TOKYO (Nikkei)--Like it or not, more government debt and higher taxes will have to be on the list of options for financing the recovery effort in eastern Japan. But the negative impact on the business climate must be held in check so that the economic revival does not veer off track.
One thing is certain: The cost will be immense. The Cabinet Office estimates 16-25 trillion yen in direct damage from the earthquake and tsunami -- and this does not include the Fukushima Daiichi nuclear accident. Some see government spending on cleaning up and rebuilding, spread out over multiple supplementary budgets, adding up to more than 10 trillion yen.
The problem is how to pay for all this. Naturally, a portion of the money should come from a rollback of some of the ruling Democratic Party of Japan's banner policies, notably the child care subsidy and toll-free highways. The rest will have to be made up by issuing more government debt.
There is talk in the government of issuing disaster bonds that the Bank of Japan would buy. This would risk undermining Tokyo's fiscal discipline and its credibility in the financial markets. Long-term interest rates are prone enough to upswings as it is. Any policy that threatens to push them higher must be approached with caution.
The recovery effort cannot rely solely on running up more debt. Temporary tax increases will need to be considered as a means of easing the fiscal strain from the disaster.
It would certainly be better to pay for rebuilding by asking more of Japanese today than by passing the bill to future generations, to the extent possible. But taxes must not be raised willy-nilly. Which taxes should go up, when, and for how long? How to cushion the economic blow must be given thought. Nor should the corporate tax cut planned for fiscal 2011 be discarded lightly without thought to its benefits. This measure is designed not only to lower costs for domestic firms, but also to attract foreign investment. If anything, its importance has grown since the disaster now that more foreign companies are reluctant to do business in Japan.
The BOJ's tankan survey for March, released Friday, shows a modest improvement in confidence among big companies but came out too early to reflect enough of the disaster's aftereffects. By some estimates, the economy may have slipped into negative real growth in the January-March quarter.
The government, the ruling coalition and the opposition all share the responsibility for reviving the economy. We hope that they will remain focused on growth and tax and fiscal reform as they look for ways to fund the recovery effort.
Source: The Nikkei April 2 morning edition
NANJING (Kyodo)--Financial leaders and economists from the Group of 20 developed and developing countries began a one-day meeting Thursday in Nanjing, eastern China, focusing on reform of the international monetary system and possibly the impact of the March 11 earthquake and tsunami that devastated northeastern Japan and sparked a nuclear crisis in the country.
Some delegates may call for faster appreciation of the yuan as a way of addressing global economic imbalances, although China has ruled out discussion of its currency policy at the High-Level Seminar on the International Monetary System.
French President Nicolas Sarkozy, who chairs the G-20 and the Group of Eight major nations this year, and Chinese Vice Premier Wang Qishan opened the event, which also brings together U.S. Treasury Secretary Timothy Geithner, European Central Bank President Jean-Claude Trichet and Zhou Xiaochuan, governor of the People's Bank of China.
Later Thursday, Sarkozy will fly to Tokyo for talks with Prime Minister Naoto Kan and offer support to the Japanese people, making him the first foreign leader to visit Japan since the disaster triggered radioactive leaks from a nuclear power plant in one of the affected areas.
Financial markets have grown concerned that uncertainty in the Japanese economy in the wake of the nuclear crisis may pose a downside risk to the world economy, as may the instability in the Middle East including Libya and the sovereign debt crisis in Europe.
In Nanjing, delegates are expected to discuss the current state of the international monetary system, measures to cope with speculative capital flows, ways to strengthen global financial safety nets and surveillance of macroeconomic management, and an increased role for the International Monetary Fund, among other issues, French officials said.
France has made reform of the global monetary system one of the key themes of his yearlong presidency of the G-20, along with reducing economic imbalances and volatility in commodity prices. The Nanjing gathering paves the way for a meeting of G-20 finance ministers and central bank governors slated for around mid-April in Washington and subsequent events in the run-up to a G-20 summit in November in Cannes, southern France, according to the French officials.
