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Japan’s exports up 8.1% in July; China imports more from Japan than the US for the first time since WW2

According to data released today by the Ministry of Finance, Japan’s trade surplus shrank by 87% in July, to 91.1 billion yen, as slower exports of cars, auto parts and electronics led to a 19.0% fall in Japan’s trade surplus with the United States. The overall trade surplus has now fallen for five straight months, while the surplus with the United States fell for the eleventh consecutive month.

During July, the value of imports jumped 18.2% to 7.54 trillion yen, while exports rose 8.1% to 7.63 trillion yen. Aside from the US market, exports to Asia increased 12.7%, exports to the EU area increased 4.1%, exports to Russia were up 45.8%, those to the Middle East were up 27.5% and exports to Australia increased 32.8%. Read more

Finance Minister Nukaga requests IMF watch sovereign wealth funds, to battle protectionism

Just as Japan is having discussions over legislation to prevent foreign investors from taking large stakes in airports and other such infrastructure, and the government appears set to reject The Children’s Investment Fund’s plan to boost its stake in J-Power from 9.9% to 20%, Finance Minister Fukushiro Nukaga made some interesting comments through a written statement released Saturday at a gathering of the International Monetary Fund’s policy panel. Nukaga’s statement went like this, according to the Japan Times:

“We recognize the [increased] presence (of Sovereign Wealth Funds in the global financial market). I support the IMF’s action to make full use of its experience in monitoring movements in international capital flows, and formulate best practices in the areas of governance, institutional arrangements and transparency…(Such efforts would benefit both SWFs and countries which receive their money) by minimizing protectionism in recipient countries.”

Emphasis added.

Is it safe to assume that if the IMF decides not to take up Mr Nukaga’s request to keep a closer eye on SWFs that protectionism is greenlighted by acquiescence?

No Surprise: Ministry of Finance working against moves to set up sovereign wealth fund

Let’s start with a recent quote from Upper House LDP lawmaker Kotaro Tamura:

“We have no reasons not to launch [a sovereign wealth] fund. It will be a breakthrough in transforming Japan into a financial-sector oriented nation, as the fund will help draw money and talented professionals from overseas.”

There are no reasons not to launch an SWF? That can’t be true.

As we already know, the ruling Liberal Democratic Party has set up a panel to assess whether or not Japan should establish a sovereign wealth fund. As we mentioned a few days ago, this panel met for the first time on February 22, hopes to write a bill in April, submit that bill to the diet this fall, and have it enacted sometime early in 2009.

But not if the Ministry of Finance has anything to say about it. With the LDP already battling the opposition Democratic Party of Japan over the nomination of Toshiro Muto to the post of Bank of Japan Governor, one has to wonder when someone is going to come out on their side (that most likely won’t happen soon, as recent articles in the Economist and by Bloomberg’s William Pesek have begun to scratch the surface of showing the extent to which political ineptitude is choking the Japanese economy).

We’re not going to settle the issue of whether or not a sovereign wealth fund is a good idea for Japan in one simple post, so there’s no point in attempting such an exercise (it’s probably not a good idea, since it will simply get mismanaged anyway). But what is worth looking at is the resistance coming from the bureaucracy. One may say that they do not want to relinquish control over the nation’s foreign reserves - after all, the MOF worked so hard to earn that $1 trillion by issuing trillions of yen worth of sovereign debt.

Others may look at the issue as a potential thorn in the side of Japan’s relations with the US. Japan is the world’s largest holder of US Treasuries, and a change in foreign reserve management policy might not sit well with some folks.

There are a host of other good reasons why Japan should not set up a sovereign wealth fund right now, as there are a host of reasons why it should. But Finance Minister Fukushiro Nukaga summed it up pretty well in one short sentence last week:

“Sovereign wealth funds are operated by countries with a fiscal surplus.”

At this point, who cares if it’s not even true?

