Japan Economy News

Within months after after the hoffific quake, Japan's government approved three supplementary spending budgets totalling some 18 trillion yen ($20 trillion) for the reconstruction of disaster affected areas -- the most severely hit being the Fukushima, Miyagi and Iwate prefectures in the Tohuku region of northern Japan. A fourth extra budget, of 2.5 trillion yen ($2.75 trillion), primarily aimed at boosting business, was recently approved. Funds were earmarked to help small businesses obtain loan guarantees to rebuild, and finance green vehicle promotion programmes as the country stares down energy challenges due to the meltdown of the Fukishima nuclear power plant during the tsunami. But there is still a mountain of challenges. The traditional patience of the Japanese people has been tested, as evacuees have been forced to endure tough living conditions. In the dilapidated coastal area of Tohuku, 23,600 hectares of prime farmland was left uncultivable by the tsunami, and the agriculture and fisheries industries, a major source of jobs, have been destroyed. What's worse is that Japanese exports now face the scrutiny of an international community which remains wary of possible radiation exposure. (jamaicaobserver.com)

2075 scenario: The consumption tax is 17.1 percent just to keep the pension system afloat. This is according to apparently leaked provisional calculations made by the Democratic Party of Japan-led government as part of pension reforms to get the top opposition forces, the Liberal Democratic Party and New Komeito, to discuss the tax hike bugbear. The DPJ hopes to sell the public on phasing in consumption tax hikes until the levy is 10 percent by fiscal 2015 to meet the mounting social security costs of the graying and dwindling population. (Japan Times)

Malaysia and Singapore expressed support for Japan's plan to join the U.S.-led trans-Pacific free-trade agreement. Japanese foreign affairs and trade officials met with their Malaysian counterparts Friday for over three hours to gather input on the Trans-Pacific Partnership initiative. Malaysian International Trade and Industry Minister Mustapa Mohamed told reporters Thursday that Malaysia welcomes Japan's participation in the TPP process. Meanwhile, on Thursday, a Singapore Ministry of Trade and Industry representative said after a preliminary meeting between Japanese and Singapore trade officials on the Trans-Pacific Partnership talks that the country welcomes and supports Japan's interest in the TPP. (Japan Times)

Japan's economy likely shrank in the final three months of last year, contracting for the fourth quarter in the past five as the effects of the strong yen, weak overseas demand and flooding in Thailand put the brakes on a nascent recovery. The figures, to be released Monday, are expected to show real gross domestic product shrank 1.6% on an annualized basis in the three months ended Dec. 31, according to the median forecast of 10 economists surveyed by Dow Jones Newswires. The most pessimistic forecast said GDP contracted 2.1%, while the most optimistic predicted the economy shrank 0.6%. (MarketWatch)

Japanese Finance Minister Jun Azumi said on Friday that he had decided to intervene to weaken the yen last year when it hit 75.63 yen against the dollar, making a rare reference to a currency level that prompted authorities to take action. His remarks before parliament stunned market players as policymakers usually refrain from discussing specific levels to avoid giving markets levels that they can test and to keep them guessing about triggers for intervention. The minister said he had instructed his staff in October to intervene when the dollar hit 75.63 yen as the level was judged "perilous" to the Japanese economy and stopped the intervention at 78.20 yen early in November. (Reuters)

Key machinery orders dropped a sharper than expected 7.1 percent in December to ¥733.2 billion, the first decline in two months, affected by weakness in some technology sectors, government data showed. Core private-sector orders, excluding those for ships and from utilities, marked a downturn following a strong 14.8 percent expansion of in November, the data showed Thursday. The seasonally adjusted figure for orders, an indicator of future capital spending by companies, logged a 5 percent fall, also weaker than market forecasts. (Japan Times)

Japan on Tuesday explained to the United States its basic stance regarding the Trans-Pacific Partnership negotiations, saying it will put all items on the table once it joins the multilateral trade framework, a senior Japanese government official said. Japan revealed its stance during the first preliminary talks with the United States in Washington on its bid for full participation in TPP negotiations. According to Takeshi Yagi, director general of the Foreign Ministry's Economic Affairs Bureau, politically sensitive items, such as rice, will not be excluded from negotiations. However, in future negotiations, Japan will likely explore the possibility of treating these items as exceptions to tariff eliminations, observers said. (Yomiuri)

