Japan Economy's Crash & Recovery

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FACTBOX-BOJ's framework for conduct of monetary policy

Feb 21 (Reuters) - The Bank of Japan is conducting monetary policy based on a framework introduced a year ago to better explain the central bank's approach to economic analysis and its understanding of price stability.

The central bank has said it would conduct monetary policy in a "forward-looking" manner, but this concept has caused confusion among traders and raised criticism that the BOJ should improve its way of explaining policy and guiding market expectations.

Following are key ideas behind the BOJ's framework and concepts in conducting monetary policy.

EXAMING ECONOMIC ACTIVITY AND PRICES UNDER 2 PILLARS

- When the BOJ abandoned its ultra-easy monetary policy, called quantitative easing, in March 2006, it introduced a new framework for conducting monetary policy. It said the central bank would examine economic conditions and prices from two perspectives in deciding monetary policy:

1) The first perspective is to examine, with regard to economic activity and prices one to two years in the future, whether the outlook deemed most likely by the BOJ follows a path of sustainable growth under price stability.

2) The second perspective involves a longer-term view. The BOJ will examine various risks most relevant to the conduct of monetary policy as it aims to realise sustainable growth under price stability.

For example, the BOJ will examine risk factors that could significantly affect economic activity and prices, even if there is a low possibility of such risks actually emerging.

'UNDERSTANDING' OF PRICE STABILITY

- When the BOJ ended quantitative easing in March 2006, it also said an inflation rate of 0-2 percent would constitute policy board members' "understanding" of medium- to long-term price stability.

- The range of 0-2 percent is for the rate of year-on-year change in the overall consumer price index. The BOJ has said most board members' median figures fell on both sides of 1 percent last March.

- Nine members of the board are supposed to review it annually, but with terms of two policy board members set to expire in April, the review may take place after their replacements are named.

- BOJ officials have been wary of adopting a numerical price target, let alone a binding inflation target, for fear of losing flexibility in policy.

- Global institutions such as the International Monetary Fund and the Organisation for Economic Co-operation and Development have said the BOJ should introduce a higher floor than the current zero percent to signal its desirability of a buffer against deflationary shocks.

FORWARD-LOOKING APPROACH

- BOJ officials have said a forward-looking approach means the central bank will decide policy based on its analysis of the outlook for economic and price conditions. But they also said that does not mean they will not care about what is happening in the economy at the moment, noting that they will examine available data for clues to the outlook.

NORMALISATION PROCESS

- Japanese interest rates have been near zero percent for most of the past decade as the economy suffered a slump amid persistent deflation. But BOJ officials are wary about risks that could arise from having ultra-cheap money rates for too long.

- They say interest rates should be raised gradually to a level that better reflects improvements in economic conditions as part of a normalisation process.

- BOJ Governor Toshihiko Fukui told Reuters in an interview in January that a normalisation in Japan's monetary policy means the process of using the function of interest rates in a more efficient way to achieve the optimal allocation of resources.

- He said it is wrong to take the normalisation of monetary policy to mean that the BOJ is trying to adjust interest rates at a certain pace, or a measured pace, with a set schedule in mind.

BACKGROUND:

- Under the quantitative easing framework, there was some predictability to monetary policy because the BOJ promised to keep pumping huge amounts of surplus funds into the banking system until the core consumer price index rose above year-earlier levels on a sustained basis.

- The new framework for the conduct of monetary policy was introduced to better explain the BOJ's thinking on monetary policy, after the link between core CPI and monetary policy decisions was abolished in March 2006.

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BOJ rates reach decade-high 0.5 pc

POSTED: 0640 GMT (1440 HKT), February 21, 2007
From CNN INTENATIONAL.COM
http://edition.cnn.com/2007/BUSINESS...eut/index.html

TOKYO, Japan (Reuters) -- The Bank of Japan raised its main interest rate on Wednesday by a quarter percentage point to 0.50 percent, the highest in more than a decade, but signs the central bank will be cautious about further increases sent the yen lower.

The BOJ, whose board members voted overwhelmingly for the rise, said the economy was likely to continue growing and that it would make further rate adjustments only gradually.

[...]

Complete article: http://edition.cnn.com/2007/BUSINESS...eut/index.html

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Japan trade rebounds to surplus

From CNN INTENATIONAL.COM
http://edition.cnn.com/2007/BUSINESS...eut/index.html

TOKYO, Japan (Reuters) -- Japan posted a trade surplus of 4.4 billion yen ($36 million) in January, snapping back from a deficit of 354 billion yen the same month a year earlier, government data showed on Thursday.

Firm exports on the back of a weak yen as well as subdued imports due to cheaper oil prices helped tip the balance back to the black. Many economists had expected a deficit as Japanese exports tend to slow in January because of New Year holidays.
Economists' median forecast was for a deficit of 150 billion yen.
On a seasonally adjusted basis, the overall trade surplus rose 52.5 percent from the previous month to 1.086 trillion yen, the data showed.

Financial markets showed little reaction to the data. The Nikkei share average topped 18,000 for the first time in nearly seven years, and the yen fell to a record low against the euro. But traders attributed the moves to an expected slow pace to future credit tightening by the central bank.

[...]

Complete article: http://edition.cnn.com/2007/BUSINESS...eut/index.html

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BOJ Jan minutes: Some felt rate too stimulative

TOKYO, Feb 26 (Reuters) - Bank of Japan board members Atsushi Mizuno, Miyako Suda and Tadao Noda proposed raising rates at the central bank's policy meeting on Jan. 17-18, minutes showed on Monday.

