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Which Japanese firms are most at risk in a US downturn?

Earlier this week, Nikkei Veritas published it’s list of the 20 Japanese firms that depend most heavily on the North American market for their operating profit. Of course, high dependence on the US market is not necessarily connected with suffering negative effects due to a US downturn, though it is certainly one risk factor.

Upon seeing the headline, the name Honda jumped into my mind. I thought too soon: Honda ranked #5 on the list, with 42.9% of it’s operating profit and 41.2% of sales being dependent on North America (Honda does lead in the sales category). The real #1 was a bit of a surprise. 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.

Don Harrold on Bear Stearns, Jim Cramer, The Federal Reserve, and JP Morgan

CNBC seems to have made a real mess-up with the graphics (Cramer’s not talking about share price at all, and he was correct in saying that they would get taken over). Nonetheless, here comes the anger:

Ron Paul on inflation

Love him or hate him, at least Dr Ron Paul isn’t wasting time posing questions to Roger Clemens (video follows the cut). Read more

Recent articles on the subprime crisis and the US in 2007 vs Japan in 1989

A few days ago, a piece entitled “Japan’s lost decade a lesson as American economy falters” by Steve Lohr appeared in the New York Times and its syndicated publications. In the article, Mr Lohr argues that there are “broad parallels” between the bursting of Japan’s bubble in the early 1990s and the current crisis in the US. As he puts it:

After a long boom, the Japanese economy in the 1990s, as in the US today, was jolted by a plunge in the real estate market.

In Tokyo, the government and bankers were slow to recognize the size of the problem. Bad loans piled up. The financial troubles rippled through the economy as consumer spending and job growth fell…

…A lengthy slowdown, [economists] say, could alter the economic psychology of the US, echoing the Japanese pattern, as the nation enters a period of diminished confidence that restrains spending and investment.

Mr Lohr goes on to point out that failings in Japan’s economic policy in the years following the bursting of the bubble caused even greater pain, a point that few would argue with. Japan’s fate is described as a warning to the United States, as 18 years after the bursting of the bubble, Japan’s main stock index (the Nikkei 225) is still only worth about 33% of what it was at its peak. Read more

Oil prices hit $100 per barrel for first time ever

It has finally happened: During Wednesday trading in New York, crude oil prices exceeded $100 per barrel for the first time ever. A host of factors seem to have combined in order to push prices beyond the century mark: Unrest in Nigeria, increased demand from China, a potential halt in oil exports from Mexico, an expected drop in the US crude oil supply, and fears that the Fed will cut interest rates.

How is this relevant to the Japanese economy? Well, as we know, the current inflation in consumer prices is being driven by high oil and energy-related production costs. Luckily, Japan’s financial markets won’t be open tomorrow, or else there could be some bloodshed. Then again, we have to wonder how much oil prices might “recover” before markets open on Friday.

Expect the Nikkei to follow tomorrow’s Dow and Nasdaq…

Yet another domestic food scandal; Bush to lobby for US beef

It has been reported that yet another maker of traditional Japanese confectioneries has run into trouble due to its practice of falsifying the manufactured dates of its products. This time, the firm in question is Ofukumochi Honke, a dessert manufacturer in Ise, Mie Prefecture.

We won’t bother pointing out the connection between Ise and Shintoism. There’s nothing to be gained from reading in at such a symbolic level. If you’ve never been to the Ise Shrine in Mie Prefecture, where the goddess Amaterasu Omikami is enshrined, I recommend going in the autumn. It’s truly beautiful.

At any rate, Ofukumochi follows Akafuku Mochi, another confectionery maker who ran into trouble earlier this month for lying about dates. This follows labeling scandals at Fujiya, Meat Hope and chicken supplier Hinaidori…

Yet, there is still nervousness surrounding the importation of US beef, which currently can only come from cattle 20 months of age or younger (odd that the marketers haven’t started a veal boom, but that’s another story…).

