Japan fires fresh salvo on yen as economic upswing tails off (Reuters)

TOKYO (Reuters) – Japan said on Friday it will boost its currency intervention fund and keep watching dealers' trading positions in yet another effort to tame the yen in the face of growing evidence that its strength is stalling the economy's post-quake rebound.

August industrial output and other data showed Japan's swift recovery from the March 11 earthquake and tsunami was tailing off under the weight of the yen's strength and faltering global growth.

Finance Minister Jun Azumi said the government would authorize a further 15 trillion yen ($195 billion) for market interventions, effectively increasing the amount available to a record 46 trillion yen.

He also said the government will maintain for two more months monitoring of currency traders' daily positions put in place last month to discourage speculative bets on the yen's rise.

The yen has held broadly steady against the dollar at around 76-77 yen since Tokyo bought a record 4.5 trillion yen worth of currencies on August 4, but the currency continued to rise against the euro and currencies of its Asian rivals.

And with the yen still within striking distance of its all-time high of 75.94 against the dollar, Tokyo is clearly alarmed that its exporters are ill equipped to cope with such persistent yen strength.

"The recent 75- to 80-yen range could pour cold water on the Japanese economy's recovery," Azumi told reporters, a clear signal that not only sharp market moves, but the very levels at which the yen has been trading was a concern.

The currency market showed little reaction, though, with one traders describing Azumi's warnings as "posturing."

Some players said, however, boosting the war chest would serve as a reminder that intervention was a possibility.

"Boosting forex intervention fund is to send the message to the market that Japan will not have immediate trouble if it intervenes," said Masafumi Yamamoto, chief currency strategist at Barclays Capital.

YEN HEADACHE

The yen's strength, driven at times of financial turmoil by safe-haven flows attracted by Japan's deep and liquid markets rather than its own economic performance, poses a major headache for Prime Minister Yoshihiko Noda and his cabinet.

Noda, who took over this month as Japan's sixth premier in five years, must oversee the nation's biggest rebuilding effort since the aftermath of World War Two while reining in public debt twice the size of the $5 trillion economy.

Sustaining economic growth is essential for such a balancing act to succeed, but the latest data showed that after a swift recovery that brought August output near pre-disaster levels, further growth was far from assured.

Industrial output inched up 0.8 percent in August compared with a 1.5 percent market forecast. Manufacturers surveyed by the government ministry expect output to fall 2.5 percent this month before rebounding 3.8 percent in October, but some analysts thought that forecast was too optimistic.

A purchasing managers' survey for September, which marked the first contraction in manufacturing activity in five months, confirmed that the swift post-disaster bounce in the world's No. 3 economy was tailing off quickly.

The slowdown is coming at a time when the government is debating tax increases to help cover the nearly 17 trillion yen ($221 billion)cost of rebuilding areas ravaged by the March disaster and there are growing concerns that the economy may stall before reconstruction spending kicks in.

Following last month's intervention, which combined with Bank of Japan easing managed to snap, at least temporarily, the yen's climb, the government has come up with several steps aimed at mitigating the strong yen's impact.

Those included a $100 billion credit line for companies investing overseas, as well as plans for subsidies for firms building factories in Japan and more funding to encourage overseas acquisitions.

Those were, however, greeted with skepticism over whether the scale would be sufficient to offset the drag on corporate earnings and growth.

Japan's auto industry remained one of the few bright spots as auto makers have maintained output to restock inventories overseas and orders yet to be met due to output delays caused by the earthquake. But the IT sector has been hurt by slowing global demand for personal computers and semiconductors.

Toyota Motor Corp, the world's biggest auto maker, said on Wednesday its exports rose 19.8 percent in August from a year earlier, with output in Japan during the month up 11.9 percent.

The Bank of Japan is expected to debate whether additional monetary easing will be necessary when it meets for a rate review on October 6-7, after it loosened policy in August to forestall risks to the outlook.

($1 = 76.840 Japanese Yen)

(Additional reporting by Stanley White and Kaori Kaneko; Writing by Tomasz Janowski; Editing by Kim Coghill)

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Japan fires fresh salvo on yen as economic upswing

Workers stand in front of container at an industrial port in Tokyo July 21, 2011.

Credit: Reuters/Kim Kyung-Hoon

By Leika Kihara and Tetsushi Kajimoto

TOKYO | Fri Sep 30, 2011 2:52am EDT

TOKYO (Reuters) - Japan said on Friday it will boost its currency intervention fund and keep watching dealers' trading positions in yet another effort to tame the yen in the face of growing evidence that its strength is stalling the economy's post-quake rebound.

August industrial output and other data showed Japan's swift recovery from the March 11 earthquake and tsunami was tailing off under the weight of the yen's strength and faltering global growth.

Finance Minister Jun Azumi said the government would authorize a further 15 trillion yen ($195 billion) for market interventions, effectively increasing the amount available to a record 46 trillion yen.

He also said the government will maintain for two more months monitoring of currency traders' daily positions put in place last month to discourage speculative bets on the yen's rise.

The yen has held broadly steady against the dollar at around 76-77 yen since Tokyo bought a record 4.5 trillion yen worth of currencies on August 4, but the currency continued to rise against the euro and currencies of its Asian rivals.

And with the yen still within striking distance of its all-time high of 75.94 against the dollar, Tokyo is clearly alarmed that its exporters are ill equipped to cope with such persistent yen strength.

