Disappearing Yield Gap Challenges Azumi Yen Pledge: Japan Credit - BusinessWeek

September 13, 2011, 1:08 AM EDT By Monami Yui, Hiroko Komiya and Kazumi Miura

Sept. 13 (Bloomberg) -- Finance Minister Jun Azumi’s pledge to take “bold actions” on the yen may be put to the test after a rally in overseas bonds reduced their yield advantage over Japanese debt.

Yields on two-year U.S. securities fell to a 19-year low relative to similar-maturity Japanese notes, a gap that has a “relatively high” correlation with the dollar-yen rate, according to Bank of Japan Governor Masaaki Shirakawa. The spread between Japanese and German debt is the narrowest since at least 1990, as the euro plunged to the lowest level in a decade against the yen.

Gains in Japanese bonds have been outpaced by those in the U.S. and Germany amid speculation Greece will default and the Federal Reserve will signal plans to buy longer-dated debt at a meeting starting Sept. 20. Investor demand for a refuge has intensified since last month, when Japan’s biggest currency intervention in seven years failed to stop the yen from appreciating to a postwar record.

“It’s hard to draw a picture of how the yen could weaken unless international interest-rate spreads widen,” said Tomoko Fujii, a senior foreign-exchange strategist at Bank of America Merrill Lynch in Tokyo. “It’s also the fact that intervention may not be enough to change the trend.”

Azumi ended his first Group of Seven meeting this past weekend, saying he “gained an understanding” with his counterparts on a pledge to stem the advance in his nation’s currency.

‘Bold Actions’

“We will continue to closely monitor developments and we will take bold actions, especially against speculative trading,” Azumi said after G-7 finance chiefs met in Marseille, France. “No one was opposed to my explanation.”

The spread between two-year Japanese and Treasury yields shrank to 2.78 basis points on Sept. 9, the least since January 1992, when the difference reached minus 23 basis points. The gap was at 5.8 basis points today, compared with the 11 basis-point level on Aug. 4 when Japan intervened to weaken its currency for the third time in the past 12 months. It was above 60 basis points as recently as April.

The yield spread between Germany and Japan’s two-year notes shrank to 25 basis points Sept. 9, the narrowest in Bloomberg data going back to 1990, and down from 171 in May.

Damage to Exporters

Japanese data last week showed that gross domestic product contracted in the second quarter by more than the government estimated, highlighting the yen’s threat to an economy that’s still reeling from the effects of a record earthquake in March. A stronger currency reduces the value of overseas earnings at exporters when repatriated.

Shares of Toyota Motor Corp., the world’s biggest carmaker, have lost 18 percent this year compared with a 17 percent plunge in the benchmark Nikkei 225 Stock Average.

The yen’s gains cut Toyota’s first-quarter operating profit by 50 billion yen ($649 million), the company said last month. Every 1 yen gain against the dollar cuts Toyota’s operating profit by 34 billion yen, according to the company’s full-year outlook.

The rising yen boosted Japan’s overseas capital investment compared with similar spending inside the country, with the ratio climbing to 6.5 times in the fourth quarter, the highest level since the three months ended in September 2008. It was 6.3 times in the January-March period.

‘Way Out’

Bank of Japan board members expressed concern that currency gains may spur companies to move factories abroad, according to minutes released yesterday of the central bank’s Aug. 4 meeting.

“Should domestic demand decrease while the strong yen proceeds, it’s natural for Japanese companies to look to find a way out in the overseas market,” said Satoru Ogasawara, vice president of economics research in Tokyo at Credit Suisse Group AG. “Facing a global economic slowdown, Japan needs fiscal and monetary policies to avoid excessive gains in its currency.”

Japan sold 4.51 trillion yen on Aug. 4 to weaken the currency, the nation’s biggest currency-market intervention on a monthly basis since 2004. The yen went on to reach a postwar high of 75.95 per dollar on Aug. 19. The yen advanced at least 0.7 percent against all 16 of its major peers in the past week, and increased 2.5 percent, the best performer among 10 developed nation-currencies tracked by Bloomberg Correlation-Weighted Currency Indexes.

Treasuries have surged, with 10-year yields reaching a record low of 1.877 percent, amid speculation the U.S. central bank will embark on more easing as early as this month.

Europe’s Debt Woes

Fed officials gather for a two-day meeting on Sept. 20 that was extended from the one day originally scheduled to “allow a fuller discussion” of the economy and the central bank’s possible policy response.

Japan’s 10-year yield was unchanged at 0.995 percent today, above its low on the year of 0.97 percent on Aug. 19.

Concern that European policy makers may fail to contain the region’s debt crisis also increased demand for the yen as a haven, driving the currency yesterday to the strongest since June 2001 against the 17-nation euro.

Officials in German Chancellor Angela Merkel’s government are debating how to shore up the nation’s banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said on Sept. 9. Lars Feld, a German government adviser, said on Bloomberg Television yesterday that the July decisions taken by European leaders “won’t suffice” to save Greece from default.