The proposal was turned down at the January meeting, which instead decided to keep the overnight call rate target unchanged at 0.25 percent.

The board voted 8-1 to raise rates in February as more members became convinced that economic and price growth would remain in a positive trend.

The January minutes showed some members felt keeping rates unchanged could excessively stimulate the economy.

Mizuno, who opposed keeping rates at the then level, said he feared holding off on a rate hike could be interpreted by financial markets as the central bank tolerating weakening of the yen.

The policy board's decision at the January meeting to hold off on a rate hike was by a split vote of 6-3, reflecting caution among central bankers about the economic outlook in light of a mixed batch of economic indicators.

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Japan's industrial output down 1.5 percent in January

TOKYO, Feb 28, 2007 (AFP) - Japan's industrial output in January fell 1.5 percent from the previous month, official figures showed Wednesday.

It was the first decrease in four months as production sagged for transport, general machinery, and information technology equipment manufacturing, the Ministry of Economy, Trade and Industry said.

Passenger vehicles, small cars, and semiconductors particularly contributed to the fall, the ministry said in a statement.

Shipments also eased 0.3 percent, marking two straight months of decline.

Inventories also fell 0.9 percent from the previous month, marking the first fall in six months, the ministry said.

The ministry expected a 1.8 percent drop in February, but forecast a rise of 2.4 percent in March.

"Generally, production is on a rising trend," the ministry said.

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Wednesday March 7, 4:13 PM
Japan to tap business chiefs for central bank board: report

TOKYO (AFP) - Japan's government will appoint a vice president of Japan's largest trading company and a shipping company executive to the Bank of Japan's monetary policy board, a newspaper reported Wednesday.

The government decided Wednesday to appoint Mitsubishi Corp. vice president Hidetoshi Kamezaki and MOL Ferry Co. president Seiji Nakamura to replace two board members whose terms expire in April, the Nikkei business daily said.

They will replace Hidehiko Haru and Toshikatsu Fukuma, who also come from business backgrounds and whose terms are due to expire in April, the report said, quoting unnamed government sources.

Kamezaki, 63, has experience in international business at Mitsubishi, while Nakamura, 64, rose through the ranks of Mitsui O.S.K. Lines Ltd. where he dealt mainly with accounting, the report noted.

Financial markets are watching closely to see who the government will name to for the BoJ's policy board, which faces a tricky task of judging when to raise interest rates again in the face of still-subdued inflation.

There was no official confirmation of the selection and it was unclear what the pair's views were on the need for further interest rates rises.

"Both of them have very extensive experience overseas," noted JP Morgan economist Masamichi Adachi.

"With that background, they are likely to pay careful attention to foreign exchange development as well as the condition of overseas economies," he added.

The Bank of Japan last month raised its key interest rates by a quarter-point to 0.5 percent, the first increase since last July when it ended its highly unorthodox policy of virtually free credit.

BoJ governor Toshihiko Fukui has said he hopes to raise interest rates gradually and as much as possible but he faces political resistance to further monetary tightening.

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Japan's Services Demand Rises; Spending May Pick Up

March 16 (Bloomberg) -- Demand for services in Japan rose more than expected to a record in January, a sign consumer spending has picked up and may support growth in the world's second-largest economy.

The tertiary index, a gauge of money spent on consumer and business services, advanced a seasonally adjusted 1.6 percent to 110.7 from December, the first increase in three months, the trade ministry said today in Tokyo. The median estimate in a Bloomberg News survey of 34 economists was 1.1 percent.

An increase in spending on items such as travel, insurance and entertainment suggests consumption may join exports and corporate investment as a driver of the nation's longest postwar expansion. Hiroshi Watanabe, the top currency official, said today that jobs growth may spur consumer spending, which makes up more than half of the economy.

``The big chorus that consumer spending is weak will gradually fade out,'' said Takuji Aida, chief economist for Japan at Barclays Capital in Tokyo. ``We are likely to see solid consumption in the first quarter.''

Japan's yen strengthened to 116.85 against the U.S. dollar at 12:15 p.m. in Tokyo from 117.33 before the report was released. The Nikkei 225 Stock Average fell 0.9 percent, the third time in four days it has declined.

The economy grew an annualized 5.5 percent in the fourth quarter, the fastest pace in three years, as companies increased spending on machinery and factories amid booming demand for exports, helping make up for sluggish consumption.

`Very Good'

Japan's economic growth will be sustained ``in a very good manner'' Watanabe, vice finance minister for international affairs, said in Sydney. ``Employment is getting better, job offers are increasing. That has a rather good impact on consumption.''

The Bank of Japan doubled the benchmark interest rate to 0.5 percent last month and said further increases will be gradual. The bank will probably keep the overnight lending rate unchanged next week, according to all 48 economists surveyed by Bloomberg News.

Demand at travel agents climbed 2.5 percent in January, driven by domestic travel bookings, today's report showed. Demand for postal services increased 34.2 percent.

Sports facilities' demand, mainly golf courses and golf ranges, jumped 13.9 percent as warmer weather encouraged people to undertake outdoor activities, said Masato Hisatake, a trade ministry spokesman.

Demand for personal services, such as hairdressing, rose 5.5 percent in January. Demand at insurers advanced 7.7 percent.

Eight-Year Low

Japan's unemployment rate was at an eight-year low of 4 percent from November to January. The jobs-to-applicants ratio, which shows how many positions are available to each job seeker, is 1.06. Jobs have outnumbered applicants for more than a year.

The service index suggests ``a pickup in consumer spending,'' said Yasukazu Shimizu, a senior economist at Mizuho Securities Co. ``As the labor market tightens, consumers feel more secure about spending.''