At a meeting in February in Paris, G-20 financial chiefs agreed to a set of indicators to measure economic imbalances between surplus exporters such as China and indebted nations including the United States.
Global imbalances are reflected by the huge U.S. trade and current account deficit versus China's large surplus and dollar reserves. Washington has been prodding Beijing to let its currency, the yuan, rise in value against the dollar to help address such imbalances.
Representing about 80 percent of the world's gross domestic product, the G-20 groups Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United States and the European Union.
Source: The Nikkei March 31, 20011
TOKYO (Dow Jones)--Japanese industrial production posted a surprise gain in February, rising a seasonally adjusted 0.4% from the previous month as production of machinery increased, the Ministry of Economy, Trade and Industry said Wednesday in data compiled before the devastating March 11 earthquake and tsunami.
The result compared with the median forecast of a 0.2% drop in a poll of economists by Dow Jones and the Nikkei. The result marked the fourth straight month of gain following a 1.3% rise in January.
The data components showed production of automobiles rose 3.4% from a month earlier, due largely to strong demand from the U.S., while general machinery production rose 2.4%, and iron and steel production was up 3.5%--the latter due to demand from China.
The data also showed that manufacturers polled by the ministry expect orders to rise 1.4% in March, and drop 1.3% in April.
However, the data and forecasts were compiled before a 9.0-magnitude earthquake and subsequent tsunami devastated northern Japan and severely disrupted the supply chain for a number of key industries. A METI official briefing reporters said the government would need to monitor the effect of the disaster carefully.
"We are still of the view that production is recovering, but going forward, we must monitor any quake-related effects closely," the METI official said.
Damage to factories from the quake--along with subsequent power outages which are expected to continue for months--mean industrial output will likely fall 3% to 4% on month in March, and 1% to 2% in April, which would smother overall economic growth ahead, said Takuji Aida, senior economist at UBS Securities Japan.
"The auto sector is the biggest concern, given its centrality to manufacturing and exports, and the severity of some of the production cuts there," he said.
To counter the expected negative impact of the quake and ongoing nuclear power plant emergency in the northern area of Fukushima, the government has started work on a supplementary budget for the fiscal year that begins April 1.
Finance Minister Yoshihiko Noda has pledged to submit the first of those budgets to parliament within the next month.
The government is considering making the first extra budget worth Y2 trillion to Y3 trillion, according to the Kyodo news agency. Economists speculate that total additional government spending for rebuilding efforts could reach Y10 trillion over the coming years.
Source: The Nikkei March 30, 2011
TOKYO (Nikkei)--Citing the need to focus on the nuclear plant crisis and quake recovery efforts, Prime Minister Naoto Kan said Tuesday that he will shelve talks on a consumption tax hike and a trans-Pacific free trade zone.
"Once we have a clear picture of which way things are going, we will consider how to proceed," Kan told the upper house budget committee Tuesday, explaining that his two key projects need to be put on hold for now.
The government had planned to decide in June whether Japan should participate in the Trans-Pacific Partnership trade talks as well as how entitlement and tax reforms should be carried out. Chief Cabinet Secretary Yukio Edano now acknowledges that changes to the initial plans are inevitable.
The government has yet to say whether it plans to present its entitlement reform proposal along with revenue estimates in April as initially planned.
Edano is aware that the government cannot wait too long. "The aging of the society and birthrate declines continue regardless of the quake's impact," said Edano. "The global march toward free trade will not wait for Japan to recover from the quake."
While focusing on the quake's aftermath, the government plans to continue working-level discussions on the topics.
Both are politically charged issues that are certain to elicit strong objections while quake recovery efforts carry no political risk. Kan is likely to win easy cooperation from opposition parties in order to help quake-hit areas.
In a policy speech last October, Kan said the government will explore the possibility of joining the TPP. The cabinet approved in November plans to take part in discussions with other countries. And to promote discussions on a consumption tax hike, Kan tapped Kaoru Yosano -- a former finance minister and ex-Liberal Democratic Party policy chief -- as economic and fiscal policy minister in a January cabinet reshuffle.
