Analysis: New Japan PM a bureaucrats' puppet or puppet master? (Reuters)

TOKYO (Reuters) – New Japanese Prime Minister Yoshihiko Noda is moving to repair the government's battered relations with bureaucrats in hopes of mobilizing their expertise, but some worry his government will end up as puppet rather than puppet master.

Noda took office last week as Japan's sixth premier in five years and the third since his Democratic Party of Japan (DPJ) took power in 2009 pledging to change how the country is run.

A promise to prise control of policymaking away from elite bureaucrats and put politicians in charge was a key element of the party's platform, and one popular with many voters for whom bureaucrats had become symbols of a discredited past regime.

Behind the pledge was the belief that the decades-old system of cozy ties between officials and the long-dominant Liberal Democratic Party had bred policy collusion that fostered waste and corruption and hampered vital economic and social reforms.

"It's a very different way of approach from where the DPJ started, with more politicians going into government and the government making decisions," said Koichi Nakano, a political science professor at Sophia University. "That may not be so bad when stability is more important than anything else.

"But Japan needs more than stability and consensus. It needs innovation, and trials of new things," he said. "Just going back to the old ways comes with a heavy price in the long-term."

The result of policy collusion has been on full display in the radiation crisis at Tokyo Electric Power Co's (Tepco) tsunami-hit Fukushima plant, which drew back the curtain on the utilities, regulators and lawmakers who had promoted atomic power under lax supervision while downplaying risks.

Many agree that the Democrats went too far in bashing bureaucrats under their first two short-term premiers, Yukio Hatoyama and Naoto Kan, shutting out and alienating ministry officials without thought for their expertise. Repairing relations will likely smooth policy formation short-term.

But pessimists fear that the Democrats are now reviving practices that stand in the way of changes needed to address the mountain of problems from rebuilding northeast Japan and ending the radiation crisis to designing a new energy policy and funding the costs of social security in a fast-aging society.

Adopting a less confrontational tone was clearly on Noda's mind when he spoke to assembled senior officials this week.

"Politicians alone cannot move the world. We need the support and efforts of all of you from each ministry," said the 54-year-old Noda, who served as finance minister under Kan.

CORRECTION OR CAPITULATION?

The new tone of civility will not go amiss in officialdom.

"I don't think he is rejecting the idea of political leadership but he recognizes that without fully mobilizing administrative expertise, he can't accomplish anything, whether it's reconstruction or finding funds," said one ex-bureaucrat.

"One can hope that if this goes smoothly, it could lead to a new sort of leadership by the premier and politicians."

Optimists say the mid-course correction by the 54-year-old Noda does not mean he will capitulate to bureaucratic masters.

"The way to control bureaucrats is not to mess with them, but to set policy and keep it intact for more than two years," said Steven Reed, a political science professor at Chuo University. "What the Democrats have done with the selection of Noda is a first -- they haven't changed policies," he said.

"I don't think there is a chance in the world that they will end up under the thumb of the bureaucrats."

Noda has made clear that a top priority is curbing Japan's public debt, already twice the size of its $5 trillion economy, a concern shared by Kan during his short 15-month term.

On the energy front, Noda has distanced himself from Kan's anti-nuclear rhetoric, but acknowledges that reducing reliance on nuclear power and promoting a bigger role for renewable sources is inevitable given voters' new-found atomic allergy.

"The broad-based course has been charted and the next level is details, implementing and drafting of specific laws," said Jesper Koll, director of equities research at JPMorgan.

That may smooth policy implementation short-term, although with Noda's own party split on many issues and the opposition LDP spoiling for a fight in a divided parliament, even that is uncertain.

Longer-term, the lack of a broad policy vision and clear priorities could mean Noda's novice ministers fall under a bureaucratic spell, whether woven by finance officials keen to raise income and corporate taxes to pay for post-disaster reconstruction or pro-nuclear bureaucrats in the trade ministry.

"In the absence of some driving vision, you basically turn to the people who can get things done on a day-to-day basis -- the bureaucrats," said Columbia University professor Gerry Curtis.