"The recent 75- to 80-yen range could pour cold water on the Japanese economy's recovery," Azumi told reporters, a clear signal that not only sharp market moves, but the very levels at which the yen has been trading was a concern.

The currency market showed little reaction, though, with one traders describing Azumi's warnings as "posturing."

Some players said, however, boosting the war chest would serve as a reminder that intervention was a possibility.

"Boosting forex intervention fund is to send the message to the market that Japan will not have immediate trouble if it intervenes," said Masafumi Yamamoto, chief currency strategist at Barclays Capital.

YEN HEADACHE

The yen's strength, driven at times of financial turmoil by safe-haven flows attracted by Japan's deep and liquid markets rather than its own economic performance, poses a major headache for Prime Minister Yoshihiko Noda and his cabinet.

Noda, who took over this month as Japan's sixth premier in five years, must oversee the nation's biggest rebuilding effort since the aftermath of World War Two while reining in public debt twice the size of the $5 trillion economy.

Sustaining economic growth is essential for such a balancing act to succeed, but the latest data showed that after a swift recovery that brought August output near pre-disaster levels, further growth was far from assured.

Industrial output inched up 0.8 percent in August compared with a 1.5 percent market forecast. Manufacturers surveyed by the government ministry expect output to fall 2.5 percent this month before rebounding 3.8 percent in October, but some analysts thought that forecast was too optimistic.

A purchasing managers' survey for September, which marked the first contraction in manufacturing activity in five months, confirmed that the swift post-disaster bounce in the world's No. 3 economy was tailing off quickly.

The slowdown is coming at a time when the government is debating tax increases to help cover the nearly 17 trillion yen ($221 billion)cost of rebuilding areas ravaged by the March disaster and there are growing concerns that the economy may stall before reconstruction spending kicks in.

Following last month's intervention, which combined with Bank of Japan easing managed to snap, at least temporarily, the yen's climb, the government has come up with several steps aimed at mitigating the strong yen's impact.

Those included a $100 billion credit line for companies investing overseas, as well as plans for subsidies for firms building factories in Japan and more funding to encourage overseas acquisitions.

Those were, however, greeted with skepticism over whether the scale would be sufficient to offset the drag on corporate earnings and growth.

Japan's auto industry remained one of the few bright spots as auto makers have maintained output to restock inventories overseas and orders yet to be met due to output delays caused by the earthquake. But the IT sector has been hurt by slowing global demand for personal computers and semiconductors.

Toyota Motor Corp, the world's biggest auto maker, said on Wednesday its exports rose 19.8 percent in August from a year earlier, with output in Japan during the month up 11.9 percent.

The Bank of Japan is expected to debate whether additional monetary easing will be necessary when it meets for a rate review on October 6-7, after it loosened policy in August to forestall risks to the outlook.

($1 = 76.840 Japanese Yen)

(Additional reporting by Stanley White and Kaori Kaneko; Writing by Tomasz Janowski; Editing by Kim Coghill)

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Obama says U.S., Japan must promote economic growth

Obama says U.S., Japan must promote economic growth President Barack Obama said on Wednesday that Japan and the United States need to continue to promote economic growth. Obama made the comments at the beginning of a meeting with Japan's new prime minister, Yoshihiko Noda, on the sidelines of the annual United Nations General Assembly meeting. "As the two largest economies in the world we have to continue to promote growth that can help put our people to work and improve standards of living," Obama said. Noda, who took over this month as Japan's sixth premier in five years and is making his diplomatic debut at the United Nations this week, also said the two nations must work on lifting economic growth.
23 Sep A man found 10 million yen ($131,000) in cash Sept. 22 in a bag thrown away in a garbage dump at the city of Kasai in Hyogo prefecture, police said. The 56-year-old employee of a Kasai Municipal Government-run waste disposal center found the bag while separating garbage for the disposal. Center officials handed the bag into the police and will be entitled to claim the cash if its rightful owner does not emerge within three months. (majirox news)
22 Sep Following the request that the name Tokyo Electric Power Co. appear on a receipt for a sex club in Sapporo's Susukino red-light district earlier this month, the establishment has decided to ban patronage from that firm, reports daily tabloid Yukan Fuji (Sept. 17). On September 14, the fuzoku shop Olive Garden announced on its blog that it would not honor patrons hailing from TEPCO - in fact, it joked that the nuclear meltdown at Fukushima had sapped some of their virility in any case. (Tokyo Reporter)
22 Sep Mika Sato has found that two dolls resembling her 6-year-old daughter, who died in the March 11 tsunami, have helped soothe her emotional scars. "It was like my daughter came back to me," said Sato, 36, recalling the day earlier this month when she received the two dolls from the nonprofit organization Tamezo Club. Omokage bina are dolls that resemble people who have passed on. They are made by craftsmen who work from photographs of the deceased person. Since early August, Tamezo Club, a welfare services NPO based in Iwatsuki Ward, Saitama, has been donating them to people who lost loved ones in the March 11 disaster. (Yomiuri)
22 Sep A 71-year-old Japanese man died in Honolulu after falling off a trolley during a tour. The man, who name was not released, was taken to a hospital after falling Monday afternoon, where he was listed in critical condition and died later that day, police said. The man was standing next to an exit on the trolley and fell onto the road when the vehicle made a left turn out of a shopping center. A police spokeswoman said the accident is under investigation but that drugs and alcohol are not considered to be factors. The trolley was not speeding and traffic was moderate at the time, she said. (Japan Times)
21 Sep To promote forthcoming anti-gang legislation, the superintendent general of Tokyo Metropolitan Police Department, Tateshi Higuchi, threw out the first pitch before the Yakult Swallows faced the Yomiuri Giants at Tokyo Dome last night, reports the Sankei Shimbun (Sept. 21). Beginning on October 1, business transactions between citizens and members of organized crime, such as the paying mikajimeryo (protection money), will be prohibited. The law will be enforced nationwide. (Tokyo Reporter)

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Japan's debt a good reason for economic revolution

If you’d told me 10 years ago, when I moved to Tokyo, that today I’d be writing about an eighth leader, I never would’ve believed it. Yet here we are, analysing and philosophising about whether Yoshihiko Noda will last longer than the last five.

