Noda seeks TPP policy by November summit

Prime Minister Yoshihiko Noda will try to come up with a policy on joining negotiations for a trans-Pacific free-trade pact before he leaves for the Asia-Pacific Economic Cooperation summit in Hawaii in November, sources said.

Noda will soon convene a meeting of his key Cabinet ministers to resume the coordination process for the talks, the sources said. The work on the Trans-Pacific Partnership Agreement, as the U.S.-led pact is called, was meant to be finished by last June but was suspended by the March 11 earthquake and tsunami.

Noda's crew is apparently divided over the matter. Noda is apparently in favor of joining the talks, but Agriculture, Forestry and Fisheries Minister Michihiko Kano is reluctant because the pact is certain to put pressure on Japan to open up its protected and politically sensitive agriculture market.

Among other key ministers, trade chief Yukio Edano, speaking to reporters during a visit to Singapore last month, supported joining the talks.

Singapore is one of nine countries engaged in the talks. Those countries have set a goal of achieving a broad accord for the TPP agreement when APEC's leaders gather for an annual summit starting Nov. 12.

Noda, who met with U.S. President Barack Obama last month in New York, is expected to clarify his government's stance on the U.S.-led trade initiative when he meets Obama again on the sidelines of APEC, the sources said.

KYODO

Business leaders in Kyoto on Sunday urged the government to make all-out efforts to lessen the severity of the disaster reconstruction tax it is planning.

"Honestly speaking, I cannot see how the government can impose heavier taxes on corporations while the economy is in such bad shape," Yoshio Tateishi, chairman of the Kyoto Chamber of Commerce and Industry, said at a meeting with economic and fiscal policy minister Motohisa Furukawa and members of local business groups.

The comment came as the government last week announced a plan to raise income, corporate and other taxes for a limited period to finance the reconstruction of disaster-hit areas and businesses in eastern Japan.

Tateishi said the government should reduce the rate of the tax hikes as much as possible by selling off assets and other means.

Furukawa said he would try.

"The government will do its best to reduce the rate of tax hikes," he said.

But "Japan is in the worst fiscal condition of all the developed countries, and we cannot achieve stable economic growth without addressing the problem," he added.

View the original article here

Don't Forget -- We Advised Japan on Policy - TheStreet.com

This column by Roger Arnold originally appeared on RealMoney on Aug. 16. For a free trial to RealMoney, follow this link.

NEW YORK (RealMoney) -- Since 2000, the U.S. has been undergoing a version of Japan's experiences from 1990 to the current day. Economic activity and equity and bond market performance, as well as monetary and fiscal policy actions, are very similar. And the U.S. is clearly still on that path.

This is not accidental or coincidental. It is the result of repeating the same failed policy responses. Japan is in this situation because of the monetary and fiscal policy decisions it made after being advised by U.S. policymakers.

During the latter half of the 1990s, Robert Rubin was the Treasury secretary, and Alan Greenspan was the chairman of the Federal Reserve. They were the primary advisers to their counterparts in Japan, and they advised the Japanese to make the decisions they did on both monetary and fiscal policy.

The advice from the U.S. was based on the long-held belief that deflation was impossible because it could be counteracted with monetary and fiscal stimulus -- printing and spending. This is what the Japanese did. And it didn't work. The conventional rationale for its failure has become not that the prescription was wrong but that the application of it by the Japanese was inadequate.

In other words, the Japanese economy continued to deflate, and is still doing so 17 years later, because the Japanese did not print and spend fast enough or large enough. If they had done so, the policy prescription would have worked to offset deflation and stimulate inflation.

This has been a convenient way to explain why the policies failed in Japan. But it was also perceived to be necessary. I will address this momentarily.

If we simply blame the Japanese policy makers for improperly applying fiscal and monetary stimulus and thwarting it with counterproductive tax policies, the status quo remains unchanged.

Academics did not have to review Keynesian fiscal policy prescriptions or Friedmanite monetary assumptions. Nobody in the public or private sector had to question the concept of the impossibility of deflation. And as a result, the capital markets could pretend that the emergency prescriptions of print-and-spend, if they were ever needed again, could still correct any imbalance that occurred.

To believe in this remedy, you would have to believe that no other policy prescriptions were available. Since the early 1960s, the corrective fiscal and monetary response to a financial crisis or nascent deflation was to print-and-spend and to repeat until the policy was successful or the country was broke.

Politicians, academics and bankers began to believe that if they admitted that there was a problem with the financial emergency response system, and that there was no safety net underneath the capital markets and that wealth could be destroyed, the fear would become self-validating, and investors would move away from risk.

Which brings me to current events in the U.S.

Moral hazard mandated that if the capital markets were to function under the premise that there was a safety net underneath the markets that could correct a market contraction, offset deflation and prevent real loss of wealth, then market participants would eventually push the markets to the point where corrective measures would be required.