"Noda is nobody's puppet, but whom will he depend on for advice? There are no think tanks, no brain trust in the Kantei (PM's office), so he's stuck relying on bureaucrats."

(Editing by Tomasz Janowski and Nick Macfie)

View the original article here

Analysis: New Japan PM a bureaucrats' puppet or puppet master?

TOKYO (Reuters) – New Japanese Prime Minister Yoshihiko Noda is moving to repair the government's battered relations with bureaucrats in hopes of mobilizing their expertise, but some worry his government will end up as puppet rather than puppet master.

Noda took office last week as Japan's sixth premier in five years and the third since his Democratic Party of Japan (DPJ) took power in 2009 pledging to change how the country is run.

A promise to prise control of policymaking away from elite bureaucrats and put politicians in charge was a key element of the party's platform, and one popular with many voters for whom bureaucrats had become symbols of a discredited past regime.

Behind the pledge was the belief that the decades-old system of cozy ties between officials and the long-dominant Liberal Democratic Party had bred policy collusion that fostered waste and corruption and hampered vital economic and social reforms.

"It's a very different way of approach from where the DPJ started, with more politicians going into government and the government making decisions," said Koichi Nakano, a political science professor at Sophia University. "That may not be so bad when stability is more important than anything else.

"But Japan needs more than stability and consensus. It needs innovation, and trials of new things," he said. "Just going back to the old ways comes with a heavy price in the long-term."

The result of policy collusion has been on full display in the radiation crisis at Tokyo Electric Power Co's (Tepco) tsunami-hit Fukushima plant, which drew back the curtain on the utilities, regulators and lawmakers who had promoted atomic power under lax supervision while downplaying risks.

Many agree that the Democrats went too far in bashing bureaucrats under their first two short-term premiers, Yukio Hatoyama and Naoto Kan, shutting out and alienating ministry officials without thought for their expertise. Repairing relations will likely smooth policy formation short-term.

But pessimists fear that the Democrats are now reviving practices that stand in the way of changes needed to address the mountain of problems from rebuilding northeast Japan and ending the radiation crisis to designing a new energy policy and funding the costs of social security in a fast-aging society.

Adopting a less confrontational tone was clearly on Noda's mind when he spoke to assembled senior officials this week.

"Politicians alone cannot move the world. We need the support and efforts of all of you from each ministry," said the 54-year-old Noda, who served as finance minister under Kan.

CORRECTION OR CAPITULATION?

The new tone of civility will not go amiss in officialdom.

"I don't think he is rejecting the idea of political leadership but he recognizes that without fully mobilizing administrative expertise, he can't accomplish anything, whether it's reconstruction or finding funds," said one ex-bureaucrat.

"One can hope that if this goes smoothly, it could lead to a new sort of leadership by the premier and politicians."

Optimists say the mid-course correction by the 54-year-old Noda does not mean he will capitulate to bureaucratic masters.

"The way to control bureaucrats is not to mess with them, but to set policy and keep it intact for more than two years," said Steven Reed, a political science professor at Chuo University. "What the Democrats have done with the selection of Noda is a first -- they haven't changed policies," he said.

"I don't think there is a chance in the world that they will end up under the thumb of the bureaucrats."

Noda has made clear that a top priority is curbing Japan's public debt, already twice the size of its $5 trillion economy, a concern shared by Kan during his short 15-month term.

On the energy front, Noda has distanced himself from Kan's anti-nuclear rhetoric, but acknowledges that reducing reliance on nuclear power and promoting a bigger role for renewable sources is inevitable given voters' new-found atomic allergy.

"The broad-based course has been charted and the next level is details, implementing and drafting of specific laws," said Jesper Koll, director of equities research at JPMorgan.

That may smooth policy implementation short-term, although with Noda's own party split on many issues and the opposition LDP spoiling for a fight in a divided parliament, even that is uncertain.

Longer-term, the lack of a broad policy vision and clear priorities could mean Noda's novice ministers fall under a bureaucratic spell, whether woven by finance officials keen to raise income and corporate taxes to pay for post-disaster reconstruction or pro-nuclear bureaucrats in the trade ministry.

