December 4, 2022

Japan’s Central Bank Holds Steady Amid Market Volatility

In a unanimous vote at the end of a two-day policy meeting, the bank’s board decided to stay pat on a policy to grow its base money, or the cash and deposits the bank holds, by between 60 trillion yen and 70 trillion yen a year ($600 billion to $700 billion a year), which in turn increases the funds that flow through the Japanese economy and encourages companies to borrow and invest.

The bank also raised its assessment of the Japanese economy, saying Japan’s economy was “picking up,” a slight improvement over its appraisal last month that the economy was “starting to pick up.” The brighter outlook came after revised government data showed Japan’s economy grew at a rate of 1.0 percent between January and March, faster than a preliminary estimate of 0.9 percent, due to stronger corporate capital and household spending

“Japan’s economy is expected to return to a moderate recovery path” thanks to resilient domestic demand and the effects of its aggressive monetary easing program, the bank said in a statement.

Since April, the Bank of Japan has embarked on monetary stimulus of an unprecedented scale in a bid to jolt the Japanese economy out of 15 years of deflation, part of a wider economic growth push introduced by Prime Minister Shinzo Abe.

Under Haruhiko Kuroda, its new governor, the central bank pledged to double Japan’s money supply in two years through aggressive purchases of government bonds and other assets. It also committed to a target to hit 2 percent inflation over the next two years, a goal that some economists say is overly ambitious in a country that has seen prices fall for 15 years.

In a sign of faltering confidence, one board member, Takahide Kiuchi, proposed replacing that two-year target with a less ambitious commitment to achieving 2 percent inflation “in the medium to long term.” That proposal was voted down by the other eight members on the bank’s policy board, according to the bank’s statement.

“It’s true that the road to 2 percent will be long,” Mr. Kuroda said at a news conference following the decision. To get there, he said, other facets of Prime Minister Abe’s economic growth program needed to kick in, bringing about a rebound in jobs, wages and demand. “Once the entire economy enters a positive cycle, we will see prices stabilize at 2 percent,” he said, adding that for now, the bank’s policy push was “on track.”

The central bank also held off from introducing measures to keep down Japan’s long-term interest rates, a move expected by some economists ahead of the meeting.

Yields on benchmark 10-year government bonds spiked in late May as prices of those bonds slumped, causing investor jitters over Japan’s ability to keep funding, and servicing, its colossal public debt. Those fears helped end a spectacular rally in the Japanese stock market this year, bringing several weeks of volatile trading.

The Nikkei 225 stock index fell almost 200 points, or 1.5 percent, in Tokyo on Tuesday, much of that loss coming after the central bank’s announcement, marking another day of turbulent trade

One measure floated by economists that might calm investor nerves had been to extend a low-interest loan program that would make it easier for financial institutions to buy government bonds even if interest rates started rising. But that runs counter to the bank’s goal of shifting corporate investment out of low-interest bonds to higher-yielding equities and borrowing.

Mr. Kuroda said that the board had discussed such measures, but ultimately decided fresh steps were unnecessary for the time being. He has said that the recent rise in long-term interest rates is a healthy reflection of inflation expectations, and does not pose an immediate threat to the Japanese economy.

He stressed that the bank has had a measure of success in reducing volatility in bond markets by conducting its bond purchases more frequently, in smaller amounts. He said that the bank would sustain those efforts, and would watch financial markets closely.

“We continue to be wary of movements in long-term interest rates, especially undesirable spikes in volatility, and will keep up efforts to reduce that volatility,” he said. “But the economy is on a solid path to recovery, and I expect financial markets to soon reflect that, and regain composure.”

Article source:

Moody’s Cuts Japan’s Rating One Notch, Citing Its Giant Debt

TOKYO — Moody’s, the credit ratings agency, lowered Japan’s credit rating by one notch on Wednesday, warning that frequent changes in administration, weak prospects for economic growth and its recent natural and nuclear disasters made it difficult for the government to pare down its huge debt.

Hours after the downgrade, the government announced a $100 billion credit facility to help the Japanese economy ride out a spike in the yen in recent weeks amid the global market turmoil, which has battered Japan’s export-led economy.

“Taking into account that there is a lopsided rise in the yen, I felt that swift measures were needed,” Yoshihiko Noda, the finance minister, told reporters.