In April 2001, Junichiro Koizumi grabbed the job from the hapless Yoshiro Mori. Koizumi stuck around for an unthinkably long five years. He talked big about economic reforms, promised even bigger and managed to get a few things done. Then Koizumi turned the keys over to the forgettable Shinzo Abe, who then passed them to Yasuo Fukuda and Taro Aso.

Political lightning struck in August 2009. Voters tossed out the Liberal Democratic Party that had been in power for roughly 54 years. The Democratic Party of Japan might have fared better if it picked someone other than political lightweight Yukio Hatoyama as prime minister. Next came Naoto Kan, who last week resigned to make room for yet another leader.

Analysts and pundits are busy criticising politicians in Tokyo for going with the safe choice – Noda – when Japan is navigating a world economy that is anything but. Yet let’s put blame where it belongs: Japan’s 127 million people.

There’s some truth in the old saw that people generally get the leaders they deserve. In Japan’s case, voters need to begin demanding more of leaders and speaking out forcefully for change. Instead, they offer nothing more than numbing silence.

I just spent several days in India observing tens of thousands of aggrieved voters rallying behind a 74-year-old anti-corruption activist. Anna Hazare isn’t an extraordinarily charismatic man. Just as a young Tunisian man setting himself on fire precipitated protests that changed his nation forever, Hazare’s hunger strike was the perfect gesture at the right time.

Watching the crowds grow, I kept wondering why fed-up Japanese aren’t taking to the streets en masse. I’m not advocating violence or aggression of any kind; just a giant march or two to let politicians know that the status quo just won’t do. Change will only come when politicians feel pressured.

There are a couple of obvious reasons that the protests seen recently in India, Malaysia, Thailand and elsewhere aren’t occurring in Japan. One is affluence. For all Japan’s challenges – recession, deflation, negligible wage growth – households have trillions of dollars of savings. And Japan’s jobless rate is just 4.6 percent compared with 9.1 percent in the US.

Another is cultural. In a nation where decorum and etiquette are obsessively observed, carrying banners and chanting in streets holds little appeal.

Yet the world is speeding up as Japan stands immobile, thanks to timid and ineffectual leaders. China leapfrogged over Japan to become the second-largest economy and its 9.5 percent growth is a sharp contrast to most developed nations. As deflation eats away at iconic Japanese companies such as Sony, upstarts like Samsung of South Korea are booming.

Even before the record earthquake and tsunami in March and the ensuing radiation crisis, Tokyo was dragging its feet. There was little willingness to reduce Japan’s huge public debt – the world’s largest – or figure out how to live without the stimulus of zero interest rates.

There was no serious discussion about making the economy more competitive, preparing for an ageing population, increasing the national birthrate or loosening immigration rules.

In the days after the earthquake, it seemed Japan would be forced to disengage from autopilot and steer the economy in another direction. If the past five-plus months proved anything, it’s the durability of Japan’s inertia. Politicians have been preoccupied with getting rid of Kan. Mission accomplished. Now what?

In the devastated northeast, tens of thousands of people remain in crowded shelters and temporary homes. They are fearful of the fallout from radiation leaks in Fukushima and job prospects in the long run.

All they are getting from Tokyo is petty politics as usual and economic policies that can only be described as tired. Bureaucrats continue to build on their little fiefdoms with little regard for the masses.

Noda isn’t known for bold ideas. Remember, he was the safe choice.

Only this is no time for safe, and the Japanese people are growing antsy. It’s time for change. It’s time the Japanese revolution began.

William Pesek is a Bloomberg View columnist. The opinions expressed are his own.

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Fiscal, economic rookies concern analysts

Financial experts on Friday were quick to voice their concern over the appointment of Jun Azumi as finance minister, saying the rookie Cabinet member will allow Prime Minister Yoshihiko Noda to push his own fiscal policies and may lack the authority to command the ministry's bureaucrats.

"Azumi's abilities are unknown, and it doesn't seem like he has (financial and economic) experience," said Hisashi Yamada, chief economist at Japan Research Institute Co.

Selecting someone with no ministerial experience for the key post could simply mean that Noda, who was vice finance minister under Yukio Hatoyama, the first Democratic Party of Japan prime minister, and as finance minister in the administration of Hatoyama's successor, Naoto Kan, plans to take charge of the government's financial policies himself, Yamada said.

Azumi, 49, the DPJ's Diet affairs chief under Kan, is considered a potential future leader of the party. The Miyagi Prefecture native graduated from Waseda University and worked at NHK before entering politics in 1993.

Although he served as senior vice minister of defense in Kan's first Cabinet, he hasn't been vocal over his fiscal policies or key economic issues, and his views are largely unknown.

