Nissan Leads Asian Carmaker Gains - Bloomberg

Enlarge image The company, Japan’s second-largest automaker, said its Nissan-brand cars rose a combined 32 percent.

The company, Japan’s second-largest automaker, said its Nissan-brand cars rose a combined 32 percent. Photographer: Tim Rue/Bloomberg

Oct. 4 (Bloomberg) -- Jessica Caldwell, an analyst at Santa Monica, California-based Edmunds.com, talks about the outlook for Asian carmakers. Nissan Motor Co. posted U.S. sales gains in September as the two largest Asia-based auto brands, Toyota Motor Corp. and Honda Motor Co., still struggled to deliver enough vehicles to dealerships. Caldwell speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Enlarge image Hyundai, South Korea’s largest automaker, sold 52,051 vehicles, up 12 percent from a year earlier.

Hyundai, South Korea’s largest automaker, sold 52,051 vehicles, up 12 percent from a year earlier. Photographer: Andrew Harrer/Bloomberg

Toyota Motor Corp. (7203) and Honda Motor Co., still struggling to deliver enough vehicles to dealers, lost share of the U.S. market as Nissan Motor Co. grew more than expected and industrywide sales were the best since April.

Toyota, held back by tight supplies of Prius hybrids and Tundra pickups, sold 17 percent fewer vehicles, reducing its share to 11.5 percent from 15.3 percent a year earlier, according to researcher Autodata Corp. Honda’s 8 percent drop in deliveries cut its share by 1.7 points to 8.5 percent.

Inventory at Toyota was about 40 percent less at the beginning of the month than a year earlier, said Bob Carter, group vice president of U.S. sales. The automaker, Asia’s largest, returned to full production last month after output was disrupted by Japan’s March 11 earthquake, and supply of some models is recovering more slowly than anticipated.

“The worst is behind us, and we expect to exceed year-ago sales levels beginning in October with continued growth throughout the fourth quarter,” Carter said in a conference call yesterday.

Output is rising at Toyota and Honda’s North American plants after being slowed for five months by parts shortages due to the March earthquake.

Nissan, with fewer suppliers affected, has said its North American plants have been at full output since about June. The Yokohama-based carmaker, Japan’s second-largest, boosted U.S. sales 25 percent last month from a year earlier.

U.S. Automakers

Hyundai Motor Co. (005380) and affiliate Kia Motors Corp. (000270), South Korea’s two biggest carmakers, joined Toyota and Honda in missing consensus estimates for September sales as industrywide deliveries gained 9.9 percent, led by volume gains for General Motors Co. (GM), Ford Motor Co. (F) and Chrysler Group LLC, majority owned by Fiat SpA. (F) The U.S.-based companies had increases of 20 percent, 9 percent and 27 percent, respectively.

September light-vehicle deliveries rose to a seasonally adjusted annualized rate of 13.1 million, according to Woodcliff Lake, New Jersey-based Autodata Corp. The average estimate of 14 analysts surveyed by Bloomberg was for a 12.8 million pace. The rate is the highest since April’s 13.2 million, when lost output caused by Japan’s earthquake and tsunami began crimping supply of parts and finished cars.

Toyota and Honda “still don’t have quite the selection of vehicles needed,” said Jessica Caldwell, an analyst at Santa Monica, California-based Edmunds.com. “Their cars are being produced again, but you still have to have selection consumers want. It will take time to get back to a normal level.”

Overall U.S. sales should benefit from rising inventory at Toyota and Honda dealerships, said Paul Taylor, chief economist for the National Automobile Dealers Association.

“A complete inventory makes for stronger sales overall,” Taylor said. “There’s pent-up demand, and it’s based on need, not necessarily on discretionary consumption.”

Toyota fell 2.5 percent to 2,568 yen at the 11 a.m. trading break in Tokyo, compared with a 1.6 percent drop in Japan’s benchmark Nikkei 225 Stock Average. Honda dropped 4.1 percent, and Nissan declined 1.9 percent. Hyundai fell 3.1 percent to 204,500 won in Seoul, while Kia lost 3.6 percent.

Japanese and South Korean automakers sold 445,891 new cars and trucks in the U.S. last month, up 0.9 percent from a year ago, trailing the 9.9 percent industrywide increase.

Toyota said sales of its Toyota, Lexus and Scion brand vehicles totaled 121,451 last month, down from 147,162 a year earlier. The carmaker’s 17 percent sales drop exceeded a 15 percent decline that was the average expectation of five analysts surveyed by Bloomberg.

The company has more than a 20-day Prius supply at the start of October, the highest “I can remember,” Carter said.

At Honda, the 8 percent sales decline exceeded the 6.1 percent drop that was the average of five analyst estimates. Still, that was an improvement from the previous four months, when deliveries slid at least 20 percent for Tokyo-based Honda.

The company is scheduling overtime shifts at U.S. assembly plants to rebuild inventory, Ron Lietzke, a spokesman, said in a Sept. 28 phone interview.

“Predicting future sales is always risky, but supply of new vehicles is coming into dealerships,” John Mendel, Honda’s executive vice president of U.S. sales, said via e-mail.

“We’re optimistic that our fourth-quarter sales will be back to normal levels and, given economic stability, we could exceed last year’s sales,” Mendel said.

Nissan’s 25 percent sales gain compared with the 18 percent average of five analyst estimates. The company said its Nissan- brand cars rose a combined 32 percent, led by the new Versa compact.

With vehicle production and inventory recovering for Toyota and Honda, the fourth quarter may be the year’s strongest for auto sales, Al Castignetti, Nissan’s vice president of U.S. sales, said in a phone interview.

“Inventory levels for all manufacturers are going to get back to normal, and people who have been sitting on the fence are likely to get back in the market,” he said. “If we have another month like September, I’d say all bets are off.”

Nissan’s September market share gained 1.1 percentage points to 8.8 percent, according to Autodata. The company’s U.S. sales so far this year have risen 15 percent compared with declines of 8.9 percent for Toyota and 5.8 percent for Honda.

Nissan “increased not only year over year, but month over month, not an easy thing to do,” Caldwell said. “They’re strong from an inventory standpoint, relative to Toyota and Honda, and have been aggressive about getting that message out.”

Hyundai sold 52,051 vehicles, up 12 percent from a year earlier. The gains were led by its revamped Elantra small car, the new Veloster hatchback and Santa Fe and Tucson sport-utility vehicles. Kia sold 35,609 vehicles, up from 30,071 a year earlier.

Combined sales for the two Seoul-based partners, which operate separately in the U.S., totaled 87,660 for the month, or 14 percent more than a year ago. That was less than the 20 percent average of three estimates compiled by Bloomberg.

Both companies said sales were their best ever for the month.

Japan’s Mazda Motor Corp. (7261) said deliveries rose 37 percent last month, its biggest increase this year. Subaru, the auto brand of Fuji Heavy Industries Ltd. (7270), reported a 2.3 percent sales drop for the month, citing tight supplies of its all-wheel drive cars and wagons.

Mitsubishi Motors Corp. (7211) posted a 17 percent increase and Suzuki Motor Corp. (7269)’s sales grew 23 percent.

To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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Japan's Industrial Output Rises Less Than Expected, Weighed by Strong Yen - Bloomberg

Enlarge image Commuters crowd a train station in Tokyo. Employers cut payrolls by 160,000 and a further 200,000 workers retired or abandoned efforts to find a job, leaving the seasonally adjusted number of employed at 59.4 million.

Commuters crowd a train station in Tokyo. Employers cut payrolls by 160,000 and a further 200,000 workers retired or abandoned efforts to find a job, leaving the seasonally adjusted number of employed at 59.4 million. Photographer: Toshiyuki Aizawa/Bloomberg

Sept. 30 (Bloomberg) -- Curtis Freeze, founder of Honolulu-based Prospect Asset Management Inc., talks about Japan's economy, financial markets, and government. Freeze speaks from Tokyo with John Dawson on Bloomberg Television's "First Up." (Source: Bloomberg)

Japan’s labor force shrank last month to its smallest size since October 1987, when the nation’s stock-market benchmark was 185 percent higher and land prices were 85 percent greater than today.

Employers cut payrolls by 160,000 and a further 200,000 workers retired or abandoned efforts to find a job, leaving the seasonally adjusted number of employed at 59.4 million, the statistics bureau said today in Tokyo. Separate figures showed industrial production rose 0.8 percent from the previous month, less than all but three of 28 forecasts in a Bloomberg survey.

The data deepen concern that Japan’s recovery from the March earthquake will be stunted by manufacturers shifting operations abroad because of gains in the yen, a deterioration in consumer confidence and prospects for higher taxes at home. The challenges add to the burden of an economy already beset by a shrinking and aging population.

“We’ve seen an acceleration in the hollowing out of industry this year with the yen’s surge and the earthquake,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. “The government doesn’t have a sense of crisis about the yen and emerging economies are luring Japanese companies away.”

