December 8, 2023

Nikkei Sinks Again Amid Mixed Signals From Central Bank

HONG KONG — The Japanese central bank on Monday released minutes of a recent meeting that showed some board members skeptical of the bank’s own strategy of lifting Japan from deflation, while another big fall in the country’s stock market stoked fears of further volatility in the weeks and months ahead.

But European stocks shrugged off the slide on the Japanese stock market Monday and traded higher as a member of the European Central Bank repeated the bank’s commitment to low interest rates. Stock markets in Britain and the United States were closed for public holidays.

In Tokyo, the minutes of the Bank of Japan’s policy meeting on April 26 revealed a degree of doubt about the bank’s ability to inject a healthy dose of inflation into an economy that has suffered from crippling deflation for years.

‘‘A few members’’ pointed out that the target of 2 percent inflation appeared ‘‘difficult to achieve’’ in the planned time frame of about two years from now, ‘‘since it was highly uncertain whether changes in inflation expectations would lead to a rise in the actual rate of inflation,” according to the minutes.

Some board members also noted that the bank’s aggressive easing policies appeared to have been perceived by the markets as ‘’contradictory’’ — comments that highlighted the challenges that the bank and policy makers are wrestling with.

The bank, on one hand, has committed to ending deflationary expectations and sparking an economic recovery by flooding the economy with money, a logical result of which would be rising long-term interest rates. But the bank has also committed to keeping those interest rates in check, partly by buying large amounts of government bonds. That has sowed confusion among market players over whether they should welcome or panic at the recent rise in long-term rates.

On Monday, the Nikkei 225 share average in Tokyo fell 3.2 percent. The decline followed a 7.3 percent slump last Thursday, when a rally of about 80 percent since mid-November came to an abrupt end.

“While it’s still difficult to clearly pinpoint a reason, the big market falls themselves have started to stoke fear among investors,” Koichi Fujishiro, an economist at the Dai-ichi Life Research Institute, said in a report. He said that high-frequency trading by investors looking for short-term gains helped magnify those market swings.

“Japan’s fundamentals have not changed,” Mr. Fujishiro said. But, he added, “turmoil in financial markets won’t settle down overnight, and we are likely to see nervousness remain for some time.”

An article carried by the Nikkei business daily on Monday urged calm.

‘’Investors need a bird’s-eye perspective of market movements, not a bug’s-eye perspective,’’ wrote Ryo Suzuki, a columnist who is a member of Nikkei’s editorial board. “Things look different from a larger perspective,” he said. “For people who sat out on the market surge, this might be a good time to get in on the action.”

Japanese stocks have been on a tear since last November, swept by a wave of optimism that bold plans outlined by Shinzo Abe, who took over as prime minister in December, would succeed in breathing life back into the Japanese economy.

Volatility in the Japanese bond markets, a renewed strengthening of the yen and concerns about the dynamism of China’s economy all have combined in recent days to underline the challenges facing Mr. Abe and the Japanese central bank as they seek to reignite growth.

Analysts have struggled to explain the exact cause of the recent reversal, saying that a range of factors were probably at play and continue to fan nervousness in the market.

“There have been times when the market jumped over 1,000 points in a week. We were bound to see a correction,” Yoshihide Suga, the chief cabinet secretary, told reporters in Tokyo. “But Japan’s economy is recovering steadily. So it is extremely important that we react in a calm manner.”

Investors are also concerned that the U.S. Federal Reserve might reduce its own stimulus measures before too long.

The realization that Mr. Abe’s stimulus efforts — in particular, the structural overhauls that are needed to bolster Japan’s long-term competitiveness — face an uphill struggle also have played a part, analysts said, as did profit-taking after the long rally this year.

“Investors have realized that the Japanese market does not just rise and rise,” said Jun Yunoki, an analyst at Nomura in Tokyo.

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Japan Approves $116 Billion for Urgent Economic Stimulus

TOKYO — The Japanese government approved emergency stimulus spending of ¥10.3 trillion Friday, part of an aggressive push by Prime Minister Shinzo Abe to kick-start growth in a long-moribund economy.

