Naoto Kan knows all, but he ain't tellin'

Japan's Finance Minister is once again hinting at intervening in the currency markets to protect Japanese exports.

No, not really---"to protect Japanese exports" is just a childish, flippant remark that I made. It was unfair and tends to make Natto Kan of the new DPJ-led government look like some old retread from the LDP years.

The reason that Mr. Fermented Beans made his remarks is that:

"In general, it is desirable for exchange rates to stay at an appropriate level in terms of international trade, and it is undesirable if the currency moves far off that level,"...

"I think we must closely watch developments in the currency market and ensure that the yen will not become excessive," EuroAsiaReview

He said that the government has no clue plan to intervene and refused to explain to the world what the appropriate level of the yen is. After learning of the sizzling-hot economic figures released yesterday, I personally would estimate that the yen should strengthen against the dollar to something like ¥20 per buck.

Back to the 80s

Only it's a different country and a different dispute, but very similar to the type of rhetoric that we heard back then. This time, it is China and the US, instead of Japan and the US:

....we’ve been reasoning with China [insert 1980s Japan] for years, as its surplus ballooned, and gotten nowhere: on Sunday Wen Jiabao [insert, oh say Nakasone or later PM Miyazawa], the Chinese prime minister, declared — absurdly — that his nation’s currency is not undervalued [insert "Japan's PM declared---absurdly---that the country does not have a closed market and does not discriminate against US/foreign goods. It's because foreigners don't understand Japan and don't try hard enough. Besides, Japan cannot let some foreign products in because its consumers won't buy them and their intestines are not long enough or whatever.]... ....And Mr. Wen accused other nations of doing what China [insert Japan] actually does, seeking to weaken their currencies “just for the purposes of increasing their own exports.” Italicized portion from Paul Krugman NYT

Despite all the hot air of the time, and several attempts to right a trade imbalance with a country that did not adhere to the free market religion that the US rather absurdly seemed/seems to take as gospel, in the end it never succeeded. Nobody can deny that Japanese markets are more open than they were back then, but "free" they ain't. Japan and Japanese companies come first. Then again, name a market that is free using a definition of free that means free.

The US is now (finally) making a little more noise about China's currency manipulation and hypocrisy, but in the end, I kind of suspect it will be a lot of nudging from the US with some gradual, grudging changes by China. To me, the most interesting part about Krugman's column is his explanation on why the US need not fear China suddenly unloading all its dollar reserves:

...It’s true that if China dumped its U.S. assets the value of the dollar would fall against other major currencies, such as the euro. But that would be a good thing for the United States, since it would make our goods more competitive and reduce our trade deficit. On the other hand, it would be a bad thing for China...Paul Krugman, NYT

It's not the usual economic version of M.A.D.---Whoever shoots first, dies second---in which both countries are damaged, but seems to indicate that it would do little real harm to the US. Krugman has hinted at this in the past, but it's the first time I have seen his rational.

1600: An opposing view---(well, it is economics so no two economists agree on anything anyway)---Krugman's Reminbi Fantasy. Thanks to soma for the link.

One demonstration of extreme idiocy deserves another

Sen. Mike Johanns, R-Neb: "Until the Japanese government can assure us that all of the defects are out of these vehicles, we're just not going to accept any vehicles from Japan." Referring to restrictions on U.S. beef, he said, "That's what they did with one of our industries."

Later during the hearing, Transportation Secretary Ray LaHood said the issue "needs to be raised" and promised to bring it up with the Japanese ambassador and in a trip to Japan.* USA Today

Quite funny, but I am sure that Sen. Mike is not suggesting that because there are a number of idiots in in high places Japan that the US should emulate them any more than necessary.

This sort of thing will get the Japan as innocent-victim-of-evil-foreigners crowd all excited and provide more "evidence" for conspiracy theories. (We'll leave out the part about Japan and US beef though.)

*Gotta admit, as childish and spiteful as it is, I do get a bit of a kick out of LaHood bringing it up to the Japanese ambassador. Would love to be there.

