March 29, 2024

China Plans to Reduce the State’s Role in the Economy

In a speech to party cadres containing some of the boldest pro-market rhetoric they have heard in more than a decade, the country’s new prime minister, Li Keqiang, said this month that the central government would reduce the state’s role in economic matters in the hope of unleashing the creative energies of a nation with the world’s second-largest economy after that of the United States.

On Friday, the Chinese government issued a set of policy proposals that seemed to show that Mr. Li and other leaders were serious about reducing government intervention in the marketplace and giving competition among private businesses a bigger role in investment decisions and setting prices. Whether Beijing can restructure an economy that is thoroughly addicted to state credit and government directives is unclear. But analysts see such announcements as the strongest signs yet that top policy makers are serious about revamping the nation’s growth model.

“This is radical stuff, really,” said Stephen Green, an economist at the British bank Standard Chartered and an expert on the Chinese economy. “People have talked about this for a long time, but now we’re getting a clearly spoken reform agenda from the top.”

China’s leaders are under greater pressure to change as growth slows and the limitations of its state-led, investment-driven economy are becoming more evident. This month, manufacturing activity contracted for the first time in seven months, according to an independent survey by HSBC. Economists are lowering their growth forecasts and weighing the risks associated with high levels of corporate and government debt that have built up over the last five years.

“There are quite a number of messages coming from these new leaders,” said Huang Yiping, chief economist for emerging Asia at the British bank Barclays. “They realize that if we continue to delay reforms, the economy could be in deep trouble.”

The broad proposals include expanding a tax on natural resources, taking gradual steps to allow market forces to determine bank interest rates and developing policies to “promote the effective entry of private capital into finance, energy, railways, telecommunications and other spheres,” according to a directive issued on the government’s Web site. “All of society is ardently awaiting new breakthroughs in reform,” the directive said.

Foreign investors will be given more opportunities to invest in finance, logistics, health care and other sectors. For years, Western governments, banks and companies have complained that the China government has impeded foreign investment in banking and other service industries, despite promising to open up. The latest directive, however, did not give details about the specific changes to foreign investment rules that policy makers in Beijing have in mind.

China’s leaders are also promising to loosen foreign exchange controls, changes that are likely to reduce price distortions in the economy and allow the market to determine the value of the Chinese currency, the renminbi. On Friday, the central bank, the People’s Bank of China, issued a statement that repeated such vows.

The push does not signal the end of big government in China. The Communist Party, experts say, is unlikely to abandon the state capitalist model, break up huge, state-run oligopolies or privatize major sectors of the economy that the party considers strategic, like banking, energy and telecommunications.

Beijing seems to be pressing ahead because it has few alternatives. The economy has slowed this year because of fewer exports to Europe and the United States and slower investment growth. Rising labor costs and a strengthening currency have also reduced manufacturing competitiveness.

China’s leaders, including a group of pro-market bureaucrats who seem to have gained in the leadership shuffle this year, seem to think that more government spending could worsen economic conditions and that the private sector needs to step in.

Chris Buckley reported from Hong Kong.

Article source: http://www.nytimes.com/2013/05/25/business/global/beijing-signals-a-shift-on-economic-policy.html?partner=rss&emc=rss

Hope in Japan That Shinzo Abe’s ‘Abenomics’ May Be a Cure

A humbled Sony — once a titan of Japan Inc. — recently sprang back into the black for the first year in five years, courtesy of a plunging yen. Honda, another corporate icon, triumphantly announced a return to Formula One racing, rejoining an exclusive club of high-performance carmakers after having slinked away when cash ran low.

Even some of Japan’s wary consumers are beginning to indulge. At the plush Takashimaya department store in Tokyo’s financial district, a clerk reported that $20,000 watches had become hot sellers. And a cut-rate sushi chain, which flourished in difficult times, just started a line of upscale restaurants for customers newly able to afford “petite extravagances.”

The reason for the exuberance? Early — and some say deceptive — signs that new Prime Minister Shinzo Abe’s economic shock therapy, called Abenomics, might just be working.

His plan, one of the world’s most audacious experiments in economic policy in recent memory, combines a flood of cheap cash (doubling the money supply in two years), traditional fiscal stimulus and deregulation of Japan’s notoriously ingrown corporate culture. The hope is that this will yank Japan from a debilitating deflationary spiral of lower prices and diminished expectations, stirring what Keynes called the “animal spirits” of investors and consumers.