Mr. Abe also reiterated his desire for the Japanese central bank to make a firmer commitment to stopping deflation by pumping more money into the economy, which the prime minister has said is crucial to getting businesses to invest and consumers to spend.

“We will put an end to this shrinking and aim to build a stronger economy where earnings and incomes can grow,” Mr. Abe said. “For that, the government must first take the initiative to create demand and boost the entire economy.”

Under the plan, the Japanese government will spend $116 billion on public works and disaster mitigation projects, subsidies for companies that invest in new technology and financial aid to small businesses.

Through these measures, the government will seek to raise real economic growth 2 percentage points and add 600,000 jobs to the economy, Mr. Abe said. The package announced Friday amounts to one of the largest spending plans in Japanese history, he said.

By simply talking about stimulus measures, Mr. Abe, who took office late last month, has already driven down the value of the yen, much to the relief of Japanese exporters, whose competitiveness benefits from a weaker currency. In response, Tokyo stocks have rallied.

But the government’s promises to spend its way out of economic stagnation also raise concerns about public debt, which has already mushroomed to twice the size of the Japanese economy and is the largest in the industrialized world.

At the root of Japan’s debt problems was a similar attempt in the 1990s by Mr. Abe’s Liberal Democratic Party to stimulate economic growth through government spending on extensive public works projects across the country. The effort did little to bring growth to the wider economy.

On Friday, Mr. Abe said that the spending this time around would be better focused to bring about growth through investment in innovation. He said the government would also invest in measures that would help mitigate the decline in the Japanese population by encouraging families to have more children.

“To grow in a sustainable way, we must help create a virtuous cycle where companies actively borrow and invest, and in so doing raise employment and incomes,” Mr. Abe said.

“For that, it is extremely important that we adopt a growth strategy that gives everyone solid hope that the future of the Japanese economy lies in growth.”

Mr. Abe has assembled two panels of chief executives and academics, including Hiroshi Mikitani, chief executive of a major e-commerce company and a harsh critic of the old guard of economic policy makers, and Heizo Takenaka, a former economy minister and outspoken academic known for his disdain of pork-barrel spending.

Meanwhile, a more aggressive monetary policy designed to beat deflation could fall into place when the Bank of Japan’s board meets Jan. 20-21 for its monthly review.

Mr. Abe has leaned on Japan’s central bankers — whom he has criticized as too cautious — to commit to an inflation rate of at least 2 percent, which would help convince businesses that Japan would not arbitrarily reverse course on its easy money policy. For more than a decade, the rate of inflation has been flat or negative, reflecting languishing personal incomes and corporate profits.

Some at the central bank, still wary of the tremendous asset bubble that loose monetary policy set off in the late 1980s, have warned of the dangers of stoking inflation. The Bank of Japan’s governor, Masaaki Shirakawa, has also bristled at the idea of bankrolling public spending by buying more government bonds.

With its benchmark interest rate already near zero, the bank has few options left, other than to buy up government bonds and other financial assets if it is to inject money into the economy.

In an interview with the Nikkei business daily published Friday, Mr. Abe said he would seek in writing an agreement from the bank to pursue a target of 2 percent inflation, though he said the agreement would not set a deadline. He also said the bank should consider policies that would increase employment as much as possible.

Mr. Abe said that he hoped to pick as Mr. Shirakawa’s successor someone who shared the government’s position on inflation and employment, according to the interview. The central bank governor’s term runs out in April.

Hajime Takada, chief economist at the Mizuho Research Institute, said in a note to clients Friday that there were still too many unknowns to assess the effectiveness of Mr. Abe’s economic push.

But by setting a clearly pro-business policy agenda, Mr. Abe has started to change the mind-set of investors and corporations who had all but given up on growth — and for that, the new prime minister scores high, Mr. Takada said.

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Japan Lowers Its Economic Outlook

HONG KONG — In the latest sign of the economic toll wrought by the natural disasters last month in Japan, the government in Tokyo lowered its assessment of the Japanese economy for the first time in six months on Wednesday.

The economy is expected to start to recover from the severe earthquake-induced downturn later this year, the cabinet office said in its monthly economic report for April.