What goes around comes around

It was a bit of fun seeing Toyota in a hot-seat similar to those that non-Japanese companies in Japan have had to endure when caught with similar problems. But it's getting a little extreme now and the first indication of that was when Steve Wozniac of Apple was interviewed on ABC because he had experienced what he thought was software problems which caused his Toyota to suddenly surge in speed. Not that Wozniac doesn't know software, but it was just a guess, however educated, on his part.

Now there will be endless investigations, all kinds of charges and counter-charges and plenty more opportunities for sensationalist TV reports. (Can we see David Muir of ABC sit in his office, call Toyota, and get turned down for an interview? Why not, he has been doing it to banks which apparently proves something.) This is exactly I would expect if the same thing had happened here involving a foreign auto maker (except for the absurd David Muir fake reporting).

Over at Anarchy Japan, there was a post a few days ago about how the US government was being unfair about this and that it was more politics than safety. Forbes has an article* with a similar take:

The company is under unprecedented attack by the U.S. government--never has a Secretary of Transportation told Americans not to drive anyone's cars or demanded a factory shutdown. It's taking on the appearance of a vendetta...

...If its Chief Executive Akio Toyoda bowed down and licked Transportation Secretary Ray LaHood's shoe, it wouldn't have stopped the publicity...[especially after the tape of the fatal crash was released]

...The Toyota debacle will rub off to some degree on the reputation of all the Japanese [auto makers]...

I am of mixed emotions. On one hand this is way over-the-top and it seems obvious that Toyota is getting a little extra---and will get a lot more---because of the times and because it is a Japanese automaker. (The history of US-Japan auto wars has been anything but calm and rational for either side.) On the other hand, I have no doubt that if the shoe were on the other foot we'd be seeing the same thing here.

*It is best to read the full article to get everything in context.

7:15PM: More here

Is Kan conning us?

RetroMan aka ConMan Kan, the new finance minister, has clarified and strengthened his recently discovered pro-market stance. Earlier this week, Kan had hinted at the possibility of Japan intervening in the currency market to weaken the yen until he discovered that such remarks were not in his new job description.

Today he reportedly said:

"Currencies should basically be set* by the markets, and this principle has been agreed internationally," ..."Unless a rapid move occurs, I will act on this principle." Reuters

Kan has thus distanced himself further from the Old Schoolers who up until about 2004 would intervene in the currency market when they didn't like the rate set by the market. Under ConMan's radical new policy, should the US dollar strengthen "too fast" against the Japanese yen (perhaps from the apx ¥92 now to ¥96 or more to $1?) thus making imports more expensive resulting in weaker consumer demand, the government will take aggressive action to strengthen the yen against the dollar.

This clever new strategy will assist the DPJ in achieving its stated goal of reducing Japan's reliance on exports and allow the consumer market to expand as soon as consumers gain confidence enough to consume. Not only will this help the DPJ and Japan, it will benefit Obama and the US, since Obama is on record as stating that the world cannot return to the pre-subprime system of the US serving as mere consumers (and borrowers) of the products of Japan and others in the region.

*..should be basically set... ?

Y slaps down Kan

PM Hatoyama virtually slapped the new Finance Minister Natto "RetroMan" Kan upside the head for hinting that he was going to imitate China and start rigging the yen vs the dollar in order to sell more products overseas:

Japan’s Finance Minister Naoto Kan said markets should set currencies, while underscoring the ability to intervene in extreme circumstances and taking account of the yen’s impact on the economy...Hatoyama* attributed Kan’s comments yesterday as reflective of “what the business community thinks.” [Sniff, sniff. Is that foul odour not reminiscent of the LDP?] BusinessWeek

RetroMan, despite his expertise in such matters, had been confused about PM Hatoyama's desire to decrease Japan's dangerous reliance on exports and to stimulate the consumer market. Apparently, Natto had thought that Hatoyama and the DPJ in general was just funnin' around and had actually meant to stimulate foreign consumer markets.

Being no fool, he has now seen the light and will rely on the markets to set rates unless confusion results, in which case he will jump in and save the day.

*925 clarification: Hatoyama said that the government had no need to comment on currencies.

Thou Shalt Not Beggar Thy Neighbor(s)

Japan's newly appointed finance minister Naoto Kan has called for a weaker yen in order to aid the recovery of the Japanese economy...