And so it has. The stock market has soared more than 60 percent over the past year, and the yen has lost more than a quarter of its value, lifting corporate earnings in a country that is dependent on exports.

Last week, Abenomics got an early report card. Japan’s $5 trillion economy grew at a robust annualized pace of 3.5 percent in the first quarter, and — most important for Mr. Abe’s notion that consumer confidence is key — household consumption accounted for the lion’s share of that growth. Although there were some signs of weakness, most notably a drop in business investment, the numbers were a promising sign that the good news was not confined to financial markets.

“Young people even in their 40s don’t remember Japan’s good times,” said Hiroshi Sato, a 64-year-old executive treating himself to one of Takashimaya’s fancy watches. Choosing one from a black velvet tray, he explained his purchase as a bet on Mr. Abe’s success after two decades of his predecessors’ failures.

“I’m hopeful,” he said, “that this one is finally the real recovery.”

So far, that optimism appears to be largely limited to the nation’s well-to-do, including its tiny stock-holding class, and the weakening of the yen is creating tensions with its Asian neighbors. But if the optimism spreads, Japan will have taken a crucial first step toward recovery, persuading its famously cautious savers to spend their money to help revive the economy.

“This is Japan’s best chance in 20 years to escape from its deflationary mind-set,” said Hajime Takata, chief economist at Mizuho Research Institute in Tokyo.

That Japan would try such a seemingly radical policy path after years of political paralysis reflects a newfound feeling of urgency. With China’s economy and territorial ambitions growing, the Japanese have begun to see the potential dangers of resigning themselves to what many have called a “genteel decline.”

The fear has given Mr. Abe, who took office in December, some room to maneuver, even as he promises to take on entrenched interests through deregulation and to raise inflation. A pickup in the inflation rate would cause pain for Japan’s legion of politically active retirees, but nudge people to spend before their money loses value — reversing the deflationary psychology of delaying purchases in anticipation of ever-lower prices.

It has also thrust him into an unusual role for a Japanese prime minister, a generally colorless bunch who make decisions behind closed doors. Mr. Abe, 58, has become his country’s cheerleader in chief, proclaiming to audiences that “Japan is back” and even sharing personal details most Japanese politicians eschew. Referring to his own humiliating departure from his first term as prime minister, brought on by a stress-related illness, Mr. Abe tells people that they, too, can recover.

“It is my job to awaken Japan from the spell of prolonged deflation and lost confidence,” he declared in a recent speech to business leaders in Tokyo.

Despite the signs of success for Abenomics, skeptics abound.

Makiko Inoue and Hisako Ueno contributed reporting.

Article source: http://www.nytimes.com/2013/05/21/world/asia/hope-in-japan-that-abenomics-may-be-turning-things-around.html?partner=rss&emc=rss

Pro-Inflation Policies Show Signs of Helping the Japanese Economy

But in the last few months, the nation’s new prime minister, Shinzo Abe, has pushed policy makers and other officials to take bold steps to revive one of the world’s largest economies. Their handiwork was evident on Thursday when the Japanese yen hit 100 to the dollar for the first time in four years.

Normally a weakening exchange rate might be taken as a sign of decline. The yen has fallen nearly 14 percent against the dollar this year, and no currency has fallen more except the Venezuelan bolívar. But in Japan’s case, it is a sign that the policies put in place by Mr. Abe and Haruhiko Kuroda, chairman of the Bank of Japan, are starting to work. A weaker yen makes Japanese exports more competitive around the world.

The most immediate impact of the weaker yen has been the boost in profits of the major exporters. This week, the Toyota Motor Corporation reported net income in the last 12 months jumped threefold, and Sony produced an annual profit for the first time in five years. Both companies forecast further profit increases largely because of the weaker yen.

Perhaps more important, particularly for the citizens of Japan who have suffered from a long period of falling wages and prices, the yen’s move is expected to kindle inflation in the once moribund economy.

Bank of Japan has moved aggressively to reinvigorate the economy and fight deflation. Last month, the central bank announced a decisive break with its earlier policies. Instead of focusing on keeping overnight interest rates close to zero — which seemed to be having little effect in reviving growth — the central bank aimed to double the amount of money in circulation, seeking to produce annual inflation of about 2 percent.