‘Downside Risks’

European Central Bank President Jean-Claude Trichet said last week “downside risks” to the region’s economy have intensified, sparking speculation the central bank may lower rates after boosting them two times this year to 1.5 percent.

Credit-default swaps insuring Japan’s sovereign debt for five years traded at 35.5 basis points more than Germany’s on Sept. 12, compared with this year’s high of 72.5 basis points on March 16, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Japan’s central bank kept its benchmark interest rate at a range of between zero and 0.1 percent on Sept. 6. It also left unchanged a 15 trillion-yen asset-purchase program that buys government bonds, corporate debt and stock funds.

“The BOJ will probably announce some measures to combat gains in yen at its meeting in October,” said Akito Fukunaga, chief rates strategist at the brokerage unit of Royal Bank of Scotland Plc in Tokyo. “Given there is little room for Japan’s short-term yield to fall, it’s impossible to widen the gaps against U.S. and German debt. A strong yen is inevitable in the long run.”

--Editors: Rocky Swift, Jonathan Annells.

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Hiroko Komiya in Tokyo at hkomiya1@bloomberg.net; Kazumi Miura in Tokyo at kmiura1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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FM Noda Faces Challenges as Japan's Next Leader - ABC News

Japan's finance minister was voted ruling party leader Monday and soon will be the prime minister taking on a mind-boggling mix of challenges: tsunami recovery, a nuclear crisis and bulging national debt, to name a few.

As finance minister, Yoshihiko Noda already has been battling economic malaise and the yen's record surge, which hurts Japan's exporters. But when he takes over from Naoto Kan, Noda will take on an even more unenviable role with a much broader set of problems, including a rapidly aging population, public dismay with government and the efforts to rebuild from the worst disaster to hit Japan since World War II.

Nearly six months after the quake-spawned tsunami devastated Japan's northeastern coast, dozens of towns are still cleaning up and struggling to come up with reconstruction plans. The tsunami-damaged nuclear plant in Fukushima has displaced about 100,000 people who live in temporary housing or with relatives, unsure of when they will return.

"It's a tremendous pile of difficulties," said Koichi Nakano, a political science professor at Sophia University. "All the while, there's so much pressure on the government to deliver."

A fiscal conservative, Noda is well-liked by some in the business community, but he's also viewed as lacking charisma. A profile in the mass circulation Asahi newspaper earlier this year described him as "a deep thinker, but also bland, inoffensive and nonconfrontational."

Noda defeated Trade Minister Banri Kaieda — who was backed by a party powerbroker — in a run-off election 215-177 among ruling party members of parliament after none of the initial five candidates won a majority in the first round.

As party chief, Noda will become prime minister because the Democrats control the more powerful lower house. Parliament is expected to approve Noda on Tuesday.

He faces an immediate challenge in restoring public confidence shattered by political infighting in the wake of the disasters — sentiment that sent Kan's approval ratings plunging below 20 percent.

"Let us sweat together for the sake of the people," Noda told fellow party members after the vote. "This is my heartfelt wish."

Noda will become Japan's sixth prime minister in five years, a dismal track record of turnover that has done little to help the country tackle its problems and recover some of the confidence it has lost since the booming 1980s.

Even before the tsunami hit, Japan's economy was stuck in a 20-year funk and its population was graying, shrinking the tax base and labor pool.

"We lost the decades when Japan was more prosperous and world economic conditions were more conducive" to growth, said Nakano. "Now things have started to sour. We have these long-term structural issues waiting to be resolved."

With Japan's ballooning deficit now twice the size of its gross domestic product, Noda has in the past suggested raising Japan's 5 percent sales tax. But he's toned down that talk lately, and no quick change is expected on taxes, which would need parliamentary approval.

Japan's confluence of crises can be turned into an opportunity to set "a national agenda" that can get widespread public support, said Kiyoaki Aburaki, a senior fellow at the Center for Strategic and International Studies in Washington. "It's a good chance for Japanese politics to evolve," he said.

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FM Noda faces challenges as Japan's next leader (AP)

TOKYO – Japan's finance minister was voted ruling party leader Monday and soon will be the prime minister taking on a mind-boggling mix of challenges: tsunami recovery, a nuclear crisis and bulging national debt, to name a few.

As finance minister, Yoshihiko Noda already has been battling economic malaise and the yen's record surge, which hurts Japan's exporters. But when he takes over from Naoto Kan, Noda will take on an even more unenviable role with a much broader set of problems, including a rapidly aging population, public dismay with government and the efforts to rebuild from the worst disaster to hit Japan since World War II.

Nearly six months after the quake-spawned tsunami devastated Japan's northeastern coast, dozens of towns are still cleaning up and struggling to come up with reconstruction plans. The tsunami-damaged nuclear plant in Fukushima has displaced about 100,000 people who live in temporary housing or with relatives, unsure of when they will return.