Still, growth in consumer spending may not accelerate until wages pick up. Wages fell 1.4 percent in January, the largest drop in almost 2 1/2 years, according to a government report this month.

A round of wage increases announced by Japanese companies, including Toyota Motor Corp. and Sharp Corp., this week may do little to spur consumption. ``The modest wage increases won't help much,'' said Yasuo Yamamoto, a senior economist at Mizuho Research Institute in Tokyo.

Spending Guide

Spending by Japanese on services accounted for more than 57 percent of total consumption last year, compared with 50 percent a decade ago. Service providers include real estate agents and hotels.

The tertiary index has become a more reliable guide to trends in spending with the shift in the pattern of consumption, said Masamichi Adachi, an economist at JPMorgan Securities Japan Co.

Japan's household spending rose for the first time in more than a year in January, when temperatures were 1.4 degree Celsius (2.5 degrees Fahrenheit) higher than average. Consumer confidence improved to 48.4 in February from 48.1 in the previous month.

``January was good for the services industry with a warm winter and a New Year holiday,'' Adachi said. ``Consumers have enough manufactured products at home and services are what they are spending on now.''

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Japan aims to raise minimum wage to boost economy

TOKYO, March 13 (Reuters) - Japan's cabinet on Tuesday approved an updated minimum wage bill, the first major revision in nearly 40 years, as part of the government's efforts to close the gap between between rich and poor and boost economic growth.

The bill, which must be approved by Parliament, does not stipulate how much the minimum hourly wage should be raised from the current national average of 673 yen ($5.73) and leaves the details to regional wage-setting committees, making economists sceptical about any immediate improvement in wage conditions.

But it would sharply raise fines on employers who pay workers below the legal standard.

"The government is effectively postponing the issue," Takahide Kiuchi, senior economist at Nomura Securities, said in a research report.

"The government says it aims to boost the minimum wage on a scale that has not been seen in the last 40 years, but its plan only stipulates that the minimum wage will be decided at round-table committees," he said.

If approved, the revised bill is expected to take effect by the summer of 2008.

Prime Minister Shinzo Abe and his administration have been pressed to put forward measures to improve the livelihood of low-wage workers amid growing public outcry that income disparity is increasing despite the current economic recovery.

The bill comes at the time when labour unions of major Japanese companies are pressing management for wage increases in the next fiscal year starting in April that reflect brisk earnings in light of a steady economic recovery.

Top-ranking corporations such as Matsushita Electric Industrial Co. Ltd. and Toyota Motor Corp. are expected to raise monthly salaries per person by 1,000 yen, according to Japanese media.

Takeshi Minami, chief economist at Norinchukin Research Institute, said the revised minimum wage bill would increase the financial burden on small enterprises.

GROWTH POTENTIAL

Raising the minimum wage is also part of the government's economic policy to boost the nation's growth potential. The government argues that by raising the lowest wage level, it would help small to mid-sized firms attract able workers and thus increase companies' productivity.

The government plans to set up the round-table committees next month as entities separate from existing wage-setting committees in hopes of obtaining proposals on the wage rules with a focus on economic growth.

Kiuchi said the government's policy to improve the general economic level of those in low-income brackets is ill defined because it is basically focused on the supply side, and success is uncertain.

With the revised bill, the penalty on companies that fail to comply will jump to 500,000 yen per worker from the current 20,000 yen.

Japan introduced the current system of minimum wages in 1968, with different wage levels prevailing in different geographical areas. Some industries, such as steel, automobile and retail, also set their own minimum wages. Where there is a gap between the geographical rate and the industry-based rate, employers are required to pay the higher of the two.

The bill also requires prefectural wage-setting committees to take welfare benefits into account when deciding wage standards.

This provision is aimed at encouraging higher minimum wages as welfare benefits in some metropolitan areas are more than can be earned by working at minimum wage.

In Tokyo, the minimum wage is 719 yen per hour, the highest in Japan. Monthly income from working eight hours a day for 22 days would be about 126,500 yen ($1,077). That is lower than welfare benefits of around 137,000 yen per month for singles between the ages of 20 and 40 residing in the city's central districts.

Japan's average minimum wage has been rising steadily through most of the past decade, despite years of deflation. It has climbed from 637 yen in 1997 to the current 673 yen, about 11 percent higher than the United States' federal minimum wage of $5.15, based on current exchange rates.

But the U.S. Senate voted last month to raise the federal minimum wage for the first time in a decade, following a similar move by the House of Representatives in January. The Senate approved legislation to boost the federal wage standard over two years to $7.25 per hour and provide small business tax cuts.

The British government said last week that it would raise the minimum wage for over-21s by 17 pence to 5.52 pounds per hour in October.

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Upbeat BoJ leaves interest rates on hold
Tuesday March 20, 6:36 PM

TOKYO (AFP) - The Bank of Japan on Tuesday played down concerns about the health of world markets and the US housing sector as it left its benchmark interest rate on hold at 0.5 percent as expected.

BoJ governor Toshihiko Fukui said the central bank would closely monitor global equity markets but suggested that the recent worldwide sell-off had been a necessary adjustment after earlier sharp rises.

"We understand that the recent developments on the global capital markets, including stock markets, are within the scope of a healthy correction," he told a press conference.

Fukui also appeared unperturbed by the recent signs of distress among US "sub-prime" or riskier mortgage lenders.

"It is generally accepted that the sub-prime loan issue would not shake the US economy and that the recent volatile movements in US financial markets do not signal any major change in the US economic fundamentals," he said.

Earlier, the BoJ's monetary policy board decided by a unanimous vote to hold interest rates steady this month, a decision that had been widely expected.