But for now, exports, private consumption, corporate profits and the job market remain under pressure, further weighing on the economy. Japan had already been struggling with deflation, persistently anemic growth and a seemingly intractable government debt burden well before the devastating earthquake and tsunami that struck March 11.

“Weakness will continue for a while” because of the catastrophes, the cabinet office said in a statement, which was noticeably more bleak than the assessment it issued soon after the quake in March.

The assessment echoed that of the Japanese central bank, which said last week that the economy was “under strong downward pressure” and that there was “high uncertainty” about the possible effects of the disaster on the economy.

Apart from the direct material damage wrought by the quake and tsunami on the northeast of the country, which the government has estimated could reach ¥25 trillion, or about $300 billion, the calamity in turn set off a crisis at the Fukushima Daiichi nuclear power station, which has been leaking radiation.

The condition of the damaged reactors is “static,” but with improvised cooling efforts, they are “not stable,” the chairman of the U.S. Nuclear Regulatory Commission, Gregory B. Jaczko, said Tuesday.

The power shortages resulting from damage to Japan’s energy infrastructure have hampered daily life and business activities in large parts of the country and caused considerable disruption to the flow of spare parts and components to manufacturers in Japan and beyond. Periodic aftershocks, some severe, have also hampered the country’s efforts to return to normal.

Companies have been gradually starting to resume activities at some of the many plants that had to be idled after the disaster.

The steel-making giant Nippon Steel said Wednesday that it had resumed production of wire rods at its Kamaishi plant in Iwate Prefecture.

Renesas Electronics, which makes chips used by the consumer electronics and car sectors, has said it is preparing to resume manufacturing at three plants.

However, many companies continued to caution that the longer-term outlook remained unclear, and activities in many cases are still below normal.

For example, Toyota, Nissan and Honda, the country’s biggest car manufacturers, said last week that they would begin to resume operations at their affected plants in Japan, but all said they would do so at only 50 percent capacity.

Toyota cautioned that it had yet to decide on what its Japan plants would do after the annual spring holiday in May.

Underscoring the lingering disruption to its operations, Toyota said Wednesday that it would suspend production at five vehicle and engine manufacturing plants in Britain, France, Turkey and Poland for several days in April and May because of parts shortages.

In another example of interrupted supply lines, the property services manager CB Richard Ellis said Wednesday that the warehouse vacancy rate in Tokyo had fallen to the lowest level since December 2007 because of a surge in demand for short-term leases following the earthquake and tsunami.

In the longer term, economists say they believe the economy will see a pronounced rebound during the second half of the year, as reconstruction activity kicks in and manufacturers race to meet orders that were delayed.

Analysts expect only a temporary effect on companies’ bottom lines.

“Japanese earnings will take a big hit from the March 11th disasters, and will not likely recover before a couple of quarters have passed,” analysts at LGT Capital Management wrote in a note Wednesday. On balance, however, “the global impact should be limited in the short term and positive over the longer term.”

The cabinet office echoed this sentiment Wednesday, saying that as production activities return to normal, “the economy is expected to resume picking up, reflecting improvement in overseas economies and the effects of various policy measures.”

The government is currently preparing an initial emergency budget of about ¥4 trillion, officials have said.

And the central bank, in an immediate reaction to the turmoil last month, beefed up an asset purchase program and intervened in the foreign exchange markets to stop a sharp rise in the yen. It also announced a loan program totaling ¥1 trillion to financial institutions in the disaster area, in a bid to help them extend reconstruction-related loans.

Many economists have lowered their 2011 growth forecasts for Japan, the world’s third-largest economy after those of the United States and China. But the expectations of an upturn later in the year mean that the revisions have for the most part been slight.

In its latest World Economic Outlook, for example, the International Monetary Fund said Monday that it expected the Japanese economy to expand 1.4 percent this year, rather than the 1.6 percent it had projected before the earthquake.

In a separate report Tuesday
, however, the fund said the need for reconstruction-related spending meant the country would have to step up its fiscal consolidation.

The message served as a reminder of the underlying economic challenges that Japan faced even before the earthquake struck.

High debt levels had already earned Japan a downgrade from the ratings agency Standard Poor’s in January, and they severely curtailed the government’s ability to issue new debt to finance reconstruction and other economy-bolstering measures. Officials have, in fact, stressed that they do not intend to tap the bond markets to fund the emergency budget that is being crafted at the moment.