The yen traded at 76.74 as of 9:12 a.m. in London, about 1 percent from the post-World War II record high of 75.95 on Aug. 19. The Nikkei 225 Stock Average finished little changed at 8,700.29, compared with the peak of 38,915.87 when it closed out 1989, capping a four-year run when it soared almost 200 percent.

Prime Minister Yoshihiko Noda’s government on Sept. 27 said it will start implementing measures to cope with the yen’s gains, including subsidies for companies struggling to retain workers. Finance Minister Jun Azumi said today that Japan plans to bolster funds needed to intervene and lengthen monitoring of foreign-exchange market positions until the end of the year, from an initial plan to end the review this month.

“The yen staying around the high-70s could throw cold water on the Japanese economy’s recovery trend,” Azumi said at a press conference in Tokyo. “We will take bold actions when needed and we don’t rule out taking any necessary measures while closely monitoring speculative trading.”

Manufacturers including Panasonic Corp. have announced plans to shift operations overseas. Panasonic, one of the world’s largest consumer electronics companies, is moving the headquarters of its $57 billion procurement operation to Singapore from Osaka in the year starting April 2012, Masaaki Fujita, an executive in charge of the business, said this month.

Exports and retail sales data released this month also missed analysts forecasts, casting doubt on whether gross domestic product will rebound as much as forecast this quarter. GDP is expected to grow at a 4.6 percent annual pace in the three months through September, ending three quarters of decline, according to the average forecast of 42 economists surveyed by Japan’s government-affiliated Economic Planning Association.

The jobless rate fell to 4.3 percent in August from 4.7 percent as people left the workforce, today’s report showed. Household spending decreased 4.1 percent from a year earlier, compared with the median estimate in a Bloomberg News survey for a 2.8 percent drop.

A stagnating economy has also depressed consumer sentiment, with the nation’s Economy Watchers survey showing confidence among merchants and others who deal with consumers slipping to 47.3 in August, the first drop since March.

“I’m worried where things will go after this year, when we’ll start to see more of an impact from the strong yen and slowing growth in the U.S.,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. Reconstruction won’t be enough to fuel a “V-shaped rebound,” he said.

Japan plans to spend a total of 19 trillion yen ($247 billion) over five years for rebuilding after the magnitude-9 temblor and tsunami that devastated the northeast coast. The nation’s ruling Democratic Party of Japan this week proposed a 9.2 trillion yen temporary tax increase and selling of state assets to help pay for the effort.

In a sign that weaker global demand is affecting other Asian markets, South Korea’s industrial production also rose less than economist estimates in August, gaining 4.8 percent from a year earlier, Statistics Korea said today. Meanwhile, a gauge of Chinese manufacturing shrank for a third month in September, the longest contraction since 2009, according to the purchasing managers’ index released by HSBC Holdings Plc and Markit Economics today.

“Continuing yen strength will prompt companies to factor in a stronger yen in their business planning,” said Takahiro Sekido, a former analyst at the Bank of Japan and now a chief economist at Credit Agricole SA in Tokyo. “The biggest concern is the European debt crisis and the U.S. economy. With uncertain overseas demand,” Japan’s recovery may weaken, he said.

The International Monetary Fund predicted “severe” repercussions if Europe fails to contain its debt crisis or U.S. policy makers deadlock over a fiscal overhaul. Deepening debt woes in Europe have also put pressure on the yen’s exchange rate against its European counterpart, threatening to depress earnings at companies including Sony Corp.

To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Japan to Boost LNG Imports From U.S. as Nuclear Power Declines - Bloomberg

Japan, the world’s largest importer of liquefied natural gas, plans to seek more U.S. cargoes to ensure adequate power supplies after its use of nuclear reactors fell to an all-time low.

Japan’s senior vice minister of trade and industry, Seishu Makino, asked U.S. Energy Secretary Steven Chu at a meeting yesterday in San Francisco to increase LNG exports, Akinobu Yoshikawa, deputy manager for the Petroleum and Natural Gas Division, told reporters today in Tokyo.

“I believe we gained the U.S.’s understanding to some extent,” said Yoshikawa. “We can’t buy LNG from the U.S. unless the Department of Energy approves LNG plant owners to export. There is one plant that recently won the approval and there are two others in progress.”

Cheniere Energy Inc. (LNG), the Blackstone Group LP-backed owner of Sabine Pass terminal in Louisiana, got approval to ship LNG to Japan in May. The Freeport LNG terminal in Texas and the Lake Charles terminal in Louisiana are now seeking approval for exports, according to Yoshikawa. Japan imported 70,873 metric tons of LNG from the U.S. in the four-month period by July, down 60 percent from the same period last year, according to data compiled by the Ministry of Finance.

Annual LNG output at Sabine Pass is around 15 million tons, Yoshikawa said. “Not all of the 15 million tons will be exported to Japan, but I believe the impact for our imports will be big,” he said.

Tokyo Electric Corp. and Tokyo Gas Co., the first Asian buyers of LNG, had a joint contract to buy the fuel from a plant in Alaska owned by ConocoPhillips (COP) and Marathon Oil Corp. (MRO) The contract, initially signed in 1969, expired at the end of March this year, Tokyo Electric’s spokesman Ryo Shimizu and Tokyo Gas spokesman Takeshi Ujiie said by phone today. They declined to comment whether the two companies still buy spot cargoes of LNG from the project.

Japan’s 10 regional power utilities’ imports of liquefied natural gas rose to a record for a second month in August. Of the 54 reactors in the country, 41 units were idled because of the meltdown at the Fukushima Dai-Ichi plant after the March 11 earthquake and tsunami, maintenance and other disruptions at the end of August, according to data compiled by Bloomberg News.

To contact the reporter on this story: Yuji Okada in Tokyo at yokada6@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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G-7 Ends Without Objection to Yen Action - Bloomberg

Japanese Finance Minister Jun Azumi ended his first Group of Seven meeting without his counterparts objecting to his pledge to take “bold actions” to stem yen gains, paving the way for a fresh intervention if he deems it necessary.

“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. I think I gained an understanding of our stance on foreign-exchange rates.”

Concern the currency gain is hurting economic recovery by crimping exports may be mounting after a report showed the world’s third-largest economy contracted more than the government initially estimated in the second quarter. Azumi attended the G-7 talks about a week after becoming Japan’s eighth finance minister since the start of 2008.

“We expect Japan’s authorities will act again unilaterally” if the yen tests its post-war high, said Mansoor Mohi-uddin, UBS AG’s global head of currency strategy in Singapore. “Investors should instead keep favoring the dollar now when they seek safe-haven currencies.”

Azumi asked U.S. Treasury Secretary Timothy F. Geithner to understand the challenges caused by the strength of the yen when they met yesterday, a Japanese finance ministry official said on the condition of anonymity, citing government policy.

The G-7 policy makers said in a statement that they will “consult closely in regard to actions in exchange markets and will cooperate as appropriate.” While they said they prefer markets to set currencies, they reiterated their long-held view that volatility and disorderly movements threaten stability.

“As this falls short of any commitment to undertake coordinated action in currency markets, investors are likely to react with disappointment when trading resumes on Monday,” UBS’s Mohi-uddin said.

The yen touched a 10-year high against euro last week as investors sought a haven from Europe’s sovereign debt crisis after German officials said they are considering plans to shore up their banks if Greece defaults.

“The root cause of the strong yen is global investors’ preference for safe assets,” Bank of Japan (8301) Governor Masaaki Shirakawa told reporters during the G-7 meeting. “I told them Japan expects them to firmly address the fiscal issues,” he said, referring to his G-7 counterparts.

The yen has retreated after rising to a post-war high of 75.95 against the dollar, closing last week at 77.61 in New York. The exchange rate is nevertheless ’’considerably high,’’ Economy Policy Minister Motohisa Furukawa said last week. The nation’s largest manufacturers including Toyota Motor Corp. and Sony Corp. based their business plans for this fiscal year at an average of 82.59 per dollar, according to the central bank’s quarterly survey in July.

Gross domestic product shrank at an annualized 2.1 percent rate in the three months ended June 30, more than the 1.3 percent contraction reported last month, the Cabinet Office said yesterday.

Rintaro Tamaki, Japan’s former top currency official who orchestrated interventions last September and March, said the language in the G-7 statement indicates countries want Japan to build a consensus before intervening, indicating the nation may face disagreement over yen sales in the future.

Canadian Finance Minister Jim Flaherty said before the G-7 meeting he was concerned about moves by the Japanese and Swiss to stem gains in their currencies after the Swiss central bank said last week it will keep the euro above 1.20 francs and will defend that line with “utmost determination.”

While the lack of objection to Japan’s currency stance doesn’t signal approval for unilateral intervention, the country’s authorities aren’t ruling out selling the yen to curb excessive moves, another finance ministry official said, also on condition of anonymity.