The Bank of Japan last month raised its key lending rate from 0.25 percent to 0.50 percent, its first hike since last July when it ended over five years of virtually free credit.

The BoJ has faced political pressure not to raise interest rates too quickly and with inflation still very subdued, the central bank is expected to move cautiously with further monetary tightening.

Analysts say that political sensitivities linked to the July elections in Japan's upper house of parliament mean that the BoJ's next increase in interest rates is unlikely to come before the second half of 2007.

"Minus a full-throttle slowdown in the US economy, the market is likely to grow hopeful of another rate hike after the release of January-March (gross domestic product) data and once the upper house elections enter the picture in May-June," predicted Morgan Stanley economist Takehiro Sato.

The BoJ left its assessment of economic and financial developments unchanged for March, saying the economy "is expanding moderately".

Exports "are expected to continue rising against a background of expansion in overseas economies," the BoJ said.

Domestic private demand "is likely to also continue increasing, given high corporate profits and the moderate rise in household incomes," it added.

The BoJ said that core consumer price inflation could stay "around zero in the short run, due to the drop in the price of crude oil."

But the central bank said that consumer prices were expected to follow a positive trend over the long term as the output gap -- the difference between total and potential production -- continues to improve.

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Deflation Is Making an Unwelcome Return to Japan: William Pesek
By William Pesek

April 30 (Bloomberg) -- It's a question few in Tokyo want to ask: What happens if deflation returns to Japan?

In reality, it's too late to ask; Asia's biggest economy already may be experiencing renewed deflation. It's not of the kind that crippled Japan in the late 1990s, yet its return to the negative-price column has important implications for global growth and interest rates.

That isn't the spin you heard last week when Prime Minister Shinzo Abe met with President George W. Bush in Washington. Those kinds of chats have gotten easier for Japanese leaders now that Japan is growing again. Abe's message has been that his country's recovery is taking care of itself.

Consumer prices in March told a different story. Excluding fresh food, they declined 0.3 percent from a year earlier, falling for a second straight month.

Put in perspective, price trends aren't disastrous. The economy is stable, corporate profits and property prices are up and, as we heard from Standard & Poor's last week, Japan is cutting borrowing and its banks are in good health. S&P raised Japan's debt ratings one level to AA, the third-highest grade.

What's more, said Huw McKay, senior international economist at Westpac Banking Corp. in Sydney, ``there's a big difference between demand-deficient deflation that Japan was afflicted by in the late 1990s and this good deflation, which is driven by competitiveness and productivity gains that aren't being fully compensated for by increases in wages.''

Denial

It's an important point. The days when Japan risked a deflationary spiral are over, though the rise of low-cost China and the forces of globalization are closing in on the economy. Even as corporate profits improve and businesses increase employment, wages are stagnating. That has kept Japan's long- awaited revival from inspiring households to spend more.

Amid all this, though, there are some troubling signs in Tokyo, ones underlined last week by Economic and Fiscal Policy Minister Hiroko Ota. She said the latest inflation news ``doesn't change my view that the end of deflation is in sight from a macroeconomic perspective.''

The problem isn't that Ota is among those who remain in denial; it's that economic officials still don't seem to realize that deflation isn't Japan's illness, but a symptom of it.

Until consumers have confidence that Japan's 1 percent or 2 percent growth will approach 4 percent, see their wages increasing and believe the national pension system is stable, they will save more than they consume.

It's that simple. Consumer doubts about the outlook are prolonging deflation. It's a cart-and-horse issue and one with which officials continue to grapple.

Disconnect

The disconnect between growth and weak consumer-price trends means the Bank of Japan is on hold indefinitely. Since raising the overnight-lending rate to 0.50 percent in February, BOJ Governor Toshihiko Fukui has watched prices ease further and further. On April 27, the central bank said inflation will accelerate next year. Of course, that's what it said last year about 2007.

Currency traders also have watched the yen slide to a record low versus the euro and go nowhere versus the dollar this year. The latest inflation report, coupled with a 0.6 percent drop in industrial production in March, didn't help the yen's prospects.

``This data looks a bit nasty from the BOJ's point of view,'' said Richard Jerram, Tokyo-based chief Japan economist at Macquarie Securities Ltd.

What would the return of Japanese deflation mean for the global economy?

Carry Trade

For one thing, it means the so-called yen-carry trade remains alive and well. In recent months, those who had borrowed cheaply in yen and invested that money in higher-returning assets elsewhere were concerned the yen would rise, spoiling what has been a sure-bet trade.

The weak-price environment and the view in markets that the Finance Ministry will fight any rise in the yen means borrowing in Japan may remain a popular practice. That's good news for those holding Australian or New Zealand dollars, both of which have been major beneficiaries of the carry trade.

For another, optimism Japan would offset a potential slowdown in the U.S. may be overdone. That's not so problematic for Asia considering how fast China and India are growing. Together, said T.J. Bond, Merrill Lynch & Co.'s Hong Kong-based chief Asia economist, China and India now constitute 21.4 percent of global gross domestic product -- greater than the U.S. economy's 19.7 percent share, based on purchasing-power parity.

Yet a more vibrant Japan would add stability not only to Asia, but also to the global economy. Sadly, Abe is far less focused on the economy than his predecessor, Junichiro Koizumi.

Change Needed

Abe became prime minister seven months ago figuring he could concentrate on other things, Richard Katz, editor of the Oriental Economist newsletter, told clients on April 23. So far, Abe's priorities have been to strengthen Japan's foreign policy, revise the constitution and tweak the education system to instill patriotism in youngsters.