"In the absence of some driving vision, you basically turn to the people who can get things done on a day-to-day basis -- the bureaucrats," said Columbia University professor Gerry Curtis.

"Noda is nobody's puppet, but whom will he depend on for advice? There are no think tanks, no brain trust in the Kantei (PM's office), so he's stuck relying on bureaucrats."

(Editing by Tomasz Janowski and Nick Macfie)

View the original article here

Analysis: Japan's DPJ picks up reviled habits of party it ousted (Reuters)

TOKYO (Reuters) – Two years after the Democratic Party swept to power pledging to reform how Japan is governed, the struggling ruling party appears to be reviving the very practices it reviled.

That poses a challenge for new Prime Minister Yoshihiko Noda, who -- if he lasts long enough to face a general election -- could have trouble convincing voters to back a party that no longer looks much different from the conservative Liberal Democratic Party (LDP) that it trounced decisively in 2009.

The Democrats, a mix of former LDP lawmakers, ex-socialists and younger conservatives, were never going to present radically different solutions. But many voters had hoped for a new style of government that was more open and less tied to the vested interests that backed the LDP during its decades in power.

"Noda is steering the wheel in the direction of going back to the old mold, pretty much being a mini-LDP in all aspects," said Sophia University professor Koichi Nakano.

"People may say, 'If we want the LDP, why not let the real LDP back in government?'"

The convergence of the two parties' governing techniques and policies also casts doubt on whether Japan can address the ills of an aging society and an economy mired in stagnation.

"It's not as if the LDP system worked," Nakano said.

Noda is the third DPJ premier since voters handed the Democrats a landslide win in August 2009.

The Democrats had promised to pry policymaking control away from bureaucrats -- seen as too narrowly focused to design the bold policies needed -- and give consumers more money to boost growth instead of catering only to big corporations.

The DPJ had also pledged to unify decision-making inside the government to prevent feuding between cabinet ministers and the ruling party from slowing down and distorting policies.

Implementing those pledges, however, has proved tough given the Democrats' inexperience and internal feuding, bureaucrats' foot-dragging, and the huge scope of Japan's problems including public debt already twice size of the $5 trillion economy.

Some voters say it is time to bring back the LDP.

"Nothing will change if we leave the DPJ as the ruling party," said 32-year-old Tomoki Takeda in Tokyo.

Others, though, have little hope for either side. "It seems to me there was no sense in shifting to DPJ, because it proved to be too immature," said graphic designer Tadashi Samizo, 41.

"At the same time, LDP had its chance for a long time and ended up with all sorts of problems. So, I think we need someone outside of parties, maybe even outside of Japan."

Critics worry that Noda, a fiscal conservative who served as finance minister under predecessor Naoto Kan, is under the thumb of ministry officials keen to curb debt but with little appetite for redirecting spending based on policy priorities.

In a sign bureaucrats are calling the shots, the finance ministry on August 23 decided to ask all ministries to cut discretionary spending in the budget from April by 10 percent across the board to keep public finances from deteriorating.

"The bureaucrats have never really been ousted," said Jeffrey Kingston, director of Asian studies at Temple University's Japan campus.

TWEEDLEDUM, TWEEDLEDEE?

On the policy front, the Democrats have had to drop or reconsider signature policies to give households more cash in order to win help in a divided parliament from the LDP and the No.2 opposition party.

They have also acknowledged the 5 percent sales tax would have to be raised to fund ballooning social welfare costs.

That is in line with LDP proposals, although both parties have substantial numbers of anti-tax naysayers.

Noda has also taken a step back from the campaign pledge to streamline policymaking. New DPJ policy chief Seiji Maehara -- who unlike his predecessor will not hold a cabinet post -- will now need to sign off on policies before cabinet approval.

"Noda's new proposal reflects what was once normal practice within the LDP," said an Asahi newspaper commentary.

Noda has also distanced himself from Kan's vision of a nuclear power-free world, floated after the March tsunami triggered a radiation crisis at a nuclear power plant.