Japan intervened on Aug. 4 and sold 4.51 trillion yen ($58 billion) of its currency last month, the biggest monthly sales since 2004. The G-7 economies jointly intervened in March for the first time in more than a decade after a soaring yen threatened Japan’s recovery from an earthquake, tsunami and nuclear disaster.

Former Finance Minister Yoshihiko Noda, who is now the premier, conducted three rounds of interventions in the past 12 months. Azumi has said he will inherit Noda’s stance.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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OECD Cuts Growth Forecasts for U.S., Japan - Bloomberg

Enlarge image OECD Chief Economist Pier Carlo Padoan said, “Policy rates in most OECD economies should be kept on hold.”

OECD Chief Economist Pier Carlo Padoan said, “Policy rates in most OECD economies should be kept on hold.” Photographer: Daniel Acker/Bloomberg

The Organization for Economic Cooperation and Development slashed its growth forecasts for the U.S. and Japan and said central banks around the world should be ready to ease monetary policy if economies weaken further.

The U.S. will grow 1.1 percent in the third quarter and 0.4 percent in the fourth, instead of the 2.9 percent and 3 percent predicted in May, the OECD said today in its interim economic assessment. Japan will expand 4.1 percent in the third quarter before stalling in the fourth, and the three biggest euro economies will grow 1.4 percent and then shrink 0.4 percent.

The predictions highlight the global slowdown the day that President Barack Obama will set out plans to revive growth in the world’s largest economy and the European Central Bank and the Bank of England conduct monthly policy meetings. Group of Seven finance ministers will also discuss ways to revive growth when they gather tomorrow in Marseille, France.

“Policy rates in most OECD economies should be kept on hold,” the OECD Chief Economist Pier Carlo Padoan wrote in the report. If signs of economic weakness emerge, “rates should be lowered where there is scope. Where there is not such scope, other measures could include further central bank interventions in securities markets, even at diminishing returns, and strong commitments to keep interest rates low,” he said.

The OECD cautioned that the uncertainty around its forecasts is “unusually large,” particularly for Japan and the U.S. The various forecasts had margins of error that ranged from 1.1 percentage points to 2.7 points.

Central banks around the world are refocusing on supporting growth. Yesterday the Bank of Canada said there is a “diminished” need for it to raise interest rates, Sweden’s Riksbank abandoned a planned increase and the Reserve Bank of Australia signaled it is prepared to keep rates on hold.

Fears of a renewed global recession have caused stocks to tumble around the world and forced Japan and Switzerland to intervene to stop their currencies appreciating as investors seek havens.

ECB President Jean-Claude Trichet will probably resist calls to cut the benchmark interest rate today and may opt instead to increase the supply of cash to euro-area banks as the region’s debt crisis worsens, a Bloomberg News survey indicated. Policy makers meeting in Frankfurt will keep the key rate at 1.5 percent, according to all 57 economists in the Bloomberg survey said.

U.K. Rates

Bank of England policy makers, meanwhile, may maintain the U.K.’s benchmark interest rate at a record low, according to all 57 economists in a Bloomberg News survey. A separate poll shows the central bank will keep its bond buying plan unchanged. Goldman Sachs Group Inc. and Citigroup Inc. say policy makers will resume asset purchases by November.

The OECD favors monetary stimulus at a time when most developed countries are fighting to limit their levels of public debt.

“The space for fiscal policy to react depends on the state of public finances, the ease at which government debt can be funded” and the underlying strength of the economy, the OECD said. “Countries with limited fiscal space have restricted scope for fiscal easing and some have to tighten amid cyclical weakness,” it added.

The Germany economy will expand 2.6 percent in the third quarter and shrink 1.4 percent in the fourth, the OECD predicts. Italy will shrink 0.1 percent in the three months through September and grow 0.1 percent in the final three months, the forecasts showed.

The U.K. will grow 0.4 percent and 0.3 percent, while France will expand 0.9 percent and 0.4 percent. Canada’s expansion will be 1 percent and 1.9 percent in the two quarters, the OECD said.

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net.

To contact the editor responsible for this story: Craig Stirling at stirling1@bloomberg.net.

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Atomic Power Needed to Save Japanese Economy: Noda - Bloomberg

Enlarge image Tatsuyuki Tayama/Pool via Bloomberg

Yoshihiko Noda, Japan's new prime minister.

Yoshihiko Noda, Japan's new prime minister. Photographer: Tatsuyuki Tayama/Pool via Bloomberg

Sept. 2 (Bloomberg) -- Tobias Harris, author of the "Observing Japan" political blog and a former aide to ex-Democratic Party of Japan lawmaker Keiichiro Asao, talks about the nation's government and political environment. Harris speaks from Tokyo with John Dawson on Bloomberg Television's "On the Move Asia." (Harris spoke before the announcement of members for a new cabinet. Source: Bloomberg)

Sept. 2 (Bloomberg) -- The port city of Ishinomaki in northern Japan’s Miyagi Prefecture was one of the most severely damaged by the March 11 earthquake and tsunamis. Its residents seek to rebuild their lives after 3,161 people were killed, and as the search for the 793 missing continues. Ishinomaki is the hometown of Jun Azumi, the nation's new finance minister. Bloomberg’s Kyoji Iwai reports. (Source: Bloomberg)

Japan’s new Prime Minister Yoshihiko Noda in his first days in office started to deliver a difficult message to a public still in shock from the Fukushima nuclear disaster: Atomic power is needed to save the economy.

Nuclear power provided about 30 percent of the electricity in the world’s third biggest economy before the March 11 earthquake and tsunami. Now, about 80 percent of Japan’s 54 reactors are offline with more shutting for scheduled maintenance in the months ahead.

With the majority of opinion polls showing the public oppose the use of atomic power, Noda needs to convince his electorate so-called stress tests on reactors will make them safer to restart. Industry leaders have said they may shift production overseas if power supplies aren’t stable, threatening an economic recovery.

“There will be very little reserve electricity for peak hours in the winter and summer if the operating rate of reactors keeps falling,” said Yugo Nakamura, an analyst for Bloomberg New Energy Finance. Noda is “trying to avoid economic disruptions by restarting reactors after safety checks.”

Noda’s predecessor, Naoto Kan, called for Japan to end its reliance on atomic power after the world’s worst nuclear accident in 25 years. Public concern about safety has meant that reactors closed for maintenance haven’t been allowed to restart, forcing Japan this year to impose power-savings measures for the first time since the 1970s.

Japan’s gross domestic product shrank at an annualized 1.3 percent rate in the three months ended June 30, marking three consecutive quarters of declines, the Cabinet office said last month.

The new premier seems in agreement with Kan that Japan’s energy future should shift focus to renewable power, while saying for the current economy to grow nuclear power is needed.

“It’s a realistic option to use existing plants to a certain extent and develop nuclear technology until at least 2030 while aiming to decrease our dependency on atomic power,” Noda said in an article for the Bungeishunju magazine published on Aug. 10.

“We will build a framework so we can restart reactors shut for maintenance after ensuring they are safe following stress tests and gaining the understanding of local residents,” Noda said on Sept. 2 after appointing his Cabinet.

“It’s important for us to prepare for restarts,” he said in comments on possible power shortages next year.

Sixty-eight percent of respondents to an Asahi newspaper poll published on Aug. 8 said they wanted Kan’s successor to continue the policy of phasing out atomic energy.

Noda’s approval rating was 65 percent, according to a poll published yesterday by the Yomiuri newspaper, the country’s biggest. The Nikkei newspaper and Kyodo News put his popularity rating at 67 percent and 63 percent respectively. None of the polls gave a margin of error.

Noda named Yoshio Hachiro, 63, to be Trade and Industry Minister in his Cabinet lineup, giving him the responsibility to rebuild the ministry that has played conflicting roles in both regulating nuclear energy and promoting its use.

The government in July said it would set up a regulator outside of the ministry and in August, the previous minister, Banri Kaieda, fired the country’s top energy bureaucrats in what he called “sweeping” changes.

To address public anxiety, the government in July said electricity companies must carry out the stress tests on all nuclear stations.

Japan may submit the results of the checks to the International Atomic Energy Agency for review, Hachiro said yesterday on NHK Television.

“The current review system of Japan’s nuclear governing body has failed to earn the trust of the people,” Goshi Hosono, the minister in charge of dealing with the Fukushima nuclear disaster, said on the same program.

Plans to build more reactors were also shelved after the March 11 earthquake and tsunami caused three reactor meltdowns at Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant.

Winning public support for extending reactor lives or building new ones won’t be easy Kan said on July 22, a comment repeated by Noda last week.

Kan also talked about the power of the so-called nuclear village, the nexus of the power companies, regulators and politicians supporting the industry, in highlighting the difficulties in moving away from atomic power.

