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March corporate goods price index down 2.2%

Yesterday, the Bank of Japan released its monthly Corporate Goods Price Index, and the report showed a 2.2% decrease in March wholesale prices compared to a year ago. Wholesale prices have now fallen for three consecutive months, and the fall last month was the largest on record since 2002.

Last August, wholesale prices shot up 7.1% and hit a 27 year high, as commodity prices peaked out. Reuters goes as far to say that “[W]ith both domestic and external demand faltering, Japan could be the slowest among major economies to recover from recession.” This, of course, does not jive with Prime Minister Taro Aso’s New Year’s promise that Japan will be the first nation to recover from the global recession. Read more

BOJ looking at pumping another trillion yen in loans into banks

Just a year ago we were hearing reports on the supposed health of Japan’s banking system. There were even members of Japan’s parliament suggesting that Japanese banks could be in position to take over US and European banks in an effort to put Japan on top (oops). While that view was mocked in some small circles, it seems to have come round to expose the Japanese banking industry as still not being on proper footing.

On Tuesday, Bank of Japan governor Masaaki Shirakawa told reporters that “coupled with the downturn in the domestic economy, a decline in the health of financial institutions could have a negative impact on financial system stability.”

No shit, Sherlock. In other words, Japanese banks have continued their record of failure in overseas markets. That’s been discussed out in the open for at least a decade.

The Bank of Japan is now looking at pumping about 1 trillion yen into the banking system as the continued decline in share values means that BOJ purchases of shares held by banks isn’t going to have much effect. Japanese banks are seeing their capital bases further erode, and this will have an effect on their ability to lend. Should the state step in to help the banks? The answer to that question depends on whether you believe in socialism or capitalism.

But what you believe in barely matters; the Bank of Japan is free to act on its own whims, even if they will have the result of doing no good for the average taxpayer.

Wholesale prices, the Bank of Japan and deflation

In an opinion piece reprinted by the International Herald Tribune, Martin Hutchinson of breakingviews.com asserts that “Japan repeats its mistakes” from the 1990s by “injecting capital into failing companies through government banks.”

It’s difficult to disagree that a 6.5% increase in public spending is a bad thing, especially given Japan’s precarious demographic situation (for more on why the often-cited 6.5% increase in public spending might be a tad misleading (it compares initial FY2008 budget figures to FY2009, rather than what actually happened in FY2008), see the third paragraph of Edward Hugh’s recent post over at Japan Economy Watch. Personally, I don’t think the figure is misleading so long as a writer mentions that it may be somewhat misleading). At any rate, back to Hutchinson: one line in the article really caught my eye:

Japan has avoided the housing problems and stock market bubbles that have bedeviled Western economies, but it is again suffering severe deflation, primarily because of the yen’s sharp rise and the downturn in world trade.

Deflation is certainly a risk, and is looking ever more certain - tomorrow’s CPI figures will make the timing more certain. I’m expecting CPI with food and energy prices stripped out to be flat or slightly negative (-0.1% or -0.2%) when the numbers are released (it was flat in November).

Despite the fact that it seems early to call deflation in Japan “severe,” it might be within a few months, and I agree with the other 99% of the piece. Thus, it’s worth contrasting it to what Bank of Japan Deputy Governor Kiyohiko Nishimu had to say yesterday, as he seemed to indicate a lack of worry over deflation setting in: Read more

Tankan shows fundraising woes mixed with a surplus of equipment and workers

Earlier this morning, the Nikkei opened its article concerning today’s Tankan figures with a flurry: “The Bank of Japan’s latest tankan survey made it clear that companies are finding it increasingly difficult to raise funds, and are carrying more equipment and workers than necessary.”

According to the survey, which was released this morning by the Bank of Japan, the diffusion index measuring confidence at large firms fell 16 points to -16, while the score fell 12 points to -22 at medium-sized firms, and dropped 7 points to hit -28 amongst small enterprises.

Amongst manufacturers of all sizes, the diffusion index fell 14 points to -25. At non-manufacturers, the score slid 7 points to -23. Amongst all firms of any size in any industry, the diffusion index fell 10 points to -24.

We can expect to see pressure put on the Bank of Japan to lower interest rates even further, though there isn’t much wriggle room down from 0.3%. Some commentators expect to see a return of the Zero Interest Rate Policy that was abandoned in an attempt to return to “normalcy.”

Unfortunately, we are bound to see further waves of job cuts and pullbacks in capital spending. It’s not quite yet time for normalcy.

Bank of Japan downgrades regional economic assessments; chaos in the consumer credit industry on the way?

In its most recent quarterly Regional Economic Report, the Bank of Japan listed economic conditions as “downward” in all nine regions of the country for the first time since the report has been issued in 2005. The report sums up the past three months in stark language:

The pace of increase in exports slowed. Corporate profits continued to decrease mainly due to the deterioration in the terms of trade, and business sentiment became even more cautious. In this situation, business fixed investment remained more or less flat in some regions, but was generally decreasing recently. Private consumption was relatively weak, mainly due to sluggish growth in household income and the increase in prices of energy and food. Meanwhile, housing investment was flat. Under these circumstances, production was relatively weak.

With this report, as well as the global financial crisis, as a backdrop, it’s also worth noting that a recent Nikkei poll found that 21.8% of small and midsize firms surveyed reported that conditions for borrowing from banks have worsened over the past year. This figure was double that of the previous poll, conducted in March. Still, 69.9% of firms surveyed said that borrowing conditions had not changed. Read more

BOJ: Economic recovery may be delayed slightly

Just yesterday, Bank of Japan Governor Masaaki Shirakawa told a news conference:

The timing of the [economic] recovery may be delayed slightly compared with our initial expectations…Downside risks have been rising and warrant attention.