True, Japan's economic upgrades are still filtering through the economy. Recent corporate takeover attempts and investigations of company scandals show how much Japan has changed over the last decade.

``But additional reforms are still needed,'' Katz argued.

Without those changes, deflation could once again become the norm in an economy thought to be moving beyond it. That's hardly in the global economy's best interest.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

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Japan central bank's quandary: Raise rates even as prices fall?
30 April 2007
The Wall Street Journal Europe

Tokyo -- FACED WITH THE rare combination of an expanding economy and weak consumer prices, the Bank of Japan may consider a highly unusual monetary-policy step later this year: boosting interest rates even if prices are actually falling.

A central bank normally raises interest rates to prevent overheating of the economy or to rein in inflation. When it cuts rates, its aim is to stimulate spending by companies and individuals to boost the economy, or to keep the economy from slipping into deflation -- a harmful downward spiraling in prices.

The Japanese central bank finds itself in a challenging position of having to deal with two conflicting situations. In the bank's semiannual outlook report, released Friday, it said it expects the economy to continue to grow at a healthy clip for the current fiscal year. But it also slashed its inflation outlook and said that prices, which are usually expected to rise in a healthy economy, will remain almost flat.

The BOJ's outlook is viewed by economists as an important indication of how the bank plans to conduct monetary policy in coming months. At Friday's meeting, the bank voted to keep its target for short-term interest rates at 0.5%, where it has stayed since February. This is by far the lowest rate among major economies, well below the U.S.'s 5.25% and the euro zone's 3.75%.

In the report, the bank acknowledged consumer prices aren't recovering as much as expected and sharply lowered its inflation outlook. The bank said it expects the core consumer-price index -- which includes energy but excludes volatile fresh foods -- would rise just 0.1% in the fiscal year ending March 31, 2008. In October, it had forecast a 0.5% rise.

The core CPI for March, also announced Friday, was down 0.3% from a year earlier -- the second monthly decline in a row. In part, the cause was energy prices, falling from record highs of a year ago. But even after discounting their impact, the index was still down -- indicating that price falls were widespread. Economists say the CPI figure could keep falling for the next several months as energy prices continue to drop from year-ago levels, though they say this is temporary and it's unlikely that Japan will go back to having persistent price declines.

STILL, SUCH WEAKNESS in prices would make it difficult for the Bank of Japan to raise interest rates. Raising interest rates too quickly could discourage consumers and businesses from spending, depressing demand and putting more downward pressure on prices.

But another part of the BOJ's report said the Japanese economy will stay on a sustained growth path this year, more than five years after it started emerging from a slump that had lasted more than a decade. The median forecast by its nine policy-board members points to a growth rate of 2.1% for the year ending March 31, 2008. That is in line with their earlier projection, released in October 2006, and matches the rate that the central bank estimates the Japanese economy reached last fiscal year.

Some economists interpreted this forecast as a sign that the bank will stick with its stated policy of raising interest rates gradually, regardless of the price trends.

Indeed, Bank of Japan Gov. Toshihiko Fukui hinted that price declines may not preclude a rate increase if such action is deemed necessary. "Even if prices are falling on a year-on-year basis, we must adjust interest rates if the economy's expansion mechanism is in place and the long-term trend of prices is solid," Mr. Fukui told reporters Friday. He added, though, that interest rates will be "kept at very low levels for some time."

There is a reason the bank is anxious to raise interest rates, even though prices remain weak: concerns about asset inflation. In Friday's report, the bank explained in detail how low rates, and expectations that rates would stay low for a long time, could lead to overheating in financial and real-estate markets.

Land prices in some parts of Tokyo surged more than 30% last year, prompting experts to warn about potential property bubbles. The low rates have also been encouraging investors to borrow money at super-low rates in Japan to invest elsewhere in the world -- an arrangement known as the carry trade. That has led to concerns that the flow of capital could be distorted and has helped push down the yen against other major currencies, triggering complaints from Japan's trading partners. Carry trade has also been blamed for recent rallies in everything from Indian stocks to South African bonds.

Some economists say they expect at least one more rate increase this year. "The BOJ will try to push through as many rate increases as possible while the economy is in a growth cycle," says Yasunari Ueno, chief market economist for Mizuho Securities.

[Ryuhei]

Japan GDP grows 0.6 percent

from http://edition.cnn.com/2007/BUSINESS...eut/index.html
POSTED: 0102 GMT (0902 HKT), May 16, 2007

TOKYO, Japan (Reuters) -- Japan's economy lost a little steam in the January-March period on a downturn in capital expenditure, reaffirming the market view that the Bank of Japan will hold off on raising rates at least for the next few months.
Gross domestic product, the broadest measure of the economy, expanded 0.6 percent in January-March from the previous quarter, government data showed on Thursday, falling just short of a consensus forecast for a 0.7 percent increase.
Euro-yen futures inched up and the yen weakened slightly after the data, which came hours before the central bank ends a two-day policy meeting. No policy change is expected at the meeting.
Japan's GDP grew at an annualized rate 2.4 percent in the quarter, marking the ninth straight quarter of expansion, but was slower than a revised 5.0 percent rise the previous quarter.

"In a word, the figures confirm that the Japanese economy is continuing a recovery led by private demand, and that it's just half a step away from emerging from deflation," said Naoki Iizuka, senior economist at Mizuho Securities.
Exports and personal consumption remained firm but capital expenditure fell for the first time in five quarters, leading to the somewhat weaker-than-expected overall growth.
"I'm worried about the fall in capital spending, particularly after seeing a big drop in machinery orders data this week," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"The result of capital spending could affect the Bank of Japan's decision in setting its interest rates," he said.

