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Abe’s New Steps in Japan Draw Less Enthusiasm

June 5, 2013 by Leave a Comment

Prime Minister Shinzo Abe on Wednesday rolled out the next phase of his aggressive strategy to kick-start Japan’s economy, with plans to encourage foreign investment, nurture innovation and improve regulation. But almost immediately, a big question surfaced: Will they go far enough?

Since taking office in December, Mr. Abe has promised to fight deflation and spur growth through a combination of aggressive monetary easing, public works spending and economic overhauls. The initial efforts of his program showed promise, helping to drive the stock market up 80 percent from late last year.

But enthusiasm has waned in the last two weeks, as investors wondered whether the efforts were sustainable. The latest proposal did little to quell the concerns. The Nikkei 225-share index ended the day down 3.8 percent, another rout in an extended correction for the market.

In the next wave of so-called Abenomics, the prime minister laid out a wide range of policies aimed largely at the corporate sector. He plans to introduce tax breaks to increase foreign direct investment. He also said he would remove cumbersome regulations, for example in the medical industry, by removing a ban on sales of nonprescription drugs 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.

“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.” But some of the fundamental overhauls needed for an economic renewal, like bolder labor market changes, were 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. For one, the plan did not go far enough in breaking down the distinctions between regular and nonregular work forces that has created a rigid and inefficient two-tier labor force.

“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.”

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 last two decades.

Mr. Abe also hopes to maintain momentum to the parliamentary elections this summer, his first major test at the ballot box for his economic policies. With ratings high and political opponents weak and divided, his Liberal Democratic Party is likely to make a strong showing.

Many economists and younger business leaders say the crux of the overhauls lies in raising Japan’s economic metabolism by making it easier for companies 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 to smooth the transfer of workers from ailing companies to promising new ones.

Hope may lie in companies like Pijin, a start-up based in Osaka with roots in a student venture that developed multilingual, “smart” Internet search technology. In March, Pijin released its first product: an online service that links quick response codes — checkered symbols that can be scanned with a smartphone — to cloud technology that provides translation into different languages.

“Everything about the Japanese economy tends to be skewed in favor of large, established companies and toward Tokyo, and that needs to change,” said Kenji Takaoka, the chief executive of Pijin.

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

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Nikkei Index Breaks 15,000 for First Time Since 2007

May 15, 2013 by Leave a Comment

Japanese stocks have soared since November, when Shinzo Abe, who took over as prime minister in December, vowed to pursue aggressive steps to combat persistent deflation and lift the economy out of years of feeble growth.

Adding to the momentum on Wednesday was a 10.6 percent surge in the shares of Sony; the company on Tuesday came under pressure from the investor and billionaire hedge fund manager Daniel S. Loeb to spin off part of its entertainment arm.

Mr. Loeb argued that the move would allow to sharpen its focus and lead to higher profit margins, while helping revive the core electronics business.

Sony shares, which have rallied strongly this year, in part because a weaker yen has improved its earnings prospects, were worth ¥2,072, or $20.28, apiece by the close of trading in Tokyo on Wednesday, more than twice where they began the year. That is the highest since July 2011.

The yen’s fall on the currencies markets — the Japanese currency has dropped about 17 percent against the U.S. dollar so far this year — has been a major boon to Japanese exporters, whose goods and services have become cheaper for customers abroad as a result.

Numerous companies have in recent weeks cited the weaker yen as a reason for improved earnings, helping to lift the overall stock market.

Since the start of the year, the Nikkei 225 has risen more than 40 percent, and on Wednesday the index closed at 15,096 points.

The yen was trading at 102.37 to the dollar, compared with ¥86.67 per dollar at the start of the year.

Meanwhile, gross domestic product data for the first three months of 2013, due out Thursday, also are likely to illustrate Japan’s improved prospects.

The figures are expected to show that the Japanese economy grew 0.7 percent from the previous quarter, according to analysts polled by Reuters.

