Category Archives: Japan

Japan update

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Looks to me they are at least as afraid of becoming the next Greece as they are afraid of nuclear contamination.

I have seen no statements about ‘spending what it takes’ to secure the safety of the world’s population and to rebuild their nation.

The prime minister isn’t saying that, probably because of his concerns about finance.
He probably believes that Japan is dependent on lenders and may be at a tipping point with a 200% debt to gdp level.
He likely believes that with one false move the government’s ability to spend could be cut off.

In fact, they have been floating trial balloons about this being the right time for a new consumption tax to pay for any rebuilding.

In fact, and ironically, the actual risks of a major yen spending initiative that did substantially increase their deficit spending is not solvency but inflation. A massive rebuilding effort would have a good chance of raising the measured inflation rate a few points, and send the currency lower as well.

Both of which they have been desperately trying to accomplish, largely with ‘monetary policy’ that has yet to restore aggregate demand to full employment levels and promote real growth after nearly two decades of near 0 rates and massive QE initiatives.

And I still don’t see how any of this makes the yen stronger.
The repatriation story is nonsense, so if that’s what’s been driving prices watch for a sharp reversal.

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Japan- economic ramifications

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Nothing much to say here about the financial aspects. Need to see how they react.

Best I can tell this doesn’t effect the world economy all that much.

Oil demand may initially fall some, due to a temporary reduction in consumption and maybe a refinery shut down. And domestic demand in general may fall until the rebuilding starts.

The power lost by the nuclear plants shutting down may amount to maybe 1-2% of total electric power consumption, and will be replaced but a combo of different sources.

Replacing the nuclear plants will cost something but not a lot in the scheme of things, and the new ones are even safer than the older ones, which seem to have help up reasonably well, especially considering the extreme stresses.

Govt deficit spending may go up by a small % of GDP as will the spending of insurance company and other private reserves.
And insurance companies then replenishing their reserves does the reverse.

I’d guess they govt will direct most of the rebuilding contracts to domestic companies.

I don’t see anything that makes the yen stronger?

Japan should have more than adequate resources of all types immediately available as emergency services, shouldn’t need any help from anyone, though for political purpose they will certainly accept it.

They’ve been saying for years there’s nothing left for govt to buy, so they must have thousands of emergency helicopters, millions of emergency temporary housing trailers, etc. etc. ready to go?

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Japan Consumption Falls In Dec As Deflation Persists

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And now the Prime Minister has vowed to tighten fiscal policy.

The only open avenue (the way they see the world) is buying fx.

And note that they’ve already started buying some dollars and have been welcomed by the euro zone to buy their national govt debt.

Consumption Falls In Dec As Deflation Persists

TOKYO (Dow Jones)–Japanese consumers remained downbeat in December, as deflation persisted and the employment situation remained mixed, data released by the government Friday showed.

 
Taken together, the figures are the latest sign that the economy will have to rely largely on exports to fuel growth as conditions remain dreary at home.

 
All household spending fell 3.3% from a year earlier in December, the Ministry of Internal Affairs and Communications said. The drop was considerably worse than the median forecast for a 0.6% fall tipped by economists surveyed by Dow Jones Newswires and the Nikkei. It was also sharper than a 0.4% fall in November.

 
In another sign that consumers remained hesitant to spend, retail sales fell 2.0% in December from a year earlier, data from the Ministry of Economy, Trade and Industry showed. The decline was mostly due to a sharp drop in auto sales, which fell by 24.1% in the month following the end of government purchasing incentives. Sales at large-scale retailers fell 1.8% from a year earlier, after adjustment for the change in the number of stores.

 
Highlighting the continued deflation, Japan’s core consumer price index fell 0.4% from a year earlier in December, Ministry of Internal Affairs and Communications data showed. While the result was slightly better than the 0.5% expected by economists, it marked the 22nd straight monthly decline, underscoring how entrenched the country’s deflation problem remains. Core prices, which exclude volatile prices of items such as fresh food, fell by 0.5% in November.

 
The slight easing in the price falls, moreover, stems from rising energy prices, which may only hurt individual spending down the line, economists said.

 
Higher energy and natural resource prices, if they are reflected in the price of consumer goods, “may lead to people cut back on consumption when circumstances surrounding households are already severe,” said Atsushi Matsumoto, an economist at Mizuho Research Institute.

 
Even with the upward pressure on prices, Matsumoto said it will be difficult for Japan to get out of deflation in the next fiscal year beginning in April, despite Prime Minister Naoto Kan’s government setting that timeframe as a goal.

 
Meanwhile, despite a fall in Japan’s jobless rate to 4.9% in December from 5.1% in the previous month, the closely watched jobs-to-applicants ratio was unchanged at 0.57. That number, which means there are only 57 jobs for every 100 job applicants, shows that firms have yet to ramp up hiring despite improvement in earnings.