“I did feel that I was subject to criticism,” Kan said on the day he stepped down when asked about his decision to shut a nuclear station near Tokyo to beef up quake and tsunami defense.

The powerful interests behind the nuclear industry, which powered Japan’s economic rise in the 1970s and 1980s, may make it harder to reform the Ministry of Economy, Trade and Industry for Hachiro, who has a background in agriculture.

“Hachiro is capable. But he isn’t strong enough to stand up to METI bureaucrats,” Minoru Morita, a Tokyo-based independent political analyst, said by phone on Sept. 2.

Japan’s parliament on Aug. 26 approved a bill to subsidize electricity from renewable sources, in one of the last acts of the Kan administration. The use of clean energy sources will improve the country’s energy security and create new industries, Noda has said.

Japan should increase clean energy supply to 20 percent of the total in the 2020’s from the current 9 percent, he said in the Bungeishunju article.

“This crisis has the potential to revive Japanese industries in the long run,” Noda said.

To contact the reporter on this story: Chisaki Watanabe in Tokyo at cwatanabe5@bloomberg.net

To contact the editor responsible for this story: Teo Chian Wei at cwteo@bloomberg.net

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Lockheed Stealth Jet May Win Japan Deal - Bloomberg

Enlarge image Lockheed Martin/US Air Force via Bloomberg

An F-35 Lightning II fighter. The Fighter has better anti-radar capabilities than Boeing’s F-18 Super Hornet and Eurofighter’s Typhoon.

An F-35 Lightning II fighter. The Fighter has better anti-radar capabilities than Boeing’s F-18 Super Hornet and Eurofighter’s Typhoon. Source: Lockheed Martin/US Air Force via Bloomberg

Lockheed Martin Corp. (LMT), the world’s largest defense company, is counting on stealth technology to beat Boeing Co. (BA) and Eurofighter GmbH in a Japanese fighter contest that may be worth more than $4 billion.

The F-35 Joint Strike Fighter has better anti-radar capabilities than Boeing’s F-18 Super Hornet and Eurofighter’s Typhoon as it was specifically designed in a shape that would be hard to detect, said Craig Caffrey, a London-based analyst at IHS Jane’s DS Forecast, which advises defense suppliers. That may give the plane an edge as Japan previously tried to buy stealth fighters that can be used for spying as well as combat.

‘Stealth capabilities are clearly an area of focus for the Japanese,’’ Caffrey said. “It’s a key advantage for the F-35 over the rest of the competition.”

Japan will accept bids this month to supply about 40 fighters as it bolsters air defenses to counter military developments in China and North Korea. The contest comes as Lockheed sheds jobs because of projected cuts in U.S. defense spending, which may include a reduction in F-35 orders, and after the Bethesda, Maryland-based company missed out on an $11 billion Indian order for fighters this year.

Japan likely will choose a jet by year-end, said a Ministry of Defense spokeswoman, who declined to be identified, citing government policy. Deliveries are due to begin in 2016.

The order is unlikely to be affected by Prime Minister Yoshihiko Noda’s new government, said the spokeswoman. Noda announced today that Yasuo Ichikawa will be the new defense minister.

The new aircraft will replace Boeing F-4s, which were last assembled in Japan in 1981. Japan had a total of 362 fighter jets as of March 31, according to the defense ministry’s website.

Japan, which has the world’s sixth-largest defense budget, is upgrading its air defenses as both Russia and China develop stealth fighters and as North Korea works on improving its ballistic missiles and developing nuclear weapons.

China will boost defense spending about 13 percent to 601.1 billion yuan ($93 billion) this year, Li Zhaoxing, spokesman for the National People’s Congress, said in March.

“China continues to rapidly expand and modernize its military forces and the activities that it conducts in the waters surrounding Japan are growing larger in scale and more intense,” according to the latest Ministry of Defense annual white paper.

Japan’s Self-Defense Force has traditionally relied on U.S. military hardware and that history has aided Lockheed and Boeing in the current fighter contest by causing rival suppliers to sit out the competition. Dassault Aviation SA (AM), the French maker of Rafale fighters, declined to participate because it didn’t want to play “the role of a stalking horse,” according to Stephane Fort, a spokesman.

The Rafale and the Typhoon were shortlisted in April for India’s contract to buy 126 fighters. Eurofighter is a venture between BAE Systems Plc (BA/), Finmeccanica SpA and European Aeronautic, Defense & Space Co.

Japan signaled its interest in stealth by trying to buy Lockheed’s F-22, IHS Jane’s Caffrey said. That failed because of a U.S. export ban. The Super Hornet and Typhoon have features that reduce their radar visibility to a lesser extent than the F-35, which was designed with a greater focus on hitting targets on the ground, he said.

A handicap for Lockheed may be that development phase for the F-35 has been extended by four years to 2016. Japan may want aircraft sooner because 18 of its F-2s were damaged by the March 11 earthquake and tsunami, said Richard Aboulafia, vice president at Teal Group, a Fairfax, Virginia-based consultant.

“The F-35 is the leader in Japan, but with a big caveat,” he said. The tsunami “has raised the prospect of an earlier buy,” which may favor Boeing, he said.

Lockheed is “confident” of being able to deliver the jet in 2016, said John Balderston, director of the project to sell F-35s to Japan.

Yesterday, the U.S. Defense Department’s testing office said that two of three F-35 models have a “design flaw” that reduces the expected life of a wing structure to 1,200 hours from an expected 8,000 hours. The F-35 program office and Lockheed have conducted a safety assessment and concluded that a failure of the part would not lead to wing failure, F-35 program spokesman Joseph DellaVedova said in an e-mail.

“This is not considered a serious issue,” DellaVedova said. The program office and Lockheed have developed retrofits and new production improvements designed to extend the beam’s life and correct “durability deficiencies,” he said.

U.S. Cuts?

Lockheed may also be hindered in Japan by possible cuts in a U.S. order for more than 2,440 F-35s as the nation tries to reduce its deficit. Changes to the $382 billion deal, the Pentagon’s biggest procurement program, could affect the F-35’s price, Lockheed CEO Bob Stevens said in a July 26 conference call.

By contrast, Boeing is able to offer a fixed price for the Super Hornet, which entered service in 1999, the Chicago-based company said.

“We’re going to give them a price, and they know that’s the price they’re going to pay,” said Phillip Mills, a Boeing director who has worked on selling F-18s to Japan for six years. He declined to name that price.

Boeing last year said it would offer F-18 Super Hornets to the U.S. for $49.9 million each, down from $68 million in 2000. The F-35, which has also been ordered by the U.K., Italy, Netherlands and Turkey, costs about $133 million each in today’s dollars, according to the U.S. Government Accountability Office. Typhoons cost about 59 million euros ($84 million), according to Eurofighter.

An advantage for Eurofighter may be the chance for Japan to pare a reliance on U.S. suppliers, said Douglas Barrie, a senior fellow for military aerospace at the International Institute for Strategic Studies in London. More work on the Typhoon and the Boeing fighter can also be subcontracted than on the F-35, which could benefit Japanese companies, he said.

“You could basically have them licensed, built and assembled in country,” Barrie said. “Industrial participation is more of a challenge on the F-35” because the program wasn’t designed with outsourcing in mind, he said.

Mitsubishi Heavy Industries Ltd. (7011) has built F-4s and F-15s for Boeing. The Tokyo-based company, Fuji Heavy Industries Ltd. (7270) and Kawasaki Heavy Industries Ltd. (7012) have also worked with Lockheed to supply F-2s, according to Lockheed’s website.

Boeing may offer as much as 80 percent of the work on its planes to local suppliers, Mills said. Eurofighter will offer assembly work and the opportunity to make high-technology parts, which often are restricted in overseas defense deals because of security concerns.

“There will be no ‘black boxes’ on the Typhoon,” said Andy Latham, a vice president at London-based BAE Systems, which is leading Eurofighter’s sales efforts in Japan. “Japan will be able to build, modify, upgrade and support all elements of the aircraft.”

Lockheed will allow Japanese companies to assemble jets, Standridge said in June without elaborating. Coupled with the F-35’s stealth capabilities that may be enough for Lockheed to win the deal, said Isaku Okabe, an author of seven books on Japan’s military and security.

“The Self-Defense Force have their eyes on the F-35,” said Okabe. “They’ll buy it if they can stand the wait.”

To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net; Sabine Pirone in London at spirone@bloomberg.net; Kiyotaka Matsuda in Tokyo at kmatsuda@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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Investors Need Clarity, Changes in Japan's Renewable-Energy Law - Bloomberg

Enlarge image The Shinjuku district skyline rises behind solar panels at the solar power station on the rooftop of the Itochu Corp. headquarters in Tokyo, Japan.