Moody’s Investors Service lowered Japan’s grade by one step to Aa3, the fourth-highest rating, the company said in a statement.

The downgrade brings Moody’s rating for Japan in line with Standard Poor’s, which lowered the country’s grade by one notch to AA in January, the fourth highest on its scale. Moody’s had put Japan on review for a downgrade in May.

The action comes after a round of downgrades by major ratings agencies of sovereign debt, and amid concern that the debt crisis in Europe could escalate. On Aug. 5, S. P. cut the sovereign debt rating of the United States for the first time in the country’s history.

Markets in Tokyo largely shrugged off the downgrade, the latest in a line of many.

Trust in Japanese government debt “remains unwavering,” Japan’s finance minister, Yoshihiko Noda, told reporters after the downgrade.

Still, the move, a week before the country’s ruling party is to select a new prime minister, could put additional pressure on the incoming administration to balance budgets. The government financing of the recovery from the March 11 earthquake, tsunami and subsequent nuclear crisis is expected to reach as high as 10 trillion yen ($130 billion).

Even before the disasters, Japan’s debt was expected to soar to almost 220 percent of its gross domestic product next year, according to the Organization for Economic Cooperation and Development, which would rank it as the largest debt-to-G.D.P. ratio in the world. Japan, however, has long been able to borrow at low nominal rates because of unwavering appetite by domestic investors for government debt.

Moody’s said that it was worried by  large budget deficits and the buildup of  government debt. Frequent change in  leadership had prevented the government from pursuing long-term fiscal reform, the agency said, while the recent  disasters had delayed recovery. Meanwhile, weak prospects for economic  growth were also hampering efforts to  curb the country’s debt burden, the  agency said.

Deflation and sluggish growth has  long weighed on Japan’s economy, eroding the country’s tax base and forcing  the government to issue debt to finance  its budget. Meanwhile, spending on  pensions and social welfare has soared  as the country’s population ages.

The global economic crisis further  darkened Japan’s economic outlook, as  has the recent tsunami and nuclear accident. Global market turmoil in recent  weeks has also wreaked havoc with the  Japanese economy, driving up the value  of the yen and hurting its export-led  economy.

The credit facility unveiled on Wednesday aims to spur Japanese spending on corporate acquisitions and resources overseas, according to a statement released by the Finance Ministry.

By spending yen for dollars and other currencies, the ministry hopes that the currency will weaken somewhat. A strong yen hurts Japanese exporters because it makes their goods less competitive and erodes the value of their overseas earnings when repatriated into yen. 

The ministry also said it would step up monitoring of currency markets by asking financial institutions to report on positions held by their currency dealers.

Prime Minister Naoto Kan, meanwhile, is expected to step down by the end of the month amid criticism of his  handling of the response to the disasters, making way for Japan’s fifth  prime minister in six years.

Mr. Noda, the finance minister, is  among a field of candidates to replace  Mr. Kan. He has supported more aggressive steps, including raising taxes,  to tackle the country’s debt. Debate  over Japan’s finances has been sidelined by the country’s recovery and reconstruction needs, however.

Article source:

O.E.C.D. Lifts Global Growth Forecasts

PARIS — The global recovery is taking root, despite the recent earthquake in Japan, helped primarily by better conditions for companies and improving labor markets, an international economic organization said Tuesday as it bumped up its growth forecasts.

Growth in the Group of 7 industrialized economies, excluding Japan, should rise to an annualized rate of about 3 percent by the middle of this year, from about 2 percent at the end of 2010, the Organization for Economic Cooperation and Development said in an interim update to its annual economic report.

The organization said that the recovery was becoming “self-sustained,” and that corporate balance sheets — not counting banks and other financial services companies — looked “very healthy.”

Despite unemployment rates that are still high in many countries, overall developments in labor markets look better than expected a few months ago, which should have a favorable impact on private consumption, it said.

“The underlying momentum in economic growth in most countries appears stronger than in earlier projections,” the report said.

The O.E.C.D. did not provide specific annualized forecasts for the Japanese economy because of the difficulty in assessing the effects of the earthquake and tsunami. But it said that growth in Japan might have been reduced by 0.2 to 0.6 percentage points in the first quarter of this year and may slip by 0.5 to 1.4 percentage points in the second quarter.