 
“The jobless rate did show some improvement, but we need to remain very cautious as it’s still close to 5%,” a Ministry of Internal Affairs and Communications official briefing reporters said.

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Japan Vows to Push Fiscal Reform after S&P Downgrade

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The one nation that was at least sort of moving towards at least some proactive fiscal expansion may no longer be doing so.

Following through with this would make the yen fundamentally stronger (harder to get).

I singled out David Beers of S and P for criticism only because he does understand the difference between ability to pay and willingness to pay with regard to currency issuers vs currency users.

And Prime Minister Kan’s remarks couldn’t be more out of paradigm:

Japan Vows to Push Fiscal Reform after S&P Downgrade

 
Japanese leaders vowed on Friday to push ahead with tax reforms needed to rein in bulging public debt, but doubts persisted over whether the government could succeed in the face of a divided parliament.

 
Rating agency Standard and Poor’s cut Japan’s long-term debt rating on Thursday for the first time since 2002 while the International Monetary Fund had harsh words for Washington and Tokyo, saying they need to act urgently to cut their deficits.

 
Prime Minister Naoto Kan has made tax and social security reform, including a future rise in the 5 percent sales tax, a priority given the rising costs of Japan’s fast-aging society and a public debt that is the biggest among advanced nations.

 
“The important thing is to maintain fiscal discipline and ensure market confidence in Japan’s public finances,” Kan, who took over in June as Japan’s fifth premier since 2006, told parliament’s upper house.

 
But with Kan’s voter support sagging at around 30 percent, opposition parties which control the upper house have shown little inclination to compromise — something S&P highlighted when explaining its reasons for the downgrade.

 
Kan’s finance minister echoed his stance, saying the government must show its commitment to fiscal discipline, while Deputy Chief Cabinet Secretary Hirohisa Fujii said the government would take S&P’s criticism to heart.

 
“The Japanese government must humbly take the rating by a leading world ratings agency and further deepen its awareness of the importance of restoring fiscal health,” Fujii, a former finance minister, told a news conference.

 
Dropping the Ball?

 
Analysts had said the S&P downgrade could bolster Kan’s campaign for fiscal reform, but the premier initially did little to sell his case, telling reporters after the downgrade was announced that he was “not very familiar with the matter”.

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S&P Cuts Japan Debt Rating to AA Minus

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David Beers at S and P knows better and should be ashamed of himself and his organization for not making it crystal clear that ‘ability to pay’ is not in question, and that downgrading Japan has to be based solely on their assessment of ‘willingness to pay.’

Also note that even with repeated downgrades the term structure of risk free rates remains a function of market perceptions of where the BOJ will set rates down the road, along with a few ‘technicals’ of supply and demand.

S&P Cuts Japan Debt Rating to AA Minus
Published: Thursday, 27 Jan 2011 | 4:02 AM ET
By: Reuters

 
Ratings agency Standard & Poor’s cut Japan’s sovereign debt rating to AA minus from AA on Thursday, warning that Japan’s government debt ratio would continue to rise more than it had previously expected.

 
The agency said it expects Japan’s fiscal deficits to remain high in the next few years, which would further reduce the government’s already weak fiscal flexibility.

 
The outlook on the long-term rating was stable, it said, reflecting its view that Japan’s strong external balance sheet and monetary flexibility partially offset the pressures stemming from the fiscal side.

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Gross misrepresentations

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My comments following Bill Gross’s comments:

I don’t know if the U.S. has reached a desperate point, but it is employing instruments and vehicles and policies that smack of desperation.

He fails to see the function of federal taxes is to regulate aggregate demand, and not to raise revenue per se.

We are not looking at a default here, but at years of accelerating inflation, which basically robs investors and labor of their real wages and earnings.

Apart from the possibility that he’s wrong, and that there will be no accelerating deflation, inflation per se does not make a nation poorer, and does not necessarily reduce real wages and earnings. In fact, real wages could very well be made to increase during an inflationary period. It’s all about policy responses and institutional structure. And as for investors, some will do well and some will do poorly, which most don’t consider an injustice.

We are looking at a currency that almost certainly will depreciate relative to other, stronger currencies in developing countries that have lower levels of debt and higher growth potential.

Maybe and maybe not on both scores.

The dollar may not depreciate.

And lower levels of public debt and higher growth potential do not necessarily mean a currency will appreciate.

For example, Japan has had perhaps the least growth potential and one of the strongest currencies for quite a while, and China has had a policy of keeping its currency weak which has been credited with fostering high growth, etc.

And, on the short end of the yield curve, we are looking at creditors receiving negative real interest rates for a long, long time. That, in effect, is a default.

No, it’s a policy option.

A default is a promise broken.

And there is no national promise by any nation to provide a real return to savers at the short end of the curve.

Ultimately creditors and investors are at the behest of a central bank and policymakers that will rob them of their money.

That’s a serious and groundless accusation of motivation of the Fed.
Robbing implies dishonesty and involuntary confiscation.