The Shinjuku district skyline rises behind solar panels at the solar power station on the rooftop of the Itochu Corp. headquarters in Tokyo, Japan. Photographer: Tomohiro Ohsumi/Bloomberg

Japanese companies may wait to invest in clean energy technology until the government determines renewable energy tariffs and a framework for deregulating the nation’s power industry, long monopolized by regional utilities.

The country’s parliament on Aug. 26 passed a clean energy bill that guarantees above-market rates for wind, solar and geothermal energy and will take effect in 10 months. The so- called feed-in tariff created a race to install solar panels when implemented in Germany and Spain.

“Though symbolically ground-breaking, there remain some unanswered questions regarding cost, surrounding infrastructure and regulation,” Naomi Fink, a Japan strategist at Jefferies Japan Ltd., said in a report on Aug. 25. on the bill.

The nuclear disaster at Tokyo Electric Power Co.’s Fukushima plant has turned public opinion against atomic energy, according to newspaper polls. The passage of the bill is one of the first steps by Japan to expand its renewable energy industry into a 10 trillion yen ($130 billion) market by 2020 from 1 trillion yen in 2009.

Under the law, the trade and industry minister will set preferential rates and periods each year for renewable energy purchases. The bill that passed doesn’t include what the rate will be when the law comes into force on July 1, 2012.

The rate for solar energy could be higher in light of a plan introduced in 2009 to buy excess power generated from sunlight. Currently, the tariff for surplus solar power generated by homes is 42 yen per kilowatt-hour, while electricity produced by businesses is 40 yen.

Even without price clarity, the industry expected to benefit is solar power.

“This law will help strengthen the competitiveness of the Japanese solar power industry and jump-start regional industries and job creation,” Sharp Corp. President Mikio Katayama said on Aug. 26 at a press conference by the Japan Photovoltaic Energy Association. He is also chairman of the association.

Analysts said one provision in the law allows regional power monopolies to skirt a requirement they buy electricity from renewable suppliers by citing concerns over smooth transmission.

The issue of access to power grids also needs to be addressed, Ali Izadi-Najafabadi, an analyst for Bloomberg New Energy Finance, said. The law doesn’t say who would bear the cost of building new transmission and distribution lines or increasing grid capacity, he said.

Passage of the legislation was a victory for Naoto Kan, Japan’s departing prime minister. He campaigned for less dependency on nuclear energy after the March 11 earthquake and tsunami crippled Tokyo Electric’s Fukushima Dai-Ichi nuclear power plant.

Japan gets about 9 percent of its electricity from low- carbon sources. Kan has called for that level to increase. Before the crisis, atomic plants supplied about 30 percent of the country’s electricity.

Sharp and another solar cell maker Kyocera Corp. (6971) are near- term beneficiaries of feed-in tariffs, said Pranab Kumar Sarmah, an analyst with Daiwa Capital Markets. Asian solar companies may start penetrating the Japanese market from 2013, he said in a report on Aug. 12.

“Unlike individual roof-top system buyers, who rely on brand awareness and after-sales service, solar-farm operators rely on performance at lowest cost,” Sarmah wrote, adding that China’s Suntech Power Holdings Co. may expand its business in Japan.

Analysts and industry officials are calling for deregulation to loosen the controls that the 10 regional power companies enjoy in each region they cover, including setting how much electricity from wind turbines is used.

“Japan’s utilities limit how much wind they allow onto the grid in order to maintain stability of power supply,” Yugo Nakamura, an analyst for New Energy Finance said. “By the time cumulative capacity of solar and wind reaches 10-13 gigawatts, the government will have to decide whether to change existing connection rules to accommodate additional clean power generation,” he said in a report Aug. 29.

Japan’s current capacity for solar and wind generation is 3.5 gigawatts and 2.4 gigawatts, respectively.

The volume of power exchange between regions is low, said Yoko Monoe, a research analyst for the Daiwa Institute of Research. She said power grids need to be upgraded so produced power can have multiple destinations.

Fink of Jefferies said Japan should ease factory site guidelines that concern solar power producers. Under the current law, 50 percent or less of factory sites may be used for production facilities and that could “push up the acquisition or lease-cost of the land,” she wrote.

As for geothermal, Japan limits the land use in national parks where about 80 percent of the nation’s geothermal resources are concentrated. The Geothermal Research Society of Japan said a thorough review of regulations is needed so that the country can develop projects of a size that is on par with other countries.

There are also concerns how much of the current push for renewable energy will last after Kan stepped down.

Yoshihiko Noda was elected head of Japan’s ruling party yesterday, paving the way for the 54-year-old finance minister to replace Kan. The DPJ used its majority in the lower house to appoint him as premier today.

“This direction won’t change” after Kan steps down, DPJ lawmaker Nobumori Otani said. “Japan has clearly shifted gears to promoting renewable energy.”

A total of 68 percent of respondents to an Asahi newspaper poll published Aug. 8 said they want Kan’s successor to continue his policy of phasing out atomic energy.

Softbank Corp. (9984) Chief Executive Officer Masayoshi Son plans to invest about 80 billion yen to build 10 solar farms. Son’s plans have conditions: he needs access to transmission networks and agreement from the 10 regional utilities to buy his electricity.

Japan’s power industry plans to develop and implement transmission management systems so utility companies can accommodate the volume of power generated from renewable sources, the Federation of Electric Power Companies of Japan said in a statement on Aug. 26 after the bill was approved.

The country is also pinning hopes on clean energy to help the recovery in the devastated areas in northern Japan after the quake and tsunami ravaged many farming and fishing towns.

It is important to combine reconstruction efforts with regional energy management, according to Kazuhiro Ueta, a professor of environmental economics at Kyoto University. “Renewable energy utilizes regional resources. The more you use it, the less you need to buy fossil fuel,” Ueta said.

The feed-in tariffs will need tuning along the way and Japan should learn lessons from other countries, Nakamura said. “The purpose of the law is not to fix tariffs at a high level and produce expensive power,” he said. “The goal is to bring down the total costs of clean energy.”

To contact the reporter on this story: Chisaki Watanabe in Tokyo at cwatanabe5@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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Japan Solar Shipments May Jump 10-Fold, Industry Group Says - Bloomberg

Japanese domestic shipments of solar panels may increase by as much as 10 times in “a fairly short period” after the government approved renewable energy subsidies, a solar industry group’s chairman said.

“Legislation passed today will secure purchase of power generated by solar panels for a long time period,” Mikio Katayama, chairman of the Japan Photovoltaic Energy Association, told reporters in Tokyo today. “That will help a rapid expansion of industry-use and utility-use solar systems.”

The legislation allows for a “feed-in tariff” or incentives that guarantee above-market rates for producers of wind, solar and geothermal energy. The subsidies are part of government efforts to cut Japan’s reliance on atomic energy after the March 11 earthquake and tsunami led to radiation leaks from a nuclear power plant.

Domestic solar battery shipments are about 1 gigawatt a year in Japan, compared with 8 gigawatts in Germany, said Katayama, who is also the president of Sharp Corp., Japan’s biggest maker of photovoltaic cells.

Panel shipments gained 31 percent from a year earlier to 258.6 megawatts in the three months ended June, according to the association. Residential-use systems accounted for about 87 percent of the shipments during the quarter.

When implemented in Germany and Spain, feed-in tariffs boosted installations of solar panels.

Renewable energy, including solar accounted for 2.9 percent of Japan’s power generation in 2010, compared with 15 percent in Germany, according to the International Energy Agency.

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net.

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Japan Consumer Prices Unexpectedly Rose 0.1% - Bloomberg

Enlarge image A customer looks at a display at a jewelry shop in Tokyo. Japan’s core consumer prices rose 0.1 percent in July from a year earlier, the statistics bureau said in Tokyo today.

A customer looks at a display at a jewelry shop in Tokyo. Japan’s core consumer prices rose 0.1 percent in July from a year earlier, the statistics bureau said in Tokyo today. Photographer: Haruyoshi Yamaguchi/Bloomberg

Aug. 25 (Bloomberg) -- Naka Matsuzawa, chief strategist at Nomura Securities Co. in Tokyo, talks about Japanese politics, the nation's economy and financial markets. Matsuzawa speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Japan’s core consumer prices unexpectedly rose in July, gains economists say won’t end the nation’s fight against deflation.

Prices excluding fresh food rose 0.1 percent in July from a year earlier, the statistics bureau said in Tokyo today. The median estimate of 27 economists surveyed by Bloomberg News was for a 0.1 percent drop.

Persistent deflation exacerbates Japan’s problems in coping with a yen close to a record high against the dollar at a time when the economy is just recovering from a March earthquake. Prime Minister Naoto Kan’s successor will be challenged with working with the Bank of Japan to fight price declines that have kept the economy stuck near its 1990 size.

