TOKYO (Nikkei)--Following Friday's devastating earthquake, Prime Minister Naoto Kan must decide on a large budget allocation to support ongoing relief operations, substantially reducing child-rearing allowances and other less urgent outlays in the fiscal 2011 draft budget.
Given the unprecedented scale of the damage, rescuing and supplying the victims with emergency provisions is a race against time. The government urgently needs to secure the financial resources for the relief efforts.
The catastrophic earthquake that hit Hyogo Prefecture 16 years ago caused an estimated 10 trillion yen in damage, according to the prefectural government. With the losses resulting from the latest disaster expected to be far larger, both the ruling and opposition parties must do their utmost to ensure the victims receive relief items quickly and to prevent the Japanese economy from plunging into chaos.
Kan must exercise leadership to work out a bold financial package of relief measures, modifying the planned fiscal 2011 budget so as to give quake victims a sense of security.
The budget includes 2.9 trillion yen to finance child-rearing allowances as well as an appropriation for toll-free expressways. Such outlays should be drastically cut to secure reserves to facilitate the relief and reconstruction of quake-hit areas. Saved funds should be used flexibly, such as for building temporary housing.
Trillions of yen can be made available by imposing an income cap on child-rearing allowances and cutting them. While support for parents raising children is important, it is of a much lower priority than relief for people suffering amid the unexpected national crisis.
More funds will be needed to help quake victims and rebuild affected areas. It is therefore important for the government to demonstrate its respect for fiscal discipline, both at home and abroad, by allocating less urgent outlays to relief measures.
The government must prevent interest rates from rising as a result of overseas investors dumping Japanese government bonds due to being discouraged by Japan's economic and fiscal management.
The Nikkei Stock Average plunged below the 10,000 threshold Monday, while the yen's rise against the dollar accelerated on expectations that institutional investors will step up the procurement of yen funds.
The government must therefore implement refined measures to avert confusion in financial markets and activities.
The Bank of Japan provided a record 21.8 trillion yen to money markets Monday, when it also decided on a 5 trillion yen increase in its program to buy assets such as stocks, corporate bonds and commercial paper. The moves are aimed at removing anxiety from the stock and corporate bond markets in the aftermath of the quake.
While the additional credit-easing measures are appropriate, the BOJ should be flexible enough to take more action as the occasion demands.
Source: The Nikkei March 15 morning edition
NEW YORK (Nikkei)--American financial institutions and others have begun downgrading their 2011 growth forecasts for Japan by 0.2 to 0.5 percentage point, with some estimating that economic losses from the earthquake and nuclear crisis will reach up to 17 trillion yen.
Wells Fargo & Co. has lowered its growth projection for price-adjusted gross domestic product from 1.2% to 0.9%. The economy of northeastern Japan, which bore the brunt of the March 11 earthquake and tsunami, is smaller than the area hit by the 1995 Great Hanshin Earthquake.
But the psychological and economic blow from the nuclear crisis could be significant, says Scott Anderson, senior economist at Wells Fargo.
On top of destruction to infrastructure and facilities, Japan faces a slowdown in consumer spending and corporate activity that may bring economic losses to 15 trillion yen, compared with the 1995 quake's 10 trillion yen, Anderson says.
JPMorgan Chase & Co. has cut its growth forecast from 1.7% to 1.4%. The figure was revised down sharply for the first half but bumped up to more than 3% for the second half on the expected boost from rebuilding efforts.
U.S. research firm IHS Global Insight Inc. estimates damage to reach at least 200 billion dollars, or roughly 16 trillion yen. It projects that growth will dip between 0.2 and 0.5 point compared with before the disaster.
But should the nuclear crisis escalate, it may have an adverse impact on the growth rate, IHS Chief Economist Nariman Behravesh warns.
U.K.-based Barclays Capital now believes that quake-related damage may reach up to 17 trillion yen instead of the previously projected 15 trillion yen. It has downgraded Japan's growth forecast from a pre-quake 2% to 1.7%.
Citigroup Inc. is sticking with its 1.7% growth projection. And JPMorgan and others have upgraded their forecasts for 2012, citing the effects of fiscal spending, monetary easing and rebuilding.
Source: The Nikkei March 19 morning edition
TOKYO (Nikkei)--Japan should make an all-out effort to work closely with its global partners to promote market stability and prevent an earthquake-driven domestic economic crisis from spreading outside its borders.
In an unusual move, the Group of Seven members announced Friday they would carry out coordinated yen-selling interventions in the foreign exchange market to curb excess volatility in the Japanese currency.
Japanese monetary authorities were the first to intervene, sending the dollar to nearly 82 yen during Tokyo trading and the Nikkei Stock Average back above 9,000 as the markets acknowledged the strong resolve shown by the G-7. The U.S. Federal Reserve, the European Central Bank, as well as the U.K. and Canadian authorities also sold yen on Friday.