Noda is known as a fiscal hawk who advocates doubling the 5 percent consumption tax by the middle of the decade to help fund ballooning social security costs.

The Cabinet lineup may indicate that the prime minister is ready to flex his muscles and push key policies himself. For example, Noda named Yoshio Hachiro, considered a veteran sidekick, as trade, economy and industry minister.

Hachiro, another ex-DPJ diet affairs chief, is an expert on agricultural policies, having worked at a farming co-op in Hokkaido. Placing him in charge of the ministry that handles exports could indicate Noda is backtracking on Japan joining the Trans-Pacific Partnership agreement, a proposed regional free-trade bloc, but Japan Research Institute's Yamada said that might not be the case.

If Noda is seriously considering steering the government toward joining TPP negotiations, having someone well-versed in agricultural issues such as Hachiro in the Cabinet may "make sense," as he could help sell the free-trade deal to farmers, who are staunchly opposed to Japan joining the TPP, Yamada explained.

Meanwhile, Noda retained Shozaburo Jimi as state minister in charge of postal reform and financial services. Former Deputy Chief Cabinet Secretary Motohisa Furukawa, another rookie Cabinet member, will serve as economic and fiscal policy minister. Furukawa worked as a bureaucrat at the Finance Ministry before he entered politics in 1996.

Noda's team must tackle a long list of issues, including countering the surging yen and reconstructing the disaster-hit Tohoku region while compiling both the supplementary and annual budget plans.

Compiling the budget for the next fiscal year is already facing a big delay because of the March 11 disasters. The submission to the Diet of the third extra budget for fiscal 2011, which will include major funds for the rebuilding of the devastated northeast, is also expected to be delayed until October.

Hisakazu Kato, a professor of economics at Meiji University and an expert on finance, said Noda will likely play a leading role in compiling the budget but added that trying to control everything from the prime minister's office will be tricky.

"Noda was serious about restoring fiscal balance when he was finance minister. Azumi must continue along the same path," Kato said, pointing out that government debt has exceeded ¥900 trillion and that simply issuing more government bonds to make ends meet will not solve the problem.

Whether to hike taxes to secure additional funds for reconstruction work and to cover swelling welfare costs will be a key issue for the new Cabinet.

Azumi has hinted he will follow in Noda's footsteps and ask the public to shoulder part of the costs of rebuilding the disaster-hit areas via higher taxes.

"We must not pass on our debts to the next generation," Azumi told reporters following his appointment Friday. While Noda's new administration will openly discuss fiscal issues with DPJ lawmakers and opposition parties, the public "must shoulder the burden to some extent," he said.

Meiji University's Kato, however, said the real opposition to increasing taxes may come from within the DPJ, even though Noda has tried to avoid an internal power struggle by handing key posts to party members who oppose tax hikes.

"Making progress over raising taxes may come down to a battle against DPJ members who remain opposed," Kato said. But considering Japan's worsening fiscal position, which prompted Moody's Investors Service Inc. last month to lower its credit rating of Japanese government bonds, Noda and Azumi will have to act swiftly, he said.

Regarding market intervention to weaken the surging yen, pundits agreed that Noda's Cabinet will continue the policy of the Kan administration. As Kan's finance minister, Noda was the main player in three foreign-exchange market interventions aimed at weakening the yen.

The relationship between the government and the Bank of Japan is also likely to remain unchanged, as Noda has been working closely with the BOJ and has pledged to continue the cooperation.

But the impact of the new team of fiscal and economic ministers on the economy will depend on Noda's leadership during the early stages of his administration.

"At this point, there are many uncertainties about how this team will work," Japan Research Institute's Yamada said. "It's crucial that Prime Minister Noda delivers a strong policy speech at the Diet, one which will lay out the path along which he intends to lead his administration."

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Kan lists economic tasks for new government

The Yomiuri Shimbun

Prime Minister Naoto Kan and economic ministers on Monday discussed the economic situation and drew up a list of tasks the incoming administration should address to help companies deal with the rapid rise of the yen, which recently hit a record 75.95 yen to the dollar.

At the meeting, the outgoing administration stressed the need to support export-oriented companies to prevent layoffs and help the firms, particularly small and midsized enterprises, secure operational funds. The firms have been seriously affected by the strength of the yen.

The meeting also stressed support for the tourist industry, which has suffered from a decline in the number of foreign visitors, and help to ensure businesses locate their bases for advanced research and production in Japan.

To take advantage of the yen's appreciation, the list included ways to promote mergers and acquisitions of foreign companies and to promote acquisition of natural resources abroad.

The participants agreed the yen's strength could be utilized in the field of human resources by inviting foreign researchers to Japan, while urging more Japanese to study abroad.

Concerning the Bank of Japan, the outgoing administration called for the central bank to exchange information and cooperate closely with the new government, while taking appropriate and decisive policies.

Regarding the foreign exchange market, the Kan administration said the new government must "keep a close watch on market trends and take resolute action when necessary."

Finance Minister Yoshihiko Noda, who was elected Monday to succeed Prime Minister Naoto Kan as president of the Democratic Party of Japan, recently announced the creation of an emergency fund totaling 100 billion dollars (about 7.6 trillion yen) to combat the appreciation of the yen against the U.S. dollar and other currencies.

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Analysis: Japan's politics offer sober economic policy lessons (Reuters)

By Alan Wheatley, Global Economics Correspondent Alan Wheatley, Global Economics Correspondent – 1 hr 1 min ago

LONDON (Reuters) – U.S. and euro zone governments drowning in debt should look no further than Japan to learn what happens when political deadlock stifles decisive policy-making.