“The sustainability of Japan’s recovery is now in question with the strong yen and a weakening global economy,” Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo, said before the report. “I don’t see any chance deflation will end in the foreseeable future. This will remain a big challenge for the government and the Bank of Japan. (8301)”

Japan’s consumer prices were revised on Aug. 12 as the bureau reshuffled items in the price basket, part of a change that takes places every five years. The revamping of the index lowered prices by about 0.6 percentage point on average.

Central bank Governor Masaaki Shirakawa said Aug. 4 the nation will take a while to achieve price stability as he anticipated new figures would show price declines have been worse than initially anticipated. The central bank kept its estimate for core consumer price inflation at 0.7 percent for the year ending March 31 in July.

Finance Minister Yoshihiko Noda this week unveiled measures to combat the yen which reached a record high of 75.95 per dollar last week. Japan set up a $100 billion facility to promote companies purchasing overseas businesses and secure energy resources.

The strong yen erodes overseas profits when repatriated, weakening the competitiveness of exporters, one of the nation’s main engines of growth.

“I have kept monitoring markets with a sense of tension since last weekend, but the yen continues to have one-sided moves,” Noda, who is also a contender to replace Kan, told reporters this week. “I thought we had to swiftly address this by employing measures.”

Candidates of the ruling Democratic Party of Japan are scheduled to compete in a party election on Aug. 29 to be the sixth premier in five years. The race comes less than a week after Moody’s Investors Service cut Japan’s credit rating, citing political instability.

Economists including Dai-Ichi’s Shinke say prices may rise in coming months because of rising commodity costs. Japan will raise prices of imported wheat to flour millers by an average 2 percent in October, the government said this week. Wheat futures in Chicago have advanced 11 percent in the past year as of Aug. 24, bolstering a rally in global food prices to an all- time high in February.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Crude Oil Declines From Four-Day High on U.S. Supplies, Japan Downgrade - Bloomberg

Oil dropped from the highest closing price in four days in New York before a report forecast to show crude stockpiles increased in the U.S., the world’s largest user of the commodity.

Prices also slid after Moody’s Investors Service cut Japan’s debt rating on the economic outlook for the third- biggest oil user. The U.S. Energy Department report today may show crude stockpiles rose 1.75 million barrels from 354 million in the seven days ended Aug. 19, according to the median of 14 analyst estimates in the Bloomberg survey. Crude’s drop may be limited because of delays in restoring exports from Libya, according to Barclays Plc.

“After a stream of bad economic indicators, U.S. demand, especially for gasoline, is in decline,” Thorbjoern Bak Jensen, an analyst at Global Risk Management in Middelfart, Denmark, who predicts Brent will average $107 in the fourth quarter. “The Japanese downgrade is definitely bearish news as spending has to be reduced to stop further downgrades.”

Crude for October delivery was at $85.16 a barrel, down 18 cents, at 12:59 p.m. London time in electronic trading on the New York Mercantile Exchange. It earlier rose as much as 0.5 percent. The contract yesterday jumped $1.02, or 1.2 percent, to $85.44, the highest close since Aug. 17. Front-month futures have risen 19 percent in the past year.

Brent oil for October settlement lost 12 cents to $109.19 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $23.93 to U.S. futures, compared with $23.87 at settlement yesterday and a record close of $26.21 on Aug. 19.

Moody’s Investors Service cut Japan’s credit rating by one step, saying “weak” prospects for growth will make it difficult for the government to rein in the world’s largest public debt burden.

In Libya, rebels seized control of Muammar Qaddafi’s compound in Tripoli yesterday after battling loyalist forces for control of the capital for a third day.

Oil production may take a year to reach the previous total of 1.5 million barrels a day, Ahmed Jehani, chairman of the rebels’ stabilization team, told reporters yesterday in Dubai. The country’s production fell to 100,000 barrels a day last month, according to a Bloomberg News survey.

“It will take a while for Libyan crude to come out,” said Anthony Nunan, an assistant general manager for risk management at Mitsubishi Corp. in Tokyo.

U.S. gasoline inventories increased 6.37 million barrels to 213.9 million last week, the industry-funded American Petroleum Institute said yesterday. An earlier Bloomberg News survey of analysts indicated that today’s government report may show they fell 1 million barrels from 210 million. September gasoline futures were down 0.89 percent on Nymex.

Crude supplies fell 3.34 million barrels to 347 million last week, according to the API’s figures.The API collects stockpile data on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed for its weekly survey.

Oil-supply totals from the API and the department have moved in the same direction 71 percent of the time in the past year and 75 percent in the past four years.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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Japan Triples Air Radiation Checks for 'Hot Spots' - Bloomberg

Aug. 24 (Bloomberg) -- Kevin Maher, senior associate at NMV Consulting, LLC, and former head of the State Department’s office of Japan affairs, spoke Aug. 19 in Tokyo with Bloomberg's Mike Firn about the Japanese government's handling of the March 11 earthquake and ensuing nuclear crisis. Maher led the U.S. State department's Japan task force in the aftermath of the earthquake. (Source: Bloomberg)

Japan will more than triple the number of regions it checks for airborne radiation as more contaminated “hot spots” are discovered far from Tokyo Electric Power Co.’s crippled Fukushima nuclear power station.

The government said it will increase radiation monitoring by helicopter to 22 prefectures from the six closest to the plant, which began spewing radiation after an earthquake and tsunami struck the station in March. The plan comes after radioactive waste more than double the regulatory limit was found 200 kilometers (125 miles) from the plant this week.

Authorities have refused to give a cumulative figure for radiation released from the Fukushima Dai-ichi nuclear plant after estimating in June that fallout in the six days following the quake was equal to 15 percent of total radiation released in the Chernobyl nuclear disaster in 1986. The authorities have been too slow to widen airborne radiation testing, said Tetsuo Ito, the head of Kinki University’s Atomic Energy Research Institute in Osaka.

“The government should have expanded the monitoring area by helicopters much earlier to ease concerns among the public,” Ito said in a telephone interview yesterday.

Officials on Aug. 12 found compost in a kindergarten yard in Tokamachi city, Niigata prefecture containing radioactive cesium measuring 27,000 becquerels per kilogram, Kenichiro Kasuga, an official at the city’s disaster prevention department, said by phone.

Under Japanese law, waste measuring over 8,000 becquerels per kilogram must be treated as radioactive waste and can’t be buried in a landfill.

City officials found sludge measuring 18,900 becquerels per kilogram from radioactive cesium on the same day as part of tests done at 60 educational and childcare facilities, Kasuga said. The city government is storing the waste in drums until the government sets final guidelines for its disposal, he said.

“We still don’t know why this level of cesium was found in the compost,” Kasuga said.

The hotspots in Niigata were likely caused by wind blowing northwest towards the prefecture in the days following the Fukushima accident, Kinki University’s Ito said.

The government will begin monitoring radiation levels in 16 prefectures from Aomori, in the far north of the main island of Honshu, to Aichi in central Japan 460 kilometers (290 miles) from the plant by the end of October, the Ministry of Education, Culture, Sports, Science and Technology said in a statement on its website yesterday.

Radiation monitoring has taken place in four other prefectures and in Gunma and the western part of Fukushima prefecture, said Hirotaka Oku, a spokesman at the science and technology ministry.

Checks in Ibaraki and Yamagata prefecture were completed in August and the findings will be released soon, he said, without specifying when.

The discovery of radiation at Niigata kindergartens coincides with the start of the rice harvest in the prefecture that was the country’s biggest producer last year with 7 percent of the total. Radiation from Dai-Ichi has already been found in food including beef, tea and spinach.

So far, early tests on rice haven’t detected radiation, Shingo Gocho, assistant director in Niigata prefecture’s agricultural division said by phone yesterday. The government is taking samples from 45 areas in 29 villages, towns and cities that make up the prefecture’s growing area, he said. The crops won’t be shipped until the results are known, he said.

Japan’s Ministry of Health, Labour and Welfare plans to conduct radiation checks in food produced in about 100 cities, towns and villages in 14 prefectures because local governments hadn’t tested produce by the end of July despite requests by the central government, said an official at the ministry, who declined to be identified, citing internal rules.

The central government will become move involved in testing food to ease concerns among consumers and provide more data, the official said. Radiation checks on produce including vegetables, meat and eggs will be carried out at the National Institute of Health Sciences and the findings will be released as soon as possible, the official said.

Tokyo Electric’s Dai-Ichi plant released about 770,000 tera becquerels of radioactive materials between March 11 and March 16, Japan’s Nuclear and Industrial Safety Agency said on June 6.

Japan’s government is under-reporting the amount of airborne radiation across the country, said Tom Gill, an anthropology professor at Meiji Gakuin University in Tokyo, citing his studies in Fukushima prefecture since March.

The “maximum” radiation level given for Fukushima prefecture on Aug. 13 was 2.64 microsieverts per hour in the village of Iitate 40 kilometers northwest of the Dai-Ichi plant, Gill said, according to figures from the Science Ministry published daily in national newspapers.