A number of concerns are already emerging for the global economic outlook as Japan, the world's third-largest economy, scrambles to respond to the aftermath of last week's powerful earthquake and tsunami, which includes an escalating nuclear crisis.
Suspended supplies of materials, parts and products from Japan pose a risk to the global market. Production ought to be restored quickly, but the aftereffects of the quake will inevitably linger.
Speculation has been brewing that Japanese institutional investors may sell foreign-currency-denominated assets to make insurance claim payments and meet funding demand for quake-rebuilding efforts. The Finance Ministry has denied that this is a possibitity, but it could go a step further by conducting inquiries at major institutions and disclosing the results.
There is also concern that financial institutions with ballooning valuation losses on foreign-currency-denominated assets and stocks will be forced to sell such holdings as the fiscal year-end approaches later this month. But as long as the dollar does not fall below 80 yen again, such investors should be able to avoid new valuation losses.
The Nikkei average stood at the 8,100 level on March 31, 2009, the end of a tumultuous fiscal year that included the collapse of Lehman Brothers Holdings Inc. Domestic banks and other institutions use that level to book stock valuation losses. With the Nikkei index's Friday close holding about 1,000 points above that mark, banks are not under pressure to conduct large write-downs with the potential to sharply reduce capital ratios and create credit crunches.
The Japanese government and Bank of Japan need to continue forming a cooperative structure with the U.S., Europe and others, while providing accurate and swift information disclosures to prevent anxiety triggered by the current situation from spreading worldwide.
This is Japan's responsibility to the global community.
Source: The Nikkei March 19 morning edition
TOKYO (Nikkei)--The drop in land prices as of Jan. 1 was smaller than a year earlier, but the downtrend may persist now that the value of more properties will likely fall as a result of last week's earthquake.
Land prices are certain to plunge in the areas struck by the quake and tsunami. In the six months after the 1995 Kobe earthquake, land prices there tumbled an average of about 15%. The fall exceeded the average drop of six major cities by more than eight percentage points.
If reconstruction progresses, land prices will gradually pick up, as they did before. But such a recovery takes a considerable amount of time.
A stable supply of power is essential to holding up property prices. Japan's electricity system ranks fifth worldwide, measured by such parameters as blackout frequency and voltage stability, according to the World Economic Forum. Rolling blackouts being carried out primarily in the Kanto region will rock the basis of the nation's high standing to the core.
The planned outages will also weigh on the economy. U.S. investment bank Goldman Sachs Group Inc. estimates that the blackouts will push down gross domestic product by about 0.5%. The earthquake may also erode sentiment in the country for a prolonged period, which could stunt a budding recovery in commercial land prices under way in Tokyo's ritzy Ginza district.
The disaster this time around has forced real estate markets to come to terms with the potential impact of tsunamis, even though they may not occur that often. The value of land and properties located in more vulnerable areas will likely be downgraded to reflect tsunami risk.
A foreign financial institution has put Tokyo's earthquake risk at 100 times that of London's. Risk in Japan's capital will further increase. This will block firms and institutions from setting up operations in Tokyo, and will impede efforts to revitalize the city as a financial center.
The Land Ministry earlier had said land prices showed signs of rebounding in the year to Jan. 1. But the massive earthquake that hit northeastern Japan is certain to dramatically change that view.
--Translated from an article by Nikkei senior staff writer Yasuo Ota
Source: The Nikkei March 18 morning edition
NEW YORK (Nikkei)--The triple whammy that hit Japan -- a magnitude 9.0 earthquake, ensuing tsunami and deepening nuclear crisis -- has dealt a blow to global economic prospects, catching many Wall Street players and major U.S. firms completely off guard.
Still, Wall Street has been here before. New York bankers played a major role in financing the reconstruction of Tokyo after the Great Kanto Earthquake of 1923. But Japanese leaders in government and industry will have to lay out a convincing, detailed reconstruction plan for the country to attract much-needed investment capital from overseas.
Major U.S. investment fund Blackstone Group L.P. has closed its Tokyo office for a week, allowing its employees to leave Tokyo with their families if they wish, to avoid possible exposure to radiation emanating from the Fukushima No. 1 nuclear plant.
The best laid plans
The fund had turned more bullish on the Japanese economy before the quake, purchasing more than 2 billion dollars (160 billion yen) of commercial property in Japan during the second half of 2010. Chief Executive Stephen A. Schwarzman had predicted that Japan's economy would grow by nearly 2% this year, giving a boost to global growth as well.
But now, the string of disasters is a significant downside risk to Blackstone's earnings this year, as well as to the Japanese and global economies. And Blackstone is not alone among Wall Street investment firms in feeling Mother Nature's wrath.
