Are Japanese Banks Bailing Out Europe?
Category Archives: Japan
Japan Adopts Stealth Intervention as Yen Gains Hurt Growth
Japan traditionally bought $ and built it’s fx reserves to support its exporters.
It was finally Tsy Sec. Paulson who shamed them into suspending their $ purchases by calling Japan, China, and others ‘outlaws’ and ‘currency manipulators’ in what was then, functionally, an attempt at a ‘weak dollar’ policy.
The current administration, however, is on the defensive with regards to the dollar, under attack from political adversaries for allowing the Fed to ‘print money’ and ‘debase the currency’ even as the dollar has been reasonably strong.
So Japan has been testing the waters first with an announced ‘one time’ intervention in response to the earthquake, which didn’t attract the name calling of the prior US administration, and now with the announcement of ongoing intervention.
Seems to me its highly unlikely the US administration will respond negatively which would support their opposition’s ‘currency debasing’ labeling. So I expect Japan to continue to sell yen in an orderly fashion at least until they strike a US nerve.
Japan Adopts Stealth Intervention as Yen Gains Hurt Growth
By Monami Yui and Shigeki Nozawa
Feb 7 (Bloomberg) — Japan used so-called stealth intervention in November as the government sought to stem yen gains that hammered earnings at makers of exports ranging from cars to electronics.
Finance Ministry data released today showed Japan conducted 1.02 trillion yen ($13.3 billion) worth of unannounced intervention during the first four days of November, after selling a record 8.07 trillion yen on Oct. 31, when the yen climbed to a post World War II high of 75.35 against the dollar. The currency’s strength has eroded profits at exporters such as Sharp Corp. and Honda Motor Co., just as faltering global growth undermines demand.
“Japan has clearly shown its intention to stop a further appreciation of the yen, and there is a high chance” for more yen selling, said Hideki Shibata, a senior strategist for rates and foreign exchange at Tokai Tokyo Research Center Co. “Caution against intervention has increased in markets.”
November’s unannounced yen sales were the most effective strategy to weaken the currency, said a Japanese official who spoke to reporters in Tokyo today on condition of anonymity. Finance Minister Jun Azumi said he won’t rule out any options to curb the yen’s appreciation and that he will take action whenever necessary.
Exporting ‘Nearly Impossible’
His comment came a week after Sharp, Japan’s largest maker of LCD panels, forecast its worst annual loss since its founding a century ago, with its president saying exporting is “nearly impossible” with the strong yen. Panasonic Corp., Japan’s biggest appliance maker, forecast a 780 billion yen loss, the worst since the Osaka-based company was established in 1918.
Honda, the nation’s third-largest automobile maker, forecast on Jan. 31 net income for the 12 months ending March will decline to a three-year low of 215 billion yen. The company estimates its operating income is cut by 15 billion yen for every one yen gain against the dollar.
The Bank of Japan last month lowered its forecast for economic growth to 2 percent in the year starting in April from an October estimate of 2.2 percent, citing a slowdown overseas and the stronger yen.
The U.S. Treasury Department criticized Japan in a December report for unilaterally selling its currency in August and October, saying the Asian nation should focus on steps to “increase the dynamism of the domestic economy.” Intervention is an option if the yen moves excessively, Naoyuki Shinohara, a deputy managing director at the International Monetary Fund, said in an interview in Tokyo on Feb. 3.
U.S. Criticism
“Coming under growing criticism from overseas, Japan couldn’t openly intervene in the markets,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “Japan had to choose stealth intervention from the very few options to deal with increasing pressure within the country.”
Intervention is defined as “stealth” when it’s done without any finance ministry announcement, he said.
The yen sale in October was the biggest intervention on a monthly basis in data going back to 1991, while sales totaled 14.3 trillion yen in 2011, the third-largest annual amount, ministry data also showed.
No New Tactics
“We do not believe that the intervention over a period of several days by Japanese authorities signals a significant shift in tactics compared to previous interventions,” Osamu Takashima, Issei Suzuki and Todd Elmer, foreign-exchange strategists at Citibank Japan Ltd. in Tokyo, wrote in a note to clients today. “Investors may be inclined to sell into any renewed bout of intervention on USDJPY on a breakdown beneath recent range lows.”