As Japan prepares to usher in its sixth prime minister in five years, Moody's this week cited the political revolving door in Tokyo as one reason for cutting the country's credit rating, to AA3, for the first time since 2002.

The conclusions to be drawn from Japan's two decades of anemic growth come with caveats: its parties are not as ideologically divided as Democrats and Republicans in the United States; and political stasis has not led to the sort of bond market attack that felled Greece, Ireland and Portugal.

But the downgrade, which followed America's loss of its totemic AAA rating from Standard and Poor's, chimes with the view that the current travails of mature industrial democracies are due as much to poor leadership as they are to too much debt.

Marcus Noland, deputy director of the Peterson Institute for International Economics in Washington, traced Japan's stagnation to an incapacity to forge the political coalitions needed to overcome entrenched interests opposed to reform.

"In that sense, the challenge that Japan has in large part failed to address over the last 20 years resembles the challenges that both the United States and parts of Europe are beginning to face," Noland said. "The Japanese example stands as a very cautionary tale about the long-run costs of not getting it right."

BERNANKE'S ANALYSIS

Back in 2002, Ben Bernanke argued that Japan's losing battle with deflation was a special case, a by-product of a protracted failure by politicians, businessmen and the public to agree on how to spread the costs of writing off debt and enacting reforms.

"In the resulting political deadlock, strong policy actions are discouraged, and cooperation among policymakers is difficult to achieve," said Bernanke, then a Federal Reserve governor and now its chairman.

Stephen King, chief global economist at HSBC in London, said that, with political leaders increasingly in denial and hoping that something will turn up, Bernanke's analysis now extended more widely.

"What we are now discovering is that there are similarities between political discord in Japan and what we're beginning to see in the States and in Europe," King said. "If that's the view Bernanke had back in 2002, he ought to be really worried now."

The conventional wisdom is that Japan relaxed monetary policy too slowly to counter deflationary forces after sky-high property and share prices started tumbling back to earth in the early 1990s.

Nominal gross domestic product in Japan is back to 1991 levels, noted Paul Sheard, Nomura's chief economist. That weighs on wages, increases the burden of repaying debt and corrodes confidence.

Western policymakers have taken much more aggressive action than Japan since the collapse of Lehman Brothers in 2008 threatened to drag down the global financial system.

U.S. banks wrote off more than $1 trillion in net assets in 2008/2009; Japan, by contrast, dragged its feet, said David Hale, who runs an international economic consulting firm in Chicago.

"Here we recognized the losses in our banking system very quickly," Hale said. "The Japanese knew in 1992 that they had a massive problem, but it wasn't acknowledged until 1998."

Despite the swifter response, economic recovery in the West has been fitful. Fears of a new recession are mounting.

In King's view, this shows that Japan's malaise is only partly down to indecisiveness in the 1990s; it was also a result of its failure to prevent the bubble in asset prices in the first place -- much as U.S. and European policymakers allowed their own bubble in housing and credit to inflate.

Seen in this light, America and Europe are in the same pickle as Japan: with current and future economic activity no longer strong enough to allow all financial claims to be settled, a way has to be found to share out the ensuing losses.

"There has to be a process of deleveraging and burden-sharing, and the problem with burden-sharing is that it's an inherently political process," King said.

And, as in Japan, political leaders in the United States and Europe are offering few answers. With indecision breeding uncertainty, investors have been seeking refuge in gold, the Swiss franc and, ironically, government bonds.

THE WAY AHEAD

The risk for all three economies is that, without a clear strategy for reducing deficits over time, bond market investors will lose confidence and demand a growth-sapping premium to roll over debt -- as governments on the euro zone's periphery have discovered.

In the case of Japan, the leadership needed to rise to the challenge appears nowhere in sight, said Peter Drysdale, emeritus professor at Australian National University in Canberra.

"What could be carried in the way of economic and administrative inefficiencies in a country whose population was young and still growing, and in which the opportunities for catching up to the industrial world were palpable, now are huge dead weight burdens in a mature industrial economy with a declining workforce and population," Drysdale wrote on the East Asia Forum website.

The 2012 presidential election might break the U.S. political impasse. Euro zone leaders might put aside their differences and thrash out a long-term plan to underpin their single currency. In Japan, a more dynamic leader might emerge in the mold of Junichiro Koizumi, prime minister from 2001-2006.

But Wendy Dobson at the University of Toronto expects instead a prolonged period of uncertainty. Global shifts in comparative advantage are worsening the distribution of incomes and wealth in major economies, prompting strong political pushback from the losers.

"Smart politics and policies will help the transitions. Strong leadership too. But with many democracies able only to produce unstable coalitions, strong leadership seems to be in short supply," Dobson said in an email.

(Reporting by Alan Wheatley)

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Maehara's economic, security policies likely center of debate

Former Foreign Minister Seiji Maehara, who ranks high as a future prime minister in public opinion polls, outlined his platform for the ruling party's Aug. 29 presidential election, emphasizing an economic growth strategy based on trade liberalization and a security policy centered on the Japan-U.S. alliance.

Maehara, 49, has emerged as a leading contender, and his policies are expected to be at the center of debate with other candidates toward the election.

"I believe our country needs to achieve economic growth and then channel its fruits to rebuilding from the disaster, social security, education and various administrative services," Maehara, 49, told a meeting of his intraparty group on Aug. 23.

Maehara remains a staunch proponent of the Trans-Pacific Partnership agreement despite strong resistance from elements within the Democratic Party of Japan to the nation's participation in the free-trade arrangement.

When he was industry minister, Maehara led Japan's delegation in the United States to sell Shinkanen bullet train technology.

He has also pushed exports of Japan's nuclear technology around the world.

Unlike Finance Minister Yoshihiko Noda, another candidate in the DPJ's leadership race, Maehara is cautious toward raising taxes in the immediate future to finance rebuilding efforts.

"If we raise taxes before we overcome deflation, we will not be able to increase tax revenues because the economy may take a beating," he said. "Overcoming deflation is the priority. We should be careful about tax hikes in the coming few years."

However, he showed some understanding to the policy of the DPJ and the government to increase the consumption tax rate to 10 percent from the current 5 percent in stages by the mid-2010s to deal with the country's ballooning debt problem.

"We have to eventually raise the consumption tax rate," he said.

When Maehara became minister of land, infrastructure, transport and tourism after the DPJ took power in 2009, he halted construction of the Yanba dam in Gunma Prefecture, saying the party had promised in its campaign to eliminate money-wasting projects.

He also wasted no time pushing through a government plan to rehabilitate debt-ridden Japan Airlines Corp.

But after facing fierce opposition from residents living near the Yanba dam site, Maehara promised to review the pros and cons of the project, taking a step back from the DPJ's campaign pledge. The Yanba dam has been criticized as one of the most wasteful public works projects.

Critics say the Yanba dam issue and his shift to review the DPJ campaign pledges now show that Maehara likes to announce his policies to great fanfare, but he does not have tenacity to carry them through to the end.

In diplomacy and security, Maehara's top priority is strengthening Japan-U.S. ties.

The U.S. government gave Maehara, known as one of the most pro-U.S. politicians within the DPJ, a warm reception by setting up a meeting not only with his U.S. counterpart, Hillary Clinton, but also Vice President Joe Biden when he visited Washington in January.

Even after he stepped down as foreign minister in March over illegal donations from a non-Japanese resident, Maehara did not slow down in pushing his foreign policy. He visited the United States, Okinawa and the disputed Russian-held Northern Territories off Hokkaido.

When he was DPJ president in 2005, Maehara argued that Japan should consider reviewing the pacifist Constitution to allow the country to exercise its right to collective defense.

He also drew up the party's proposal for allowing Japan to participate in U.N.-led collective security activities.

In contrast to his pro-U.S. stance, he has consistently taken a hard line toward China, even when the DPJ was an opposition party.

Maehara infuriated Beijing in autumn last year when he described China's response to an incident near the Senkaku Islands (Diaoyutai in Chinese) as "hysterical." At that time, relations between the two countries sharply deteriorated after Japanese authorities arrested the captain of a Chinese fishing boat that rammed two Japan Coast Guard vessels near the islands in the East China Sea.

Some Foreign Ministry officials expressed concern that Maehara is not prudent enough about what he says and does before an international audience.

As for his approach to Ichiro Ozawa, the former DPJ president who leads the largest intraparty group of about 120 members, Maehara stressed the need to end the division between the pro-Ozawa and anti-Ozawa groups and tighten party unity.

"We must get over the confrontation and stop tripping each other within the party," Maehara told reporters, referring to ongoing battles surrounding the political heavyweight.

Maehara expressed eagerness to meet with Ozawa and other former DPJ presidents to unite the fractured party and better deal with the myriad challenges facing Japan.

But he would not budge on Ozawa's party privileges, which were revoked by Prime Minister Naoto Kan and other senior party officials over a funding scandal.

"DPJ members should work together based on their shared understanding to respect the decision by the current party leadership," Maehara said.

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Japan Stocks Rise First Day in Five as U.S. Economic Data Boosts Exporters - Bloomberg

Canon stocks rise. Photographer: Toshiyuki Aizawa/Bloomberg

Aug. 11 (Bloomberg) -- Robert Howe, chief executive officer of hedge fund manager Geomatrix (HK) Ltd., talks about his investment strategy for Asian stocks. Howe also discusses Federal Reserve monetary policy and Europe's sovereign debt crisis. He speaks with Rishaad Salamat, Susan Li and Phillip Yin on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

Aug. 10 (Bloomberg) -- Erwin Sanft, head of China and Hong Kong research at BNP Paribas SA, talks about global stocks and economies. Sanft, who also discusses Federal Reserve monetary policy and China's currency policy, speaks in Hong Kong with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Japanese stocks rose for the first time in five days as exporters climbed on speculation the U.S. Federal Reserve will announce additional measures to shore up the recovery in the world’s biggest economy.

Canon Inc. (7751), a camera maker that gets about a quarter of its sales in the Americas, gained 3 percent. Nintendo Co., a gamemaker that has lost 45 percent this year, jumped on speculation the shares have been oversold. Inpex Corp., Japan’s No. 1 energy explorer, gained 2.9 percent after oil prices rose.

The Nikkei 225 (NKY) Stock Average rose 1.2 percent to 8,733.01 at the 3 p.m. close of trading in Tokyo. The gauge snapped its longest losing streak since March amid optimism Fed Chairman Ben S. Bernanke will announce a plan to stimulate the economy when he speaks on Aug. 26 at a meeting of central bankers in Jackson Hole, Wyoming. At last year’s meeting, Bernanke sparked a rally in equities by signaling the Fed would buy more bonds -- a strategy known as QE2 -- to help prop up asset prices.

