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Have Japanese equities hit bottom yet?

Today was the last day of financial 2007, and the Nikkei Index dove 294.13 points to finish at 12,525.54 - marking a 27.5% decline since April 1, 2007. To make matters worse, paper gains on shareholdings at Japan’s six major banking groups dropped by 62% over the same time period, according to the Nikkei. This was the first time that unrealized profits from equity holdings declined at the six major banks since 2003. On the other hand, the same six banks saw 100 billion yen in paper gains in bond holdings, the first time they’ve been in positive territory since 2002.

At the same time, the Nikkei also estimates that the market value of shares held by publicly traded firms in Japan declined 30% in fiscal 2007. This would represent a loss of 8.7 trillion yen of (paper) wealth. There seems to be heightened risk developing if the Nikkei should move lower, as many Japanese firms are boosting their cross-shareholdings in an effort to thwart would-be takeover attempts. Read more

Hillary Clinton’s Wall Street Journal Interview: Does she Really Fear a “Japan-Style Malaise” in the US?

Hillary Clinton undoubtedly raised some eyebrows with comments that appeared in Thursday’s Wall Street Journal (in the Friday edition of the Wall Street Journal Asia). During an interview last Wednesday with the paper, Clinton asserted that the US government should be prepared to assume sour mortgages from the balance sheets of investors and lenders, in an effort to spur economic recovery.

What caught my attention was the Senator/Candidate’s fleeting use of Japan’s “lost decade” as a warning for the US financial system, which was mentioned in only the first and third paragraphs of a 19 paragraph article entitled, “Clinton Fears Japan-Style Malaise.” After the third paragraph, however, it became obvious that Clinton was not making any serious comparison to the situation faced by Japan in the years after the bubble burst.

At any rate, here’s the actual quote:

We might be drifting into a Japanese-like situation. I don’t think we can work our way out of the problems we’re in in the broad-based economy with monetary policy alone. I think the Japanese tried that and tried and tried that.

Is Clinton implying that Japan attempted to deal with it’s troubles solely with adjustments to its monetary policy? Is she simply forgetting about Japan’s pump-priming spending on public works, the lowering of Japan’s top income tax rates, and the fact that overly strict laws regarding the capital necessary to start a business - and thus drive emergent entrepreneurship - were left in place until one Mr Koizumi came along?

Clinton might respond by saying Japan’s monetary policy was worth mentioning due to the blunders made in the early years and the extreme nature of the zero interest rate policy which ended not even two years ago. She might point to the fact that banking reform in Japan was very slow to come, and that this was behind a fair portion of the lingering malaise.

All would be fair points, but we doubt that Senator Clinton is willing to go much further on the spurious link between Japan fifteen years ago and the US today. A few weeks ago we laid out our position as to why attempts in the media to link the two events were simply untenable, constituting lazy journalism at best, and scaremongering at worst.

It’s worth pointing out, however, that on the day after Clinton’s interview appeared in the Wall Street Journal, James Pethokoukis of US News and World Report finished his commentary with a very interesting parallel between Clinton and deflationary-era Japan:

Let’s be clear: An economic downturn caused by a banking and real estate crisis in Japan was exacerbated by higher taxes, higher regulation, and protectionism. And keep in mind that Clinton has been calling for higher taxes, more regulation, and a timeout from trade. Something to ponder.

This is well put, and thrusts some of the potential risks for the US into focus. However, there is much grey area left unsaid and we feel that there is still no real connection between the two events; the context behind both and the cocoons from which both emerged were too different for one to serve as a blueprint for the other.

Besides, Senator Clinton won’t become President.