The first intervention of 2011 was a 692.5 billion yen sale on March 18, when the Bank of Japan led a coordinated effort with Group of Seven nations to counter a jump in the yen after a record earthquake struck Japan a day earlier, stoking speculation companies would repatriate overseas assets to pay for rebuilding. Current Prime Minister Yoshihiko Noda, who was finance minister at the time, ordered the nation’s central bank to intervene again unilaterally on Aug. 4.
The yen reached 76.03 per dollar on Feb. 1, the strongest since Oct. 31. It traded at 76.72 as of 2:33 p.m. today in Tokyo.
Japan Sees Its Public Debt Exceeding A Quadrillion Yen Next Year
THEN they’ll be the next Greece…
Japan Sees Its Public Debt Exceeding A Quadrillion Yen Next Year
Jan 26 (Bloomberg) — Japan’s Finance Ministry said the country’s public debt will probably exceed a quadrillion yen for the first time next year, adding pressure on Prime Minister Yoshihiko Noda to raise taxes to restore the nation’s finances.
Japan Fiscal Pressure Rises as Tax Increase Not Enough
Good luck to them:
Prime minister Yoshihiko Noda told parliament that he will move to double sales tax to 10pc, saying the future of the world’s third-largest economy depends on tackling its massive public debt.
Mr Noda said the country has “no time to spare” in cutting its fiscal burden.
“It’s impossible for young people to believe that things will get better tomorrow in a society where debts resting on future generations continue growing,” he said. “It is not too much to say that the revival of hope of the entire society depends on the success of this combined reform.”
Japan Fiscal Pressure Rises as Tax Increase Not Enough
By Mayumi Otsuma
Jan 24 (Bloomberg) — Japan’s government said it will probably miss its goal of balancing the budget by 2020 even with its proposed doubling of the sales tax, underscoring the scale of the nation’s fiscal challenges.
The primary budget deficit, which excludes the cost of servicing debt, will be the equivalent of 3.1 percent of gross domestic product for the year through March 2021, the Cabinet Office said in Tokyo today. Hours after the release, Prime Minister Yoshihiko Noda reiterated his call for opposition lawmakers to engage in talks on boosting the sales levy.
Addressing the shortfall through faster growth may be a limited option for Japan, where the central bank has already cut the key interest rate near zero and the traditional boost from a trade surplus last year evaporated — for the first time since 1980. Absent structural changes that boost incentives to spend and invest, today’s report signals further fiscal tightening will be needed to rein in the world’s largest public debt.
“To balance the budget, the rate needs to rise further,” said Takuji Okubo, chief Japan economist at Societe Generale SA in Tokyo, referring to the sales-tax level. “We’ve passed the point where we can soft-land the fiscal situation. The question is how hard the landing is going to be.”
IMF staff on Japan
For another example of really bad analysis from the IMF (2011), see:
“ Raising the Consumption Tax in Japan: Why, When, How?”
http://www.imf.org/external/pubs/ft/sdn/2011/sdn1113.pdfSome quotes from the summary:
“ [IMF] Staff analysis reported here suggests that a gradual increase in the consumption tax [in Japan] dfrom 5 percent to 15 percent over several years—a level that is still modest by OECD standards—could provide roughly half of the fiscal adjustment needed to put the public debt ratio on a downward path within the next several year.”
“Experiences elsewhere, as well as the specific circumstances of Japan, suggest that the strategy for raising the consumption tax be guided by the “four Ss”—it should start Sooner rather than later, be raised by Stepwise increases, Sustained for some time, and retain the very Simple current structure of the consumption tax: [….]”
“Japan’s experience in raising the consumption tax will set an important example for other countries.”
My comments: (1) The IMF staff has not learnt anything from Japan’s own experience in raising tax rates of later 1990s and early 2000s. (2) Start sooner = in the middle of a recession!
Tanweer Akram
Azumi: Not Immune To Europe-Style Fiscal Crisis
And, unfortunately, they are acting accordingly, ensuring another lost decade and further destruction of their culture.
Azumi: Not Immune To Europe-Style Fiscal Crisis
By Kelly Olsen
Jan 18 (Dow Jones) — Finance Minister Jun Azumi said Wednesday that Japan is not immune to a euro-zone style fiscal crisis and that the government is “resolved” to raise the consumption tax to improve the nation’s finances.
Japan is “no exception,” Azumi said during a speech at the Foreign Correspondents’ Club of Japan, referring to the crisis in Europe in light of Japan’s own high debt levels.
Azumi said that although yields on Japanese government bonds are currently low, rates can quickly rise to “cause problems.”