Still, growth in the world's second-largest economy outperformed the 1.3 percent annual rate of growth recorded in the same quarter in the United States.
December euro-yen futures rose as high at 99.105 from around 99.090 before the data's release. The dollar rose to 120.78 yen from around 120.70 yen, edging towards a three-month high of 120.84 yen hit on Wednesday.
Japan's economy has been expanding since early 2002 and is enjoying its longest period of growth in the postwar era, albeit at a slower pace than previous booms.

With the economy growing steadily, the BOJ scrapped its zero interest rate policy last year and raised the key overnight call rate target to 0.25 percent last July.
In February, it nudged rates up again to 0.5 percent, though that is still the lowest level among major industrialized nations. Rates have been on hold since then.
The BOJ meeting is expected to end between noon and 2 p.m. (0300-0500 GMT). Financial markets are awaiting a news conference by BOJ Governor Toshiro Fukui expected from 3:30 p.m. (0630 GMT) for further clues on the timing of future rate hikes.
The GDP deflator, used to adjust the growth figure for price changes, fell 0.2 percent from the same quarter a year earlier, compared with a 0.5 percent fall in October-December, suggesting Japan is slowly emerging from deflation. "Given the political consequences, the government may well announce that deflation has ended ahead of the (July) upper house election, possibly in June," Mizuho's Iizuka said.

In the January-March quarter, personal consumption, which accounts for some 55 percent of economic activity, rose 0.9 percent from the previous quarter, topping a market forecast for a 0.8 percent rise.
Exports also underpinned steady growth in the quarter, rising 3.3 percent from the previous quarter.
But capital spending, which has been the main engine of the economy's recovery, fell 0.9 percent after a 2.3 percent rise the previous quarter, hurt by weakness in the telecommunications equipment and automobile sectors.
In fiscal 2006/07 that ended in March, the world's second-largest economy grew 1.9 percent, matching the government's forecast for the year.

[Ryuhei]

Japan jobless rate hits 9-year low

From: http://edition.cnn.com/2007/BUSINESS...eut/index.html
POSTED: 0111 GMT (0911 HKT), May 28, 2007

TOKYO, Japan (Reuters) -- Japan's jobless rate fell to a nine-year low in April while the availability of jobs improved for the first time in nine months, signaling a tight labor market and boosting the Bank of Japan's case for a rate hike.

Separate data on Tuesday showed that household spending rose much more than expected, suggesting that consumption held up well in April after robust growth in the January-March quarter, although retail sales shrank from a year ago.

Taken together, the data supported expectations that the Bank of Japan could raise interest rates sometime after August, helping lift two-year Japanese government bond yields to a 10-year high.
"The Bank of Japan has been saying wages will rise as labor market conditions tighten," said Yasuhiro Onakado, chief economist at Daiwa SB Investments. "So the data must have helped them to be more confident with that view."

Japan's seasonally adjusted unemployment rate fell to 3.8 percent in April, against a market consensus forecast of 4.0 percent.
Japan's jobless rate had been steady at 4 percent since November.
The jobs-to-applicants ratio unexpectedly improved to 1.05 in April -- meaning 105 jobs were available for every 100 applicants -- compared with 1.03 in March. Economists had expected it to stay flat at 1.03
Although the ratio had been sliding after hitting a 14-year peak of 1.09 in July, economists said the decline was due to a government crackdown on unlawful hiring, adding that many companies felt labor was in short supply.

The government said labor conditions were "showing an improvement," raising its assessment.
The view that the labor market will tighten further is behind the Bank of Japan's thinking that inflationary pressure should build up eventually, even though prices have fallen in recent months.
The BOJ has said the rise in the core consumer price index is likely to accelerate slowly in the next two years and that interest rates must be raised accordingly.

Household consumption showed signs of strength after weakness in the July-September quarter last year.
Overall household spending rose 1.1 percent in April from a year earlier in price-adjusted real terms, against a median market forecast of a 0.2 percent increase.
Compared with March on a seasonally adjusted basis, it rose 0.6 percent, government data showed on Tuesday.
Separately, Japanese retail sales fell 0.6 percent in April from a year earlier, government data showed on Tuesday, lower than economists' median forecast for a 0.4 percent fall.

[hkskyline]

Majority of Japanese expect income gap to widen: poll

TOKYO, May 30, 2007 (AFP) - Almost three-quarters of Japanese voters expect the income gap to widen further despite the economic recovery, a survey showed Wednesday.

Seventy-four percent of voters think the income gap between regular workers and non-regular workers will further increase in the future, according to a poll published by the Yomiuri Shimbun daily.

Only 20 percent believe the gap will not narrow, according to the survey of 1,803 voters on May 19 and 20.

The same ratio of 74 percent said they believed workers should be paid an equal salary for the same time type of work regardless of employment status, while 23 percent disagreed.

The head of the country's trade union confederation said this week that corporate managers were to blame for a widening income gap in Japan.

The employment structure has changed drastically in recent years with an increase in the number of lower-paid non-regular workers, RENGO president Tsuyoshi Takagi told reporters.

"Unless there is a fundamental correction in the distribution of wealth to salaried workers, I don't think a pick-up in consumer demand will be realised in the near future," he said.

The Japanese government reported Tuesday that unemployment fell to a nine-year low of 3.8 percent in April.

But Takagi pointed out that the number of full-time workers has been declining in recent years as companies turned to lower-paid part-time and temporary workers during the economic slump.

"Corporate executives are the first to blame for the widening gap," he said.

