Posts Tagged economy

Don’t look here. Look over there!

The Emperor is doing fine after his operation.  Ooh! Look at this spectacular solar flare!  And who can resist this great pic of Mount Fuji, Japan’s sacred mountain? And the Festival’s started in Rio! And anyway, there’s nothing to worry about, and the endless gradual increase in consumption tax will fix everything, and I think we can all ignore the sour-grape nobodies who say it’s not the answer   (thanks to Mike Modernmarketingjapan Rogers for the link). Our leader has spoken! No further debate is necessary.

According to data compiled by the Ministry of Finance and the Bank of Japan, the net foreign direct investment outflow rose from the 109.9 billion yen in 2010 to 183.2 billion yen last year.

The latest figure is the highest on record going back to 1985,…

European multinational banking group Dexia Group left Japan in June … and major U.K. supermarket chain operator Tesco Plc … plans to withdraw.

Allianz Life Insurance Japan Ltd. stopped selling new policies at the beginning of the year, while Exxon Mobil Corp. announced late last month that it will sell its Japanese oil refining and sales operations to TonenGeneral Sekiyu KK 5012.

One major reason behind the exodus is the yen’s appreciation … Power shortages and supply chain disruptions… [my emphasis]

A poll conducted by the Ministry of Economy, Trade and Industry after the calamity shows 30% of foreign firms that had intended to invest in Japan were contemplating canceling or reducing their plans.

via 2012/02/18 03:27 – Foreign Firms Stepped Up Exodus From Japan In ’11.

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Debt at 500% of GDP?!?!?

Mish posts snippets of “an extraordinary interview by Kate Welling of Dr. Lacy Hunt, the chief economist of Hoisington Investment Management.”  The original PDF is posted on John Mauldin’s site here. Not included in Mish’s snippets is this graph of total (public and private) Japanese debt. If you’re holding a hot beverage, you might want to put it down before looking at this. You might need a stiff beverage afterwards. (See bottom of the post for US/UK total debt horror story, but after seeing the Japan one, Hey! That’s nothing!!)

via Mish’s Global Economic Trend Analysis: Face The Music: Road Back To Prosperity Is Through Shared Sacrifice, Not Government Stimulus; Case Against Fractional Reserve Lending.

Japan total debt as % of GDP 1990-2011

But hey! No worries, because most of the debt is held by domestic investors!!

Snark aside, Dr. Hunt says a few things which buck the trend, and as that in itself is so unusual, and a different opinion often offers food for thought, here are my snippets:

  1. a great study by the McKinsey Global Institute Study, listing what they call the Four Archetypes of the Delevering Process. What it boils down to is that austerity is required in about 75% of the cases. Either you do it yourself or it’s imposed upon you. They do address the possibility of “growing out of debt” and they cite the case of the U.S. in World War
    II and a couple of other instances. But to my way of thinking, the U.S. during WWII was also an austerity case. If you look at my chart of the personal savings rate back to 1929, you can start to see that what really brought us out of the Great
    Depression were our exports. Our allies’ countries were being disrupted by actual fighting and they had manpower shortages. So we were selling them everything that we could produce — but meanwhile, our people could not spend the income we were receiving.
    The Delevering Process: Four Archetypes
    1. “Belt Tightening”. The most common delevering path. Episodes where the rate of debt growth is
    slower than nominal GDP growth, or the nominal stock of debt declines. Examples are Finland ’91-’98,
    Malaysia ’98-’08, U.S.’33-’37, S. Korea ’98-’00.
    2. “High Inflation”. Absence of strong central banks, often in emerging markets. Periods of high
    inflation mechanically increase nominal GDP growth, thus reducing debt/GDP ratios. Examples are
    Spain ’76-’80, Italy ’75- ’87, Chile ’84- ’91.
    3. “Massive Default”. Often after a currency crisis. Stock of debt decreases due to massive private and
    public sector defaults. Examples are U.S. ’29-’33, Argentina ’02- ’08, Mexico ’82- ’92.
    4. “Growing out of debt”. Often after an oil or war boom. Economies experience rapid (and off-trend)
    real GDP growth and debt/GDP decreases. Examples are U.S. ’38- ’43, Nigeria ’01- ’05, Egypt ’75-’79. [p.15]
  2. Q: It’s more than a little perverse to pull for another world war to pull us out of this mess. Wasn’t the debt deflation in the 19th Century simply cured by the passage of time?
    A: In the earlier case, the excessive indebtedness just burned itself out. That was the title of Kindleberger’s chapter on policy responses: “Letting It Burn Out and Other Devices.” I sent you an excerpt from that, too. You might do better to
    just let it burn out. Everybody rejects that as being too harsh; “How could you possible advocate that?” But it it might be better.
    Q: Sure, like a forest fire. But that argument isn’t very strong in today’s highly interconnected economy. We’re not facing any isolated conflagration.
    A: Well, you hear that argument, but I’m not sure that I buy it. I think the world was very interconnected in the 1920s and I really see a lot of parallels.
  3. Q: Suppose one of Europe’s Hail Mary passes actually miraculously works, and the Chinese decide to lend them a ton of dough?
    I’m not an expert on China. But I did spend some time there earlier in my career, and I don’t think the situation is that stable. I sent you a quote from the book, Red Capitalism, by Carl Walter and Fraser Howie. Carl Walter is a pretty serious
    observer, Stanford Ph.D., has lived in Beijing for about 20 years, speaks Mandarin. His basic point is that the government has forced the banks, which they control, to make loans to the provincial governments for all of these expansion projects. There’s now a great deal of excess capacity and the projects are not generating sufficient cash flow to service the high levels of debt that the banks have extended. We’re reaching the point at which the banks will have to be recapitalized. We had an episode of that in the late ’90s when the Chinese banks needed to be recapitalized and the government had to shift expenditures into bank recapitalization. That caused the Asian economic crisis. Now there’s some evidence to suggest that China will have to recapitalize the banks again and when it does that, it will produce economic weakness in China that will reverberate around the world. So the Chinese may be more of a problem than a solution.
  4. Q: I suppose all this means you expect a recession this year?
    Well, consumer spending will slow this year very dramatically from a very weak base. We had a decline in real disposable income in 2011. GDP rose, but GDP measures spending, not prosperity.