This takes account of the impact of the disaster on production in the areas hit directly, the rationing of power, the decline to confidence and supply chain disruptions.

Reconstruction efforts are likely to begin relatively quickly, it said, and these could begin to outweigh the negative effects on G.D.P. by the third quarter.

The O.E.C.D. forecast annualized growth in the United States of 3.4 percent by the end of the second quarter; 2.2 percent for the 17-nation euro area; and just 1 percent for Britain, the weakest of the major economies surveyed.

It added that given rising prices in some O.E.C.D. countries, “monetary policy will need to deal with a risk that inflation expectations may become un-anchored.”

Public finances “remain in distress in most O.E.C.D. countries,” it said, and the priority should be “to consolidate budgets and establish credible and growth-friendly medium-term plans.”

Article source:

Disaster in Japan: Countries Begin Radiation Checks on Ships That Have Visited Japan

HONG KONG — Shipping companies and airlines around the world, already nervous about rising fuel prices and the potential effect of an economic slowdown in Japan, now have another worry: intensified monitoring of ships and aircraft that have made recent stops in Japan.

As the concerns mount over radiation leaking from the Fukushima Daiichi nuclear power plant in Japan, several governments have announced various steps to monitor or screen ships and aircraft arriving from the quake-stricken country.

So far, very few ships or planes appear to have registered unusual radiation levels or suffered holdups because of contamination fears.

At the moment, most shipping companies and airlines are less concerned about potential disruption caused by radiation screening at ports and airports around the world than they are about a range of other international problems, like the health of the Japanese economy, increasing fuel bills and — in the case of sea traffic — piracy off the coast of Somalia.

Still, the prospect of tighter checks and possible delays to port calls has made many operators nervous.

One particular, and so far apparently unique, case has fanned the shipping industry’s fears. A Japanese cargo vessel was turned away last week by the Entry-Exit Inspection and Quarantine Bureau in the Chinese city of Xiamen, in the southeastern province of Fujian, after the bureau said it had detected a “radioactive anomaly” on the vessel. A representative of the ship’s operator, Mitsui O.S.K. Lines, later told Reuters that the radiation level in question was 3.5 microsieverts per hour — considered by experts to be far from harmful.

Adding to the confusion is the difficulty of getting a clear picture of exactly what approach the customs, security, health or port authorities in various countries and cities are taking, what radiation levels they consider abnormal and what steps officials might take if unusual levels are detected.

“We know some places are screening for radioactivity,” said Arthur Bowring, managing director of the Hong Kong Shipowners Association, one of the largest associations of its kind. “But often, we don’t know what exactly they are screening, and what levels of radioactivity would be considered abnormal by the various officials.”

Many vessels travel long routes spanning several countries and ports, he added. “How do you know that somewhere along a route, someone with a Geiger counter won’t seriously delay or deviate a ship or cargo?”

Measures announced so far vary widely, and they often lack detail about what is considered safe or abnormal, industry experts say.

The U.S. Customs and Border Protection agency, for example, said last week that “out of an abundance of caution,” it had directed field personnel to specifically monitor maritime and air traffic from Japan.

The Marine Department in Hong Kong is “keeping track” of oceangoing vessels that have been within 30 kilometers, or about 18 miles, of Fukushima. None have arrived in the Hong Kong port so far, a spokesman for the department said. The city’s Customs and Excise Department is checking seaborne and airborne cargo originating from Japan.

The government authorities have also set up a health desk at the restricted area of Hong Kong International Airport for inbound passengers arriving from Japan to conduct voluntary radioactivity screening.

In mainland China, which received about 20 percent of Japan’s exports by value last year, the General Administration of Quality Supervision, Inspection and Quarantine has asked the local inspection authorities to intensify monitoring of nuclear and radioactive materials. Qingdao Port is inspecting every batch of cargo that has originated from or been anchored in Japan since March 11.

In Indonesia, the authorities plan to start screening some ships from Japan at the Jakarta port using wipe tests before the end of the week, said Reno Alamsyah, the director of nuclear emergency preparedness at the Indonesian Nuclear Energy Regulatory Agency.

Article source: