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Japan’s consumer prices show 0.9% rise in April

A slew of economic reports released today indicated that the Japanese economy may be running into trouble. Unemployment was up, production down, and consumer spending fell much lower than what most observers had anticipated. It was also announced that consumer prices rose 0.9% in April, after having seen a 1.2% rise in March.

April’s figures were impacted by the lapsing of the gasoline tax law on April 1, but the reinstatement of that law in May means that strong upward pressure on consumer prices will remain. In April, gasoline prices rose 0.7% after having shot up 19.0% in March.

April was thus the seventh consecutive month in which consumer prices have risen. Last month, we commented that once fresh food and energy costs were stripped from the CPI, consumer prices had actually seen a rise of 0.1% - the first rise seen since 1998. Japan counts energy, but not fresh food prices, as part of core CPI. Here’s how the figures played out for April: Read more

Macquarie has a 19.9% stake in Japan Airport Terminal; will it be allowed to buy more?

Is Japan about to face a test? Earlier this week, US Assistant Treasury Secretary Clay Lowery told the Foreign Correspondent’s Club of Japan that “There are concerns among investors that Japan may not be fully committed to attracting FDI (foreign direct investment). It is therefore important Japan sends a clear signal that it is open for investments.”

Just a month ago, European Union Trade Commissioner Peter Mandelson, while on a visit to Japan, declared it to be the most closed developed economy to foreign investors.

Both are most likely thinking of the recent order issued by the Ministry of Economy, Trade and Industry against the UK-based Children’s investment fund. The government decided that allowing TCI to double its share in J-Power from 10 to 20 percent would endanger national security. TCI is already the largest single shareholder in J-Power.

Now, we have learned via the Nikkei that Japan Airport Terminal, the company that operates Tokyo’s Haneda Airport, is 31.5% held by foreign investors. Eight months ago, that figure stood at 24.7%.

According to the paper, Macquarie Airports Ltd, a unit of Macquarie Bank, is now JAT’s top shareholder, having amassed 19.9% of the company since it began buying shares last July. Japan Airport Terminal intends to extend the takeover defenses that it adopted last year.

Back in February, the government decided against passing a law to place a limit on foreign ownership of Japanese airports to less than one third. Although this was seen in some circles as a positive sign, it really doesn’t matter now that a national security law has been invoked to stop TCI from buying shares in J-Power. The question now is whether the Japanese government will continue to issue orders against foreign investors in such cases, and if it does - what potential risks could the financial markets face as a consequence?

Corporate Services Price Index up 0.5% year-on-year in April

According to data released today by the Bank of Japan, the corporate services price index rose in April for the 21st consecutive month, showing a 0.1% gain against March and a 0.5% gain when compared to April 2007.

Driving the rise were increased transportation and industrial machinery leasing costs, as well as office space rental in the Tokyo area. In particular, ocean freight prices increased 14.1% on average, ship chartering services were 5.8% higher, and domestic air freight charges were up 5.7% against a year ago.

Mobile telecommunications services posted an 8.7% drop, showing the largest fall of any single service category.

Certainly, inflation in services costs is lagging behind that in the price of goods. In each of the four months reported thus far for 2008, the year-on-year change has been below 1.0 percent, while in each of the eight months preceding those, the increase had been over 1.0 percent, hitting 1.5% in three months.

From FY1998 to FY2005, Japan’s corporate services price index fell every year. It finally picked up by growing 0.2% in FY2006, and followed that with 1.1% growth in FY2007.

Toyota, McDonalds to pay for overtime work: Will a trend develop?

Back in January, McDonald’s Japan was ordered by the Tokyo District Court to pay just over 7.5 million yen in overtime pay to a store manager. McDonald’s had argued that store managers were not entitled to overtime pay, as they were in managerial positions. Not surprisingly, the court rejected such a notion in its decision.

The case seems to have made McDonald’s worried about its PR more so than legal issues, as the firm announced earlier this week that it will begin paying overtime to its store managers. At the same time, Toyota has announced that it will begin paying for ‘voluntary’ overtime conducted during off-hours kaizen sessions.

Will such moves give these firms - especially McDonald’s - a leg up on the competition in terms of attractiveness as employers? Will we see a bump in average wages? Will other companies begin to announce that they will pay overtime in order to improve their PR messages? Imagine: “Work here! We’ll even pay you for it!”

Although it remains to be seen if announcing that a firm will pay for overtime work will catch on as a trend, it seems safe to bet that we haven’t heard the last of this.

Read JEN’s Ken Worsley in Central Banking Quarterly

A quick announcement: Japan Economy News editor Ken Worsley’s most recent article has been published in the May edition of Central Banking Quarterly, a publication of Incisive Media in London.

The article deals with the fiasco surrounding the recent appointment of a new Bank of Japan Governor, and details how the shifting political scene in Japan has affected and will continue to affect the nexus where government and finance intersect. Although it may seem simple to consider the fight over the appointment of a new BOJ Governor to be a mere proxy war between the ruling and opposition camps, much more is brewing behind the scenes in Nagatacho and the ideal that the BOJ is independent of the government continues to be undercut.

Algae as an oil source?

A recent Nikkei article reminds us that while the idea of using algae as a source of oil is not brand new, in the past it has never been seen as economically viable. That may be changing…

According to the article, Professor Makoto Watanabe at the University of Tsukuba is breeding a green algae called Botryococcus in his laboratory. Botryococcus is special because it produces large hydrocarbon molecules as a by-product of photosynthesis. According to the professor, if Botryococcus is cultivated efficiently, there is potentially no limit to the amount of oil it could produce.

