Expenses for Business Entertainment Exceed the Defense Budget in Japan

After a difficult day at the office, the Japanese businessman steered his client into a night club, found a table and sat for a moment savoring the aura of subdued opulence.

At that point, before even ordering a drink, the businessman was $240 poorer than when he walked in.

A demurely clad hostess slid over, took a seat, poured some Scotch. The bill started climbing like a scrambled jet fighter.

“Sometimes a client will leave here with a bill for 800,000 yen ($3,200),” reflected Yoko Nakayama, who runs The Dolphin Club in the heart of the Ginza entertainment district. She displayed a bottle of cognac wrapped in purple velvet.

“This costs 400,000 yen ($1,600). A customer buys it and we keep it for him on the shelf. Apart from drink, the charge for occupying a seat is 30,000 yen ($120).”

The 30 or so patrons in well-cut business suits seemed oblivious to any thought of bills. They downed the drinks with zest and basked in the rapt gaze of their hostesses.

The scene helped to explain why business expenses in Japan last year came to a record $14 billion, a good 25% higher than the national defense budget.

“Entertaining plays a very important part in Japanese business life,” explained Keiichi Nagamatsu, assistant financial affairs director of the Keidanren (Federation of Economic Organizations).

“In the West, a businessman will often entertain a client in his own home. In Japan, most homes are too small and too far from the city for this. So the entertainment must be in restaurants and night clubs.”

Nagamatsu complained about the clampdown imposed two years ago by tax authorities on all forms of business entertaining.

“Only small companies are allowed to deduct business entertaining from their tax returns,” he said in an interview. “Companies capitalized at below 50 million yen ($200,000) can deduct three million yen ($12,000). Very small companies below 10 million yen ($40,000) can deduct four million yen ($16,000).

Maximum Deductible “Even then there are strict limits. The maximum deductible for a business lunch is 3,000 yen ($12). Cabarets and other luxuries are not deductible.”

Keidanren estimated that about two thirds of total business entertaining was conducted by the smaller firms.

“Even for small businesses, entertaining is very important,” said an antique dealer who declined to be named. “That’s the Japanese way. Without it, you can’t do business here. Unlike in the United States, there is no such thing as ‘business only’.”

“For a small company, business entertaining probably amounts to 20% of its costs. For a giant company, the ratio is much smaller.”

Tax clampdown or not, nearly 2,000 luxury night clubs in the Ginza alone thrive on business entertainment. Another typical one is Club Tsukasa run by Tsukasa Horie.

“Normally we do not permit foreigners in the club,” Tsukasa said, pouring a drink for a foreign visitor.

“We often find they do not understand our Japanese way. When they see the size of the bill, they become unhappy.”

Hostesses in these clubs tend to dress in smart but unprovocative Western clothes. Their garb bears no resemblance to the low-cut, skin-tight dresses favored by bar girls in waterfront drink shops around the world.

Do the Tokyo hostesses go out with customers after hours?

“That is a purely private matter for them,” said Yoko of The Dolphin Club.

The common belief is that many of the hostesses become mistresses to the wealthier clients, hoping for financial backing to set up their own clubs.

One businessman, who declined to be named, estimated that up to 80% of apartments in a fashionable Tokyo district were occupied by mistresses or “nigo” as they are termed.

Many of the more successful hostesses operate as freelances, receiving no wages but taking a proportion of a customer’s bill.

Under this system they are also responsible for the customers’ debts. A hostess must therefore have substantial sponsors before being accepted as a freelance.

In the Hitsugiya Club (the name means “Sheep”), hostess Naomi Namba said most of her customers simply want to air their private problems to sympathetic, beautiful women.

“Problems at home, problems at work, that sort of thing.”

What if his problem was a shortage of money?

“A man with such a problem,” Naomi murmured, “would never get in here in the first place.”