Japan 2005 Yearend Update

With Japan climbing out of economic decline, the years ahead look positive.

By Ron Bailey

In comparison with only one year ago, the macroeconomic climate in Japan has improved considerably. The unemployment rate is at a seven-year low, just above 4%, corporate profits are at record highs, consumer spending has been increasing and the bad loans at Japanese banks continue to decrease. The predictions of a political crisis were not fulfilled, as Prime Minister Koizumi managed to avoid the election losses that were widely anticipated. The Nikkei stock market average is at a level not seen for four years. All in all, a very encouraging recovery is finally underway.

Demographics Update

The Japanese population has now essentially peaked, as predicted, at just fewer than 128 million people as of the end of 2004. The slow decline to a total population of around 100 million by the year 2050 will begin soon. Just under 20% of the population is 65 years of age or older, with official estimates 35% or more in that category by 2050. Life expectancy for both males and females is continuing to slowly increase, with an average life expectancy now just over 82 years of age for males (78+ years) and females (85+ years).

The National Institute of Health and Nutrition (NIHN) annual report summarizing the 2003 national nutrition survey is expected to reconfirm that many Japanese adults are in need of at least modest weight loss. The survey will likely show that adult blood pressure and cholesterol levels are still well above the recommended guidelines for a significant percentage of the adult population. Deficiencies in calcium and iron intake are still much too common, and the government has been aggressively recommending an increased intake of fruits and vegetables for children, as well as adults.

Regulatory Update

The regulations for the FOSHU (Foods for Specified Health Use) category (“Tokuho” in Japanese) have not changed significantly since the report a year ago. However, the long awaited new regulations allowing qualified on-label health claims (“Jyokentsuki Tokuho” or “Controlled Variable Tokuho”) were implemented earlier this year. The new system allows qualified health claims when the data in support of the claims do not reach the level of statistical significance required for FOSHU claims. Depending on the level of claims support, the claims are categorized by letters A, B and C.

If the new system seems complicated, it is. As of early October no qualified health claims had been granted, suggesting that Japanese food companies are trying to determine the marketing value of using such claims. FOSHU status is clearly the most desirable format for making on-label health claims, and that is not likely to change.

FOSHU Category Update

The FOSHU category in Japan has continued to grow, as expected. As of early October 2005, there was a total of 541 FOSHU products on the market, up from only 452 at the end of September of last year. There have been nearly 70 new products approved since the beginning of the 2005 calendar year. A new Japan Health Food and Nutrition Food Association (JHNFA) market status report is expected early next year, and it is likely to show significant FOSHU retail sales increases from the official $5 billion reported in the last official summary for2003. A more detailed analysis of the new FOSHU products approved this year shows some significant trends.

Ingredients: The active “functional ingredients” responsible for the efficacy of the new FOSHU products approved this year include 23 using indigestible dextrin dietary fiber and another five using psyllium husk fiber. Various peptides (nori seaweed oligopeptide, conjugated soy phospholipids peptide, lactotripeptide, sardine peptide, katsuobushi fermented bonito peptide and sesame peptide) are included in 11 of the products. The other approvals include a wide range of oligosaccharides, peptides and proteins and fiber sources.

New ingredients this year include se-same peptide for hypertension, conjugated soy phospholipids peptide to inhibit the absorption of cholesterol and oolong tea polyphenols to suppress the rise in serum neutral fats after a meal.

Health Claims: Generally the health claims approved so far in 2005 are very similar to those already approved at the start of the year, in the categories specified by the Ministry of Health, Labor and Welfare. Some of the products have been able to obtain a second health claim for the same product, but this is not yet common. Psyllium seed husk products approved this year, for example, are allowed to claim both a cholesterol-lowering benefit, as well as a gastrointestinal health benefit (“regulates the intestines”). This follows the success of indigestible dextrin fiber being allowed to claim either gastrointestinal health and/or blood sugar moderation, based on new data submitted as part of the FOSHU application process.

An approximate summary of the claims allowed for the 2005 approvals is as follows, including some double claims for a single product:
• Gastrointestinal health (25 claims)
• Hypertension (14)
• Blood sugar (10)
• Cholesterol (16)
• Fat absorption, triglycerides (7)

Product Forms: As usual, well over one-half of the 2005 FOSHU approvals fell in the realm of soft drinks (including powdered soft drinks). This year, how-ever, the powdered soft drinks were more popular by a 2:1 ratio, a reversal from previous years. Tablet candy forms are increasing in popularity, with six 2005 approvals so far. The other products approved included green and oolong teas, coffee drinks, soymilks, yogurts and lactic acid bacteria drinks, and salad dressings, typical of the mix of FOSHU products approved in past years.

Non-FOSHU Functional Foods

As reported in the October 2005 Japan Insider column, the market for ready-to-drink green, oolong and blended teas continues to grow in Japan. These teas can be considered functional foods. In fact, some of the new product introductions have come on the market as FOSHU-approved brands rather than regular beverages. Soymilk is also showing rapid growth, although from a much smaller base, and some of that growth is for FOSHU soymilk products typically carrying soy protein claims. Chocolates with added polyphenols continue to grow, usually with an adult market focus for darker chocolates with higher polyphenol levels. Paul Yamaguchi of Yamaguchi and Associates reported at the WorldNutra 2005 conference in Anaheim, CA, that overall retail non-FOSHU functional food sales in Japan were $11 billion in 2004, with growth to $25 billion predicted for 2010. This is in addition to the over $5 billion FOSHU market, which he estimates will also more than double by the year 2010.

Expectations for the Future

There is no question that the market for functional foods and nutraceuticals in Japan will continue to grow, most likely at an even more rapid pace. New FOSHU health claim categories will be approved, perhaps not in the next calendar year, but definitely in the foreseeable future. Market size estimates for the potential new anti-stress, anti-fatigue, anti-allergy and weight loss categories are typically much larger than the current FOSHU market. The development of suitable biomarkers to support clinical testing and eventual health claims is underway for these categories and will be science-based. To the extent that the announced transfers of FOSHU technology to other countries (i.e., Kao’s diacylglycerol body fat control product to ADM in the U.S. and more recently Calpis’ lactotripeptide hypertension ingredient to Unilever for EU applications) become market successes, other FOSHU technology transfers will likely occur very rapidly.NW