“This is new territory for the Bank of Japan, and the market is responding to that,” said Aroop Chatterjee, foreign exchange strategist at Barclays Capital in New York. “The Bank of Japan announced very strong monetary policy easing at the start of April.”

However, he said the more immediate trigger for the rate to cross Thursday’s threshold was signs of strength in the United States economy.

Amari Akira, Japan’s economic revitalization minister, quickly focused attention away from Japan’s role in weakening its own currency, in a bid to stave off accusations that Japan was manipulating the yen to bolster its exports. Rather, he said the dollar’s strength reflected investors’ hopes for an economic comeback in the United States.

“It’s the dollar that’s in demand because economic recovery in America is gathering steam,” Mr. Amari said at a morning news conference.

The efforts by the Bank of Japan to continue to flood the economy with liquidity is likely to keep downward pressure on the yen in the coming months. The central bank is following an asset purchase program to inflate the economy by aggressively buying longer-term bonds and doubling its government bond holdings in two years.

By mid-morning in Tokyo on Friday, the dollar was trading at 101.09 yen.

Japanese officials say the policy does not overtly pursue a lower yen rate, which could raise tensions with other exporting nations like the United States. But a weaker yen is a welcome development in some ways.

The depreciation of the yen may be a step in the right direction as the authorities try to stimulate some growth. However, Japan still faces many stiff challenges until it breaks out of its period of deflation. It has an aging and shrinking population and cumbersome regulations that make the economy inefficient.

As Mr. Abe has tried to put a new focus on reviving the economy, he has also fought with the central bank’s former leaders over setting the 2 percent inflation goal. Mr. Abe’s pressure in the end led to the resignation of the bank’s previous governor, the moderate Masaaki Shirakawa. His departure led to the appointment of Mr. Kuroda, who shares Mr. Abe’s economic philosophy.

Hiroko Tabuchi reported from Tokyo and Graham Bowley from New York.

Article source: http://www.nytimes.com/2013/05/10/business/dollar-breaches-100-yen.html?partner=rss&emc=rss

Enrico Letta, Italy’s New Premier, Puts Stimulus First

“I will speak to you in the subversive language of truth,” Mr. Letta told lawmakers in his debut speech to the lower house of Parliament after the swearing-in of his cabinet on Sunday. Without measures that stimulate growth, he said, “Italy will be lost.”

He conceded that Italy, the European Union’s third-largest economy, must address the debts that had made the country one of the first to stumble in the euro zone economic crisis. But the most urgent priority, he said, is to reverse the downward spiral in what he called one of the “most complex and painful seasons” in Italy’s history.

The new prime minister’s rare coalition government has at least temporarily ended the political gridlock that has consumed Italy since an indecisive election in February. After Mr. Letta’s speech, he easily won a confidence vote, supported by political forces that are ordinarily at war with each other. He is expected to win a second vote on Tuesday in the Senate.

Mr. Letta said the effort to revive Europe’s economy lay in greater European integration, moving beyond a common currency and toward a political and banking union. “Europe can return to being a motor of sustainable development only if it finally opens,” he said. “The destiny of the entire continent is closely intertwined.”

His first trip, scheduled for Tuesday, will be to Berlin, Brussels and Paris, he said, “to give a sign that ours is a Europeanist government” and to confirm that Italy would continue with its budget commitments.

He said the fiscal rigor of the kind enforced by the government of his predecessor, Mario Monti, was an indispensable precondition to growth. But he also said fiscal rigor alone would “kill Italy” in the long run.

Mr. Letta is part of a growing European effort to question the austerity policies championed by Germany as the medicine to deal with the economic malaise in Europe, where unemployment has surpassed Great Depression levels in some places in the south and recession is creeping toward the once-resilient economies in the north.

Mr. Letta’s government is almost entirely composed of politicians from his party, the center-left Democratic Party, and from the center-right People of Liberty. They are united by a common cause: heading off economic disaster while toning down the antagonistic tenor that has dominated Italian politics for the last 20 years.

More than a decade of stagnation and protracted recession had taken a toll on citizens, Mr. Letta said. In some cases it had created a “personal vulnerability” and “lack of hope that risks turning into anger and conflict,” he said, citing an attack on Sunday in which an unemployed Italian man shot two military police officers in front of the prime minister’s office. The gunman later told investigators that he had aimed to kill politicians.