Japan February CPI up 1.0%, Unemployment up 0.1%, Household Spending Unchanged

We will be getting into these figures a bit more later in the day, but for now just a quick note on the numbers released this morning by the Ministry of Internal Affairs and Communications:

February 2008 Nationwide Consumer Price Index: +1.0%
March 2008 Tokyo CPI: +0.6%

Unemployment: 3.9% (+0.1 from January)

February 2008 Household Spending: Unchanged at 275,827 yen from last year
Monthly household income: 476,282 yen, -0.1% from last year

Political fallout over the Bank of Japan Governor debacle hitting the press, for better and worse

Thanks to astute reader Garrett DeOrio for pointing out that the Yomiuri is currently on something of a roll with it’s odd editorials. The piece he links to begins with the headline, [DPJ] should absorb lessons from failed ‘Republican Revolution’, in reference to the events following the 1994 US midterm elections. My favorite part was this:

At a meeting with (Prime Minister Yasuo) Fukuda, who is also president of the Liberal Democratic Party, in November, DPJ leader Ichiro Ozawa agreed to form a grand coalition with the LDP because he apparently had taken [political] difficulties into consideration. However, since Ozawa gave up on the idea of forming a grand coalition after strong opposition from DPJ lawmakers, the DPJ has gone over the top in dealing with Diet business.

And who was the vested interest behind setting up this bound-to-fail meeting?

Mr DeOrio promises to have a fuller commentary on the piece up soon over at Trans-Pacific Radio.

Meanwhile, over at the Japan Times, Kevin Rafferty has published the most incisive take yet seen on the BOJ Governor nomination debacle - and more importantly, what it means for the future. In a piece entitled Scary signs in BOJ debacle. Two paragraphs in particular stood out to me:

The fact is that the BOJ governorship is a mere blip when it comes to the real economic and political challenges that Japan has to face over the next few decades, and if the leaders flunk them, as they have flunked the simple BOJ test, the country is in for a really rocky ride downhill…

…Above all there is a need for debate, exploration of the options, learning from the successes and the failures of other countries. Yet there is no sign of any creative or imaginative thinking to tackle pressing problems. And in the case of the BOJ governorship, no sign of any thinking at all.

This article puts things in a broader perspective, and is unafraid to assert that the ruling party is just as much, if not more, to blame for the current mess than the opposition is. It deserves a full read.

Japan supermarket sales show first rise in 26 months in February

In January, we saw Japan’s supermarket sales fall for the 25th consecutive month and wondered when this site would finally be able to report a rise in sales. It has finally happened: According to data released by the Japan Chain Stores Association, supermarket sales in Japan were up 1.9% in February on a year-on-year basis.

It’s way too soon to say we have an uptrend, as supermarket sales have still fallen in 46 of the past 48 months. We are also suspicious that rising prices might have more to do with the increase than a pickup in consumer spending, though we will have to wait until the end of this week to see the data on household spending for February.

Here’s a breakdown of sales by category in February: Read more

Strong food sales push up Japan’s February department store sales

After having fallen 2.1% in January, Japan’s nationwide department store sales grew 0.9% in February, according to the Japan Department Stores Association. The survey covered 279 shops operated by 93 firms that were open for at least one year.

By category, here’s a breakdown for February sales figures: Read more

Yomiuri piece on the Bank of Japan Governor debacle is dead wrong

As everyone who follows Japan’s economy already knows, the Bank of Japan’s top position is currently vacant. The story behind the story is richly complex, and is turning out to be a fascinating saga offering a very helpful glimpse into the current state of Japan’s political machinations. Claus Vistesen recently described the debacle as being “better than Shakespeare.” I like this comparison because it truly is difficult to tell whether we’re watching the unfolding of a tragedy or a comedy. It is the end of the fourth act, and we’re still wondering whether the play will end with everyone dead, the stage covered in blood, or if the curtain closing will bring about some unexpected union of unsuspected soul mates.

With that in mind, today’s Daily Yomiuri printed an article on its front page that we have long been waiting for. This piece, a blatant editorial disguised as analysis placed amongst the news of the day, is so profoundly misguided that we need to break it down and look closely at how the Yomiuri is attempting to manipulate events into its own worldview. Near the opening, the article tells us that the global economy is not currently experiencing the best of times:

…[T]his is a fire of considerable proportions–the dollar has sharply dropped; share prices are hovering at low levels; and crises involving major financial institutions have surfaced in quick succession.

This is all very true. The author, however, seems to be under the illusion that American policymakers have somehow acted laudably in their attempts to fight the “blaze” on the other side of the Pacific:

U.S. financial authorities have started to extinguish the fire in a bare-knuckled fashion, employing both financial and fiscal measures. This was symbolized by U.S. President George W. Bush, who said, “And when need be, we will act decisively,” meaning emergency actions are necessary when an emergency occurs.