Since Japan doesn’t export much meat to the US, it hardly needs to prove that its own meat (or candy) is safe to the Americans. Demonizing foreign meat is thus an easy game to play. I have written widely on why I think US cattlemen are to blame for their own troubles - and I still think they are - but at this point Japan is starting to look a bit silly.

At any rate, US President George W Bush, a man with the credibility of a broken thermostat, is set to discuss the issue of US beef imports with Prime Minister Yasuo “Sock Garters” Fukuda when the two meet next month in the US (no thanks to Kyodo for already removing the link to the story). It will be interesting to see if Bush, the man who asked former Prime Minister Shinzo Abe to describe what a ‘triangular merger’ is, presses Fukuda on Japan’s own food safety issues.

Disclaimer: I don’t know whether Yasuo Fukuda actually wears sock garters. I just imagined it and realized it must be true, or should be.

US Beef Negotiations to Continue this Week

A few short weeks ago, the Ministry of Agriculture, Farms and Fisheries announced that U.S. beef shipment facilities were up to par with Japanese import standards, and thus there is no longer a need for the requirement that every box of American beef shipped to Japan be opened and inspected upon arrival.

That decision surprised me, since I assumed the labeling mistakes would lead the inspectors to declare the facilities unsafe, but apparently they don’t mind that so much anymore.

We’ve now reached the next step: US negotiators are heading to Japan this week for talks on Wednesday and Thursday with officials from the Ministries of Agriculture, Farms and Fisheries and Health, Labor and Welfare. At issue will be whether or not Japan should lift the ban on US beef from cows aged over 20 months. The US has the World Organization for Animal Health (OIE) on its side (Imagine that! The US using a multilateral organization to lend itself credibility!). Back in May, the OIE ruled that the United States was a “controlled risk nation.” All countries with this designation can export beef irrespective of the animal’s age.

Japan does not want the US to make a complaint to the OIE, or even worse, the WTO. At the same time, Japan has thus far been adamant about keeping out beef from cows under the age of 20 months. Now it appears as though Japan is stuck in a position where it needs to save face; will the US allow it to lift the restriction up to 30 months, or will the US demand that all age restrictions be removed?

Domestically, of course, the Japanese side has little to worry about. Most markets still do not carry US beef, and consumers remain afraid of it. But will they stay scared long enough? When will it be time again to turn a small mis-labeling accident into an international incident?

US Meatpacking Facilities OK: Ministry of Agriculture

Yesterday, the Ministry of Agriculture released a report stating that U.S. beef shipment facilities are up to par with Japanese import standards, and thus there is no longer a need for the requirement that every box of American beef shipped to Japan be opened and inspected upon arrival.

Although the inspectors found more cases of mislabeled shipments during their tours of US meatpacking facilities, they determined there was no longer a risk that animal parts that could potentially carry BSE would be included in any shipments to Japan. Such parts usually include any brain matter or spinal cord tissue.

Negotiations between Japan and the US on this issue are expected to continue, as the World Health Organization has said that US beef of any age is fit for export, while Japan limits imports of US beef to cattle under 20 months of age.

Bush asked Abe to explain “Triangular Mergers”

Sometimes you’re not sure if you should laugh or cry, and this story falls into that category:

During their meeting at Camp David on April 27, in an effort to demonstrate that Japan continues to exhibit more open trade and business policies with the United States, Prime Minister Abe reportedly told President Bush, “Japan welcomes investments from foreign companies. Based on this stance, Japan has decided to authorize triangular mergers, starting in May.” Bush proceeded to ask Abe what he meant by “triangular mergers,” which apparently dismayed the Prime Minister, who reportedly responded, “This is a measure which the United States strongly requested…I faced lots of criticism that if the triangular merger were authorized, it would open the path for giant U.S. companies to absorb Japanese companies.”

Of course, the US Embassy’s Office of the U.S. Trade Representative, the American Chamber of Commerce in Japan and the European Business Community had all strongly requested that Japan allow triangular mergers to be legalized.

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