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Abe Describes Strategy to Free Up Japan’s Economy

June 5, 2013 by Leave a Comment

TOKYO — In a bid to give second wind to his drive to kick-start Japan’s economy, Prime Minister Shinzo Abe laid out a wide-ranging growth strategy on Wednesday that he said would beat deflation, increase personal incomes, unlock the long-squandered potential of its tech-savvy work force and reboot an economy written off in recent years for its seemingly unshakable malaise.

Initial enthusiasm over his program, dubbed Abenomics, of aggressive monetary easing, public works spending and economic overhauls had driven markets up by 80 percent from late last year, when Mr. Abe began his campaign for office, through the middle of May. But optimism has waned in the past two weeks, as investors have taken stock of the risks and shortfalls that accompanied the bet to end longstanding deflation. Investors have also demanded more specifics on how exactly Mr. Abe intended to encourage economic growth. The Nikkei 225-share index fell 3.8 percent Wednesday.

Mr. Abe sought to provide answers Wednesday. He said he would provide tax breaks to encourage foreign direct investment. He said he would remove cumbersome regulations, for example in the medical sector by removing a ban on sales of most pharmaceuticals on the Internet. And he pledged to combine Japan’s high-grade infrastructure and manufacturing prowess with the daring and creativity of a younger generation eager to seize the reins from the economic old guard.

“For 20 long years of deflation, Japan suffered a deep loss of confidence,” Mr. Abe said. “It is now time for Japan to become an engine of global economic growth.”

If Mr. Abe fails to deliver on his promises for bold change, the euphoria that drove Tokyo shares to a five-year high could evaporate further, economists warn. And without those fundamental overhauls, they say, Japan is at risk of sinking back into the economic torpor that has defined much of the past two decades.

Many economists and younger business leaders say that the crux of the overhauls lies in raising Japan’s economic metabolism by making it easier for new companies to to enter the market and for fading old ones — of which there are many in Japan — to exit. That would need to be paired with a more flexible labor market that would smooth the transfer of workers from ailing companies to promising new ones.

A 2010 study by the economists Kyoji Fukao and Hyeog Ug Kwon showed that Japanese companies set up after 1996 added the most jobs in the period to 2010, creating 1.2 million, compared with a net loss of 3.1 million jobs over the same period at all companies founded before 1996. Foreign companies added more than 150,000 net jobs to Japan, highlighting what is seen as the need for Japan to open up to more foreign direct investment, whose inflows came to less than 4 percent of economic output in 2001, compared to a fifth of the American economy and half of Britain’s.

That, economists say, would bring real change to a country famous for its world-class exporters like Toyota and Canon but also chock-full of laggards that are sheltered by regulations and kept alive by subsidies, sucking the lifeblood out of the Japanese economy. For Japan to make the productivity gains it needs to grow, economists say, these domestic companies must be opened up to more competition from both inside Japan and overseas. One catalyst for such change would be Japan’s participation in the Trans-Pacific Partnership free trade agreement, already announced by Mr. Abe.

Still, some of the fundamental overhauls needed for an economic renewal, like labor market changes, are conspicuously missing from Mr. Abe’s policy plans, as were vital details, said Akio Makabe, a professor in economics at Shinshu University in central Japan.

“At the start, there was hope that Mr. Abe was as committed to economic reforms as he has been with monetary policy and government spending,” Professor Makabe said. “But judging from this policy platform, that commitment appears to be wavering. Where is the labor market reform? Where is the real change? It seems he’s given in to the naysayers and listed up policies that just sound good.”

Article source: http://www.nytimes.com/2013/06/06/business/global/abe-describes-strategy-to-free-up-japans-economy.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Stocks Pull Back Despite Bank Earnings

January 16, 2013 by Leave a Comment

Wall Street stocks mostly retreated from five-year highs at the opening Wednesday, despite strong bank results, on concerns about global economic growth.

The Standard Poor’s 500-stock index slipped 0.1 percent in morning trading and the Dow Jones industrial average lost 0.2 percent. But the Nasdaq composite index gained 0.2 percent.

Earnings at Goldman Sachs nearly tripled on increased revenue from dealmaking and lower compensation expenses, and its shares jumped 2.7 percent.

JPMorgan Chase said fourth-quarter net income jumped 53 percent and earnings for 2012 set a record, but its shares were flat in volatile trading.

A slow economic recovery in developed nations is holding back growth, the World Bank said, as it sharply cut its outlook for in 2013 to 2.4 percent, from an earlier forecast of 3.0 percent. That concern is weighing on markets, said Peter Jankovskis, co-chief investment officer at OakBrook Investments in Lisle, Ill. European stocks were down modestly.