US & UK total debt as % of GDP

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Nuclear Reactor Shutdowns Hitting Local Govt Budgets

At the end of last year, a friend sent me an email saying, “Apparently, all those nuclear power stations are not so vital after all”, after most of them went offline and the sky didn’t fall. Think I should forward this article to my friend?

TOKYO (Nikkei)–With no prospect for the resumption of idle reactors, 11 of the 13 prefectures that host nuclear power plants are likely to forecast no nuclear fuel tax revenue for next fiscal year.

The two exceptions are Aomori and Fukui. Last November, Fukui became the first prefecture in Japan to pass an ordinance allowing it to collect the tax even when reactors are not generating electricity. Aomori enacted a similar measure in December that will go into effect as early as April.

For the fiscal year ending next month, the 13 prefectures had been forecasting a combined 42.8 billion yen in nuclear fuel tax revenue, but the take is now expected be at least 16.4 billion yen smaller.

via 2012/02/15 05:48 – Nuclear Reactor Shutdowns Hitting Local Govt Budgets.

Collecting tax, whether or not the plant is generating electricity? How much arm-twisting had to go into bringing about that “agreement”, I wonder? Yikes!

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TV Marketer’s Setback Reflects Changing Consumption Patterns

For a list of blog posts on the future of TV in Japan by a marketing and media professional Mike (in Tokyo) Rogers, click here.

TOKYO (Nikkei)–The fact that home shopping firm Japanet Takata Co. likely just suffered its first revenue decline in seven years is no big deal in and of itself. What makes the slide noteworthy is what it represents — a very real shift in Japanese consumption patterns.

This shift is dealing a bitter blow to the consumer electronics industry, and its impact will continue to be felt long after the temporary disruptive effects of the Great East Japan Earthquake have passed.

Industry giants Panasonic Corp. (6752), Sony Corp. (6758) and Sharp Corp. (6753) expect net losses of 780 billion yen, 220 billion yen and 290 billion yen, respectively, in the fiscal year through March. They blame weak TV sales for their projected losses. As TVs are one of Japanet Takata’s main revenue sources, the slump is also pummeling the television marketer.

It appears that products that were a huge hit in the 20th century can no longer be counted on to be cash cows.

via 2012/02/15 12:30 – TV Marketer’s Setback Reflects Changing Consumption Patterns.

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Japan Trade Deficit Due To Special Factors, Including Quake

Tepco said earlier it will raise electricity rates for corporate customers by around 17% on average beginning in April, its first hike in more than three decades, to address soaring fuel costs following the Fukushima Daiichi nuclear disaster.

The rate increase will be used to help the embattled utility cover the cost of buying more fossil fuels, as many of its nuclear plants remain offline following last year’s devastating earthquake and tsunami.