...Mr Kan said he would seek to work with Japan's central bank on the issue, prompting speculation that he might order official intervention. BBC

But why not? For we common folk in Japan, our economic health is more important than some abstract principle. For the dynamic new leaders of the Japan there is no need to worry: The US and others will moan a bit, but otherwise not much will happen. We can call this another step on the path to a more equal relationship or more of the same old crap thought up by fossil-brained geezers with old, old, old, old, old ideas in place of a plan. No we Kan't! No we Kan't!

Back from the past

The Japan side of the cash-for-clunkers complaint:

Satoshi Miura, of the Japanese Embassy in DC, stated that Detroit could participate in the program if it followed the same import rules as "many others." The US companies, according to Miura, are using different rules which don't require the same emissions testing. He also noted that the program is not only for stimulus, but for the environment. The Detroit News.

I shall now return to 2009 and never again enter the now near moot Detroit/Japan auto debate.

Deja vu all over again

Detroit's three automakers criticized Japan on Thursday for keeping foreign automakers out of its cash-for-clunkers program while noting how Japanese automakers claimed nearly half the vehicles sold under the U.S. clunkers program...

...The Obama administration said Thursday that Japan should open its version of a cash-for-clunkers program to foreign vehicles...freep.com

Would anyone expect anything else? As noted in the article, it would be little more than symbolism even if Japan did include foreign automakers since Detroit sells so few cars in Japan. However that symbolism would be a symbol of fair play while not threatening Japanese auto companies in the slightest. The reason given by the Japanese government is that since so few Detroit autos are sold in Japan, they are exempt from fuel economy certification, and only cars with that certification qualify. It's just something that can't be helped. No discrimination against foreign things intended.

Besides, Japanese intestines are longer.

Michael Moore, the millionaire capitalist who admits to being embarrassed at his own wealth*, was in Japan recently to promote his latest movie (profits from which will cause more embarrassment to flow into his bank account) and while here lectured Japan to stop becoming like the US. He needn't worry about that.

Bird Day Tokyo

Thanksgiving Day*. The cold frosty nights of late autumn. The leaves long gone from the trees; their remains now carpeting the earth. The men (and some women) up way before dawn, most hoping for a few inches of snow before heading out to the woods, often a trip of a few hundred yards. The women (and some men) up early to start the multi-hour job of preparing dinner. Some men and women up only a little later due to the excitement of watching men in heavily padded gear---many multi-millionaires or destined to be multi-millionaires---chase a funny looking ball up and down a sometimes snow-covered field while knocking each other silly.

No matter which these fortunate folks choose to do, there's always the anticipation of dinner and talking with relatives who have come in just for the holidays to make the dinner a festive affair. Or, perhaps there are a certain few who eagerly anticipate eating the dinner then escaping some of the more annoying relatives who are making the dinner a noisy, uncomfortable affair. It is very cold in the woods at night in late November.

It's been years since I've been back for that holiday. I always dread the near 24 hour trip involving planes, but no trains, automobiles, Greyhound buses, and the kind folks at US Customs and Immigration who make citizens feel like criminals and terrorists just for stepping out of the country. And that was before 9/11. I can only imagine what it is like for "guests." Maybe next year Barack will finally get to his promise to end the excesses of the previous administration.

But in Tokyo, I always take Bird Day off. It's slightly different than back home, which, I suppose, is not surprising since I am in the world's most unique country---the only one with four seasons to boot.

The, umm, less warm nights of late autumn. The crisp? 18 degree centigrade, 64 Fahrenheit days. The last of the leaves beginning to turn and those which have fallen quickly swept up less they inconvenience the ultra-advanced nature loving Japan of the future. The men and women up before dawn to crowd themselves into subway cars ultra-packed to nearly 200% of capacity. (Is that possible? What does capacity mean?) Me not heading for "woods" any more distant than Tamagawadaikoen while finding it impossible to imagine a few inches of snow falling before late December, if it falls at all.