“We cannot avert our eyes” from the problem of Japan’s outstanding debt, he said, which at around 200% of gross domestic product is the highest in the industrialized world.
Azumi said the government is resolved to raise the consumption tax rate to help bring the country’s finances under control, but acknowledged the difficulties in getting the legislation passed, saying it is “like climbing Mt. Everest.”
Prime Minister Yoshihiko Noda aims to submit legislation to double the tax to 10% by 2015 to a parliamentary session set to begin next week, though the unpopular move is opposed by opposition parties and has sparked defections from Noda’s ruling Democratic Party of Japan.
How about rotating the BOJ governors with the FOMC? ;)
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the Fed and the dollar
Imagine being on the FOMC and in the mainstream paradigm
In 2008 you moved quickly to make sure the US would not become the next Japan
You cut rates to 0, even faster than Japan did.
You provided unlimited liquidity to the dollar money markets,
both home and abroad.
You did trillions of QE, sooner than Japan did.
You announced you expected rates to stay down for two years.
etc. etc. etc.
And what do you have to show for it, 3 years later?
GDP marginally positive, much like Japan
Inflation working its way lower to Japan-like levels, especially housing and wages.
Employment stagnant a la Japan.
And now, after 3 years of 0 rates, and trillions of QE, the dollar is going up, much like the yen did.
After the Fed has done all it could think of to reinflate, and then some.
And all just like MMT suspected.
And for what should be obvious reasons.
Noda’s ‘Urgent’ Task Is Tax Rise as Japan Debt Load Swells
Noda’s ‘Urgent’ Task Is Tax Rise as Japan Debt Load Swells
Dec 26 (Bloomberg) — Prime Minister Yoshihiko Noda’s next task is securing support for a higher sales tax after Japan’s budget for the next fiscal year showed a record dependence on borrowing to fund government spending.
The government will sell 44.2 trillion yen ($566 billion) of new bonds to fund 90.3 trillion yen of spending, raising the budget’s reliance on debt to an unprecedented 49 percent, a plan approved by the Cabinet in Tokyo on Dec. 24 showed. While spending will decrease for the first time in six years, Noda will delay funding the nation’s pension fund and will create a separate budget account to pay for earthquake reconstruction.
An aging population and two decades of low growth after an asset bubble popped in the early 1990s have left Japan with debt projected at a record 1 quadrillion yen this fiscal year. Noda faces opposition from the public and within his Democratic Party of Japan to increasing the levy even as Standard & Poor’s considers further cutting the nation’s credit rating, reduced in January to AA-.
“The government should hike the consumption tax rate and cut social security spending as soon as possible,” said Masaaki Kanno, chief economist at JPMorgan Chase & Co. and a former Bank of Japan official. “This is urgent. We do not have the luxury of losing any more time.”
About 53 percent of voters oppose an increase, with a third saying Noda should call an election before such legislation, news service Jiji Press said last week, citing a Dec. 9-12 survey of 2,000 people. The DPJ lost its majority in the upper house of the parliament last year after then-Prime Minister Naoto Kan campaigned on a pledge to cut spending and raise the 5 percent sales tax.
‘Constituents’ Purses’
DPJ lawmakers with weak electoral majorities may be “tempted to vote for their constituents’ purses” by opposing an increase, said Jun Okumura, a former Japanese trade ministry official and a consultant at the Eurasia Group risk consulting firm in Tokyo.
While Japan’s gross domestic product grew an annualized 5.6 percent in the three months ended September as demand picked up after the March 11 earthquake, the pace will probably slow. The median estimate of 11 economists surveyed by Bloomberg News is for growth of 0.42 percent this quarter. Of the 10 polled this month, five predict GDP will shrink.
Gains in the yen are weighing on growth by eroding exporters’ profits, a factor cited by Moody’s Investors Service in cutting the rating outlook for Toyota Motor Corp. on Dec. 22. Europe’s debt crisis is reducing demand for the nation’s products, while earthquake reconstruction costs will swell spending. The yen traded at 78.09 per dollar on Dec. 23 after touching a post-World War II high of 75.35 on Oct. 31.
Sales Tax Plan
Noda’s party will today present a plan for raising the sales tax, lawmaker Shinichiro Furumoto said last week. The ruling coalition plans to raise the rate to 8 percent in October 2013 and 10 percent in 2015, Kyodo News reported Dec. 21, citing government sources.