Japan's current account surplus shrank sharply last year to its smallest in 15 years as weak exports and surging fuel imports resulted in a rare trade deficit, raising worries about the country's declining ability to fund its huge public debt with domestic savings. The current account balance -- a broad measure of trade and other flows--logged a surplus of 9.6289 trillion yen ($125 billion) in 2011, down 44 percent from the previous year, marking its biggest fall on record, although income from overseas investment still more than offset the trade deficit. The decline in inflows has been heralded by earlier data that showed Japan posted its first trade deficit since 1980 last year as a devastating earthquake in March hurt exports and increased its reliance on fuel imports due to nuclear plant shutdowns. (Reuters)

Everyone thinks of Japan as a nation of savers. Stop the blighters from saving and get them to spend instead, it is often said, and the country's economic woes would be over. In reality, it's a bit more complicated than that. In fact Mrs Watanabe no longer saves that much. The last time I looked, she was down to the sort of pitiful savings ratio we see in the UK and the US. At the vanguard of the ageing process, in fact Japan is moving into that phase of demographics where in aggregate, households may soon be in savings drawdown, rather than further adding to them. But the same is not true of companies. Poor levels of domestic demand means that in aggregate, there is not enough to invest in, even though Japanese companies are big investors in the future. The consequent surplus is recycled into J-bonds instead, where it finances the deficit. (telegraph.co.uk)

The central government has decided to start construction work on three sections of three planned Shinkansen bullet train lines - the Shin Hakodate-Sapporo section of the Hokkaido Shinkansen Line, the Kanazawa-Tsuruga section of the Hokuriku Shinkansen Line and the Isahaya-Nagasaki section of the Kyushu-Nagasaki Shinkansen Line. The construction of the new Shinkansen sections, whose total cost is estimated at ¥3.01 trillion, could cause problems for the central government, local governments concerned and local residents. Since the central government and local governments along the planned Shinkansen lines cannot attain tax revenues large enough to cover the construction costs, the government decided to siphon the fees Japan Railway companies pay to the Japan Railway Construction, Transport and Technology Agency for use of Shinkansen tracks owned by the agency. (Japan Times)

Japan's foreign exchange reserves hit a new record of USD 1.307 trillion at the end of January, up 0.8 percent from the previous month, the Finance Ministry said Tuesday. The previous record was USD 1.305 trillion posted in November. The reserves marked the first increase in two months and remained the world's second-largest after China, according to the ministry. The increase was also attributed to valuation gains in the government's holdings of the US Treasuries, as lower interest rates in the US drove bond prices higher, the ministry said. Other factors included a rise in gold prices. (kuna.net.kw)

Within the Japanese business community there are whispers of a sense of paralysis or "hopelessness", and the fear that if decisive action is not taken, some of the companies that were the engine for Japan's postwar growth could fall into irreversible decline. "Japanese companies cannot keep doing what they have been doing," says Hiroshi Mikitani, the founder of e-commerce giant Rakuten, equivalent to the Japanese version of Amazon.com The country's electronics sector has been hit by the success of South Korea's Samsung and LG, which assemble products in lower-cost countries such as China, Indonesia and Thailand. (zimbabwemetro.com)

The 'Santa Claus' rally in global equity markets towards the end of 2011 has extended well beyond the first few weeks of January. The broadbased S&P 500 index is approaching its 2011 highs on the back of better-than-expected jobs data released on Friday and the US Federal Reserve mandate to keep interest rates near zero until 2014. European markets too have been moving up along with the euro, which is again above the key 1.3 level versus the dollar, as European leaders are finally sending out a strong message that they are serious about resolving the sovereign debt crisis. Inflation in emerging market heavyweights China and India is believed to have peaked out and interest rate easing cycle is set to begin. But looking further east, things are not looking so bright in the land of the rising sun - Japan, which faces a lot of headwinds and fundamental challenges in 2012. (firstpost.com)

The government is strengthening its economic diplomacy by utilizing foreign exchange holdings to help stem Europe's ongoing financial crisis and prevent sharp declines in the value of Asian currencies. The expanded use of the foreign exchange reserves is also aimed at addressing criticism that the huge amount of funds are not being used effectively, observers said. The government had used most of its foreign exchange reserves to buy U.S. Treasury bonds, which are regarded as a safe investment. But faced with increasing international requests for the nation's contribution to resolve the European sovereign debt crisis, the government has started using its foreign exchange pool to contribute to the International Monetary Fund's plan to expand financial resources. (Yomiuri)