Instead, after having bought a 9-10 lb ¥3200 turkey and finally having secured some cranberries after a long search and at a price higher than the current price of gold (Japanese cranberries so I am sure they are of higher quality, tastier, less sweet, safer, and well-worth the gouge), pumpkin pie filling, instant mashed potatoes (I hate mashing potatoes) the fruits, the nuts, and all the other traditional Thanksgiving food I can find, I am the one preparing the dinner while my wife watches Beat Takeshi clips on youtube and keeps asking when dinner is going to be ready, a question that I am never able to answer. Those Internet turkey cookin' instructions are a bit vague about turkey cookin' times.

I suppose I should write some sort of touchy-feely stuff about what we have to be thankful for, but I ain't the type who can do that. Luck is here today, but it can be all gone by tomorrow. Maybe I should be thankful that it isn't that tomorrow yet.

For tomorrow might be a problem:

Hatoyama's fundraising scandal. I have to wonder about the quality of Japanese politicians. They pass campaign finance laws, but unlike US politicians, they don't seem to be smart enough to find legal loopholes that allow them to continue to freely inhale tons of money while avoiding violating the laws they passed.

Barack Obama: Bowed, rather clumsily, to the Emperor of Japan. While this may not seem to be a problem in 2009, it was and still is in the news in the US. Apparently, Obama has now forever ruined the US position in the world. Ask Dick Cheney. He has some expertise on damaging the US position in the world.

Sarah Palin: OK, she's suffered a lot of cheap shots from the media in the US.* (Just what is wrong with the fact that she has hunted moose? Why is that so funny to apparently morally-superior folks who pay others to kill and butcher captive, helpless, hormone-filled, artificially-fattened animals so that they can eat it without getting their dainty little fingers bloody or truly realizing that it was once a living, breathing animal?) The problem is that some in what used to be the Republican party consider her a serious contender for the next election.

Deflation is back, if it ever left which I don't really believe it did. It's hard to imagine the Japanese economy recovering for quite a while. I'll confidently guess it'll be years. Not only is this bad news for everyone in Japan trying to make a living, it is very worrying that a poor economy---combined with confidence-draining political scandals---makes it more possible that the LDP will be able to slime itself back into power before the DPJ gets a chance to make permanent, meaningful changes.

Japan and the signing of the Hague child abduction treaty. As Colin P. A. Jones recently wrote in the Japan Times (here and here) that due to cultural reasons---real reasons, not the standard "Japanese snow is different" type idiocy---the signing of the treaty will likely not resolve the problem of Japan being a haven for international child abductors. Of course there is the standard bigoted rational exposed by the standard bigots in power that innocent Japanese must be protected from evil foreigners, in this case "abusive" non-Japanese spouses, but this goes a little deeper. Methinks if Japan signs the treaty, that as Mr. Jones wrote, it will not do a lot for resolving the basic problem of Japanese parents---usually the mother---violating court orders and become a felon by fleeing to Japan with no recourse for the non-Japanese parent. It would not be a first for the government to sign a treaty and then violate the spirit of the treaty while being in technical compliance. One case that quickly comes to mind was just after BSE was discovered in Japanese beef and Japanese beef sales plummeted in comparison to imported beef, Japan used a clause in a trade agreement which allowed a country to take action to protect an industry threatened by a surge in imports. The problem was that most of the gap was due to the drop in sales of Japanese beef, rather than a surge in imported beef. Other governments complained about Japan violating the spirit of the law, but Japan accurately claimed that it was following the technicalities of the agreement.*** If this happens with the child abduction treaty, the fact that Japan signs it may do no more than to allow the government to show technical compliance while allowing the problem to continue.

Uh-oh. Seems more like a No Thanks Day post that has gone on too long, and I have only just begun.

* It was actually yesterday, the 26th

**Need I mention that I am not a Palin fan and don't think she is presidential material? Much of the criticism directed at her is deserved. Much isn't.

***This is from memory. I cannot recall any more than the general outline, nor have I been able to find the information on Google.

Back to "normal"

Last September, the "greatest financial crisis since the Great Depression" began. At the time, and for months afterward, I thought that the world---at least as it pertains to the US, Japan, and China---had changed forever. You could read about it everywhere which, of course, made it true. The over-consumption of US consumers would stop now and forever; not just until the economy recovered. And the US government? It would have to start paying its own way and stop borrowing from overseas. Taxes would have to be raised.