Although the algae is currently producing less than half of the ten grams per liter that would make it cost-effective against oil, the algae also consumes carbon dioxide, and thus appears to yield more energy than it consumes. One current challenge is that only about 60% of the oil produced can currently be extracted, and the professor is looking at ways to boost that ratio.

In order to potentially boost productivity, Watanabe is hooking up with Denso to create a larger outdoor facility that should provide a greater yield of the green stuff.

According to the article, given a yield of 10 grams of oil per liter, it would take an area the size of Fukushima Prefecture to grow enough algae to meet Japan’s oil needs. Thus, a natural solution seems to be to cultivate the algae at sea. However, one major obstacle remains: the freshwater Botryococcus needs to mutate or be genetically engineered into a strain that can survive the high seas.

Japan’s consumer confidence plunges to 5 year lows in April amidst worries over higher prices

Last month, we reported a a slight rise in Japan’s consumer confidence levels, though it was not seen as indicative of a truly more optimistic view of the economy amongst consumers. Last Friday, the Cabinet Office reported that consumer confidence had taken a turn for the worse again in April.

April’s numbers seem dire indeed: The overall consumer confidence score fell from 36.7 points to 35.2, which was lower than the 36.1 seen in February. April’s score was the lowest since 34.7 was registered in March 2003.

The Consumer Confidence Index generates five scores, each of which is considered positive when above 50, and pessimistic when below the 50 mark. Here’s a breakdown for March’s figures, with the change from last month: Read more

First quarter GDP growth at 0.9% - yet the word recession still finding its way into print

Let’s start with what the headlines didn’t tell us: On Friday, the Cabinet Office revised GDP data for the fourth quarter of 2007 downward from 0.9% to 0.6%. The bigger news, however, was that preliminary GDP estimates for the first quarter of 2008 showed a 0.8% increase, which translates into an annualized 3.3% gain.

These figures came as somewhat of a surprise to most commentators, and we should not yet begin speculating on whether or not they might also be revised downwards in three months time. Where was the growth? The Cabinet Office announced that strong exports and a recovery in housing starts were chiefly behind the gain. Although housing starts are nowhere near the dismal levels they were at last summer and fall, it should be noted that they were down 5.7% in January, 5.0% in February and 15.6% in March.

According to the data, housing starts rose 4.6% for the first time in five quarters, after having fallen 9.2% in the fourth quarter of 2007. Exports saw 4.5% growth in the January-April quarter, while imports increased 2.0%. Consumer spending rose 0.% while capital spending fell 0.9%. It was the first fall for capital spending registered in the past three quarters.

In fact, rising materials prices helped contribute to a 25 trillion yen outflow in the first quarter, as import prices continue to rise while export prices remain flat. That 25 trillion yen outflow was an all-time high; will there be anything left for capital spending in the second quarter of 2008? Read more

Japan’s producer prices up 3.7% in April

On Wednesday, the Bank of Japan announced that producer prices had risen 3.7% in April, following the 3.9% gain that was seen in March. April was the 50th straight month in a row that wholesale prices have increased, demonstrating the effect of strong commodity prices in the international market.

On the domestic index, higher iron and steel prices contributed most to the gain, while metal products (including cold rolled steel) contributed most to the gain in export prices. Import prices were driven up mainly by petroleum, coal and natural gas prices, with food, feed and metals contributing at lower rates.

What response might the Bank of Japan have to all of this? Most commentators currently seem of the mind that the BOJ is growing more cautious about possible raising rates. The Nikkei even went as far as to call the BOJ’s short-term stance “dovish” in an article that attempted to plot BOJ policy board member opinions on an X/Y graph (Bearish/Bullish is on the X axis while Positive/Negative sits on the Y).

With the GDP deflator and labor cost per unit still in negative territory, rising costs become more of a worry as firms will be forced to decide whether to raise prices or allow profit to be eroded. Consumer spending will have to hold up - in the face of stagnant wages and possibly increased prices - or exports will have to grow considerably, which seems highly unlikely in the near term. Or, as BOJ Governor Shirakawa announced a couple of weeks ago, “It’s possible [global commodity prices] may reach the ceiling relatively soon.”

It’s hard to tell if he was expressing hope or making a prediction…

Economy Watchers Index down in April; Restaurants to hike prices

After having seen a slight recovery in March, the Cabinet Office announced on Monday that its monthly Economy Watchers Survey had seen a decline from 36.9 in March to 35.5 in April. This survey measures sentiment among workers who are particularly sensitive to economic trends, including taxi drivers, hotel staff and restaurant workers.

The Economy Watchers survey is measured as an index with a score above 50 indicating a positive view of the economy and a score below 50 representing a pessimistic overall view. Although April’s 35.5 score is below what was seen in March, it is slightly better than the scores registered in February (33.6) and January (31.8), when the survey hit its lowest level since December 2001. April 2008 was the 13th consecutive month with a score below 50.

One worrying sign is that the survey’s employment subindex dropped from 35.5 in March to 33.6 in April, which is its lowest level since February 2002.

In related news, a recent Nikkei survey found that 58% of restaurant operators plan to raise their prices in fiscal 2008. This would be an increase from the estimated 53% that raised prices in FY2007.

If that news has you down, 12% of pub and bar restaurants said that they intend to cut prices in FY2008.

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