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.

Don't worry, be happy

Japan's debt is apx 200% of GDP---the world's largest---but it isn't as bad as it seems 'cause most of the debt is owed to domestic suckers holders of government bonds.

"...Given Japan’s demographics, the current-account surplus may decrease and some even say it will go into deficit” in the long term, Masaaki Kaizuka, director of debt management at the ministry, said in Tokyo today. “We may see the need to increase reliance from abroad, whether we want to or not.” Bloomberg Businessweek

According to the article, Japan's debt may rise to 246% of GDP in 2012. Will Japan still have a AA- credit rating? Will foreign investors care? Will they rush in for the same 1.4% yield on a 10-year bond?

We should refrain from panic because according to Naoki Izuka of Mizuho, the government simply* needs a "feasible, credible and sustainable fiscal plan" and to resolve the problem within 5-years and "we'll be fine."

Nothing to it. A simple thing for any government, but especially the government here, whether led by the DPJ, the LDP, the Commies, or whatever. And we know how welcome foreign investors have been in the past.

*My word, not his.

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.

Lots of idiots around...or is it just me?

Over the last few days there have been some stirrings about the DPJ possibly, maybe, perhaps opening discussion on raising the consumption tax. Of course PM Hatoyama countered Nutty Natto Kan with his version of "Read my lips, no consumption tax increase. We are just going to start talking about it during a recession to boost the economy. We'll let the voters decide although I am not going to increase it anyway maybe for sure."

I'm cool with this. Only a bunch of lunatics would try to run a country forever with promises of no new taxes except on the other guy, while spending the money of future generations for everything except filling in potholes in roads and in society because for one reason or another, deficits don't matter. But this is not about the USA.

Really, the DPJ has been trying its best to right the economy they inherited from the LDP. One of the things that impressed me is how the wasteful practice of moving large quantities of earth from one spot to another for no useful purpose seems to have decreased under the new government. I have no stats, but that's just an impression from my somewhat less frequent cycling workouts along the Tamagawa. Mud-moving projects have noticeably decreased in size if not quantity since the autumn.

Perhaps, however, the money was shifted elsewhere. Every day, on the walk from my Mansion to Denenchofu station, I get to pass through the now 2 (or 3?) year old water line project which makes the street nearly impassible for humans and autos. As on construction projects everywhere, there seem to be about 5 people standing around and "supervising" for each person who is actually working. But what makes this a great economic stimulus is that not only do we get to pay the salaries of folks who could be better utilized serving tea to those who are working, but we get to pay to have the street and sidewalk dug up every single morning and refilled and resurfaced (with asphalt) every single evening. Wonder how much time and money that costs? Did Yukio not notice this when he lived in Denenchofu just a few short months ago? But who am I---a taxpaying resident who should never be allowed to vote for fear upsetting the apple cart with dangerous foreign influence---to say anything about that. Let the neighbors grumble---which they are. (Hear anything Yukio?)

Speaking of EVIL foreign influence:

Referring to the downgrading of the outlook for Japan's long-term government bonds by foreign rating companies, State Minister for Financial Affairs Shizuka Kamei said, "The Japanese are susceptible to foreign influences. There are lots of idiots." He thus indicated his dissatisfaction with the nature of credit ratings and the way people respond to them. Kamei is set to have regulatory power over credit rating companies starting in April. (From Feb 16 Asahi Shimbun. I cannot find a link as of yet.)

Now I don't really know what the hell this fellow was trying to say. He seemed to be angry that credit rating companies could rate Japanese bonds without asking. Maybe he was hinting at some future administrative guidance for those foreign companies. Why not? It's surely a lot easier than trying to un-screw-up the now decades old screwed-up economy. Besides, Japan owes most of its money to its own citizens, not foreigners, and it is easier to get away with screwing your own investors than it is screwing foreign investors. Or so the theory goes.

My question is: Does Kamei consider himself to be one of the idiots, or is he referring to the people whom he supposedly serves? (Let's pretend. We know that most folks in his line of work here do not consider themselves servants of the public, but more "nannies" of the childish masses. Tuche' to Fujiwara Masahiko.)

Incidentally, Kamei, a Shintaro Ishihara fan, "studied" economics at Tokyo University. Mr. Idiot also opposes foreigner suffrage* as allowing those bastards to vote could fuel nationalism. Who said that the LDP was dead?

A big arigatou in the direction of the Potomac for alerting me to this.

*We Western immigrants ought not be too hard on Kamei for this view, for he was apparently referring to those permanent residents of Korean heritage which makes it all OK.

22 Feb 2010 update: They have now begun to work directly on the road (instead of the sidewalk) and are no longer covering it with asphalt every evening. Time and money saved---what will they think of next?

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.

Thanks Uncle Sam

Nissan Motor Co. is likely to receive more than ¥100 billion in low-interest loans set up by the U.S. government to promote the development of and transition to electric vehicles and other fuel-efficient cars, sources said Friday.

Nissan is the first foreign automaker that is close to winning approval for the direct loans... Full story at the Japan Times.

There was a news report earlier about how people in China are being laid off just at (Chinese) New Year because of the recession in the US. The program, being a US news and exaggerate-if-it-has-entertainment/shock-value program, made it appear that huge numbers were being fired. This is not really shocking news, so we'll assume that it is an accurate report.