That compares with the official reading in the village itself the next day of 14.2 microsieverts per hour, he said, showing a picture he took of the reading on that day. He was speaking at a presentation in Yokohama near Tokyo on Aug. 19.

The government excludes the highest readings among 20 measuring stations in the village from the data it collates for publication, Gill said.

“Distrust and cynicism of central government is pretty much universal across Fukushima now,” he said.

Medical tests on children living in three towns near the plant between March 24 and 30 found 45 percent of those surveyed suffered low-level thyroid radiation exposure, Japan’s government said earlier this month.

Children are more susceptible to poisoning from radioactive iodine, which can accumulate in the thyroid and cause cancer, according to the World Health Organization. None of the children’s thyroid glands exceeded the safety threshold of 0.2 microsievert per hour set by the Nuclear Safety Commission of Japan, the government said at the time.

The Fukushima disaster is the worst since a reactor exploded at Chernobyl in the former Soviet Union 25 years ago. About 2 million people in Ukraine are still under permanent medical monitoring, according to the nation’s embassy in Tokyo.

A becquerel represents one radioactive decay per second, which involves the release of atomic energy that can damage human cells and DNA, with prolonged exposure causing leukemia and other forms of cancer, the World Nuclear Association says.

To contact the reporters on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net

To contact the editor responsible for this story: Teo Chian Wei at cwteo@bloomberg.net

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Boeing's 787 Glut Casts $16.2 Billion Cloud Over FAA Approval - Bloomberg

Enlarge image A Japan Airlines Co. Boeing Co. 787 Dreamliner stands at the company's facility in Everett, Washington.

A Japan Airlines Co. Boeing Co. 787 Dreamliner stands at the company's facility in Everett, Washington. Photographer: Stuart Isett/Bloomberg

Enlarge image A Boeing Co. 787 Dreamliner, front, and other jets stand for final assembly, testing and application of particular livery of the new commercial jetliners at the Boeing Paine Field production plant in Everett, Washington.

A Boeing Co. 787 Dreamliner, front, and other jets stand for final assembly, testing and application of particular livery of the new commercial jetliners at the Boeing Paine Field production plant in Everett, Washington. Photographer: Kevin P. Casey/Bloomberg

Enlarge image Boeing amassed $16.2 billion worth of inventory related to the 787 through June 30, with so many almost-finished jets the company ran out of room to park them.

Boeing amassed $16.2 billion worth of inventory related to the 787 through June 30, with so many almost-finished jets the company ran out of room to park them. Photographer: Kevin P. Casey/Bloomberg

Boeing Co. (BA), set to get government approval of its new 787 Dreamliner this week and deliver the first jet next month, expects to spend most of 2012 unwinding the record inventory built during three years of delays to the world’s first composite-plastic airliner.

Boeing amassed $16.2 billion worth of inventory related to the 787 through June 30, with so many almost-finished jets the company ran out of room to park them. There are 35 scattered outside the Everett, Washington, plant, in leased space across an adjacent airfield and in a facility in Texas. Many lack seats and lavatories and have black plastic over the windows and concrete blocks hanging from the wings to keep them from tipping over before engines are installed.

“This is like dinner in the anaconda right now,” said Bill Batcheller, chief investment officer for Tower Wealth Management, which has $140 million under management and has been considering buying Boeing shares after selling them in early 2010. “It’s a big bulge in the middle of the balance sheet, and it’s got to work its way through.”

Even with U.S. Federal Aviation Administration approval expected Aug. 26 and first delivery due next month, most of the planes will sit for weeks and months more -- boosting production costs because each needs different fixes and eating into returns on the capital invested. Boeing had to build a temporary factory inside a leased hangar in Everett to handle the extra load.

The mothballed jets represent almost $6 a share in inventory growth since 2009. Counting four planes in the factory and six test jets, Boeing has more 787s on hand than Richard Branson’s Virgin Atlantic Airways has planes in service.

Working capital as a percentage of revenue is approaching 50 percent, from less than 25 percent in 2009, showing that Boeing has more money tied up in its production flow.

“It’s like they’re dragging a boat anchor equivalent to 25 percent of their sales, which is at the expense of the profitability of their enterprise,” said Wolfgang Demisch, a partner at Demisch Associates LLC, an aerospace financial consultant in New York. “It’s bloated with inventory, and somebody has to pay for that, and it’s the shareholder.”

Boeing tumbled 42 percent from the first 787 delay in October 2007 through yesterday, worse than the 6.1 percent decline by Airbus SAS parent European Aeronautic Defence & Space Co. and the 31 percent drop on the Standard & Poor’s 500 Aerospace & Defense Index. The U.S. planemaker’s shares climbed 75 cents, or 1.3 percent, to $59.13 at 10:34 a.m. in New York Stock Exchange composite trading.

Credit-default swaps tied to Boeing bonds, which rise as investor confidence falls, closed yesterday at the highest since Dec. 7, 2009, gaining 1.3 basis points to 84.5 basis points, according to data compiled by CMA. A basis point is $1,000 a year on a contract protecting $10 million of debt.

“The production delays have created a huge glut of inventory, bloating the balance sheet,” said Joel Levington, a managing director of corporate credit at Brookfield Investment Management Inc. in New York, which doesn’t own Boeing bonds. “It has been a large concern to us.”

Boeing is getting help in carrying the cost. It created a production system for the 787 using suppliers around the world to build most of the plane. They usually don’t get paid until Boeing does. Airlines generally pay about 60 percent of the price of a plane in installments leading up to its delivery.

Boeing expects inventory growth to moderate as deliveries progress, said Chaz Bickers, a spokesman at the company’s Chicago headquarters. The planemaker’s “strong core operating performance and cash management” provide a foundation to support the 787 and 747-8 development programs, he said.

Boeing can “eat some of the dirt of the inventory cost” by spreading it out over the initial block of 787s, using so- called program accounting, said Demisch, the consultant. The company plans to reveal the size of that accounting block with its third-quarter earnings in October.

It’s unlikely that the program will show a positive gross margin over an initial block that will probably be 1,000 planes, said Douglas Harned, an analyst with Sanford C. Bernstein & Co. in New York.

Profitability for the 787 is “the most important outstanding issue regarding the investment case for Boeing,” Harned said in an Aug. 16 note. He rates the shares as “market perform.”

The Dreamliner is Boeing’s fastest-selling jet, racking up more than 800 orders before it even flew. The planes have an average catalog price of about $202 million, and Boeing plans to assemble 10 a month by 2013 -- a record for wide-body jets.

The program has the potential to be the company’s most lucrative ever, say Barclays Plc analysts Joe Campbell and Carter Copeland.

The problem is that Boeing has probably spent $300 million to build each 787 and will realize revenue of as little as $50 million apiece for the early models, the analysts estimate.

The 45th plane to be built -- in the factory now -- will probably cost Boeing at least $184 million, Harned estimated after analyzing inventory figures. That would make the average cost over the first 1,000 jets, including a learning curve, at least $116 million per plane, he projects. FAA approval this week after a flight-test program that began in December 2009 would set the stage for delivery of the first 787 to All Nippon Airways Co. next month.

About half the 787s in Boeing’s inventory were already built last year, before the company had to push back targets again because of a fire during a test flight. Testing took 20 months instead of the eight originally planned.

Each plane is in a different state of readiness, since Boeing kept improving processes after the jets began rolling out of the factory in 2009.

They have undergone waves of repairs based on testing discoveries, and numerous jobs remain on “various and sundry components” before they’re ready for delivery, said Scott Fancher, Boeing’s 787 chief.

One of those jobs has been to install new condensation- collection systems to handle “rain in the plane” found in flight tests, a byproduct of the extra moisture in the air allowed by the composite fuselages. Workers also have had to replace electrical power distribution panels with redesigned parts after the fire grounded the test fleet at the end of 2010.

The modifications have forced Boeing to pare its delivery plans for this year by several planes, to fewer than 14.

Not only does Boeing have to hurry to fix the jets at the front end of the factory so they can be delivered, it also needs to cure its manufacturing woes at the back end so that shipments can get on track once the 787 is certified for use.

Production has been stalled at a rate of two a month for more than a year and Boeing has routinely frozen the final- assembly line in Everett for catch-up sessions, the most recent of which was a four-week pause last month.

“We want to see a little more clarity on when we can start anticipating a steady flow of deliveries and a sense that we’ve really got the factory floor straightened out” before buying the stock again, Batcheller said. “At that point it becomes attractive.”

Most airlines’ contracts have clauses providing penalties for delays, so Boeing needs to make up for the lost time. Some of the changes generated by tests are already in the production pipeline and won’t have to be made retroactively.