Demand has risen at every note and bond auction in Japan this year, helping the nation maintain the world's second-lowest borrowing costs on a debt burden poised to exceed ¥1 quadrillion. Last week's sale of 10-year notes attracted bids for 3.72 times the ¥2 trillion offered, the highest so-called bid-to-cover ratio since April. It was the sixth-straight sale of debt this year where demand increased, boding well for Thursday's auction of 40-year bonds, the longest maturity. The benchmark 10-year yield slid to 0.94 percent on Feb. 3, within 0.5 basis point of the 14-month low reached in January. (Japan Times)

Citing an international trend to clamp down on risk-taking that could lead to financial disasters similar to the 2008 collapse of Lehman Brothers, banks will soon be required to disclose the salaries of employees who earn as much as board members do, a Financial Services Agency official said Monday. Starting in July, banks will have to disclose how many such employees they have and their collective salaries each year, FSA Supervisory Bureau official Tsuyoshi Saito said. It "will be up to each bank" to disclose any further information, he said. "We are doing this as part of an international movement to prevent banks from linking too much of an employee's salary to performance," Saito said. (Japan Times)

The Japanese economy, which has been suffering from a huge national debt for a long time, could see a sovereign downgrade this year, many experts say. Amid such fears, they warn of the prospects of the yen and Japanese Treasury bonds plummeting. The yen and the bonds have been considered safe assets since the 2008 global financial crisis. To restore fiscal soundness, Tokyo is mulling measures such as tax reform, but has failed to win over global investors due to poor political leadership. The collapse of the Japanese economy will have a negative impact on the Korean economy through an outflow of Japanese funds, according to experts. (donga.com)

The Bank of Japan (BOJ) should be ready to expand monetary stimulus and intervention is an option if the yen moves excessively, an IMF official said in Tokyo. "Intervention could be an option," if yen moves are too large, Naoyuki Shinohara, a deputy managing director, said yesterday. "Japan's economy has many downside risks, so depending on the circumstances, the BOJ should always be ready to expand quantitative easing." The central bank kept its asset-buying fund at ￥20 trillion (US$260 billion) and its credit-lending program at ￥35 trillion on Jan. 24 while cutting its forecast for the nation's growth. A yen near post World War II highs against the US dollar is eroding exporters' profits just as faltering global growth undermines demand, with Panasonic Corp yesterday forecasting a record loss for the 12 months ending March. (Taipei Times)

In 1991, former MIT dean Lester Thurow wrote that "If one looks at the last 20 years, Japan would have to be considered the betting favorite to win the economy honors of owning the 21st century." He wasn't alone. The standard view of the 1980s held that Japan's sway over the world economy was unbreakable. Its economy grew faster. Its corporations were more efficient. Its workers more productive. In 1988, former Reagan official Clyde Prestowitz warned: "The American century is over. The big development in the latter part of the century is the emergence of Japan as a major superpower." Such comments are now ridiculed relentlessly by analysts and commentators, including myself. Japan, after all, did not boom. Far from overtaking the United States, its economic growth stagnated for two decades, its stock and housing markets collapsed, and its government entombed itself in debt. Twenty years ago, Japan was synonymous with the phrase "juggernaut." Today, it's often seen next to the phrase "lost decade." America should take notice, we hear these days. If we don't get our act together, we could be in for a lost decade or two just like Japan. (Motley Fool)

Detroit automakers are urging President Barack Obama to reject Japan's bid to join talks on a regional free trade agreement, the head of an automotive group representing GM, Ford and Chrysler said on Thursday. "Adding Japan to the Trans-Pacific Partnership negotiations will lengthen those negotiations ... by years and perhaps keep them from ever coming to fruition," Matt Blunt, president of the American Automotive Policy Council, told Reuters. While Detroit automakers support Obama's goal of creating a free trade pact in the Asia Pacific, they do not believe U.S. negotiators can dismantle "non-tariff" measures Japan has long used to keep U.S. autos out of its market, said Blunt, a former Republican governor of Missouri whose father is a U.S. senator. (Reuters)