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Japan’s pension fund lost 5.65 trilion yen in fiscal 2007

As a quick follow-up to yesterday’s post on the creation of a sovereign wealth fund and the taking of seed money from Japan’s pension fund, it was announced today that the Government Pension Investment Fund lost 5.65 trillion yen in fiscal 2007. Although estimates had been published before, this is the first time we’ve seen detailed numbers from the government.

As one would expect, the fund made money from its investments in domestic government bonds, but lost about 7.5 trillion yen in equities positions both at home and overseas. This was the largest loss ever incurred by the pension fund, which has been investing full-scale in financial markets since 2001.

LDP panel proposes soverign wealth fund setup for Japan

Things have been slightly quiet on the sovereign-wealth-fund-for-Japan front lately - a bill proposing an SWF for Japan was supposed to have been written in April - but today the issue finally made its way back into the news.

According to the Nikkei, an LDP panel has proposed taking 10 trillion yen out of the nation’s Government Pension Investment Fund (GPIF), which currently oversees about 150 trillion yen in assets. About two-thirds of this money is held in Japanese government bonds, while the rest is in overseas government bonds and both domestic and foreign equities.

The interesting part of the proposal is what follows. As the Nikkei puts it:

the LDP panel urged the government to set up a state-owned asset management firm that would manage about 10 trillion yen on behalf of the GPIF. The proportions of the different types of assets would remain unchanged, but the fund would be staffed by financial professionals, who would be authorized to invest more aggressively than the GPIF.

The proportions would remain unchanged? Why force an SWF to put about two-thirds of its funds into Japanese government bonds? Oh yeah, we know the answer to that one already. We do need to keep in mind that Japan’s pension fund lost money on its investments last year.

It seems as though the Ministry of Finance has successfully kept the government’s hands away from the nation’s foreign reserves. They’re going to deplete the pension reserves first…

On a side note, the Ministry of Finance has been bossing the government around to quite an extent recently, especially over budget items, including education-related expenditures (more details to follow soon) and cutting in wasteful spending at the Foreign Ministry (which should be done). Can Fukuda stand up to the MOF? Is this revenge for not getting through an MOF Old Boy as Governor of the Bank of Japan? It’s starting to look like Mr Abe being laid to waste by the Ministry of Health, Labor and Welfare all over again…

Japan to commence emergency butter imports from October

A post discussing Japan’s recent importation of whale meat from Iceland published back on June 4 ended with the line, “Seriously, we could use some butter.”

The Ministry of Agriculture has listened. Today’s Nikkei is reporting that Japan will import about 5000 tons of butter this autumn, from Europe and other yet unspecified markets. The plan is to get the butter into Japan sometime around October, when it is believed that shortages will be the most acute.

In case you’re worried over whether The Ministry of Agriculture will allow the butter to be imported under a free market, fear not: the Agriculture and Livestock Industries Corporation, an entity controlled by the ministry itself, will be handling the import shipments.

Japan looking for 20 million foreign tourists annually by 2020

A very short piece in Friday’s Nikkei tells us that the Japanese government’s tourism promotion panel has set a goal of having 20 million foreign tourists visit Japan each year by 2020. In order to explore potential methods for meeting this goal, the panel will set up a working group by the end of July.

The panel’s previously stated goal of having 10 million tourists visit Japan each year by 2010 is still posted on their website. In 2007, 8.35 million tourists visit Japan. The jump to 20 million would be a 140% increase. There are also supposed to be 60,000 new landing slots opening up for international flights at Narita and Haneda airports over the coming few years. Might more new landing slots, and perhaps runways, be on the way?

The Nikkei’s piece ends with this short paragraph:

One idea likely to be considered is making traffic signs and displays at tourist sites available in several languages, as well as employing more multilingual tour guides.

Not exactly revolutionary. Hopefully the panel itself will have some ideas better than the low bar being set here.

Fukuda: Now is “crucial” time to act on sales tax

According to today’s Nikkei, Prime Minister Yasuo Fukuda said that now is a “crucial time to make a decision” on whether or not to raise Japan’s sales tax rates in order to finance the nation’s social security obligations while speaking to reporters from nations attending the G8 summit next month.

Fukuda pointed out that Japan has lower tax rates and an older population than many other nations in North America and Europe, and thus has run into financial trouble.

Has Fukuda managed to divert attention away from the fact that environmental issues are fading from the G8 agenda?

Nikkei highly critical of Japanese government’s decision to block The Children’s Investment Fund

Now that Japan’s government has effectively blocked TCI from upping its stake in J-Power from 9.9% to 20%, a slew of negative reactions to such action is bound to be published, and some pressure is expected to be put on Japan’s government to allow the nation’s current stunted form of capitalism to develop on its own.

The Nikkei got the ball rolling today, in an opinion piece titled Govt ‘Selection’ Of Shareholders Costs Japan Dearly. Some selections:

[M]arket insiders are wary of an acceleration in Japan selling by overseas investors. “TCI had offered an alternative plan restricting its voting rights even if it was allowed to increase its stake,” said Kengo Nishiyama, a strategist with Nomura Securities Co. “The government failed to give a convincing explanation of why the plan was not acceptable.”

…Each time a foreign activist fund’s attempt to take over a Japanese company has been blocked — a typical case is the aborted bid by Steel Partners to take over Bull-Dog Sauce Co. — or calls to control foreign investment in sensitive sectors have emerged, foreign investors have rushed to sell Japanese equities, regarding Japan as remaining closed to them…

…It is unusual for the government to get involved so directly in private-sector investment activities.

(I’m not so sure about that last statement; this just seems like a particularly egregious example.)

“Japan must now face the question of whether management of a company or the government has the right to choose shareholders,” said Yoshihiro Ito, director of Okasan Capital Management Co. The effective selection of stockholders through cross-shareholdings — a practice that is reviving in Japan — listings of both parents and subsidiaries, and government intervention will distort the stock market and cost companies dearly.

Bull-Dog Sauce is a case in point. The company has spent a total of more than 12 billion yen, or about 70% of its sales, to purchase cross-shareholdings and other securities in the past five years since Shoko Ikeda became president.

The government needs to be extremely cautious and have a clear justification to intervene in private-sector investments. Otherwise, it could seriously damage the national interest.

The word “could” seems a bit light in this sentence; The LDP has been damaging national interest for decades. One question they will be faced with in the future is whether the population will believe that their actions are in the voting public’s best interest or if they are more akin to amakudari back-scratching. Although this may not seem like a bread-and-butter issue at first glance, it certainly looks as if the public is going to have more of a “choice” on these matters in the coming years, if you’ll pardon the pun.

Shirakawa to be nominated for vacant Bank of Japan Governor post?

Yes, the Bank of Japan still has no Governor, and the next G7 meeting of finance ministers and central bankers kicks off on April 11, just over a month from now. The Nikkei is now speculating that a third candidate for the governorship may be nominated as early as tomorrow, though it could happen next Monday. If this schedule is followed, the new BOJ Governor could be fully approved by the middle of next week.

Interestingly, the Nikkei also speculates that Deputy Governor (and acting governor) Masaaki Shirakawa could be the nominee. This would be an interesting about-face for the ruling Liberal Democratic Party, who just over a week ago was dismissed by the ruling camp as a candidate on the grounds that it would be “inappropriate” to elevate someone who had just been handed the Deputy Governor position to the head of the bank. Read more

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.

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

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.

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