Since the temblor, the Dow Jones Industrial Average has erased almost all its gains for the year. Falling share prices appear to have dashed hopes, at least for the time being, that households' rising stock portfolios would give a shot in the arm to consumer spending, which accounts for nearly 70% of U.S. gross domestic product.
Companies whose stocks have been hit hardest show how the Japanese quake could hurt the global economy. Aircraft maker Boeing Co. has expressed concern over delays from Japanese suppliers, which would, in turn, disrupt production of its new 787 Dreamliner jet. A Boeing executive conceded that even a delay of several weeks would cause problems, sending Boeing shares sharply lower.
An expected fall in consumer demand in the world's third-largest economy will likely hit the bottom lines of quite a few companies. Starbucks Coffee, for example, has roughly 900 shops in Japan, more than anywhere else in Asia. Its Japanese stores account for about 5% of the global total.
The quake and tsunami have forced the firm's stores in affected areas to suspend operations for an extended period, and rolling blackouts will also likely force stores in other areas to cut their operating hours.
The deepening nuclear crisis has also seriously darkened the outlook for nuclear power in the U.S. and elsewhere. General Electric Co., which designed the reactors at the stricken Fukushima power plant, has seen its shares take a beating. As a result, it has just been overtaken by Microsoft Corp. as the third-largest U.S. company by market capitalization.
Not all overseas investors are bearish on Japan, however. Some are betting Japanese demand will bounce back strongly as reconstruction gets under way.
Pacific Investment Management Co. LLC (Pimco), a major bond investment firm based in Newport Beach, Calif., mapped out an investment strategy based on the assumption that Japan will recover relatively quickly. That forecast is backed by what happened after Great Hanshin Earthquake in 1995, according to Pimco. Supply shortfalls resulting from quake damage initially weakened demand, but it rebounded strongly and quickly once reconstruction efforts picked up steam.
Japan, flush with bank savings, will be able to raise reconstruction funds under favorable terms, the firm believes. Since Japan's recovery is essential to a robust global economy, the thinking goes, Japan will be able to raise ample funds from overseas as well.
Pimco's optimistic forecast is predicated on prompt government action, however. Rebuilding damaged infrastructure and giving people the means to buy daily necessities are essential to get the Japanese economy firing on all cylinders quickly. Time is of the essence, especially given the yen's spike against the dollar immediately after the quake.
A Pimco official who mapped out the firm's Japan strategy said it all comes down to politics. Unless the government quickly takes the necessary policy steps, demand will be slow to recover. This, in turn, would depress tax revenues, make it harder for the government to provide a fiscal stimulus and cause the economy to deteriorate even further. Political gridlock is thus the greatest risk, in Pimco's view.
When greater Tokyo was flattened by a major quake in 1923, suffering damage equivalent to more than 40% percent of its GDP at the time, Wall Street came to the rescue. Japan was then an emerging economy with a relatively low credit rating, but overseas investors actively bought Japanese government bonds to finance reconstruction.
That flow of capital from overseas was made possible by Finance Minister Junnosuke Inoue and others, who worked hard to win foreign investors' trust by laying out a detailed growth strategy for J.P. Morgan and other Wall Street investment banks.
One can only hope the current generation of Japanese leaders can give overseas investors the same degree of assurance and attract the funds needed to finance the reconstruction of areas devastated by the latest disaster.
--Translated from an article by senior Nikkei staff writer Makoto Kajiwara
Source: The Nikkei March 18 morning edition
TOKYO (Nikkei)--The yen temporarily rose to the range of 76 against the dollar on Thursday morning, setting a new record high as Friday's earthquake and the damaged nuclear power plant in Fukushima Prefecture spurred speculative yen purchases amid surging demand for the currency.
The strong yen will help lower prices of imported crude oil and other raw materials, but it will also likely deal a heavy blow to Japanese exporters.
The Japanese government and the Bank of Japan must show firm resolve in addressing the current national crisis, in order to cut the potentially vicious cycle of a surging yen and a sliding stock market. They must promptly establish a comprehensive system to deal with the crisis.
Despite expectations that the quake and the nuclear crisis would trigger a decline in the yen, the currency continues to climb. A similar situation arose in January 1995, when the Great Hanshin Earthquake struck western Japan. In April of that year, the yen hit a record high of 79.75.
One major factor behind the yen's current strength is speculation that Japanese investors will have no room to allocate their investment funds overseas. Many also predict that Japanese companies will be forced to sell assets denominated in dollars and other foreign currencies in order to obtain yen funds, such as payments for quake insurance claims. Based on these scenarios, overseas investment funds are rushing to buy yen over the short term.
Meanwhile, Mizuho Bank's ATMs across Japan were temporarily shut down on Thursday morning. The suspension of cash withdrawals, money transfers and payment settlements at the bank added to the factors disrupting economic activity across the country.