Mr. Abe “wasted no time launching the first two ‘arrows’ of his three-pronged economic agenda, delivering bold fiscal and monetary stimulus that has weakened the JPY and lifted equities to five year highs,” Izumi Devalier, Japan economist at HSBC, wrote in a research note on Wednesday, referring to the Japanese currency.

But Ms. Devalier also struck a note of skepticism, saying the long-term success of what has been dubbed “Abenomics” hinged on “the third and most important arrow — structural reforms.”

“Deep reforms,” she wrote, “are in danger of being shelved due to push back from bureaucrats, unions, and even pockets of Abe’s own party.”

Article source: http://www.nytimes.com/2013/05/16/business/global/nikkei-index-breaks-15000-for-first-time-since-2007.html?partner=rss&emc=rss

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Japan’s Central Bank Governor Offers to Depart Early

February 6, 2013 by Leave a Comment

Prime Minister Shinzo Abe is expected to replace Mr. Shirakawa, who has long preached caution on monetary policy, with a successor who is more open to printing money, stoking inflation and bringing an end to the falling prices that have weighed on Japan.

During his five-year term, Mr. Shirakawa resisted calls from successive governments to be more aggressive, warning that loose money would only lead to unchecked government spending and runaway inflation. Mr. Shirakawa also argued that the government, not the Bank of Japan, needed to do more to encourage economic growth through structural reforms and other growth policies.

Since late last year, Mr. Abe has taken the bank to task, singling out its tepid monetary policies as the root of Japan’s economic woes. He successfully campaigned on a bolder monetary agenda ahead of nationwide elections in December, arguing that the central bank needed to set an inflation target of 2 to 3 percent. The strategy resulted in a decisive victory for his Liberal Democratic Party.

Markets cheered Mr. Abe’s monetary drive. The Nikkei 225-share index has surged almost 30 percent since mid-November, and the yen has weakened by 15 percent, an advantage for Japanese exporters.

Mr. Shirakawa has found it increasingly difficult to hold his ground. In January, the bank agreed to issue a rare joint statement with the government that laid out a target for 2 percent inflation. It also agreed to pursue unlimited monetary easing through an asset purchase program until that target was met. Japan has been enduring deflation, or falling prices, since the late 1990s.

But some economists have said that Mr. Shirakawa’s policies remained too timid and that unless the Bank of Japan were even more aggressive, 2 percent inflation would prove to be an elusive target. The bank needed to expand its asset purchase program, now at about 101 trillion yen, or about $1.01 trillion, by a much bigger amount, the economists have said, and needed to step up its purchases of a wider range of assets including longer-term government bonds.

“After three five-year terms of dyed-in-the-wool conservatives, the Bank of Japan is finally likely to have a governor who is prepared to use the monetary armory at his disposal,” Nicholas Smith, Japan strategist at CLSA Asia-Pacific Markets, said in a note.

Even using tougher language than the soft-spoken Mr. Shirakawa would help, Mr. Smith said. “The more you do with threatening rhetoric, the less you have to do with real money,” he said.

Speaking to reporters Tuesday, Mr. Shirakawa explained that he had offered to step down early to time his departure from the bank with those of his two deputies, whose terms end March 19.

“I told the prime minister that I will resign on March 19 so that a structure with a new governor and two deputy governors can start simultaneously,” Mr. Shirakawa said after a meeting of the government’s top economic council. He said that Mr. Abe, who led the council meeting, had “listened carefully,” but it was unclear late Tuesday whether the prime minister would agree to an early departure.

Names circulated in the Japanese news media as possible candidates to succeed Mr. Shirakawa include the former economy minister Heizo Takenaka; the former Bank of Japan deputy governors Kazumasa Iwata and Toshiro Muto; the Asian Development Bank president, Haruhiko Kuroda; and the University of Tokyo economist Takatoshi Ito.