On Tuesday, the U.S. Federal Reserve Board cut its federal funds rate for the sixth time since last summer, marking a total reduction of three percentage points.

This is a prime example of “action taken at a time of emergency” and signals the strong U.S. determination and sense of responsibility vital to prevent chain reactions occurring in response to events in the global market.

Yet few pundits in the US agree with this viewpoint. We won’t get into all the reasons for that here, but anyone should recognize that holding up the words of George Bush as an example of solid crisis management is material for the theatre of the absurd.

The author moves on to score easy points by picking the low fruit on the tree: Read more

Kentucky Fried Chicken to raise prices by 7% across Japan

In line with the price hikes being announced across Japan’s food industries, Kentucky Fried Chicken Japan has announced that it will raise its prices by about 7% from April 24. This will be the first time in 16 years that “Kentucky” has raised its prices, and they will apply to items sold at all of the firms 1,150 shops nationwide. Higher wheat prices are behind the rise, as well as increased costs for corn and soybeans, which are used in chicken feed.

Will we be seeing higher prices at other fast food chains and izakayas? It seems inevitable, given the rise in wheat, meat, dairy and beer prices having already happened or set to kick in over the coming months. Such a situation could certainly be more beneficial to those retailers with deep enough pockets to attract customers with discounts, though we remember what happened when McDonald’s Japan nearly bankrupted itself with this strategy a few years back.

It’s official: Tanami rejected by Upper House as Bank of Japan Governor

As was expected, the opposition controlled Upper House has voted to reject Koji Tanami as Japan’s next BOJ Governor. For the first time since the end of the Second World War, Japan will be without a central banker when Toshihiko Fukui steps down in a few short hours.

Current BOJ Policy Board member Kiyohiko Nishimura, however, has been approved as a Deputy Governor, having received votes from all parties in the Upper House except for the Communist Party. Mr Fukui will thus be in position to choose who will be the acting Governor from tomorrow, and he is expected to go with Masaaki Shirakawa, a former Executive Director of the Bank of Japan who was approved as Deputy Governor last week.

Tanami’s chances look bleak; will the BOJ have to settle on an interim governor for now?

With current Bank of Japan Deputy Governor Toshiro Muto already having been rejected by the opposition controlled Upper House for the post of Bank of Japan Governor, Prime Minister Yasuo Fukuda seems to have set a second candidate up for failure, as the Democratic Party of Japan appears certain to reject Koji Tanami, the governor of the Japan Bank for International Cooperation, should his nomination come up for vote in the Upper House today.

Fukuda’s mistake appears to have been not only his choice to nominate another former Vice Finance Minister, which the Democratic Party of Japan holds is merely an attempt to provide golden parachutes to former ministry officials, but to have made another nomination without clearing it with the opposition. Shisaku has provided some advice for the Prime Minister, imploring him to pick up the phone and get things done himself:

Stop hoping beyond hope that the deadbeats, lunatics, fanatics and sycophants about you are finally going to buckle down and do the jobs you have been asking them to do since September…

You have a newspaper journalist as your finance minister. You have no central banker. The dollar is at 97 yen. The stock market is flopping about like a fugu on pavement.

Fukuda and his ruling party, have, however, moved one small step closer to stocking the bank’s leaderships positions: Kiyohiko Nishimura, a current member of the BOJ’s Policy Board, has been given the green light by the DPJ, and his approval should be quick in coming.

Will there be a vacancy at the top of the Bank of Japan? It’s starting to seem inevitable, as today is Toshihiko Fukui’s last day on the job, and the LDP and DPJ still seem to be quite some distance apart on choosing a candidate that will get approved by both houses of the Diet. This morning’s Nikkei is projecting that Masaaki Shirakawa, a former Executive Director of the Bank of Japan who has already been approved as Deputy Governor, will assume the role of acting governor until a replacement for Mr Fukui is found.

An acting governor, however, would be unlikely to be allowed to participate in G7 meetings, which means Japan needs to get someone in that position before the next G7 meeting for finance ministers and central bankers in April.

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