The International Monetary Fund says a gradual increase to 15 percent “could provide roughly half of the fiscal adjustment needed to put the public-debt ratio on a downward path.” Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo, advocates boosting the tax to “at least” 20 percent.
‘Not Normal Times’
Former DPJ leader Ichiro Ozawa and Shizuka Kamei, the head of the People’s New Party, a coalition partner, aim to head off the move. Kamei said this month that “we’re not in normal times, and it’s folly to be playing around with the tax system.”
So far, Japan’s debt burden hasn’t impeded the government’s ability to borrow, with 10-year bond yields poised to close below 1 percent for the first year since 2002.
Noda’s spending plan for the year starting April includes a 3.8 trillion yen special account for reconstruction spending.
Besides the consumption tax, a government panel proposes increasing the highest personal income tax rate to 45 percent from 40 percent by the middle of this decade.
“Japan’s government is proposing the right remedies for the country’s fiscal debt problems, but the speed is too slow and we can’t be confident that the measures will actually be implemented,” said Hitoshi Suzuki, a senior researcher of Daiwa Institute of Research in Tokyo.
Tokyo-based Ratings & Investment Information Inc. cut Japan’s rating for the first time on Dec. 21. S&P has a negative outlook for the nation and said last month that a downgrade may be getting closer after insufficient progress in tackling a public debt burden that is the world’s biggest.
Japan’s structural deficit “is completely out of whack because of increasing social security demands and costs,” Schulz of Fujitsu said last week. “If the government remains lazy in terms of hiking the consumption tax rate, it’s just a matter of time before the very obedient Japanese investors are no longer happy to finance the deficit.
Japan To Buy Chinese Govt Bonds Under Bilateral Pact
This is peculiar.
This supports the yuan vs the yen,
supporting Japan’s exports to China.
Could be more evidence of China’s inflation concern?
Japan To Buy Chinese Govt Bonds Under Bilateral Pact
TOKYO (Nikkei) — Japan will likely purchase yuan-denominated bonds issued by the Chinese government under a proposed bilateral currency and financial agreement, The Nikkei learned Monday.
Japanese and Chinese officials are working out plans to have the pact signed when their leaders meet for a summit this coming Sunday. The agreement will be pillared on the purchase of Chinese government bonds using Japan’s foreign exchange fund special account, along with the joint establishment of a green investment fund.
Japan seeks to diversify its forex fund special account, which now focuses on dollar investments. It also aims to strengthen economic cooperation with China by supporting that nation’s efforts to turn the yuan into a more international currency.
The bond purchases may total up to 10 billion dollars’ worth, or roughly 780 billion yen, with buying carried out in stages through the special account.
The Chinese government counts Japanese government bonds among its foreign-currency reserves. Through cross-holding of bonds, Japan and China will be better poised to exchange information on financial developments in the bond market and elsewhere.
The Japanese government also plans to aid Chinese efforts to nurture an offshore market for yuan-denominated transactions.
The proposed joint fund for environmental investment would feature the participation of the Japan Bank for International Cooperation and private-sector companies from the Japanese side. Details of the fund’s size and investment percentages are to be fleshed out in the near future.
Thailand and Nigeria are among the countries that hold yuan-denominated government bonds through their central banks. Tokyo and Beijing believe that having a developed nation like Japan maintain a certain amount of yuan-denominated holdings may help lift the Chinese currency’s standing on the international stage.
China’s government bond offerings totaled 1.4 trillion yuan in 2009, up 55% on the year.
Such issuances have recently increased in Hong Kong. Overseas investors can acquire government bonds issued on the mainland, but regulations — including a ceiling on purchase amounts — remain strict. top
China Bond Purchases Could Help Ties: Finance Minister
Japan To Buy Chinese Govt Bonds Under Bilateral Pact
TOKYO (NQN) — Finance Minister Jun Azumi on Tuesday confirmed a report that Japan is considering buying Chinese government bonds, arguing that such purchases will offer the two countries significant advantages while strengthening bilateral economic ties.
At a news conference after a Cabinet meeting, Azumi said Japan should hold yuan-denominated bonds as a means of strengthening diplomatic relations.
Azumi said no official decisions have been made on the matter, and that Tokyo will discuss the issue at a future Japan-China summit. He also suggested that the two nations may be able to strike an agreement when Prime Minister Yoshihiko Noda visits China.