Mizuho Corporate set to buy $1.2 billion of Merrill Lynch preferred stock; no, Japan does not yet have a sovereign wealth fund

On a day when the Nikkei dropped 138.16 points to close at 13,972.63 (that’s an 8.72% loss since January 1; the Nikkei lost 11% last year), it was announced that Mizuho Corporate Bank would invest about $1.2 billion in Merrill Lynch through the purchase of preferred stock. In total, Merrill is set to issue $6.6 billion of preferred stock, of which Mizuho will get about 18 percent.

The Nikkei points out that this is the “the first time since the bursting of Japan’s economic bubble that a Japanese bank takes a capital stake in a major U.S. or European financial concern.”

Well enough. Who’s buying the other 82% of the $6.6 billion in preferred stock? The Kuwait Investment Authority, the Korea Investment Corp, TPG-Axon Capital, The New Jersey Division of Investment, The Olayan Group, and T. Rowe Price Associates.

That’s right, the New Jersey Division of Investment. Of course, $6.2 billion also came in last month from Singapore’s Temasek Holdings and Davis Selected Advisors. Merrill Lynch is set to report its fourth quarter earnings on Thursday. Read more

Japan’s foreign reserves at $970 billion, for fifth straight all-time high

On Friday, the Ministry of Finance reported that as of November 30, the value of Japan’s foreign reserves had hit $970 billion, which is yet another all-time high. This is the sixth consecutive monthly increase, and the fifth consecutive all-time high.

Since the end of October, Japan’s reserves have gained $15.7 billion in value, primarily driven by returns in US Treasury bonds. Japan also saw gains in its euro-denominated holdings as the euro rose in value against the dollar.

According to the ministry, Japan held $820.86 billion in foreign securities as of November 30, which was up from $804.84 billion at the end of October. Japan also holds $125.23 billion in foreign currency deposits, $19.28 billion in gold, and $1.40 billion in International Monetary Fund reserve positions.

Pretax profits down over all firms in July-September quarter; is the business cycle turning?

While calculations made earlier this week by the Nikkei showed that pretax profits at listed firms were up 10.9 percent in the first half of the current financial year, data released by the Ministry of Finance on Monday showed that the total pretax profit of firms in all industries was down 0.7 percent in the July-September quarter. This was the first decline seen in five years.

More worryingly for the government is the effect that decreased earnings seems to be having on its own coffers: In October, corporate taxes were 2.3 percent lower than a year ago, although revenues from sales taxes were up 2.0 percent (more on this report in an upcoming post).

The ministry’s report pins the decline on higher oil prices and increased costs for raw materials of other kinds. That seems to be backed up by the fact that manufacturers saw a 3.6 percent fall in pretax profit, while nonmanufacturing firms experienced a 1.5 percent rise.

Digging through the data, we see that nearly every measure of assets has entered decline. I have charted three for this post, though hope to look further into the information (Click the individual images to enlarge - units are in hundred million yen). All three charts show total figures for all firms. Separating firms by size and whether or not they are manufacturers will certainly yield further insight. Read more

Capital spending down 1.2% in July-September quarter; GDP to be revised upward?

Earlier today, the Ministry of Finance reported that capital spending had fallen 1.2 percent during the July-September quarter. Following a 4.9 percent fall in the April-June quarter, this is the second consecutive quarter with a fall in capital spending.

According to the Ministry’s results, profit fell 0.7 percent at the firms surveyed. This was the first fall reported in five years.

Bloomberg, however, says that the fall is less than the 2.5 percent that had been predicted by its survey of economists. We also see the warning that risk is developing over Japan’s continued reliance on exports and the health of external markets.

Export growth to Asia has been particularly visible this year, making up for some of the loss that might have resulted from a dropoff in exports to the United States. The question now is whether Asian economies are healthy enough in order to keep growing at a sustained pace and continue with their demand for Japanese products.