Article source: http://www.nytimes.com/2013/02/06/business/global/japanese-central-bank-chief-to-step-down-early.html?partner=rss&emc=rss

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Japan Tries to Ease Fears That Its Policies Will Lead to Currency Wars

January 25, 2013 by Leave a Comment

TOKYO — Japan brushed aside criticism that aggressive easing by the central bank could set off competitive currency devaluations among other nations, saying Friday that the Bank of Japan is trying to end nearly 20 years of deflation — not manipulate the yen.

Prime Minister Shinzo Abe’s calls for aggressive action by the central bank, which have prompted a slide in the yen, have also raised fears in Europe of a currency war if other central banks adopt similar policies.

Japan may have to defend its actions at a two-day meeting of financial leaders from the Group of 20 industrial and emerging nations that begins Feb. 15.

“Monetary easing is aimed at pulling Japan out of deflation quickly,” the Japanese finance minister, Taro Aso, said Friday. “It is not accurate at all to criticize” Japan for manipulating currencies, he added.

The Bank of Japan, the central bank, agreed Tuesday to double its inflation target to 2 percent and said it would pump more money into the economy via a new, open-ended commitment to buying assets beginning in 2014 — measures known as quantitative easing and intended to lift the country out of its fourth recession since 2000.

“The B.O.J. is pursuing powerful monetary easing without interruption,” the central bank’s governor, Masaaki Shirakawa, said Friday. “Japan may be facing an opportunity now to emerge from stagnation.”

Still, Japan’s consumer price index fell 0.1 percent in December from the same month a year earlier, and even when excluding volatile food and energy prices, it dropped 0.2 percent, according to data released Friday.

The yen skidded to a two-and-a-half-year low of 90.695 against the dollar Friday, which reinforced expectations for more monetary easing. The currency has slumped 11 percent against the dollar since early November as Mr. Abe stormed to an election victory in December with bold promises to end decades of intermittent growth.

After the central bank’s overhaul of its policy in the past week, Mr. Shirakawa offered a note of caution, saying it was important that the bank remain flexible in guiding policy in the future.

“Long-term interest rates will spike and erode the effect of monetary easing,” he said, “if people perceive the B.O.J. as having shifted to a policy of recklessly buying government bonds, focusing narrow-mindedly on achieving 2 percent inflation.”

Minutes of the central bank’s December meeting, released Friday, provided a hint of the possible next policy step.

They showed that a Bank of Japan board member had proposed cutting interest rates, already at rock bottom, on some market operations and scrapping the 0.1 percent interest paid on excess reserves held at the central bank. The idea was voted down, 8 to 1.

Since the global financial crisis that started five years ago, central banks in the Britain and the United States have also engaged in aggressive quantitative easing programs, which can help support economic growth by lowering interest rates but also tend to weaken the currency.

Chancellor Angela Merkel of Germany waded into the currency debate Thursday, singling out Japan as a source of concern following the Bank of Japan’s moves.

“I don’t want to say that I look towards Japan completely without concern at the moment,” she said at the World Economic Forum in Davos. “It is known that in Germany we are of the opinion that central banks are not there to clean up political bad decisions and a lack of competitiveness.”

Article source: http://www.nytimes.com/2013/01/26/business/global/japan-tries-to-ease-fears-that-its-policies-will-lead-to-currency-wars.html?partner=rss&emc=rss

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Japan’s Bond-Buying Plan Quickly Meets Criticism

January 23, 2013 by Leave a Comment

Following the lead of their counterparts in the United States, Japan’s central bankers announced Tuesday what they called a groundbreaking effort to reinvigorate the country’s long-moribund economy and defeat deflation.

With no more room left to cut interest rates and previous steps unsuccessful, the Bank of Japan is taking a page from the Federal Reserve’s playbook and will pump trillions more yen into the economy by directly buying government bonds and other assets. It also doubled the country’s official inflation target to 2 percent. The action came after months of intense pressure on the Bank of Japan from the country’s audacious new prime minister, Shinzo Abe, to take more aggressive action to bolster the economy.