The strong yen and the stock market downturn will likely cut deeply into the earnings of companies, banks and institutional investors, as many firms will close their books at the end of March. If they start rapidly selling off their holdings of stocks and foreign currencies to minimize losses, it will only further accelerate the yen's rise and the decline of stock prices.
Source: The Nikkei March 17 evening edition
TOKYO (Kyodo)--The government ordered Fukushima and three other prefectures Monday to refrain from shipping spinach and another leaf vegetable for the time being in accordance with a nuclear disaster law following the detection of radioactive substances in the produce at levels exceeding legal limits.
While issuing the orders to Ibaraki, Tochigi and Gunma as well as Fukushima, the government's nuclear disaster countermeasure headquarters also asked Fukushima, where a troubled nuclear power plant is continuing to leak radioactive substances into the air, to refrain from shipping raw milk.
The readings for radioactive substances found in the produce, despite being at levels exceeding provisional limits set under the Food Sanitation Law, "aren't readings that would affect humans," Chief Cabinet Secretary Yukio Edano said at a news conference.
"Eating food with (radioactive levels) exceeding provisional limits isn't going to affect your health," he added, urging the public not to overreact to the findings.
Concerning vegetable and dairy farmers who will be affected by the restrictions on shipments, the top government spokesman said the measure is premised on "appropriate compensation" to be provided by the government because it has imposed the regulatory measure.
Radioactive iodine and cesium have been found in recent days in spinach and other vegetables produced in and around Fukushima at levels exceeding legal limits since the radiation leaks at the six-reactor Fukushima Daiichi nuclear power plant following the March 11 earthquake and ensuing tsunami.
Source: The Nikkei March 21
TOKYO (Nikkei)--In the days following the earthquake in eastern Japan, severed supply chains forced manufacturers to halt production. Here is what Japan's three leading automakers did and didn't do to get their own operations, and those of their suppliers, moving again.
At 7 a.m. on Thursday, six days after disaster struck, Nissan Motor Co. (7201) Chief Operating Officer Toshiyuki Shiga got a call as he was readying to give a news conference as chairman of the Japan Automobile Manufacturers Association.
On the other end of the line was Toyota Motor Corp. (7203) President Akio Toyoda, the association's vice chairman, proposing to ask the government for help in getting relief supplies to disaster areas. Shiga put the idea into his presentation.
The two have kept in frequent contact since the quake. Shiga also set up a "hot line" with Honda Motor Co. (7267) President Takanobu Ito, he says. Their discussions have focused on support for parts makers.
Their companies share a bitter experience from the Niigata earthquake of July 2007. Work ground to a halt at many auto plants after Riken Corp. (6462) became unable to ship out engine components. Automakers dispatched more than 700 support personnel who helped Riken restart production in just one week.
The effort left a widespread sense of accomplishment but also some lessons. Some questioned whether getting factories up and running again took priority over helping communities. The influx of so many support personnel created shortages at local stores. Above all, there is the question of whether the technical assistance they gave was really of any help.
This time, the severity of disruptions to parts supplies is beyond comparison with past disasters. Automakers have set up a joint headquarters for support measures and are sharing damage reports and other information. They have a plan that aims to provide more effective support by dividing their forces by region and building teams on the fly. Staff from, say, Toyota may end up lending a hand to a parts maker that does business with, say, Nissan.
Through hot lines, the automakers have reached a silent understanding not to compete to be the first to restart production. A scramble for parts would only burden suppliers in the disaster areas and sap their strength to recover.
Toyota, which procures most of its parts from factories in the Tokai region a ways south of the disaster zone, could have restarted some production soon after the quake. Instead, it announced early on that it would halt its factories until Tuesday, after a three-day weekend.
"Honestly, it was a help," says an executive at another automaker in talking about Toyota's stance. "We were able to get by without having to ask for the impossible from our clients."
For Honda, the disaster hit home. When Ito saw the damage to the company's new-car R&D center in Haga, a town in Tochigi Prefecture, it left him speechless. The quake collapsed the roof, killing one employee.
With nearly all information systems down, Honda had no choice but to tell employees to stay home. But one division sprung into action: purchasing, which handles parts procurement. On the day after the quake, it relocated its functions to Honda's Saitama plant. About 100 employees began working through the night to get in contact with suppliers.
Altogether, the company has 113 suppliers in areas that reported tremors of at least 6 on the Japanese seismic intensity scale. As employees kept updating handwritten charts showing the extent of damage and which parts would be hard to come by, the gravity of the situation became clear.
"Honda is going to need a considerable amount of strength to get back on its feet," Ito told employees in a video message March 14, asking everyone to lend a hand.
The automaker, which took its own hit from the disaster, faces the twin tasks of its own recovery and of helping suppliers.
Source: The Nikkei March 21 edition
The Office of Commercial Affairs, Royal Thai Embassy in Tokyo, Japan
Source : http://www.depthai.go.th