Japan, which has relied on an export-driven economy for decades would no longer be able to do so with the reduction in consumption in the US. Without the ability to export unemployment rely on exports to the US, it would no longer be able to fund the US party.

I was so surprised (why?) by the developments of that fall and the early winter, that I actually started taking Paul Krugman seriously! (The Obama administration didn't. Points for Barack.) Fortunately, the crisis and the recession seem to be all but over now.

There have been a number of articles in the last 24 hours reporting that Japan may be* coming out of the recession and they point to...sigh...exports as driving the recovery. I guess that's no shock, what else would?

The expansion was in line with the 0.9 percent growth forecast that was the average of 10 economists surveyed last week. A 1.2 percent growth in public demand helped offset a 1.3 percent fall in demand from the private sector, the data showed. Overall domestic demand fell 0.7 percent from the previous quarter.

Recovery in these critical overseas markets whittled down inventories and released some pent-up demand, bolstering Japan’s exports of cars and electronics. Exports grew 6.3 percent from the previous quarter, while imports fell 5.1 percent. NYT

Strangely, for all of the monumental, historic changes that were said to be the likely result of the financial crisis, I can't find much about the US or Japan doing much to prepare for the new world. In the US, we can still have it both ways, government benefits and no tax increases except on some bad guys and the rest will be paid for with cuts in wasteful spending. In fact, they'll "pay for themselves." Bahahahahaha!

We've heard for at least 25 years that these sort of things can't go on forever, but then they do. Kind of makes economics seem like a social science heavily influenced or perhaps driven by political beliefs and a group of folks who---stealing a quote from here--- "think arithmetic is a substitute for reality." Oh wait...did I say seem like?

*A very iffy maybe.

But it's different here.

This is Japan. No, not talking about bigotry being uniquely acceptable in Japan 'cause Japan is special like some fellows of foreign origin who write occasional gomi for a certain English language newspaper in Japan say. Instead, I'm talking about this.

Sounds good, but we'll believe it when we see it

The Democratic Party of Japan, which is likely to take power after this year’s elections, will seek an alliance with the U.S. that is less subordinate than that of the last 50 years, a senior DPJ lawmaker said. “We want to move away from U.S. dependency to a more equal alliance,” party Secretary General Yukio Hatoyama said in an interview in Tokyo yesterday. Bloomberg.

Nice talk. Nice words. Does that include moving away from dependence on the US as Japan's primary export market too? Does it mean moving away from the backdoor dependence on the US market by selling industrial equipment to third countries that make products destined for the US? Does it mean moving away from depending on the US as a guarantor of Japan's security? Equal alliance? Japan will provide equal access to its markets as it has to US markets? Equality in a security treaty? How, with Article 9?

The world awaits on pins and needles for what will likely be a huge letdown. Some will be more skeptical.

Evil Protectionism

On first glance, Finanace Minister Nakagawa's remarks might tempt sarcastic comments of "hypocricy." However, after reading the article and despite increasing misgivings about mythical free trade (if free means "free"), it is difficult to disagree with him:

"For the US, Europe and other countries that sought liberalisation from Japan to run to protectionism is an absolute evil," Nakagawa told reporters before leaving for the G7 meeting in Rome....

..."While protectionism may be good for a single country, it is negative for the entire world. Japan would like to make concrete proposals" to prevent a trend of favouring domestic industries, said Nakagawa. AFP

I have always enjoyed reading R. T. Murphy's work, even if I occasionally have to do lot of reading and re-reading to understand it well. This, from his article Asia, and the Meltdown of American Finance at Japan Focus is very clear:

The days of export-led growth for Asia are over (at least exports outside the region – intra-regional trade is another matter provided importers in the region can be found to equal exporters – and that the final demand is in Asia; i.e., exports of parts and supplies from one Asian country to another for finished products headed for the U.S. market don’t count). As the Koreans and Thais can easily testify given their own recent traumas, the United States cannot recover from the mess it is in without more savings – another way of saying less consumption. That in turn means the U.S. after 40 years of profligacy will have to export more than it imports. For this to happen, much of the production capacity that has been steadily transferred to Asia over the last fifty years will have to be repatriated back to the United States so that Americans will have enough factories again in which to go to work to pay off the debts that their politicians and bankers so recklessly ran up. Otherwise, all those dollars Asia holds will quickly be worth very little. What, after all, is a dollar other than a claim on the output of an American? ...