Shares of Boeing, a component in the Dow, fell 3.5 percent on concerns about the safety of its new Dreamliner passenger jets. Japan’s two leading airlines grounded their fleets of 787s after an emergency landing, adding to safety concerns triggered by a ream of recent incidents.

“It’s certainly going to pull averages down given Boeing’s large market cap but I don’t see it as having broader market implications,” Mr. Jankovskis said.

Talks to take Dell private were at an advanced stage, according to media reports. Shares fell 4.6 percent after jumping more than 21 percent over the last two sessions.

Consumer prices in the United States were flat in December, pointing to muted inflation pressures that should give the Federal Reserve room to prop up the economy by staying on its ultra-easy monetary policy path.

On Tuesday, the Dow and S.P. 500 rose after stronger-than-expected retail data, with the S.P. closing at a fresh five-year high of 1,472.34.

Article source: http://www.nytimes.com/2013/01/17/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Stocks & Bonds: Wall Street Follows Europe in Rebound

September 8, 2011 by Leave a Comment

Wall Street picked up the momentum from higher markets in Europe and Asia. Bank stocks gained nearly 5 percent, a welcome reversal of a recent trend in the last few weeks, when they struggled amid uncertainty about euro zone debt; fluctuations in key economic data that reflect the challenges for housing and lending; and recently, a federal lawsuit that revisits problems with the way mortgages were handled.

Analysts said investors were encouraged by a ruling by the German Constitutional Court that rejected challenges that try to block German participation in bailouts for other countries in the euro area. Still, the court said future financial rescues would need the approval of Parliament’s budget committee.

The development, as well as European economic data released on Wednesday, went to the heart of a number of the issues facing investors, including how to gauge the euro zone’s approach to its debt crisis and the pace of global economic growth.

The three main indexes in the United States were all more than 2 percent higher. The Dow Jones industrial average was up 2.5 percent, or 275.56 points, to 11,414.86. The Standard Poor’s 500-stock index rose 2.9 percent, or 33.38 points, to 1,198.62, and the Nasdaq composite index was up 3.0 percent, or 75.11 points to 2,548.94.

“It is a bit of a relief rally,” said Paul Zemsky, the chief investment officer of multi-asset strategies for ING Investment Management.

Given the volatility in the markets recently, he and other analysts were cautious about the prospects for the broad gains to stick.

There was “a favorable outcome” to the German court ruling and the market was responding, Mr. Zemsky said, “but we need to see follow-through.”

In addition to the German court ruling, the Italian Senate approved austerity measures — after the markets closed — intended to fend off the country’s sovereign debt crisis.

“The Italian Senate passing the austerity bill is a boost and besides that I think it is going to help relieve some of the sovereign debt concerns, especially those that were intensifying in the past week or so regarding Italy and Spain,” said Peter Cardillo, the chief market economist for Rockwell Global Capital.

At the same time, some analysts said that the banking sector might have hit its lows.

In a research report, analysts from Deutsche Bank noted that bank stocks have declined by 24 percent since July 21, the date to which the most recent sell-off period is often traced, while the broader market as measured by the Standard Poor’s 500-stock index was down by 13 percent.

“While numerous macro concerns remain, we believe the sell-off is overdone” if gross domestic product growth is more than 1 percent, the analysts said about bank stocks over all.

Of the 10 most actively traded bank stocks on Wednesday, Regions Financial was up the most, more than 12 percent, at $4.37. The Deutsche Bank analysts upgraded the stock, which shed the most during the sell-off, as a buy after noting its management was cutting costs and for its outlook on the economy.

Bank of America rose more than 7 percent to $7.48. The bank shook up its top management team on Tuesday as it contended with a flagging share price and mounting legal liabilities. Citigroup was up 4.6 percent at $28.98.

Economists have been recalculating their outlook for the economy in the light of softer economic data and, to some extent, recent stock market volatility has increased the uncertainty for businesses. On Wednesday, a Federal Reserve survey of its 12 districts reported that many businesses in the United States had downgraded or become more cautious about their near-term outlooks.

Mr. Cardillo said the Fed’s description in the survey, known as the beige book, that economic activity continued to expand at a modest pace in some districts also helped trading.

“I think this rally probably will extend itself,” he said.

But the markets in the United States are also intertwined with global economies, and Mr. Zemsky noted that new data from Germany provided some support on Wednesday; the country’s industrial production was reported to have surged 4 percent in July, above expectations and reversing a decline in June, despite slack demand.

