guzzling industries, where major players include Nippon Steel Corp, Taiheiyo Cement Corp and Oji Paper Co.

The Institute of Energy Economics, a Japanese research firm, estimates steel output would be 18 per cent lower in 2020 than it has forecast based on existing emissions cuts targets, while cement and paper production would fall 25 per cent and 29 per cent, respectively.

Although the ambitious target could help nurture technology such as the solar power panels being made by electronics group Sharp Corp and oil refiner Showa Shell Sekiyu KK, it could cost Japan more than $2 trillion by 2020, based on government estimates.

Keio University Associate Professor Koji Nomura added it could reduce Japan's GDP by about 5.6 pecent in the next 10 years.

Industry opposition has spread, and even automakers, whose hybrid vehicles and electric cars stand to benefit from the tough regulation, have expressed concern.

"It would be difficult to reach the target with our current business plans," said Honda Motor Co President Takanobu Ito.

The DPJ's proposed ban on sending temporary workers to manufacturing jobs is an added concern.

The system has been criticised as adding to instability in the workforce, and runs counter to DPJ policy to stimulate domestic consumption by putting more money in the hands of consumers.

But it has helped Japanese manufacturers slash their fixed costs and earn record profits for four straight years until the financial crisis struck.

"Even high value-added products are beginning to become less profitable if they are made in Japan. Banning temporary workers could further push the movement of transferring factories," said Ryusuke Katsura, a senior analyst at Mizuho Securities.

Temps are less expensive to hire and relatively easy to lay off. According to Ryuichi Shimizu, an executive at a staffing service industry lobby, temporary labour costs are about a third of those of full-time employees.

Corporate executives also question the idea. "I don't quite agree with banning temporary workers," said Masamitsu Sakurai, chairman of office equipment maker Ricoh Co. and the Japan Association of Corporate Executives.

"It has sustained the country's economic growth and diversified ways of working."

According to Japan's Ministry of Internal Affairs, around 400,000 temporary jobs have been cut as the financial crisis has battered demand for all kinds of goods, triggering record high jobless levels. Japan currently has around one million temporary workers.

A ban on manufacturing temps could hit the electronics sector harder than Japan's big automakers, as it has less room to absorb higher labour costs, said Japan Research Institute economist Hisashi Yamada.

Personal computers and digital cameras are less profitable than cars as they have a shorter lifespan and their prices fall faster.

Tougher rules on temporary workers could see firms shift plants overseas to where labour costs are low enough to compete against products from emerging countries.

Japanese electronics makers have already exported assembly plants for home appliances and are starting to transfer output of more value-added products such as semiconductors and LCD TV panels.

IT service provider Fujitsu Ltd is to outsource production of next-generation logic chips to Taiwan's TSMC, while flat TV giant Sharp Corp plans to make LCD TV panels in China with local companies.