...How is Asia going to wean itself from its dependence on the U.S. market? One lesson the world may finally learn from this crisis is that genuine, long-term prosperity comes not from continuously shoveling money at distant foreigners so they can keep buying your stuff ...

This seems almost intuitively right. If so, wonder what is being done to prepare for this new world? As Aso lifts Japan to be the first nation out of the global recession, I am sure he has a plan.

April 1 comes early

President-elect Barack Obama can explode the fear among world leaders that he is a closet protectionist by making his flagship foray into international trade waters the U.S./Japan FTA...

...the recently negotiated agreement between the U.S. and South Korea sent a jolt throughout Japan similar to the shock they received over NAFTA. (Huh? I missed this "jolt" entirely. Was the NAFTA jolt as unnoticeable too?)

...if she [Japan] wants to compete with China for political and economic influence, she will encourage the creation of "Amerippon." Oh. My. God. This is why folks should just say "no" to drugs.

...it will take political leadership in Washington for the Japanese to create the political will to overcome their obstacles. On second thought, maybe mind-altering substances could actually help university professors who were once diplomats and who now write Op-Ed pieces. Or at least do a little bit more research.

The Free Trade Agreement with Japan can serve our economic, military, diplomatic and core values in one fell swoop. Full article here at the Washington Times. (Originally written for The Onion?)

I must be missing something here. Need more time off.

Imagine the fallout,

the wailing and gnashing of teeth, the warnings of the dangers of investment by foreigners and of foreigners/foreign things, were the shoe to have been on the other foot and an American, European, or other non-Japanese company were buying a Japanese firm like this and at this price---bankrupt or not.

Nomura Holdings Inc. paid only $2 for the European and Middle Eastern equities and investment banking operations of bankrupt Lehman Brothers Holdings Inc., sources said Friday. (JT online)

As the myth of free markets and free trade

gives way to reality:

IN the narrative that has governed American commercial life for the last quarter-century, saving companies from their own mistakes was not supposed to be part of the government’s job description....

...The central banks of China and Japan are on the hook for hundreds of billions of dollars worth of Fannie’s and Freddie’s bonds — debts they took on assuming that the two companies enjoyed the backing of the American government...

The United States has been financing itself by leaning heavily on foreigners, particularly China, Japan and the oil-rich nations of the Persian Gulf...

...as American debts swell and foreigners hold more of it, nervousness grows that, some day, this arrangement will end badly...The New York Times.

Although neither free trade nor free markets actually exist on any large scale---they are all managed---it has become about impossible to question either in the US. Even the press, which was never enamored of free trade/markets when Reagan was pushing for them (markets and trade managed in a new way and called "free"), now defends them as nearly an unquestionable good. Even though they don't really exist.

Maybe after this crisis, we can rethink the way we manage markets, but still pretend it is free trade.

Sneaky Foreign investors being stubborn

..."The inevitable conclusion of the government's logic is that any foreigners, who do not say they won't sell their shares for 20 years, and who do not keep quiet, are not welcome to invest"...

...Under the Foreign Exchange and Foreign Trade Law, foreign investors seeking to acquire a 10 percent or more stake in Japanese firms deemed critical to national security, such as utilities and arms makers, must first gain government approval....

....The government declined to clarify the meaning of "national security" and "maintenance of public order," it said, adding that the Ministry of Economy, Trade and Industry also did not hold enough two-way dialogue. [sic]...

From the Japan Times article: TCI defies Japan's request to drop attempt to expand J-Power stake.

Pure Hypocrisy?

Nooooooooo......of course not.

Japan is rejecting a proposal from Britain's The Children's Investment Fund to raise its stake in a major electricity company, citing risks to public order, government officials said Wednesday.

Nothing new or unexpected here, and I am sure that it can be explained away as being rejected because it is a critical industry. Just like Bulldog sauces.