“It looks like the economies around the world are slowing, not stopping,” Mr. Zemsky said.

Corporate news propelled trading in critical sectors.

The technology sector rose solidly, led by Yahoo, which was up more than 5 percent at $13.61. The company’s chief executive, Carol A. Bartz, was fired Tuesday, ending a rocky two-year tenure in which she tried to revitalize the online media company.

The Treasury’s benchmark 10-year note fell 17/32 to 100 24/32 and the yield rose to 2.04 percent from 1.98 percent late Tuesday.

Article source: http://feeds.nytimes.com/click.phdo?i=b166d14e39793e262150d64e0c3eb94f

Filed Under: Business News Tagged With: , ,

E.C.B. Fails in Bid to Quell Sovereign Debt Crisis

August 4, 2011 by Leave a Comment

The show of force initially bolstered Italian and Spanish bonds. But the move appeared to backfire as stock markets in Europe and the United States fell sharply after Jean-Claude Trichet, the central bank’s president, warned of dangers ahead. The modest scale of the bank’s bond buying apparently fell short of what investors considered adequate.

The market downturn began in Europe but quickly spread to the United States as soon as trading opened Thursday morning on intensifying investor fears about a slowdown in global economic growth and worries about Europe’s debt crisis, which is centered now on Italy and Spain.

In another response to the escalating crisis, the E.C.B. moved to prop up weaker banks that may be having trouble raising funds, expanding its lending to euro zone institutions at the benchmark interest rate. The central bank left that rate unchanged at 1.5 percent, while the Bank of England left its benchmark rate at a record low of 0.5 percent.

Mr. Trichet declined to say what bonds the bank was buying or how much. He said the bank acted in response to “renewed tensions in some financial markets in the euro area.” It was the first such intervention since March.

Mr. Trichet also said that uncertainty created by the U.S. budget debate had unsettled European markets.

“It’s clear the entire world is intertwined,” he said. “What happens in the U.S. influences the rest of the world.”

As markets demanded higher risk premiums on Spanish and Italian bonds during the past week, analysts began to speculate that the E.C.B. would return to the bond market. But most had not expected the bank to act so quickly.

The E.C.B. will not disclose the scope of its bond buying until next week at the earliest, but early indications were that the amounts were relatively modest.

“It might be interpreted as more of a warning shot rather than a broad-based onslaught,” analysts at Barclays Capital wrote in a note.

The E.C.B. first began buying bonds in the open market in May 2010, but tapered off the interventions earlier this year, a move investors may have interpreted as a lack of resolve. Michael T. Darda, chief economist at MKM Partners in Stamford, Connecticut, warned Thursday that half-hearted forays into the bond market “will fail, just like they did last year.”

“In each case, the debt crisis got worse instead of better,” he wrote in a note.

The E.C.B. also responded to signs of stress in interbank markets as institutions, wary of each other’s exposure to troubled government paper, became reluctant to lend to each other. One worrisome sign was a spike in the cost for European banks to borrow dollars in the open foreign exchange market.

Mr. Trichet said that next week the E.C.B. would lend banks as much cash as they wanted for six months at the benchmark interest rate, assuming the banks could provide collateral. A six-month term is longer than is customary.

The central bank’s actions on Thursday provided another example of the E.C.B. acting as the euro zone’s firefighter in the debt crisis.

European leaders decided last month to authorize the European Financial Stability Facility — the European Union’s bailout fund — to buy bonds in open markets, relieving the E.C.B. of that responsibility.

But it will take months before the rescue fund. known as the E.F.S.F., is able to start making purchases. In addition, European leaders did not increase the size of the fund, leaving questions about whether it would be up to the task if a country as big as Italy or Spain needed help.

Speaking to reporters Thursday after a regular meeting of the E.C.B. governing council, Mr. Trichet beseeched political leaders to speed up efforts to cut their budget deficits and remove impediments to growth, like overly protected labor markets. “The key for everything is to get ahead of the curve, in fiscal policy and structural reform,” he said.

With Italy in danger of being swept over the same waterfall as Greece, Prime Minister Silvio Berlusconi on Thursday pledged sweeping changes to increase growth.

At a news conference later, the Italian finance minister, Giulio Tremonti, said Italy was in contact with the European Union, International Monetary Fund and Organization for Economic Cooperation and Development on strategies for growth.

Article source: http://www.nytimes.com/2011/08/05/business/global/bank-of-england-and-european-central-bank-news.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,