But as in the United States, there are doubts about just how much of an effect the move will have in Japan. Three rounds of asset purchases since the onset of the financial crisis have successfully headed off deflation in the American economy but failed to generate the kind of growth necessary to return employment to prerecession levels.

Japan’s move is also likely to further devalue the yen in the long term — causing some to worry about a possible round of competitive devaluations as countries weaken their currencies to bolster growth in exports. On Tuesday, however, the yen actually rose against the dollar and the euro amid disappointment that the Bank of Japan’s efforts had not gone far enough.

Traditionally, curbing inflation, not worrying about deflation, has been the principal task of central bankers. But when economies enter prolonged periods of slow growth, or even contraction, other concerns come to the fore. Ben S. Bernanke, the Federal Reserve chairman, was keenly aware of Japan’s long-running struggle with deflation as well as the American experience in the Great Depression when he began the first round of United States asset purchases, or quantitative easing, in November 2008.

After a second round of quantitative easing beginning in November 2010, the Fed started a third round in September. It said in December that it would continue to purchase $85 billion in Treasury securities and mortgage-backed securities each month until the job market improved. After considerable pressure, European central bankers also began moving more aggressively last year, vowing to do “whatever it takes” to keep the euro zone from fracturing.

Given the scale of the efforts in the United States and Europe, many experts were disappointed by the Bank of Japan’s action because the expanded asset purchases will not begin until 2014. They complained that was a waste of valuable time in turning around an economy whose descent into deflation has become a test case of the effects of doing too little in the face of an economic slowdown.

To make matters worse, the Bank of Japan’s new plan to purchase 10 trillion yen, or $112 billion, in assets each month sounds more aggressive than it actually will be, said Gustavo Reis, senior international economist at Bank of America Merrill Lynch. That is because many of the securities the Bank of Japan will be purchasing are in the form of short-term debt that will quickly mature, so the additional purchases will equal about $112 billion a year — not a month — beginning in 2014.

By contrast, he said, the Fed’s balance sheet is expected to expand by a trillion dollars in 2013.

“The Bank of Japan should be more aggressive,” Mr. Reis said. “It’s a step forward, but given where their economy is, they need to do more.”

In fact, with such a small annual increase in asset purchases, it is unlikely Japan will achieve 2 percent inflation, analysts said. The Consumer Price Index for 2012 fell 0.5 percent, according to government statistics. The Bank of Japan’s announcement “will likely disappoint those who expected the policy board to answer Abe’s call for a ‘different kind of B.O.J. policy,’ or significantly ramp up its pace of easing,” Izumi Devalier, an economist with HSBC, said in a note to clients.

While certainly better than inaction, there is evidence that unconventional monetary policy can only do so much to lift overall economic growth.

The Fed’s monetary policy seems to be having a much more significant effect on asset prices than it has on the underlying economy, said Larry Kantor, head of research at Barclays. He noted that nearly four years after markets hit bottom in March 2009, stocks in the United States had more than doubled in value. By contrast, “most people would characterize the economic recovery as weak.”

For all the challenges in the United States and Europe, Japan’s economy, the world’s third largest, has been depressed for much longer; the 1990s are regarded as a “lost decade,” and the last 10 years are proving to be not much better. Deflation, an all-around fall in prices, profit and incomes, has plagued the country since the late 1990s.

Since last year, when Mr. Abe was still opposition leader, he has urged the central bank to do more after previous rounds of asset purchases failed to reverse deflation. He stepped up the pressure on the bank after a landslide victory by his Liberal Democratic Party in parliamentary elections in December, which catapulted him to office for the second time since a short-lived stint in 2006-7.

Article source: http://www.nytimes.com/2013/01/23/business/global/japanese-central-bank-in-forceful-move-to-fight-deflation.html?partner=rss&emc=rss

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