Like many in the LDP, which long promoted nuclear power, he wants to regain trust in the industry but realizes dependence on nuclear energy must dwindle given public safety concerns.

On the diplomatic front, Noda like Kan has abandoned the Asia-centric rhetoric of the first DPJ prime minister, Yukio Hatoyama, and echoes the traditional LDP stance that the U.S.-Japan's alliance forms the core of Tokyo's security policies.

The Democrats' internal bickering also seems all too familiar to those who recall the LDP's faction-driven politics.

The DPJ leadership race was a battle between critics and allies of power broker Ichiro Ozawa, and Noda won a run-off against his Ozawa-backed rival after getting backing from other groups.

Encouraged by their lead in voter opinion polls, the LDP is betting it can return to power in the next general election, which must be held by autumn 2013.

"The DPJ administration has lost its raison d'etre. Its manifesto is bankrupt and many of the people think its economic policies were mistaken . fundamentally, the mandate of the people should be sought as soon as possible," LDP lawmaker Yoshimasa Hayashi told Reuters in an interview.

(Additional reporting by Natalia Konstantinovskaya; Editing by Tomasz Janowski and Nick Macfie)

View the original article here

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)

View the original article here

Analysis: Japanese cash in on gold price boom

By Chikako Mogi and Chikafumi Hodo

TOKYO | Wed Aug 24, 2011 3:01pm EDT

TOKYO (Reuters) - For Eriko Ebina, standing outside a downtown Tokyo medical equipment store that has a side business buying gold, the recent surge in prices for the precious metal was just too tempting.

"For more than 30 years, I kept gold jewelry mother bought for me, and with media saying prices are high, I thought I would sell them now except for a few keepsakes from her," said Ebina, in her 60s.

"I earned more than I thought they were worth. I'm not interested in buying gold."

It is sellers like Ebina who will offset surging investment into gold funds in Japan, which should make the country a net exporter for the sixth year in a row.

The assets of Mitsubishi UFJ Trust and Banking Corp's physical gold exchange traded fund (ETF), Japan's first backed by metal stored in the country, have grown by a quarter since end-July to 21.8 billion yen ($284.9 million) as of August 23.

"Investors are seriously treating our gold ETF as a legitimate asset class, just like investing in equities, bonds and currencies," said Osamu Hoshi, deputy general manager at Mitsubishi UFJ Trust.

"They see a need to diversify their assets after seeing volatile moves in currencies and stocks and others," Hoshi said.

A downgrade of the U.S. sovereign debt rating amid a deteriorating outlook for the world's largest economy, as well as a spreading European debt crisis, have triggered a rush to gold that has boosted prices by 14 percent this month.

"Inflows have become especially big this month as fears over both the U.S. dollar and the euro have intensified," said Ryosuke Okazaki, chief investment officer at ITC Investment Partners. ITC's Japan Gold Funds have about 2 billion yen under management.

Still, ETF assets are a fraction of physical holdings, and Japanese institutional investors such as pension funds remain reluctant about exposure to commodities.

"They could be holding commodities in hedge funds, like managed futures, but I don't think many want to invest directly in gold or other commodities even if returns are extremely attractive," said a fund manager of an industrial material maker, who supervises about 50 billion yen in corporate pensions.

Gold prices may be hitting successive records, but for those buying in yen, they are still down nearly a fifth from a record high in 1980.

There is also no strong incentive to buy.

"The current core investor generation has not experienced real damage to the yen's value or a crisis which rocked the country," said Tetsu Emori, a fund manager at Astmax Co Ltd.

"There is no sense of fear in Japan right now as there is in Europe or in the United States. So, investors who own gold focus only on how to cash in from the rise in prices," he said.

PHYSICAL SALE PREVAILING

Gold in Japan is not so much associated with risk aversion, but more as an asset that many bought when prices languished for 30 years.

The retail price at Japan's largest bullion house Tanaka Kikinzoku Kogyo was 4,745 yen per gram on August 23, excluding the 5 percent consumption tax, the highest since September 1980. Retail gold peaked in January 1980 at 6,495 yen.