Many Japanese companies stepped up the hiring of lower-paid part-time workers in the 1990s to try to cut their costs as the economy endured a decade of economic stagnation and on-off recessions.

[Blackraven]

What are the factors that are hampering Japan's full economic take-off and debt reduction???

Lack of new taxes, too many people/corporations not paying taxes (tax evasion), budget deficits due too lack of taxes/revenue, banks can't provide enough???

As far as I know, Japan is rated as having one of the highest economic/sovereign credit ratings in the world (if not the highest) at AAA, Aa, Aaa+ and etc. Even agenices such as S&P, Fitch and Moody's just upgraded Japan a few months ago.

What's stopping Japan then from a full economic take-off and start bringing down their overall debt levels (which are currently above 100% of the nation's GDP)???

Any economic/financial experts here who can explain???

[Tri-ring]

Originally Posted by Blackraven

What are the factors that are hampering Japan's full economic take-off and debt reduction???

Lack of new taxes, too many people/corporations not paying taxes (tax evasion), budget deficits due too lack of taxes/revenue, banks can't provide enough???

As far as I know, Japan is rated as having one of the highest economic/sovereign credit ratings in the world (if not the highest) at AAA, Aa, Aaa+ and etc. Even agenices such as S&P, Fitch and Moody's just upgraded Japan a few months ago.

What's stopping Japan then from a full economic take-off and start bringing down their overall debt levels (which are currently above 100% of the nation's GDP)???

Any economic/financial experts here who can explain???

That's is easy 5 words, Too many pork barrel projects.

[Ryuhei]

Japanese growth revised upwards

(BBC News) - Japan grew faster than previously estimated in the first three months of 2007, official figures have shown.
The economy grew at an annualised rate of 3.3% from January to March - up from an earlier estimate of 2.4% - thanks to strong
factory investment by firms.

While economic growth over the quarter hit 0.8%, it was less than the previous quarter's growth of 1.3%.
Analysts said the data - a further sign of economic recovery - would have a limited impact on interest rates. [...]

Source: http://news.bbc.co.uk/2/hi/business/6739817.stm

[hkskyline]

Japan govt upgrades view, says economy 'improving'

TOKYO, July 5 (Reuters) - Japan's Cabinet Office said on Thursday it has upgraded its assessment of current economic conditions, saying the economy is "improving".

It said it upgraded its assessment as the coincident index had exceeded the threshold of 50 for two months in a row.

Earlier, it said Japan's diffusion index of leading economic indicators rose to a preliminary 30.0 in May from a revised 18.2 in April.

A reading above 50 suggests an economic expansion in the months ahead, while a reading below 50 suggests a contraction.

An official said developments in the economy required close monitoring, partly because the leading index had stayed below 50 for the seventh straight month and because of the weak production component in the indexes.

The Cabinet Office had previously said economic conditions were see-sawing.

The coincident index, which indicates current economic conditions, stood at a preliminary 66.7 in May against a revised 70.0 in April.

[coldstar]

Buy Japan Thanks to the Yen’s Devaluation
SEOUL,July 5, (The Donga Ilbo/東亜日報 of S. Korea)

Lee Yoon-jeong, a 34-year-old woman working for a financial institution, changed her destination for tourism and shopping during the holidays and Christmas from Hong Kong to Japan last year. Lee said, “I know by experience that luxury goods are sold at a much lower price and in greater variety in Japan than in Korea,” adding, “When I visited Japan 10 years ago as a college student, I could hardly buy anything because of the prohibitively high prices. But you can get your flight ticket price back by buying a few luxury goods there.”

The devaluation of the Japanese yen against the won is continuing to have a great influence on Koreans’ consumption patterns.

As Japanese prices fall, the number of Koreans who visit Japan for tourism and shopping is soaring, and increasing numbers of Koreans are trying to buy Japanese goods through online buying agents.

The Shifting Center of Shopping Tourism: From Hong Kong to Japan-


In 2004, when 100 yen was worth 1,100 won, Koreans had to pay 1,100 won for a product with a 100-yen price tag. But now they have to pay just 750 won. In terms of the foreign exchange rate, prices in Japan went down as much as 31.8 percent for Koreans.

Accordingly, Koreans are spending more money in Japan. There are now also many Koreans who go to Japan just for shopping. If Hong Kong and Singapore were hot destinations for shopping tourism for middle- to high-class Koreans, now Japan is emerging as a “paradise for shopping” thanks to their weakening currency.

Kim Hee-seon, a team leader at Hanatour, said, “With the devaluation of the yen continuing, the number of Koreans going to Japan for shopping or searching for items to import has shot up.”

Such a tendency is also visible in the amount of Visa card payments recorded. Koreans paid $251.16 million in Japan last year, up 23.3 percent from $203.75 million in 2005.

Booming Buying Agents-

Kim Gwang-dong, a 31-year-old office worker who got married in April, bought some home appliances for his new home through a buying agent.

The Sony Bravia 40-inch LCD TV that sold for 166,740 yen in Japan was about 1.33 million won (100 yen was worth 800 won back then). He learned through a price comparison website that the lowest price for the same product in Korea was 2.4 million won. Purchasing the TV through the buying agent cost 1.79 million won, duties, fees and delivery costs all included. It was 610,000 won cheaper than buying it in Korea.

In connection with online shopping malls in Japan, buying agents purchase products in the country on behalf of their customers and deliver them to Korea. It takes a few months because a Korean importer cuts the prices of its goods according to the changing exchange rate. But buying agents can reflect a change in the exchange rate on the items’ price tags.

Bid Buy, a buying agent, doubled its sales to 10 billion won in 2006 from the previous year.