Among the biggest uncertainties for the coming months, meanwhile, are the extent to which consumer sentiment and spending have been hurt and the duration of the electricity shortages that have been caused by the crisis at the nuclear facility at Fukushima.

“The biggest factor that will bring uncertainty is whether there will be enough electricity, in other words whether the ongoing nuclear crisis can be settled without further deterioration in the situation,” Kaoru Yosano, the Japanese economy minister, said Wednesday in a televised news conference.

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Bank of Japan Pledges Aid for Rebuilding From Quake

HONG KONG — The Japanese central bank announced measures Thursday to help reconstruction efforts in areas affected by the devastating earthquake and tsunami last month but held off deploying any more sweeping measures in its economy-stimulating arsenal.

The Japanese economy, already burdened by deflation and anemic growth, was dealt a heavy blow by the disasters that struck the northeast on March 11. The direct damage caused by the quake and tsunami, combined with subsequent power shortages and disruption to supply chains, caused production to plunge.

In an immediate reaction to the turmoil last month, the Bank of Japan pumped liquidity into the financial markets, beefed up an asset purchase program and intervened in the foreign exchange markets in a bid to stop a sharp spike by the yen.

The steps helped calm the markets. The Nikkei 225-stock index has recouped more than half of the losses it suffered in the week after March 11, while the yen’s postquake ascent has been reversed. That means the central bank, at least for now, can provide more limited, focused support for the economy, analysts said.

The bank announced Thursday that it would offer a loan program totaling ¥1 trillion, or about $11.7 billion, to financial institutions in the disaster area, in an effort to help them meet future demand for funding needed for reconstruction.

“Japan’s economy is under strong downward pressure, mainly on production, due to the earthquake,” the bank said in a statement. “There is high uncertainty about the possible effects of the earthquake disaster on Japan’s economy.”

As had been widely expected, the bank kept its key interest rate unchanged in a range between zero and 0.1 percent.

Analysts say they believe the Bank of Japan may take more action at its next policy meeting, on April 28, by which time there will be more data about the quake’s effect on the economy. There should also be more clarity by then about how the government plans to finance reconstruction.

Statistical data so far have only partially captured the effect of the quake and the crisis at the quake-stricken Fukushima Daiichi nuclear power plant, which began later in March. Four weeks after the calamity, it still remains unclear how lasting and widespread the disruption to manufacturing will be. There is also little evidence as yet of how consumer sentiment — a key factor for the economy’s future trajectory — has been affected.

“It is one thing to assess the immediate impact of the quake,” said Masaaki Kanno, an economist at J.P. Morgan in Tokyo. “But the far more interesting question now is what will happen in coming months.”

Power shortages stemming from the nuclear crisis have disrupted activity well beyond the disaster zone, notably hitting the Kanto region, which encompasses Tokyo and the surrounding areas and accounts for about 40 percent of gross domestic product, Mr. Kanno said.

That, in turn, has affected supply chains, with some factories running short of parts needed in their manufacturing processes.

The full extent of the disruption remains difficult to gauge. Analysts say the next few weeks will shed more light on whether supplies will return to normal levels and whether companies are managing to obtain key parts from elsewhere. Many of the analysts, however, say they are growing more optimistic that the supply pinch will mean bottlenecks for individual companies and sectors, rather than the widespread gridlock that some had feared earlier.

The governor of the Bank of Japan, Masaaki Shirakawa, said Thursday that he was confident the supply constraints could be resolved by June or July, Reuters reported.

In the longer term, a marked rebound is likely to be felt once reconstruction activities have started and power supplies have begun to return to normal. Some economists say that could happen during the current quarter, though others say it may not get under way until later in the year.

“There will be a short-term impact in the second quarter of this year,” said Stephen Schwartz, a regional economist at the Spanish bank BBVA in Hong Kong. “But as long as the nuclear issue is contained, the outlook for the next quarters looks considerably better.”

BBVA is in the process of revising its full-year economic growth forecast from 1.5 percent to 1 percent but remains “reasonably upbeat” on Japan, he added.

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