The new government was formed out of necessity after national elections in February effectively split Parliament into three factions. More than a quarter of the vote went to the anti-establishment Five Star Movement, which campaigned to overthrow the existing political class, depicted as overprivileged, overpaid and out of touch with the hardships faced by many citizens. A record number of voters abstained from the polls.

Demonstrating that the popular discontent had not been ignored, Mr. Letta said one of his government’s first orders of business would be to abolish the stipend that ministers receive on top of their salary as members of Parliament.

He pledged a series of tax cuts for small and medium businesses, and a delay in the increase of the value-added tax, a form of consumption tax, which had been set to take effect this summer.

The June payment of an unpopular housing tax would be canceled, he said, to give Parliament time to work out a reform of the tax that would “give oxygen to families,” especially those in greatest need.

Though several political parties campaigned to abolish the housing tax, it became the signature issue for the People of Liberty and its leader, former Prime Minister Silvio Berlusconi, to support Mr. Letta.

Article source: http://www.nytimes.com/2013/04/30/world/europe/enrico-letta-italys-new-premier-puts-stimulus-first.html?partner=rss&emc=rss

As Spain Trims Deficits, Scrutiny Falls on Regional Governments

Spain’s new prime minister, Mariano Rajoy, said the austerity package was needed to maintain the confidence of European bond markets after it became clear that the budget deficit was expected to reach 8 percent of gross domestic product this year — two percentage points above the government’s target.

And while Spain’s overall fiscal status is nowhere near as dire as Italy’s, it has another problem all its own, as the new budget minister, Cristóbal Montoro, made clear Friday: serious budget shortfalls in its 17 autonomous regions, which have spent recklessly in the past decade.

Evidence of the regional profligacy dots the countryside. On the top of a hill here in the birthplace of Salvador Dalí, in northeastern Spain sits a giant, empty penitentiary.

But even without a single prisoner in residence, the prison is costing Spain’s heavily indebted regional government of Catalonia $1.3 million a month, largely in interest payments. If prisoners were actually moved in, it would cost an additional $2.6 million a month.

So it sits empty, an object of ridicule around here, often referred to as the “spa.”

Analysts say the mistakes are adding up. The Bank of Spain announced this month that regional debt had surged 22 percent, to $176 billion in September from $144 billion the year before. And some experts say that there remain tens of billions of dollars in “hidden” regional debt yet to be discovered.

The financial state of the regional governments is so bad, in fact, that some may be willing — maybe even eager — to shed some of their wide-ranging and costly responsibilities, like health care and education.

Much as the debt crisis is forcing the European Union to refashion its relationship with its member countries, stepping up oversight and control, some experts believe that some of Spain’s autonomous regions may be less so in the future.

“Whether publicly or not, some of the regional governments are saying: ‘Take this away from me. I didn’t realize how difficult it would be,’ ” said Ángel Berges Lobera, an economist at the Universidad Autónoma de Madrid and an expert on regional debt.

In recent years, the regions and municipalities have racked up debts, offering generous public services and investing in a wide range of projects, some of them bordering on the ridiculous, critics say.

Castilla-La Mancha, for instance, an agricultural region bordering Madrid, built itself an airport complete with a runway big enough for jumbo jets. But it may close soon, as no airline — even with smaller planes — is interested in flying there.

Municipalities have not done much better. They have also been accumulating debt, a total now of about $48 billion.

One town, Alcorcón, about 10 miles southwest of Madrid, spent $150 million on a cultural center, complete with a permanent circus and free birthday parties for its children.

“It’s been chaos out there,” said Lorenzo Bernaldo de Quirós, an economist who has been critical of Spain’s system of autonomous regions, a structure developed after Gen. Francisco Franco’s dictatorial rule ended in 1975.

And there is that “hidden debt,” most of it in unpaid bills, which is not included in Spain’s total national indebtedness of $915 billion. That could easily amount to $25 billion to $40 billion more, experts say.

And the bad news probably is not over. Some experts believe that as newly elected members of Mr. Rajoy’s Popular Party take control of some regional administrations, they are sure to unearth even more financial excesses. That is what happened in Catalonia, where the “hidden debt” problem first popped up this year. When elections were held there in 2010, the ratio of debt to regional G.D.P. was believed to be less than 2 percent. But after the vote, the departing government disclosed that its full year deficit could be 3.3 percent. The new government later revised that figure again, to 3.8 percent.

Rachel Chaundler contributed reporting.