Selling of gold has snowballed since the start of August, unlike in January 2008 when a spike in gold prices led to an explosive but short-lived gold sales boom, said Osamu Ikeda, Tanaka's general manager.

"Selling accelerated in August as gold rallied to historic highs, and that is symbolic of a matured Japan," Ikeda said.

Ikeda said the amount of gold for investment purposes that the house bought back from customers more than doubled to 10.2 tonnes as of August 23 from 4.3 tonnes in July. At the August 23 prices this would be worth around 48.4 billion yen.

Sellers are not limited to retired or retiring generations nor shops confined to established bullion houses.

"Customers bring all sorts of jewelry, gold cups, watch, teeth, but sometimes desperate ones bring fake gold or even their talismans," said Seiichi Nakamura, manager at confectionary retail chain Nakamuraya.

"A lot of stores of this kind appeared recently, so that it turned into sort of a survival game," he said, adding the number of customers, mainly women in their 40-50s, had doubled to 20 a day in recnt days.

Media playing up the surge in gold is also driving the move.

"The media helped us, I think. When people learned there is a boom for selling gold now, they decided to do it too. It's like a chain effect," said shop manager Kenta Okiyama at antique dealer Otakaraya.

Tanaka Kikinzoku's Ikeda said buying interest has picked up, even in the physical market, from those in their 30s and 40s, although sellers still outnumber buyers by 5 to 1.

"It used to be one-way flows of just sellers. Now, there are sellers to book profits and some buyers betting on further rises in prices," Ikeda said.

NET GOLD EXPORTER

As long as Japanese remain sellers as the price rallies, Japan is set to be a net gold exporter for the sixth consecutive year in 2011.

But households' growing desire to profit from a bullish market outlook may cap the total export volumes below the 2008 peak of 95.5 tonnes, just as they did last year.

Between January-June, Japan exported a total 45.8 tonnes of gold, compared to 46 tonnes the same period a year go. Net exports at 43 tonnes exceeded 39 tonnes a year earlier.

Japan exported a total of 91 tonnes of gold and imported 13 tonnes in 2010, resulting in record net exports of 78 tonnes, about a quarter of annual output from top miner China.

Japanese households were seen holding about 1,500 tonnes of gold last year, so the net exports may have reduced the amount to around 1,400 tonnes now, industry officials say.

"There is still lots of gold in this country. Net exports could hit records again this year," Ikemizu said.

($1 = 76.510 Japanese Yen)

(Additional reporting by Natalia Konstantinovskaya; Editing by Michael Urquhart)

View the original article here

Analysis: Japanese cash in on gold price boom - Reuters

By Chikako Mogi and Chikafumi Hodo

TOKYO | Wed Aug 24, 2011 5:49am EDT

TOKYO (Reuters) - For Eriko Ebina, standing outside a downtown Tokyo medical equipment store that has a side business buying gold, the recent surge in prices for the precious metal was just too tempting.

"For more than 30 years, I kept gold jewelry mother bought for me, and with media saying prices are high, I thought I would sell them now except for a few keepsakes from her," said Ebina, in her 60s.

"I earned more than I thought they were worth. I'm not interested in buying gold."

It is sellers like Ebina who will offset surging investment into gold funds in Japan, which should make the country a net exporter for the sixth year in a row.

The assets of Mitsubishi UFJ Trust and Banking Corp's physical gold exchange traded fund (ETF), Japan's first backed by metal stored in the country, have grown by a quarter since end-July to 21.8 billion yen ($284.9 million) as of August 23.

"Investors are seriously treating our gold ETF as a legitimate asset class, just like investing in equities, bonds and currencies," said Osamu Hoshi, deputy general manager at Mitsubishi UFJ Trust.

"They see a need to diversify their assets after seeing volatile moves in currencies and stocks and others," Hoshi said.

A downgrade of the U.S. sovereign debt rating amid a deteriorating outlook for the world's largest economy, as well as a spreading European debt crisis, have triggered a rush to gold that has boosted prices by 14 percent this month.

"Inflows have become especially big this month as fears over both the U.S. dollar and the euro have intensified," said Ryosuke Okazaki, chief investment officer at ITC Investment Partners. ITC's Japan Gold Funds have about 2 billion yen under management.

Still, ETF assets are a fraction of physical holdings, and Japanese institutional investors such as pension funds remain reluctant about exposure to commodities.

"They could be holding commodities in hedge funds, like managed futures, but I don't think many want to invest directly in gold or other commodities even if returns are extremely attractive," said a fund manager of an industrial material maker, who supervises about 50 billion yen in corporate pensions.

Gold prices may be hitting successive records, but for those buying in yen, they are still down nearly a fifth from a record high in 1980.

There is also no strong incentive to buy.

"The current core investor generation has not experienced real damage to the yen's value or a crisis which rocked the country," said Tetsu Emori, a fund manager at Astmax Co Ltd.

"There is no sense of fear in Japan right now as there is in Europe or in the United States. So, investors who own gold focus only on how to cash in from the rise in prices," he said.

PHYSICAL SALE PREVAILING

Gold in Japan is not so much associated with risk aversion, but more as an asset that many bought when prices languished for 30 years.

The retail price at Japan's largest bullion house Tanaka Kikinzoku Kogyo was 4,745 yen per gram on August 23, excluding the 5 percent consumption tax, the highest since September 1980. Retail gold peaked in January 1980 at 6,495 yen.

Selling of gold has snowballed since the start of August, unlike in January 2008 when a spike in gold prices led to an explosive but short-lived gold sales boom, said Osamu Ikeda, Tanaka's general manager.

"Selling accelerated in August as gold rallied to historic highs, and that is symbolic of a matured Japan," Ikeda said.

Ikeda said the amount of gold for investment purposes that the house bought back from customers more than doubled to 10.2 tonnes as of August 23 from 4.3 tonnes in July. At the August 23 prices this would be worth around 48.4 billion yen.

Sellers are not limited to retired or retiring generations nor shops confined to established bullion houses.

"Customers bring all sorts of jewelry, gold cups, watch, teeth, but sometimes desperate ones bring fake gold or even their talismans," said Seiichi Nakamura, manager at confectionary retail chain Nakamuraya.

"A lot of stores of this kind appeared recently, so that it turned into sort of a survival game," he said, adding the number of customers, mainly women in their 40-50s, had doubled to 20 a day in recnt days.

Media playing up the surge in gold is also driving the move.

"The media helped us, I think. When people learned there is a boom for selling gold now, they decided to do it too. It's like a chain effect," said shop manager Kenta Okiyama at antique dealer Otakaraya.

Tanaka Kikinzoku's Ikeda said buying interest has picked up, even in the physical market, from those in their 30s and 40s, although sellers still outnumber buyers by 5 to 1.

"It used to be one-way flows of just sellers. Now, there are sellers to book profits and some buyers betting on further rises in prices," Ikeda said.

NET GOLD EXPORTER

As long as Japanese remain sellers as the price rallies, Japan is set to be a net gold exporter for the sixth consecutive year in 2011.

But households' growing desire to profit from a bullish market outlook may cap the total export volumes below the 2008 peak of 95.5 tonnes, just as they did last year.

Between January-June, Japan exported a total 45.8 tonnes of gold, compared to 46 tonnes the same period a year go. Net exports at 43 tonnes exceeded 39 tonnes a year earlier.

Japan exported a total of 91 tonnes of gold and imported 13 tonnes in 2010, resulting in record net exports of 78 tonnes, about a quarter of annual output from top miner China.

Japanese households were seen holding about 1,500 tonnes of gold last year, so the net exports may have reduced the amount to around 1,400 tonnes now, industry officials say.

"There is still lots of gold in this country. Net exports could hit records again this year," Ikemizu said.

($1 = 76.510 Japanese Yen)

(Additional reporting by Natalia Konstantinovskaya; Editing by Michael Urquhart)

View the original article here

Analysis: Japan to rely more on timing than size in FX action (Reuters)

TOKYO (Reuters) – Japan may lack the implicit approval of G7 nations to spend big in any future efforts to stem sharp yen rises and will have to rely on limited opportunistic strikes to prevent a build-up of aggressive bets on its currency.