Despite the negative news on capital spending, Reuters tells us that its survey of economists predicts a slight upward revision in Japan’s GDP figures for the second quarter. Preliminary figures from the Cabinet Office put second quarter GDP growth at 0.6%, for an annualized rate of 2.6%. The Reuters survey expects to see that revised upward to 0.7% quarterly and 2.7% annually.

The revised figures are set to be released just before 9am on Friday.

October consumer price index up 1.0 percent, first rise this year

Earlier today, the Statistics Bureau announced that Japan’s core consumer price index had risen 1.0% in October. This was the first rise seen in 2007.

The rise, however, appears to be on the back of increased fuel costs, especially for gasoline. Core CPI in Japan excludes fresh food but includes energy costs. Gasoline prices rose 3 percent in October, while household electric bills went up 1.4% on average.

With energy costs stripped out, CPI was down 0.1 percent.

When food costs are factored in, the CPI saw a rise of 0.3 percent.

Downward pressure on prices continues to be provided by home electronics. In October, flat-panel TV prices fell 17.1 percent, laptop prices fell 28.4 percent, and desktop computers saw a 16.6 percent drop in prices.

We don’t see these figures as providing the Bank of Japan with grounds enough to raise interest rates in December.

At a press conference this afternoon, Minister of Economy and Fiscal Policy Hiroko Ota stated that Japan was still in deflation, telling reporters, “The consumer price situation basically hasn’t yet changed.” Concerning the consequences of higher food and fuel prices, Ota expressed fear that they “could erode consumer confidence and business sentiment at small and medium-sized enterprises.”

At his press conference, Finance Minister Fukushiro Nukaga stuck to stating the obvious:

The consumer price index rose from a year earlier. I would like to keep closely monitoring how high oil prices will affect overall price conditions. I will do the same for job conditions.

In other words, he plans on showing up at work.

Where politics shouldn’t be: Is Muto’s tenure as next BOJ Governor already in danger?

With current Bank of Japan Governor Toshihiko Fukui set to step down next March, talk has been surfacing over who his successor will be. One thing is certain: The appointment of such a position should be above party politics.

We noted back in June that a Bloomberg survey had indicated current BOJ Deputy Governor Toshiro Muto as the most likely successor to Mr Fukui. That, however, was before the July Upper House election, which saw the Democratic Party of Japan take control of that house of Japan’s parliament.

Why is that relevant? An appointee to the position of BOJ Governor must be approved by both houses of the Diet, and the DPJ doesn’t seem to be a big fan of Mr Muto, who previously held the position of Vice Minister of Finance from 2000 to 2002. This is the highest position in the Ministry of Finance that may be held by a bureaucrat.

It’s worth noting that in February, the last time the BOJ voted to increase the nation’s benchmark interest rates, Mr Muto cast the lone dissenting vote in an 8-1 decision. With LDP pressure often put on the Policy Board not to increase interest rates (more so during the Abe administration, perhaps less necessary now), was Mr Muto sending a message that he was still on their team? At the same time, Mr Muto has publicly expressed the same opinion that his boss has - namely, that the BOJ needs to gradually raise interest rates. Read more

Japan’s foreign reserves rise for fifth straight month to all-time high in October

On Wednesday, the Ministry of Finance released its foreign reserve data for October, and the nation’s reserve funds have hit an all-time high for the fourth consecutive month, climbing from $945.60 billion in September to $954.48 billion by the end of October.

Japan remains their world’s second largest holder of foreign reserves, trailing only China. China holds about $1.412 trillion. Russia is at third with $407.83 billion.

On the same day, the Ministry of Finance also announced that in fiscal 2006, its foreign currency assets yielded 6.7%, which was almost four times greater than the yield shown in FY2005.

There are some who say the ministry should be diversifying away from its reliance on US Treasury bonds in order to create higher yields for government coffers, but ministry officials remain steadfastly opposed to such a move in their public comments.

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