And that is indeed what happened. This was the underlying driver of the subprime crisis and the other debacles that led to the collapse of Lehman Brothers.

And just as the policy prescriptions failed in Japan, they've been failing in the U.S. The difference is that the Japanese had no other countries' experiences to look back on and therefore had very little reason to believe those policies wouldn't work there. The U.S., however, does have the Japanese experience to look back on. And that means that the potential for crisis of confidence among the investor class in the U.S. is far greater than it ever was in Japan.

It also means that it is less likely that the U.S. markets and economy will continue to follow the pattern of the past 10 years -- a path that mirrors the one Japan took 10 years earlier. At some point investors will conclude that the Japanese trajectory is unavoidable as policy responses are unworkable; a crisis of confidence.

The seminal question for investors to consider is, are policy makers attempting to prevent this from occurring, or are they preparing to respond to the aftermath?

-- Written by Roger Arnold

>To order reprints of this article, click here: Reprints

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

Nuclear policy scaled back

The new five-year science and technology program approved Friday by the Cabinet excludes references to an earlier draft that promoted next-generation nuclear technologies, reflecting the government's backpedaling on atomic power policy amid the Fukushima nuclear crisis.

Noting the urgency of rethinking energy policy in light of the nuclear accident, the basic plan covering the five years through March 2016 instead stresses the need to develop renewable energy to deal with an anticipated power shortage, a stance in line with Prime Minister Naoto Kan's calls for shifting away from nuclear power.

Cabinet approval of the plan, initially scheduled for the end of March, was postponed to allow experts from the Council for Science and Technology Policy to revise an earlier draft that was outlined in December, before the crisis began.

As a result, references to promoting research and development on the fast-breeder reactor fuel cycle, including the Monju prototype, and next-generation light-water reactors for practical use, were omitted.

Wording on promoting research and development in nuclear power was watered down as uncertainties remain over the government's energy and nuclear power stances.

Kan, who said in July that the energy policy will be reassessed from scratch, is expected to step down possibly by the end of this month.

"Given that the nuclear power policy is to be essentially revised in light of the nuclear power plant accident, I think there will also be debates over fuel cycles and Monju," science and technology minister Yoshiaki Takaki told a news conference after Friday's Cabinet meeting.

Meanwhile, the basic plan calls for strengthening research and development in areas such as monitoring and decontaminating radiation from the Fukushima No. 1 nuclear plant.

Takaki said the new strategy places priority on fields related to rebuilding the areas afflicted by the March 11 disaster and the ensuing nuclear crisis.

Acknowledging the government's risk- and crisis-management were flawed, as seen in the handling of the nuclear crisis, the plan states that research on how to protect the public in case of similar accidents involving nuclear power and other high-tech systems will be promoted.

The target for the government's overall research and development expenditure is set at about ¥25 trillion, equivalent to 1 percent of gross domestic product, for five years.

Japan and the United States have dropped plans for an early September summit between Prime Minister Naoto Kan and President Barack Obama, Chief Cabinet Secretary Yukio Edano said Friday amid indications that his boss will soon step down.

Edano told a news conference Kan's visit to the United States has been scrubbed due to "Japan's current political situation." Kan has said he is ready to quit soon after the Diet passes two key bills, possibly next week.

View the original article here

Nuclear policy scaled back

The new five-year science and technology program approved Friday by the Cabinet excludes references to an earlier draft that promoted next-generation nuclear technologies, reflecting the government's backpedaling on atomic power policy amid the Fukushima nuclear crisis.

Noting the urgency of rethinking energy policy in light of the nuclear accident, the basic plan covering the five years through March 2016 instead stresses the need to develop renewable energy to deal with an anticipated power shortage, a stance in line with Prime Minister Naoto Kan's calls for shifting away from nuclear power.

Cabinet approval of the plan, initially scheduled for the end of March, was postponed to allow experts from the Council for Science and Technology Policy to revise an earlier draft that was outlined in December, before the crisis began.

As a result, references to promoting research and development on the fast-breeder reactor fuel cycle, including the Monju prototype, and next-generation light-water reactors for practical use, were omitted.

Wording on promoting research and development in nuclear power was watered down as uncertainties remain over the government's energy and nuclear power stances.

Kan, who said in July that the energy policy will be reassessed from scratch, is expected to step down possibly by the end of this month.

"Given that the nuclear power policy is to be essentially revised in light of the nuclear power plant accident, I think there will also be debates over fuel cycles and Monju," science and technology minister Yoshiaki Takaki told a news conference after Friday's Cabinet meeting.

Meanwhile, the basic plan calls for strengthening research and development in areas such as monitoring and decontaminating radiation from the Fukushima No. 1 nuclear plant.

Takaki said the new strategy places priority on fields related to rebuilding the areas afflicted by the March 11 disaster and the ensuing nuclear crisis.