"It's a tremendous pile of difficulties," said Koichi Nakano, a political science professor at Sophia University. "All the while, there's so much pressure on the government to deliver."

A fiscal conservative, Noda is well-liked by some in the business community, but he's also viewed as lacking charisma. A profile in the mass circulation Asahi newspaper earlier this year described him as "a deep thinker, but also bland, inoffensive and nonconfrontational."

Noda defeated Trade Minister Banri Kaieda — who was backed by a party powerbroker — in a run-off election 215-177 among ruling party members of parliament after none of the initial five candidates won a majority in the first round.

As party chief, Noda will become prime minister because the Democrats control the more powerful lower house. Parliament is expected to approve Noda on Tuesday.

He faces an immediate challenge in restoring public confidence shattered by political infighting in the wake of the disasters — sentiment that sent Kan's approval ratings plunging below 20 percent.

"Let us sweat together for the sake of the people," Noda told fellow party members after the vote. "This is my heartfelt wish."

Noda will become Japan's sixth prime minister in five years, a dismal track record of turnover that has done little to help the country tackle its problems and recover some of the confidence it has lost since the booming 1980s.

Even before the tsunami hit, Japan's economy was stuck in a 20-year funk and its population was graying, shrinking the tax base and labor pool.

"We lost the decades when Japan was more prosperous and world economic conditions were more conducive" to growth, said Nakano. "Now things have started to sour. We have these long-term structural issues waiting to be resolved."

With Japan's ballooning deficit now twice the size of its gross domestic product, Noda has in the past suggested raising Japan's 5 percent sales tax. But he's toned down that talk lately, and no quick change is expected on taxes, which would need parliamentary approval.

Japan's confluence of crises can be turned into an opportunity to set "a national agenda" that can get widespread public support, said Kiyoaki Aburaki, a senior fellow at the Center for Strategic and International Studies in Washington. "It's a good chance for Japanese politics to evolve," he said.

Noda came from behind to win the run-off, getting 102 votes in the first round to Kaieda's 143. The result could be seen as a slap against Ichizo Ozawa, a scandal-tainted party powerbroker who threw his support behind Kaieda.

Ozawa, a 69-year-old veteran who heads the largest faction in the ruling Democratic party, is known for engineering elections, sending novices to parliament and dooming some candidates to defeat. He is embroiled in a political funding scandal but his presence has hung like a shadow over the party leadership campaign.

Ozawa's dislike of Kan was one reason Kan never fully got his party's backing while in power.

After the vote, Noda called for party unity, using a popular rugby term in Japan referring to the tradition that after a game ends, there are no longer opposing sides on the field.

Still, Noda must also deal with a divided parliament, which has increased gridlock, after the opposition won control of the upper house last summer.

Noda is a staunch supporter of the Japan-U.S. security alliance, which he has called "essential for Japan's security and prosperity." And while praising China's economic development, he has cited concerns about their growing military strength.

Noda is not from an elite background like many Japanese politicians. His father was a member of the Self-Defense Force, Japan's military. He began honing his political skills at a postgraduate institute designed to groom a new generation of progressive leaders.

Before he took on a ministerial post, he was known for standing at train stations in his district in Chiba, just east of Tokyo, every morning to greet commuters personally.

___

Associated Press writers Eric Talmadge, Yuri Kageyama and Tomoko A. Hosaka contributed to this report.

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Thai Opposition Challenges Government Over Thaksin's Japan Visa - Voice of America (blog)

Wednesday, August 17th, 2011 at 6:20 am UTC

Thailand's main opposition party is demanding an explanation from the government of its role in Japan's decision to grant a visa to fugitive former Thai prime minister Thaksin Shinawatra.

A Democratic Party spokesman says the government may have misled the public about its conversations with Japanese officials, citing discrepancies in accounts offered this week.

News reports say the recently defeated party is considering legal action against the new foreign minister, Surapong Towijakchaikul, if he encouraged Japan to issue the visa. Japanese law prohibits the granting of visas to fugitives except under special circumstances.

The reports say the opposition party argues the new Thai government, headed by Thaksin's younger sister, is legally obliged to continue to seek Thaksin's arrest and extradition. Thaksin was convicted in absentia on corruption charges while the Democrats were in power.

Thaksin, who was ousted in a 2006 military coup and has been living in self-exile in Dubai, claims his conviction was politically motivated. The new government has so far not said whether it will grant him an amnesty.

Thaksin was quoted Tuesday saying he wants to go to Japan to see how he can help that country recover from its March earthquake and tsunami.

The wealthy financier told Japan's Kyodo news agency that Thailand could help Japanese businesses relocate to Thailand and provide long-term visas for residents seeking to heal themselves in his country.

Tags: Thailand, Thaksin
Posted in East Asia Pacific

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