“Anytime you’re building an airplane out of sequence, the amount of work that’s required probably goes up by a factor of 10, because they have to unbuild all the things you built on top of whatever you have to change, and then build it all back,” said Demisch, the consultant. “It’s better than starting the airplanes from scratch, but it’s cost that will be added to production and make the likelihood of a profit on this program over the next half-dozen years very, very low.”

To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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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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Euro Declines as Stocks Pare Gains; Yen Tumbles on Concern Japan Will Act - Bloomberg

The euro fell against the majority of its most-traded counterparts, erasing earlier advances, as stocks fluctuated, reducing demand for higher-yielding assets.

The yen slid from almost its postwar record high versus the dollar after Japanese Finance Minister Yoshihiko Noda said he’s ready to take decisive action to stem its strength. The dollar fell earlier amid bets Federal Reserve Chairman Ben S. Bernanke will signal at an Aug. 26 conference in Jackson Hole, Wyoming, the Fed will take further steps to boost the U.S. economy.

“Everyone is focusing on equities and taking their cues from that,” said Andrew Cox, a New-York based currency strategist at Citigroup Inc. “The euro has traded in a very tight range, and we don’t see a catalyst for that to change, at least before Friday.”

Europe’s 17-nation currency slipped 0.2 percent to $1.4374 at 3:05 p.m. in New York, from $1.4397 on Aug. 19. It earlier appreciated as much as 0.3 percent. The yen fell 0.3 percent to 76.74 per dollar, after reaching a post-World War II high of 75.95 Aug. 19. The Japanese currency declined 0.1 percent to 110.31 per euro.

Switzerland’s franc fell versus most major counterparts on speculation the country’s central bank will take move further to curb its gains. New Zealand’s dollar and Sweden’s krona gained against the euro, yen and franc.

The Standard & Poor’s 500 Index was up 0.2 percent after rising as much as 2 percent and falling 0.2 percent.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major trade partners, rose 0.1 percent to 74.072, from 74.009 on Aug. 19.

Bernanke’s scheduled appearance at the Kansas City Fed’s annual economic conference in Jackson Hole comes as U.S. manufacturing weakens, consumer confidence tumbles and the unemployment rate holds above 9 percent.

At last year’s event, he foreshadowed a second round of asset purchases under quantitative easing to improve the economy. The central bank bought $600 billion in Treasuries from November through June.

“Most of the focus today and probably this week is on what Bernanke will and won’t say on Friday,” said Camilla Sutton, a Bank of Nova Scotia currency strategist in Toronto. “Bernanke is likely to point to all the tools they have in their toolbox. If he does that, it might prove negative for the U.S. dollar.”

The euro also declined as German Chancellor Angela Merkel reiterated her opposition to issuing euro-area bonds as a way to help solve Europe’s sovereign debt crisis, saying yesterday she won’t let financial markets dictate policy.

Investor calls for euro bonds intensified last week as concern about the debt crisis and a slowing global economy drove down European stocks. The Stoxx Europe 600 dropped to 223.13 on Aug. 19, the least since July 2009.

The premium European banks pay to borrow in dollars through the swaps market increased in a sign lenders may be facing mounting pressure to raise funds in the U.S. currency. It last decreased on Aug. 15.

The cost of converting euro-based payments into dollars, as measured by the one-year cross-currency basis swap, fell one basis point, or 0.01 percentage point, to 49.5 basis points below the euro interbank offered rate, or Euribor, indicating a higher premium to buy the greenback. Basis swaps allow investors to borrow in one currency and simultaneously lend in another.

Japan’s Noda told reporters in Tokyo today he’s become “more concerned about the worsening of the yen’s one-sided movements.” The government will take “bold actions if necessary and won’t rule out any possible options,” he said.

Japan last intervened in the currency market, selling yen in an effort to halt its climb, on Aug. 4. That drove the currency down as much as 4.1 percent against the greenback. It has since appreciated 2.8 percent.

“We’ve had further comments by Noda and other Japanese officials indicating a lack of comfort with yen strength,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $26 trillion in assets under administration. “Renewed jawboning has contributed to yen weakness.”

The franc weakened amid speculation the Swiss National Bank will introduce new measures to damp demand for the nation’s currency. The SNB cut borrowing costs to zero earlier this month, increased bank sight deposits almost sevenfold and left the door open for additional measures.

The franc declined 0.5 percent to 1.1355 per euro and was 0.6 percent weaker at 79.01 centimes per dollar.

Most Swiss support intervention by their central bank to curb gains in the franc, the newspaper SonntagsZeitung reported yesterday. The newspaper also said, without naming sources, the Swiss Cabinet expects the SNB to set an exchange-rate target of at least 1.2 francs per euro.

SNB spokesman Walter Meier declined to comment on whether the central bank had intervened.

The franc advanced 10 percent developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen rose 4.9 percent and the dollar is down 2.1 percent.

The franc and yen tend to strengthen during periods of financial turmoil because their export-reliant economies don’t need foreign capital to balance current accounts, the broadest measure of trade.

New Zealand’s dollar strengthened 0.9 percent to 82.58 U.S. cents, and the Swedish krona appreciated 0.4 percent to 6.3630 per U.S. dollar.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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Biden Names Mongolian Horse, Lauds Democratic Progress Before Japan Visit - Bloomberg

Vice President Joe Biden took a detour through Mongolia today en route from China to Japan to show support for the country’s nascent democracy and thank the government for sending troops to Afghanistan and Iraq.

“In the last 20 years, Mongolia has captured the imagination of the world by its remarkable transition to democracy,” Biden said after meeting Prime Minister Sukhbaatar Batbold in Ulan Bator. Mongolia is “an emerging leader in a worldwide democratic movement.”

While the Alaska-sized nation with fewer than 3 million people has an economy smaller than Apple Inc. (AAPL)’s annual sales of iPod music players, its location between Russia and China, untapped mineral wealth and ties to North Korea give it added importance. Biden said the U.S. was “very proud to be considered a third neighbor” for the landlocked country.

The trip is “part of a broader policy in Central Asia to try and show that the U.S. has a presence there, that it’s not merely a Russian or Chinese backyard,” said Jeff Bader, who was senior director for Asia affairs at the National Security Council until April and is now a visiting scholar with the John L. Thornton China Center at the Brookings Institution.

After his remarks, Biden went into a ceremonial ger, commonly referred to as a yurt, with President Tsakhia Elbegdorj. He later attended a demonstration of traditional Mongolian sports including wrestling, trying his hand at archery and naming a horse chosen in his honor “Celtic.”

Mongolia’s transition to democracy took place in 1990 after seven decades as a Soviet satellite. The collapse of the Soviet Union left the country increasingly dependent on China.

Batbold today said he wants to increase trade with the U.S. and attract more investments from the country to Mongolia.

U.S. exports to Mongolia were $164.7 million in the six months to June, according to the U.S. Census Bureau, led by mining and related equipment and vehicles. Imports were $9.1 million. More than 90 percent of Mongolia’s exports go to Northeast Asia, according to data compiled by Bloomberg.

Mongolia is trying to seek a “balance of interests” in its relations with neighbors like Russia and China and Western countries, Batbold said in a June 17 interview.

Mongolia’s economy grew 28 percent last year to $6.8 billion in current prices, driven by surging investment in mining projects to tap demand from China and resource-poor Asian countries such as Japan and South Korea. Cupertino, California- based Apple’s sales of iPods were $8.3 billion.

Coal production in Mongolia doubled last year to become the nation’s top export earner. St. Louis-based Peabody Energy Corp. (BTU) was among bidders picked to develop Mongolia’s Tavan Tolgoi deposit, potentially the world’s largest untapped reserve of coal used to make steel. The country also has substantial deposits of other resources, including copper, gold and uranium, according to the U.S. Geological Survey.

South Korean President Lee Myung Bak, who was also in Ulan Bator today, signed an initial agreement with Mongolia to expand cooperation on developing energy resources, the Korean Ministry of Knowledge Economy said in an e-mailed statement.

Mongolia was among the first countries to send troops to the Iraq war and its troops have been deployed in Afghanistan since 2003. Still, the government also maintains ties with North Korea, which Batbold said offers a possible export route to the Pacific Ocean for the country’s mineral wealth.

One possible purpose of the vice president’s trip is to glean information on North Korea’s intentions, said Elizabeth Economy, director of Asia studies at the Council on Foreign Relations in New York.

The U.S. maintains sanctions on North Korea in addition to United Nations trade restrictions imposed to force the regime of Kim Jong Il to return to talks over its nuclear weapons programs. Kim will meet this week with Russian President Dmitry Medvedev in the Siberian city of Ulan-Ude, about 420 kilometers (260 miles) from Ulan Bator.

Biden left China this morning and will later head for Japan as the final leg of his three-nation tour of Asia. The vice president has been repeating a message of reassurance to the Chinese that their investment in U.S. Treasuries is safe.

To contact the reporter on this story: Kate Andersen Brower in Washington at kandersen7@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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