Japanese Goods Make Inroads into Korean Stores-

Hyundai Department Store Apgujeong, which quadrupled the size of its import food store last year, stocks half of its 1,500 good inventory with Japanese foods. Yoo Ji-hoon, a food buyer, said, “We considerably increased our Japanese food inventory as their prices have gone down by five to 10 percent over the past years. And the sales of such foods have been going up by 20 to 30 percent a year.”

It is expected that more Japanese household goods will be sold in the Korean market.

Korean retailers who mainly purchased Chinese goods because of their price competitiveness are now turning to the Japanese market. Lee Byeong-gil, a team leader at E-Mart, said, “We have had few Japanese goods because of high prices. But we are considering buying some starting this year, as the weakening yen sent the price down.”

According to Korea International Trade Association, imports of Japanese home appliances for the first five months of this year expanded twice up to 50 times depending on the item. Small household appliances and beauty-related home appliances are the most popular.

Online marketplaces, including Auction and G-Market, have seen the sales of Japanese home appliances and clothes soar. Kim Hyo-jong, a team leader at G-Market, said, “All in all, the sale of Japanese goods has grown more than 40 percent from earlier this year,” explaining, “Japanese goods are getting more and more price competitive.”

[hkskyline]

Japan quake hurt automakers, power co.
By HANS GREIMEL, Associated Press Writer
19 July 2007

The mammoth earthquake that ravaged northern Japan this week did more than take lives and trigger radioactive leaks. It nailed some of the most important industries undergirding growth in the world's second-biggest economy.

Details of the economic fallout were still emerging days after Monday's 6.8-magnitude earthquake shook the Sea of Japan coast. But early repercussions stretched from Japan's top automakers to the country's biggest power company.

Toyota, Nissan, Honda, Mitsubishi and Fuji Heavy Industries, the maker of Subaru vehicles, halted production at some factories because a key parts supplier, Riken Corp., was damaged by the temblor.

Meanwhile, fears of an electricity shortage in the nation's capital swelled after the world's biggest nuclear power plant was shut down indefinitely because of safety concerns. Tokyo Electric Power Co., Japan's largest utility, was scrambling to ramp up conventional power output after closing the quake-damaged Kashiwazaka-Karima facility in Niigata prefecture, in north-central Japan.

"We will work to the utmost to avoid damage to the economy," Chief Cabinet Secretary Yasuhisa Shiozaki said Thursday. "For the factories that suspended operations, the related ministries are striving hard for their early resumption."

Monday's quake, which killed 10 people and caused a slew of problems at TEPCO's nuclear plant, including a fire and leaks of radioactive material into the ocean, has wreaked havoc companies with factories in the region and created a logistics nightmare with damaged roads.

Autos and electric power are key to Japan's export-oriented economy, which is staging a healthy recovery from more than a decade of doldrums. While any lasting impact on overall growth will likely be limited, even a small blip would be unwelcome.

"Naturally the impact will be negative, but the government will likely increase spending in public works to repair bridges and roads so there should be some offsetting effects," said Masaaki Kanno, chief economist at JP Morgan in Tokyo.

The auto companies' troubles stemmed largely from damage at a factory run by Riken, a supplier of key transmission and engine parts.

Toyota Motor Corp., Nissan Motor Co., Mitsubishi Motors Corp. and Fuji Heavy Industries Ltd. announced late Wednesday they would temporarily halt some of their lines for lack of components as Riken repairs its facilities. Honda and truckmakers Mitsubishi Fuso and Hino joined their ranks on Thursday.

"It's usually deafening with all the equipment running. But we've had to shut everything down," Riken spokesman Takashi Fujii said while giving a tour of the damaged plant to reporters. "The equipment is very sensitive and it needs to be on a level surface. But most of it was tilted in the quake or completely moved out of position."

Riken said about 80 percent of the damage had been repaired as of Thursday afternoon and that it was hoping to restart early next week.

Analysts said the delay — if short enough — probably wouldn't affect domestic or overseas deliveries for big players such as Toyota, which has enough inventory to cover a few days of lost output.

Elsewhere in the quake zone, Fuji Xerox Co. halted a damaged printer plant.

For Sanyo Electric Co., Monday's rumble was edgy close call.

In 2004, one of its semiconductor plants in the region was hit by an earthquake that also registered 6.8 magnitude. That ended up hurting the company's earnings.

Sanyo briefly closed the plant again after Monday's quake but reopened it after determining there was no damage. Any financial impact this time would be minimal, it said in a statement.

Of wider concern was an impending electricity crunch.

Tokyo-based TEPCO warned Wednesday that the closure of its seven-reactor Kashiwazaka-Karima plant, which provides up to 13 percent of the utility's total electricity output, could trigger a power shortage for the busy capital in the summer months.

TEPCO was considering bringing six retired thermal power generators into operation to prepare for a surge in demand as people turn up their air conditioners.

The utility has also asked six other Japanese power companies to sell it emergency electricity from late July through the end of September.

"We are working hard to prevent the worst case scenario, an energy shortage," company spokesman Shogo Fukuda said Thursday. "We would also call on our customers to redouble their energy-saving efforts."

In 2003, TEPCO was forced to temporarily halt all of its 17 nuclear reactors for several months after admitting it manipulated safety data in the late 1980s and early 1990s. The company managed to scrape through that summer by firing up seven retired thermal plants and getting emergency power from other companies.

TEPCO's shareholders have been anything but forgiving this time, driving the company's share price down 10.3 percent since its last close before the quake.

___

Associated Press Writers Hiroko Tabuchi in Tokyo and Eric Talmadge in Kashiwazaki contributed to this report.