The minister [of State for Economic and Fiscal Policy Motohisa Furukawa, graduate of prestigious Tokyo University’s Law Faculty] also said the government aims to propose several ideas about a future energy plan by spring. “For the long term, we would think about alternative energy like solar, but in the near term, I think it will be natural gas,” he said. “We have to think about how we will rely less on nuclear power.”

via 2012/02/12 17:18 – Furukawa: Japan Trade Deficit Due To Special Factors, Including Quake.

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Japan Utilities Facing Supply Crunch As Mercury Drops

TOKYO Nikkei–The cold wave sweeping across Japan is pushing electricity companies close to the edge, with power demand surging to the danger zone of above 90% of capacity at six utilities.At Kyushu Electric Power Co. 9508, power demand on Friday peaked at 14.77 million kilowatts between 6 p.m. and 7 p.m. The second-highest so far this winter, the high demand was caused by record-low temperatures in the southern Japan utility’s service area, including 3.4 C below freezing in the city of Fukuoka.With trouble at one of its fossil-fuel power plants exacerbating the situation, peak power demand reached 94% of capacity. To avert power shortages, Kyushu Electric received a total of 2.4 million kilowatts in emergency supplies from Tokyo Electric Power Co. 9501 and five other companies.

But with the colder-than-normal weather forecast to grip Japan for some time to come, the crisis situation will likely continue at Tohoku Electric and other power utilities.

via 2012/02/04 02:48 – Utilities Facing Supply Crunch As Mercury Drops.

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Without Nuclear Power, Supply Crunch Still Looms

TOKYO Nikkei–Kyushu Electric Power Co. 9508 managed to avoid blackouts Friday, but precarious power supply conditions will continue among Japanese utilities as long as their nuclear reactors remain idle. Just three reactors in Japan are operating today, but they will join their idle counterparts by the end of April, moving the nation completely off nuclear power.

But if utilities are forced to continuously operate fossil-fuel-burning plants to make up for dormant nuclear power stations, it would likely increase the chance of breakdowns, as one of Kyushu Electric’s plants did Friday.

Boosting the reliance on fossil fuels will also result in higher power rates.”We want to get through this summer without issuing any power conservation orders,” Economy and Industry Minister Yukio Edano said. But his comment is merely wishful thinking since it lacks any hard numbers to back up its feasibility.

The Ministry of Economy, Trade and Industry is holding discussions toward finalizing by around early May measures to address power issues.  But it is becoming clear that conservation will have only a limited effect. To avoid creating hardships for citizens and disrupting businesses, the government must stop kicking the nuclear can down the road and present a clear road map for ensuring a sufficient power supply as soon as possible.

The Nikkei Feb. 4 morning edition

via 2012/02/04 05:40 – ANALYSIS: Without Nuclear Power, Supply Crunch Still Looms.

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2012/02/02 13:07 – Japanese Oil Firms Shift Focus To Chemical Business

Japanese oil companies are increasingly shifting their focus away from their core refining businesses toward the more promising chemical sector.

As the domestic market for oil products such as gasoline continues to shrink, these companies are hoping to cash in on rapidly growing demand for petrochemical products throughout the rest of Asia. But it remains to be seen whether these Japanese firms will be able to easily expand their chemical operations, due to their relative lack of international competitiveness, as new players are emerging across Asia and the Middle East.

via 2012/02/02 13:07 – Japanese Oil Firms Shift Focus To Chemical Business.

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2012/02/01 04:23 – Govt To Aid Disaster-Hit Firms In Export Projects

Japan is a land proud of its traditions. Some things never change. (For “aims to prevent a hollowing out of the Japanese industrial base”, read “fears a major reduction in its tax base”.)

TOKYO (Nikkei)–The government plans to support companies affected by the March 2011 earthquake and tsunami by granting them priority in handling portions of overseas infrastructure projects totaling roughly 1 trillion yen, The Nikkei has learned.

The government has decided to promote 10 projects in emerging and developing countries, mostly in Asia. By boosting infrastructure exports, it aims to prevent a hollowing out of the Japanese industrial base. It also hopes to speed up reconstruction from the disaster by having businesses in the hardest-hit areas handle about 10% of the total value of the projects.

via 2012/02/01 04:23 – Govt To Aid Disaster-Hit Firms In Export Projects.

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Fissures in the Land of Wa?

Fissures within Japan’s business community have been getting wider in the wake of the Great East Japan Earthquake. And the situation is threatening to undermine the Japan Business Federation (Keidanren) – long the nation’s most influential business lobby.

Some member companies are none too happy about Keidanren’s support for the government’s plan to raise the consumption tax. The same goes for the organization’s calls for restarting idle-for-inspection nuclear power plants.

via 2012/01/30 – Ground shaking beneath Keidanren.

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