However no one is forced by the Fed or anyone else to hold dollars in money market accounts, investors buy securities with known nominal interest rates, and for all practical purposes investors know much the same information regarding inflation as the Fed does.

So when William Gross uses the word ‘rob’ he’s implying the Fed is deliberately publishing false inflation forecasts to trick investors into buying US govt securities at rates lower than if they knew the Fed’s actual inflation forecasts.

I suggest an immediate apology is in order for this groundless, inappropriate, and insulting remark.

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Proposal for Japan and China- buy US state muni bonds!

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My proposal for Japan and China is to announce a plan for each nation to purchase up to $150 billion of US state municipal bonds to help out the US states during these difficult times.

They would be welcomed as rescuers, much like they have been with their announcements to buy securities from troubled euro zone member nations.

While at the same time, buying $US financial assets in the form of state muni debt would work to weaken their currencies vs the dollar and support their export industries.

Doesn’t get any better than that!

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Italian deficit narrows in third quarter

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Now that Japan has an open door to buy euro to ‘help out’ the region’s finances, and the ECB’s funding terms and conditions forcing deflationary austerity measures that continue to bring euro zone deficits down, I’m itching to buy the euro vs the yen.

At some point, however, and maybe as soon as q3 this year, or even sometime in q2, the austerity in the euro zone will fail to reduce deficits and instead the tightening measures will cause growth to go into reverse and deficits to increase, causing fundamental euro weakness.

But until then, the euro remains fundamentally strong, with technicals/one time portfolio shifts causing the sell offs.

Headlines:
Portugal Finance Minister says no need for bailout
Euro May Decline to 2010 Low Against Yen: Technical Analysis
ECB intervenes as debt crisis deepens
Portugal faces growing tensions
Tensions Rise Before Portugal Auction
Germany May Soften Objections to Euro Fund Increase
German 2011 Construction Sales May Drop, HDB Building Lobby Says
German Trade With China Rose to a Record in 2010
French Business Confidence Rose in December for Fourth Month
Italian deficit narrows in third quarter

Italian deficit narrows in third quarter

(FT) Italy’s public budget deficit narrowed in the third quarter of last year, putting the economy on track to hit government austerity targets of about 5 per cent of gross domestic product in 2010. As a result of austerity measures passed in December, Italy is targeting a public budget deficit of 3.9 per cent in 2011 and 2.7 per cent in 2012. Debt is expected to peak at about 120 per cent of gross domestic product this year, giving the economy ministry little room to manoeuvre. In the third quarter, the public deficit narrowed to 3.2 per cent of GDP compared with 3.9 per cent in the period a year earlier, according to data from the national statistics office. It narrowed to 5.1 per cent of GDP in the first nine months, down from 5.5 per cent a year earlier.

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Japan buying euro bonds

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JAPAN FINMIN NODA: JAPAN WILL BUY EURO BONDS TO HELP BOOST TRUST IN EFSF SCHEME

EURO RISES AFTER JAPAN FINMIN NODA SAYS JAPAN TO BUY EURO BONDS

JAPAN NODA: TO BUY ABOUT 20 PCT OF BONDS PLANNED TO BE ISSUED JOINTLY BY EURO ZONE LATER THIS MONTH

Japan Joins China in Assisting Debt-Crisis-Hit Europe

By Toru Fujioka

January 11 (Bloomberg) — Japan plans to buy euro-zone
sovereign bonds, its finance minister said, joining China in
assisting a region hit by a fund-raising crisis.

Finance Minister Yoshihiko Noda told a news conference in
Tokyo today that Japan will use its foreign-exchange reserves to
buy more than 20 percent of bonds to be issued under a special
assistance program to help Ireland.

“It’s appropriate for Japan to make a contribution as a
leading nation to increase trust in the deal,” he said.

China has also expressed support for the euro zone, with
Vice Premier Li Keqiang last week expressing confidence in
Spain’s financial markets and pledging more purchases of that
nation’s debt. Chinese Vice Premier Wang Qishan said on Dec. 21
his nation has taken “concrete action” to help the European
Union address its debt crisis.

The euro climbed immediately after Noda’s comments, rising
as high as $1.2991, before trading at $1.2952 at 11:50 a.m. in
Tokyo.

>   
>   This is being done in an effort to weaken ¥ vs €.
>   

Yes, with the cover of helping the euro zone, just like China, who announced the same a short while ago to lead the way for Japan.

Japan has been actively seeking ways of weakening the yen to support their exporters.

They publicly bought some $ last year, and their US Tsy holdings have been falling, indicating something unannounced has been going on as well.

And their budget was somewhat expansionary.

Weakening the yen like this is one of the things somewhat subtly working to limit US aggregate demand growth, which should be a good thing for us (we can have lower taxes for a give size govt) but unfortunately our leadership simply lets aggregate demand languish.

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