If so, one has to wonder how some countries, especially Japan and China, have allowed themselves to get in such position. China could be given a bit of a pass perhaps, since it is still a developing country and its many of its citizens are not wealthy enough to become "consumers" yet.

But Japan, despite all the old goofballs whining about foreign money and clammering for a return to the Jomon Period, has spent the last 60 years ensuring that it remains dependent on the US for both a market and a military. Developing its own market (and foreign policy) has been an afterthought thought of only after the US leaned on the retrogummers.

While the moans and whimpers are that this was all for the benefit of evil US capitalists and their dirty foreign money (the money is OK, it's the possible foreign control of money---investment---that is evil) it seems to have helped consumers too. An obvious example: Had there been no US pressure, there would have been no Uniqlo had the Japanese tradition crowd continued in their way. Or at least it would have been much more difficult to start. Remember the "Large Store Retail Law"*?

Regardless, one has to wonder what is wrong here? Countries that seem to very unhealthily dependent on the whims of the US consumer are now complaining about consumption and debt in the US. If the improbable should happen and there is a long-term change in the borrowing and spending habits of the US and consumption does fall (along with the dependence on foreign borrowing), do these folks have any alternative plans that does not consist selling of industrial goods to China so that it may produce and export products to the US? Or do they plan to mostly go back to what they've been doing for decades. Change in China seems possible, even likely. Change in Japan....

The other side of the coin is, will the US really change? Wonder where the money for the possible 1-2 trillion dollar deficit the country will face will come from? Two guesses.

* I can't find a link to anything other than extracts, but as I remember it, the Large Store Retail Law restricted stores with a floor space over a certain size from opening in an area unless several hurdles were cleared and the owners of small shops in the area agreed. Owners of small shops tend not to agree to business suicide. (A link to a very good explanation found here.)

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.

With one of the biggest crisis's in at least the last 20-30 years, and with the US and much of the world likely to change in very significant ways over the next several years, it is tough to come up with something to post that is not comparatively trivial.

MTC, however, has a good post on Shisaku. This one concerns the earlier Japanese (and more recently, Chinese) policy of keeping their currencies artificially low vs the dollar, the building of huge currency reserves---often loaned back to the US---and how this has contributed to the current crisis and that it may effect a bigger change on Japan and Asia than many seem to realize.

I think that this is just the tip of the iceberg. Perhaps I am over reacting....

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.

You Don't Understand Japan

Reuters reports: Japan is not closed to foreign investors, including funds that press for increased shareholder rights, the head of financial regulation in the world's second-largest economy said on Tuesday...

... Sato declined to comment specifically on TCI and Steel Partners, he did say that Japan is not closed to foreign investors, including those who rally for change...

..."The FSA treats financial firms and investors equally, regardless if they are domestic or foreign," he said....

(The pendant will note that the accuracy of Sato's statement depends on the meaning of "closed." Or perhaps what the meaning of is is.)

It's like the 1980s again. Japan never had a closed market, it's just a difference in culture and misunderstanding on the part of (dumb) foreigners.
This could be good news for Fukuda and the LDP as since Japan is not closed to foreign investment, then there is no need to risk "confusion" by cutting corporate taxes to attract said foreign investment (while increasing the consumption tax).

Black is white, left is right, up is down.

Rice shortage relief?

...Japan imports a substantial amount of medium-grain rice from the US and long-grain rice from Thailand and Vietnam....

...to protect its domestic rice protection, Tokyo stocks the imported rice until it deteriorates, then sells it as livestock feed on the Japanese market...

..."Japan would be very happy to dispose of this rice to the world market, but it cannot do so without US acquiescence"....Yahoo Malaysia

Denenchofu, the customer-free zone

Denenchofu Tokyo (Ota-ku) is an interesting place. It is quite expensive in nearly every part, but especially so on the hill above the station. Lots of TV stars and sports figures live in the area.

There is a small shopping area---perhaps it could be called a "downtown." The interesting thing about it is that you almost never see a customer in any of the shops. In fact, even if one wants to shop in one, it might be a bit difficult as the hours can be somewhat irregular. Then there are the prices. One woman remarked that the shops there all had old products at double the price. This is only a slight exaggeration.

Some people think that these shops might be operated for tax purposes. Take a loss on your business and write down your overall tax bill. Whatever it is, given the price of real estate in the area, it is hard to believe that most of those shops are not losing tons of money.

There are a few places with customers---the drug store with discounted prices which are still higher than the surrounding areas; Denenchofu McDonalds, where hygiene is a dirty word; over-priced Precce, the only grocery store nearby; the aerobics school for kids; and the English school (not "downtown" but near the station.)

The latter two seem to have a good arrangement here. The kid's aerobics school is said to have a relationship with a TV station. That TV station often uses children in some of its programs. Guess what one of the sources for the children is? It is so popular that the parents are said to have to undergo interviews to put their children in the aerobics class.

The English school is said to have made a sweet deal with the powers in Denenchofu. No other English school will be given permission to open in the area. Sort of a competition-free zone.

Okusawa, which is the next station up the line---or a 10 minute walk away---has many small shops and is bustling compared to Denenchofu. The folks there even appear to want business. It seems that they are not very interested losing money to lower taxes, or to make special deals with English schools.

*8 May 2008: Somewhat properly proofread and corrected.*