Bernanke “may signal some kind of measure that’s positive for stocks, even if he doesn’t go as far as QE3,” said Masatsugu Okeya, a fund manager at Chiba-Gin Asset Management Co. “The market has already priced in most of the negative news during the recent decline.”

The Topix index rose 1 percent to 750.39 after yesterday falling to the lowest level since March 2009. The gauge has lost about 12 percent this month amid concern U.S. growth is sputtering and Europe’s debt crisis will damage the banking system, damping demand in two of Japan’s biggest export markets. The decline has cut the price of shares on the index to 0.89 times book value, the lowest since March 2009.

“Stocks are likely to be bought as valuations and technical patterns indicate they’ve been oversold,” said Ryuta Otsuka, a strategist at Toyo Securities Co. in Tokyo. “Risk aversion came to a halt in the U.S. and European markets yesterday.”

Futures on the Standard & Poor’s 500 Index climbed 1.2 percent today. The index closed little changed yesterday in New York, paring gains in the last 15 minutes of trading as Goldman Sachs Group Inc. plunged on a report that Chief Executive Officer Lloyd Blankfein hired a defense attorney.

Japanese exporters to the U.S. advanced. Canon, the world’s biggest camera-maker, rose 3 percent to 3,600 yen. Toyota Motor Corp. (7203), which counts North America as its biggest market, climbed 2.3 percent to 2,763 yen. The automaker also rose after saying it would collaborate with Ford Motor Co. to develop a hybrid system for pickup trucks.

Nintendo gained 8.4 percent to 13,100 yen. The world’s biggest gamemaker rebounded after the share’s 50-day moving average fell to the lowest level since January 2006.

“Nintendo’s bounce is representative of the technical rebound in the market as a whole,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo. “There’s a sense that investors are done unloading shares after one piece of bad news after another.”

Utilities rose after Finance Minister Yoshihiko Noda, a candidate to replace Japan’s Prime Minister Naoto Kan, said the country may not be able to do without nuclear power. Kansai Electric Power, the country’s second-largest utility, gained 2.8 percent to 1,409 yen. Chubu Electric Power Co., the third biggest, advanced 1.9 percent to 1,487 yen.

Although Japan should reduce its dependence on nuclear power, the country needs to “‘carefully examine’’ whether it’s possible to meet its energy needs without it, Noda said today in Tokyo. Kan, who said he will step down as early as Aug. 26 if key legislation is passed, has said atomic power should be phased out following the worst nuclear disaster since Chernobyl.

Japan’s power companies increased spending on fuels by 1 trillion yen ($13 billion) in the three months ended June 30, as they increased thermal generation to offset closures of nuclear plants, national broadcaster NHK reported this month.

Energy companies advanced after crude prices gained for a second day as investors bet on increased demand in the U.S., the world’s biggest consumer of the fuel. Inpex Corp (1605) gained 2.9 to 469,500 yen. Smaller Japan Drilling Co. rose 2.1 percent to 2,602 yen.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Satoshi Kawano in Tokyo at skawano1@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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BOJ Chief Gets Vocal About Economic Woes - Wall Street Journal

TOKYO—As politicians put increasing pressure on the Bank of Japan to do more to fix the economy and counter the strong yen, the central bank's leader has a few words of his own.

Gov. Masaaki Shirakawa, a former academic known for his soft-spoken ways, has become increasingly aggressive—in public and in closed-door government meetings—in stepping outside his official boundaries of monetary policy, offering his views on how policy makers could act to fix the country's economy, or at least stop making conditions worse.

Bloomberg News Bank of Japan Gov. Masaaki Shirakawa speaking at a news conference earlier this month.

At a meeting this spring with economic ministers after the March 11 earthquake and tsunami, Mr. Shirakawa expressed concern about the messy way the government was handling the future of Tokyo Electric Power Co., the operator of the crippled Fukushima Daiichi nuclear plant. He warned officials that power companies across the country may face difficulty raising funds as they get shut out of the corporate bond market, as Tepco's bonds were plummeting, according to government officials who attended the meeting.

At a meeting with Cabinet ministers on Aug. 3, Mr. Shirakawa sounded a warning that Japan wasn't immune from a sell-off of its bonds, as seen in European countries when investors became concerned about fiscal conditions there.

While Japan's outstanding debt is significantly higher than the struggling European nations, Tokyo hasn't faced the same global market pressure because about 95% of Japanese government bonds are held domestically. Mr. Shirakawa warned the elected leaders that they shouldn't be so complacent, and that the notion that Japanese government bonds were immune from global uncertainty was "wrong," according to Economy Minister Kaoru Yosano, who attended the meeting. And if Japanese investors suffer losses from their U.S. Treasury holdings, Mr. Shirakawa told the group, they might sell Japanese bonds to cover those losses.

While some Japanese politicians have pushed to move away from nuclear power, the BOJ chief has sounded a warning against shutting down all nuclear power plants, pointing out how that could hit not only the economy but could also accelerate moves by businesses to shift production overseas, which would lower Japan's growth potential.

Mr. Shirakawa's wide-ranging opining has drawn some complaints from politicians and economists—especially those who think he should be doing more instead with his primary responsibility of monetary policy.