Article source: http://www.nytimes.com/2011/12/31/world/europe/as-spain-trims-deficits-scrutiny-falls-on-regional-governments.html?partner=rss&emc=rss

Investors Anticipate Clearer Picture From Europe

Beginning with a series of events on Monday and ending on Friday with another major euro zone summit meeting, investors are facing a series of milestones that will signal whether some kind of solution to the Continent’s long-running debt drama is at hand. If it is not, and policy makers offer up another round of half-measures, the stock market’s recent gains could evaporate.

“This is Europe’s chance,” said Julian Callow, chief European economist at Barclays. “Maybe they can get things right this time.”

The rally last week, which lifted the Standard Poor’s 500-stock index by 7.4 percent, was the market’s best weekly performance since March 2009, when the stock market roared back from multiyear lows.

All eyes will be on Italy, the center of the debt crisis in recent weeks, where the new prime minister, Mario Monti, won approval from his new government on Sunday for an austerity plan that includes a combination of tax increases and spending cuts to close its yawning budget deficit. For investors, a focus will be on whether the plan, worth 30 billion euros, or $40 billion, is comprehensive enough and whether there will be sufficient political support to see it through.

Italy is among the biggest borrowers in the world, and its debt accounts for nearly a quarter of the total debt of the overall euro zone.

“Italy is the key to unlocking this,” Mr. Callow said, noting that it was a surge in yields on Italian bonds last month that threatened core countries in Europe like Germany and France with contagion, prompting investors to dump their bonds.

Keenly aware of that, President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany are to meet on Monday to discuss how to better integrate fiscal policy across the 17 European Union countries that use the euro, including the potential for sanctions on countries that fail to get their budget deficits under control.

Once again, investors will be looking for specifics from the two leaders, not the kind of blandly worded communiqué that has often followed conclaves of this kind.

In addition, International Monetary Fund officials will also meet on Monday to review austerity measures and fiscal policies in Greece, the heavily indebted country where the euro zone debt crisis began.

Much of last week’s rally came on Wednesday, when the Federal Reserve and five other central banks announced they would reduce by about half the cost of a program under which banks in foreign countries could borrow dollars from their own central banks, which in turn get those dollars from the Fed, and extended the availability of those loans to February 2013 from August 2012.

The move was an emergency response to a spreading credit squeeze as the availability of dollars for European banks has tightened. The coordinated effort was a rare win for governments on what has been a difficult cycle to arrest, and expectations for European leaders this week are higher as a result.

“The bar has been raised somewhat,” said Adrian Cronje, the chief investment officer of Balentine. “The market is essentially betting that it is not going to end in a catastrophe.”

Underscoring just how high the stakes are, Timothy F. Geithner, the United States Treasury secretary, will head to Europe for a series of meetings beginning on Tuesday, sitting down with Mario Draghi, head of the European Central Bank in Frankfurt, before seeing other leaders on the Continent, including Mr. Sarkozy on Wednesday and Mr. Monti on Thursday.

The series of meetings will culminate on Friday, when political leaders from across the euro zone will gather in Brussels and try to hammer out a plan for closer fiscal union. If they can agree, Mr. Draghi has hinted that the European Central Bank might step up its efforts to prop up shaky borrowers like Italy and Spain, another step that investors would embrace.

“They’re looking for policy makers to finally get it,” said Robert Michele, global chief investment officer at J. P. Morgan Asset Management’s global fixed income and currency group. “Everybody has to give something. If nobody gives, and it’s the status quo, no one will want to buy European bonds. There has to be some form of fiscal integration and some agreement on austerity measures.”

Given Europe’s track record — and opposition in countries like Germany to a broad bailout for its less thrifty neighbors — a breakthrough will be hard to achieve. But if leaders punt, markets could resume their downward drift as investors give up hope for a broader deal.

“I don’t think anyone can realistically expect a full resolution, but they want something that looks like progress,” said John Manley, chief equity strategist for Wells Fargo Advantage Funds.

Wall Street wants to see a mechanism that promotes proper budgets, “something that gives us a sense that they are not building up unsustainable debt,” Mr. Manley said. And markets want assurance that politicians will provide interim financing to beleaguered euro zone economies. “It may be the I.M.F. more than the E.C.B., but we want something that they are willing to make the sacrifices politically so that money can move to keep this situation from getting short-term critical.”