That means that despite all the jawboning, Tokyo's record 4.6 trillion yen ($60 billion) intervention last week is unlikely to mark a start of a long campaign similar to the 35-trillion yen selling spree in 2003.

"Japanese policymakers say that Tokyo has gained some consent from the G7 on intervention. But judging from the statement, I doubt that's true," said Yasuhide Yajima, senior economist at NLI Research Institute in Tokyo.

"Having said that, I think Tokyo will probably intervene again. Not acting and allowing the yen to renew a record high is not an option for the government."

While Finance Minister Yoshihiko Noda has tried to keep markets on edge by making references to his discussions with G7 partners, it is doubtful there is much sympathy for Tokyo's battle with what is seen as a global currency realignment.

Back in 2003, Japan was the only major economy suffering from deflation and the aftermath of a severe economic slump, making it easier to gain Group of Seven understanding.

At the time, Washington recognized it was in the U.S. interest for Japan's economy to recover enough to pull out of a banking crisis that, if mishandled, could rock global markets.

And in March this year, when the group acted together to weaken the yen after it hit record highs, it was a show of solidarity with a Japan that had just been hit by a massive earthquake, a deadly tsunami and nuclear meltdowns.

DOLLAR WEAKNESS

Analysts also point out that five months ago, the yen soared mainly on speculation about repatriation of funds to the disaster-stricken nation. This time, it is a broad dollar weakness fueled by concerns about the U.S. economy that is primarily driving the Japanese currency.

Given that large scale interventions may not sit well with international partners while inaction would draw ire from exporters at home, Tokyo may aim for a "shock" effect by carefully choosing the moment to step in.

Noda has given markets a glimpse of government thinking, noting how events overseas played a role in decisions on when to act, and suggesting that Tokyo may not step in if there was a risk that a market-moving event could weaken the impact.

He has said the government waited until Washington sealed a deal on the U.S. debt ceiling before intervening on August 4. He also signaled that Tokyo kept a close eye on market reaction to the Federal Reserve's policy decision on Tuesday in determining whether any action was needed.

It looks certain that the Bank of Japan will try to maximize the effect of any intervention by refraining from draining the extra yen from the market. The central bank is also ready to supply huge amounts of funds to the market on any signs of stress, sources have told Reuters, and the BOJ may even ponder easing monetary policy further if the economy's recovery is threatened.

The finance ministry, which has jurisdiction over currency policy, can issue about 45 trillion yen in financing bills to secure yen for intervention. That means that even after a series of currency actions taken since last year, it is still left with about 40 trillion yen to spend, plenty to step into the market again.

Tokyo has interpreted a G7 call for coordinated action to ensure market stability in its statement this week as signaling the group's readiness to jointly intervene if currency moves become too volatile.

NO APPETITE FOR JOINT ACTION?

But another customary line in the statement, saying exchange rates should be determined by markets, was taken by markets as a sign that there was no appetite for joint action.

Some even suspect that the group was not happy with Japan's solo act, after European Central Bank President Jean-Claude Trichet said that currency interventions "have to be made on the basis of a multilateral consensus."

With joint or big-scale solo action seemingly off the table, markets may get ready for occasional skirmishes, not necessarily at times when the yen is rising sharply.

Noda's latest statement -- that he was thinking about ways of softening the impact of the yen's strength -- also suggested that the government had modest ambitions. It is aiming to prevent yen-buying from turning into a risk-free bet, rather than hoping to weaken the currency in a lasting manner.

It may also seek help from the BOJ, which could ease policy again to limit the strong yen's negative impact on business sentiment.

In fact, the government may want to rely more on the central bank in its efforts to tame the high-flying currency.

Economics Minister Kaoru Yosano said this week Japan should give more thought to the range of quantitative easing steps it uses, while Prime Minister Naoto Kan said he hoped the BOJ will continue to support the economy with easy monetary policy.

($1 = 76.780 Japanese Yen)

(Editing by Tomasz Janowski and Richard Borsuk)

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