Acknowledging the government's risk- and crisis-management were flawed, as seen in the handling of the nuclear crisis, the plan states that research on how to protect the public in case of similar accidents involving nuclear power and other high-tech systems will be promoted.

The target for the government's overall research and development expenditure is set at about ¥25 trillion, equivalent to 1 percent of gross domestic product, for five years.

Japan and the United States have dropped plans for an early September summit between Prime Minister Naoto Kan and President Barack Obama, Chief Cabinet Secretary Yukio Edano said Friday amid indications that his boss will soon step down.

Edano told a news conference Kan's visit to the United States has been scrubbed due to "Japan's current political situation." Kan has said he is ready to quit soon after the Diet passes two key bills, possibly next week.

View the original article here

The Cable: Biden's Asia itinerary revealed - Foreign Policy

Vice President Joe Biden heads to Northeast Asia today to meet with the man who could be the next president of China, take in some Mongolian culture, and then pay his respects to Japan, which is still recovering from the tsunami that hit the country in March.

Biden will spend four days in China, one day in Mongolia, and two days in Japan -- his first trip to Asia as vice president but his umpteenth visit as a U.S. political leader. He first traveled to China in 1979 as part of the first congressional delegation to visit after the United States and China normalized relations. The highlight of the visit will be his meeting with Chinese Vice President Xi Jinping, who is expected to replace Hu Jintao as president sometime next year.

"One of the primary purposes of the trip is to get to know China's future leadership, to build a relationship with Vice President Xi, and to discuss with him and other Chinese leaders the full breadth of issues in the U.S.-China relationship," said Tony Blinken, Biden's national security advisor, in a conference call with reporters. "Simply put, we're investing in the future of the U.S.-China relationship."

On Thursday, Biden will have two meetings with Xi in Beijing and a meeting with Chinese Premier Wen Jiabao, followed by a formal banquet hosted by Xi in the evening. On Friday, Biden will have a roundtable discussion with U.S. and Chinese business leaders, followed by another meeting with Wen and a meeting with Hu.

Saturday, Biden will visit the U.S. embassy in Beijing to meet with the staff and spend some time with the new U.S. Ambassador Gary Locke. He will then head off for the city of Chengdu, in Sichuan province, becoming the first U.S. political leader to visit the city. That night, Biden and Xi will visit a high school in Dujiangyan City that was rebuilt following the 2008 earthquake.

Sichuan province, which borders Tibet, is where two Tibetan monks set themselves on fire in recent days, to protest the Chinese government's policy of suppressing Tibetan culture and "reeducating" Tibetan spiritual leaders.

"I think the vice president can be expected to reinforce the message to the Chinese that there is great value in their renewing their dialogue with the representatives of the Dalai Lama, with the goal of peacefully resolving differences," said NSC Senior Director Danny Russel, who didn't comment directly on the recent protests.

One subject that Biden will be trying to avoid in China is the matter of U.S. arms sales to Taiwan. Reports yesterday said that a Pentagon team traveled to Taiwan to deliver the message that the United States will not be selling the Taipei the new F-16 C/D model fighter planes it wants, but would be willing to sell upgrades for its older A/B models.

"I think it's important to make clear that on the issue of Taiwan that the vice president has no plans to raise the Taiwan issue, certainly not arms sales during his trip.  He is not going to China to address that issue," Russel said.

Of course, it's extremely likely that the Chinese will raise it, and will want to know the details of Secretary of State Hillary Clinton's promise to Sen. John Cornyn (R-TX) that the administration would announce its decision on Taiwan arms sales by Oct. 1.

On Aug. 22, Biden goes to Mongolia, becoming the first No. 2 to visit there since Vice President Henry Wallace in 1944. Mongolian President Tsakhia Elbegdorj scored a visit to the Oval Office in June. Biden will meet with him, as well as Prime Minister Sukhbaatar Batbold. Then, the Mongolians will put on a cultural display that will include archery, wrestling, and horse racing.

Biden leaves for Tokyo that night and will spend two days in Japan, including a visit to the earthquake damaged city of Sendai. He will meet with the embattled Prime Minister Naoto Kan and visit with American troops.

The U.S. debt crisis will be one topic that will be on all Asian leaders' minds during Biden's trip. China and Japan are the top two holders of U.S. government debt, respectively. Lael Brainard, the Treasury Department's undersecretary for international affairs and the wife of Assistant Secretary of State for East Asia Kurt Campbell, outlined Biden's message to Asia on America's debt.

"The vice president will be in a good position to talk about the very strong deficit reduction package that we concluded here recently. Obviously, the United States has the capacity, the will, and the commitment to tackle our major fiscal and economic challenges," she said.

But Biden will also carry the message that China has to stop depending on its trade imbalance with the United States to feed its ever growing economy.

"I think as we move forward on addressing our fiscal challenges, Chinese policy makers know that they can no longer count on the U.S. consumer to provide that demand to the global economy," she said.

View the original article here