As for how the markets will react, Anthony Valeri, investment strategist for fixed income at LPL Financial, thinks they have already started to price in a favorable outcome.

Mr. Manley thinks the worst is over for stocks this year and that the S. P. 500, which closed at 1,244 on Friday, could drift toward 1,300 or higher over the next few months.

“They have to show signs of good faith,” he said, “and I think the markets will respond appropriately.”

Christine Hauser and Patrick Scott contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=ded6f18940afb949d0dc2dd5a08aab36

Shunning Nuclear Plants at Home, Japan Pursues Building Them Overseas

Japanese industrial conglomerates, with the cooperation of the government in Tokyo, are renewing their pursuit of multibillion-dollar projects, particularly in smaller energy-hungry countries like Vietnam and Turkey. The effort comes despite criticism within Japan by environment groups and opposition politicians.

It may seem a stretch for Japan to acclaim its nuclear technology overseas while struggling at home to contain the nuclear meltdowns that displaced more than 100,000 people. But Japan argues that its latest technology includes safeguards not present at the decades-old reactors at the stricken Fukushima Daiichi plant, which continues to leak radiation.

While Fukushima Daiichi could not withstand the magnitude 9 quake and the tsunami that ravaged much of Japan’s northeast coast in March, Japanese officials argue, their nation has learned valuable lessons — and has good nuclear track record withstanding most earlier earthquakes.

“Many countries of the world are seriously exploring the use of nuclear power, and we have assisted them in improving nuclear safety,” Japan’s new prime minister, Yoshihiko Noda, said at an address at the United Nations General Assembly recently. “We will continue to answer to the interest of those countries.”

Mr. Noda’s government considers foreign reactor projects a way to help stimulate Japan’s export-led economy, which had been struggling even before March’s natural and nuclear disasters. Tokyo’s backing— including financial assistance to the customer countries — has become critical in negotiating deals, especially as global confidence in nuclear safety has faltered in Fukushima’s wake.

The World Nuclear Association, a trade industry group, says the world’s stock of 443 nuclear reactors could more than double in the next 15 years, but analysts say that expansion will require strong support from the governments on both sides of any deal.

In early September, after a six-month hiatus following the earthquake, the Japanese government restarted talks with Vietnamese officials on a 1 trillion yen ($13 billion) project to build two reactors in southern Vietnam. The terms include possible Japanese financial aid.

The project would involve a new government-supported company whose largest shareholder is Tokyo Electric Power, operator of the damaged Fukushima Daiichi plant. The industrial conglomerates Toshiba and Hitachi, which supplied reactors to the Fukushima plant, are also investors. Ichiro Takekuro, a former Tokyo Electric, is the president of the new company, called International Nuclear Energy Development of Japan.

The Vietnam project, if it proceeds, would join a roster of about two dozen other nuclear plant projects that Japanese makers are bidding or working on in countries including the United States, China, Turkey and Lithuania.

Japan’s nuclear drive is a contrast to the recent announcement by Siemens, Europe’s largest engineering conglomerate, that it would stop building nuclear power plants. Siemens, with headquarters in Munich, is responding to Germany’s decision this year to phase out nuclear power — largely in reaction to Japan’s calamity.

But makers of nuclear reactors from other countries, including Areva of France, General Electric of the United States, Russia’s state-owned Rostacom, and several government-backed Chinese conglomerates like China National Nuclear, are pursuing new contracts. Within Japan, Tokyo’s effort has already drawn protest from nuclear opponents.

“The Japanese government’s promotion of nuclear exports is clearly a double standard and a mistake,” the environmental group Friends of the Earth Japan, said in September.

The opposition Liberal Democratic Party has also called for more debate on the nuclear export initiative by Mr. Noda and the ruling Democratic Party, although opinion in both parties remains divided.

“Some people are asking: Why is Japan trying to export something it rejected at home?” said Itsunori Onodera, a Liberal Democratic lawmaker and director of a parliamentary foreign policy panel charged with approving bilateral nuclear agreements. “Even if Japan ultimately does decide to continue nuclear exports, there needs to be more debate on the issue.”

Article source: http://www.nytimes.com/2011/10/11/business/global/shunning-nuclear-plants-at-home-japan-pursues-building-them-overseas.html?partner=rss&emc=rss

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: http://www.nytimes.com/2011/08/24/business/global/japans-credit-rating-cut-by-moodys.html?partner=rss&emc=rss