"The BOJ's independence does not mean that it can allow the bank to make outspoken remarks on the government and its industrial policy." said Yoichi Kaneko, a member of parliament from the ruling Democratic Party of Japan, who has been one of Mr. Shirakawa's outspoken critics.

"It sounds to me that the BOJ emphasizes the fact that there's not much left on its monetary policy and that it is making excuses," said Takeshi Minami, chief economist at Norinchukin Research Institute.

But Mr. Shirakawa has his defenders as well.

"A central bank governor in any country is allowed to speak on things beyond monetary policy," said Masaaki Kanno, a former BOJ official and now managing director of J.P.Morgan in Tokyo.

"Given the critical situation in Japan, I want the BOJ governor to sound an alarm bell and speak out even more than now to the public," he said.

A BOJ spokesman declined to comment.

Mr. Shirakawa's expansiveness comes as Japanese political leaders are becoming increasingly vocal about BOJ policy—sometimes seen as an intrusion on the central bank's independence. In particular, some are pressing for the BOJ to try harder to curb the yen's strength, seen as a drag on the country's exporters.

While the Finance Ministry has intervened in currency markets to try and prop the dollar up, most economists think that can be effective in the longer-run only if the BOJ also floods the economy with more yen to try and cheapen the Japanese currency. Even Finance Minister Yoshihiko Noda, who has usually been careful to respect the BOJ's independence, took the unusual step this month of commenting on monetary policy, saying in a speech that if the U.S. Federal Reserve eases again soon, "I think it's probable that the Bank of Japan will take an additional monetary easing step."

While BOJ officials have said they are willing to consider further action, they've also repeatedly emphasized the limits of just how much further they think they can go.

The BOJ strongly opposes changing Japanese law to allow underwriting of government debt—a practice currently banned—saying it would lead to a limitless issuance of debt and undermine confidence in the yen, as well as prompting a spike in long-term interest rates and inflation.

But many lawmakers see it as a way to avoid raising taxes when funds are necessary for reconstruction from the March disasters.

Mr. Kaneko, the parliamentary critic and part of a group of 200 lawmakers pushing for the BOJ to help pay for rebuilding, saysid "It is quite doubtful that a one-time underwriting of the government debt by the BOJ with the amount of ¥20 trillion ($261 billion), for instance, will undermine confidence in the yen." The BOJ, he added, referring to Japanese government bonds, "should either underwrite reconstruction bonds or boost its JGB purchases in the secondary market."

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Japanese Official: Yen Doesn't Reflect Economic Fundamentals - Wall Street Journal

MARKETSAUGUST 19, 2011, 9:11 A.M. ET

TOKYO —Japan's top currency-policy bureaucrat complained Friday about global investors treating the yen as a "flight-to-safety currency" during times of global economic distress.

"We don't think recent yen moves really reflect economic fundamentals," Takehiko Nakao, vice finance minister for international affairs, told Dow Jones Newswires in an interview Friday. There is an "element of speculation" behind it, he added.

Even so, the veteran finance official, who took over the powerful job steering Japan's global financial policies around two weeks ago, said the government has no plans to start a sustained intervention campaign to steer the yen to specific levels but ...

TOKYO —Japan's top currency-policy bureaucrat complained Friday about global investors treating the yen as a "flight-to-safety currency" during times of global economic distress.

"We don't think recent yen moves really reflect economic fundamentals," Takehiko Nakao, vice finance minister for international affairs, told Dow Jones Newswires in an interview Friday. There is an "element of speculation" behind it, he added.

Even so, the veteran finance official, who took over the powerful job steering Japan's global financial policies around two weeks ago, said the government has no plans to start a sustained intervention campaign to steer the yen to specific levels but ...

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An economic dark cloud ahead?

An Aug. 15 preliminary report by the Cabinet Office shows that Japan's gross domestic product (GDP) in real terms in the second quarter of 2011 dropped 0.3 percent or an annualized 1.3 percent from the previous quarter — for the third straight quarter of minus growth.

But the margin of the drop is much smaller than the previous drop of an annualized 3.5 percent.

Economic and fiscal policy minister Kaoru Yosano said that the minus growth is a temporary phenomenon due to the March 11 earthquake and tsunami, and that high growth can be expected in the last half of fiscal 2011.

Supply chains for parts and components devastated by the March 11 disasters are recovering quickly.

Although personal spending dipped 0.1 percent, a drop for three consecutive quarters, public works investment increased 3 percent, the first rise in six quarters, due to construction of fabricated houses in the disaster-hit areas.

The mining and industrial production index for June increased 3.8 percent from the previous month and the manufacturing industry operation rate index for the same month rose 5.2 percent from the previous month.

But the government must pay attention to a view, especially among private-sector economists, that the strong yen and the low stock prices in Japan will put a brake on the nation's economic recovery. In addition, sluggish economic conditions in the United States and Europe are likely to negatively affect the Japanese economy.

According to a Kyodo News survey of 105 major enterprises, many mentioned the strong yen as a factor that makes future prospects cloudy. A majority of the enterprises surveyed said moving operation bases abroad will be accelerated as a means of strengthening their business.

This could result in hollowing out of Japanese industry, impacting the performance of subcontracting firms and causing the employment situation to deteriorate.

The power shortage caused by the severe accidents at the Fukushima No. 1 nuclear power plant is also hampering economic activities of enterprises. Many of them cannot make dependable production plans because of uncertainty over future power supplies.

The government and the Bank of Japan must flexibly take necessary measures to help underpin economic activities.

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