And then the Nikkei fell 952 points today. And then it was announced that corporate bankruptcies were up 15% in the April-September quarter, with liabilities nearly tripling. And the Index of Business Conditions was down. And other bad news followed.

“Delayed slightly”? After all the trouble the LDP went through to put Shirakawa in his position, he really should be saying better things than this. Then again, he’s skeptical about the global rate cut (it’s good that someone is), and his colleague, Finance (and Financial Services) Minister Shoichi Nakagawa, is brushing off the idea that Japan should raise its insurance limits for bank deposits. This is a fine and defensible position, but his justification is that Japan’s banking system is “healthy” enough to make such a move unnecessary (it’s actually not).

Yesterday, Nakagawa told reporters, “If we ever lift [insurance limits] in this situation, that would rather raise concerns or a sense of uncertainty among Japanese people”

Wouldn’t want to make people worry now, would we?

Bank of Japan: savings deposits exceed loan balances by a record 145 trillion yen

According to the Bank of Japan, the balance of savings deposits at Japan’s banks now exceeds loan balances by 145 trillion yen. The gap between savings and loan balances is now at a record high.

As of July 31, 549 trillion yen sits in deposit accounts at Japanese banks, while 403.8 trillion yen is on the loan books. Back in 2000, the gap between deposits and loans stood at about 20 trillion yen.

The data also shows that the amount of commercial paper issued by financial institutions surged 45.8% in August, after having fallen in both May and June and having risen by 6.1% in July. Government bond issuance fell by 1.2% year-on-year, for the first fall over the past 12 months. Further falls could be expected for the next few months, as government bond issuance surged in the summer and fall of last year.

Japan corporate service price index up 7.1% in July; Dentsu feeling the pinch

Last month, the news was that in June, Japan’s corporate price index had increased 5.6%, which was the highest rise seen since 1981. According to figures released by the Bank of Japan yesterday, July has far outstripped that figure, with wholesale prices showing a 7.1% increase, the highest seen in 27 years (which is still 1981).

According to the data, producer prices for petroleum and coal products increased 43.6% year-on-year, while while prices for iron and steel products jumped 26.7% and those for industrial chemicals were up 7.3%.

It’s also costing much more to ship goods around the country and overseas: Ocean freight prices were up 27.5% and international air freight cost 16.3% more than a year ago, while domestic air freight prices were up 6.5%. Read more

Japan’s Wholesale prices up 5.6% in June, highest rise since 1981

On Thursday, the Bank of Japan released its corporate goods price index data for June, and the trend of rising producer prices is only intensifying. Wholesale prices rose 5.6% from the previous year in June, which follows a 4.8% climb from May.

June’s rise was the highest seen in 27 years. We have to go back to February 1981, when the index rose 5.7%, to see a higher figure. According to the data, producer prices for petroleum and coal products increased 36.5% year-on-year, while while prices for iron and steel products jumped 18.3%. The only other categories to see a rise above the 5% level were pulp and paper (6.8%),metal products (6.0%), electric, power, gas and water (5.6%) and processed foods (5.3%).

On the other hand, declines were seen in the prices of information and communications equipment (-6.0%), lumber and wood (-5.4%), nonferrous metals (-3.1%), electronic components and devices (-2.8%), and electrical machinery and equipment (-0.8%). Read more

Bank of Japan Lifestyle Survey: 89% expect higher prices over the following year

The Bank of Japan released the 34th edition of its quarterly lifestyle survey last Friday, and one result that immediately catches the eye is that 88.9% of those surveyed reported that they expect consumer prices to rise further in the coming year. This figure was 2.9% higher than the last survey done in February and March, and is the highest figure ever seen in the survey’s history (dating from March 1997).

The survey’s first question might be its most worrying. When asked whether lifestyle conditions now were better than a year ago, only 1.7% responded they were better, while 28.8% said they had not changed and 69% replied that they had gotten worse. In December, 45.5% had reported conditions being worse, while in March that figure had shot up to 60.1%.

When asked if lifestyle conditions would be better a year from now, only 2.2% replied that they expect improvement, while 36.9% expected no change and 60.5% saw things getting worse. In March, 47.3% had said they expected conditions to worsen.

When asked about income, 7.7% reported it had improved over the past year, while 46.4% reported worsening conditions. Only 5.9% expect to see an increase in income over the coming year.

Back to prices: When asked what percentage increase they expected, the median reply came to a 7% increase in consumer prices over the coming year. That answer was 2% higher than the previous survey. Interestingly, respondents anticipating a fall in land prices increased, with 29.8% saying they expect a fall in prices while 22.4% say they expect an increase.

Although the survey does not go into great detail over consumers’ feelings on the economy and lifestyle conditions, we do know that Japan’s core (minus fresh food and energy) consumer prices still look deflationary (Our recent post on that is here, and Claus Vistesen has further explored the matter here). Consumers have been stung primarily by higher energy and food costs, and firms seem yet to have passed these costs full-bore to the consumers in other areas.

Do Japan’s workers and consumers have much justification in this pessimism? As Claus points out, “The amount of small-cap companies, who constitute 70% of the Japanese workforce, filing for bankruptcies rose 18% in the year ending March.” It’s difficult to imagine wage growth assuming an overall trend in such an environment, and thus one is forced to wonder whether non-energy and food price hikes are only a matter of time.

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