Kan saw the consumption tax and the TPP as issues that could potentially help keep him in power. By publicly tackling two grand projects that will likely determine the future of the country, Kan had hoped to halt the slide in his public approval ratings and survive a parliamentary session that ends June 22. But now Kan and his government are truly needed by a public clamoring for relief measures following the devastating earthquake. He no longer needs the consumption tax and the TPP to justify his raison d'etre. Aomori, Iwate, Miyagi, Fukushima and Ibaraki prefectures, which bore the brunt of the disaster, are also major producers of agricultural products, making participation in the TPP -- which will hurt the domestic farming industry -- a politically risky proposition.
Source: The Nikkei March 30 morning edition
TOKYO (Kyodo)--Japan's record 92.41 trillion yen budget for fiscal 2011 was enacted Tuesday, although there is no prospect of the Diet passing a bill to enable the government to issue bonds to secure more than 40 percent of its funding.
The budget for the year starting in April was voted down earlier in the day in the opposition-controlled upper house of parliament.
However, under the Constitution, the annual budget will be enacted within 30 days of being sent to the House of Councillors after the lower house's approval, even if the upper house rejects it or does not hold a vote on it. The House of Representatives voted for it on March 1.
After the House of Councillors' rejection, the conference committee of the two chambers held talks on the budget. But wide differences between ruling and opposition parties remained and its enactment was declared in the early evening by House of Representatives Speaker Takahiro Yokomichi.
Japan's annual budget was enacted in time for the start of a new fiscal year for the 13th straight year.
For the second consecutive year, borrowing will exceed tax revenues. The government has decided to issue new government bonds worth about 44.30 trillion yen, while 40.93 trillion yen in tax revenues is projected for the new fiscal year.
Unlike the budget, the bill to issue deficit-covering bonds must be approved by the two chambers, or supported by a two-thirds majority when re-voted on in the 480-seat more powerful lower house -- which Prime Minister Naoto Kan's ruling coalition does not have.
Due to the difficulties of passing the bill, the coalition led by the Democratic Party of Japan had decided to only vote on the budget earlier this month in the lower house.
Following the enactment, Kan's government is now also faced with the task of creating an extra budget in fiscal 2011 to address the aftermath of the catastrophic March 11 earthquake and tsunami.
Kan told a parliament session Tuesday that he will try to draw up a supplementary budget by the end of April to secure necessary funds for reconstruction work in the northeastern region, hit hard by the twin disasters.
As to other budget-related bills, the House of Representatives passed one that would prolong a range of existing tax breaks for three months from April. The bill is expected to be enacted on Thursday in a plenary session of the upper house as opposition parties are also supportive of the extension of the benefits.
A bill to extend the current child allowance program for six months was also approved by the lower house. The upper house is expected to block the stopgap bill.
But the bill's enactment appears to be likely as the Japanese Communist Party is supportive of it in the event of re-voting on it in the lower house, making it possible for Kan to win the required two-thirds majority.
Source: The Nikkei March 30, 2011
TOKYO (Nikkei)--Supplies of metals like zinc and copper, chemicals like hydrogen peroxide and other basic materials such as the resin used for inks have declined steeply since the earthquake, due both to damage to factories and the rolling blackouts.
If the situation persists, the lack of access to basic materials could impact the production of a broad range of finished goods.
To prevent that from happening, materials makers are scrambling to compensate by such means as emergency imports and using substitutes.
According to the Japan Mining Industry Association, 65% of domestic production capacity for zinc is shut down, while 32% for copper is offline.
The Hachinohe smelting works of Mitsui Mining & Smelting Co. (5706), the largest domestic maker of zinc, was damaged in the earthquake, and it is not known when it will resume operations.
Zinc is used in steel sheets for homes and cars to prevent rusting. It is also employed for the roofs and walls of temporary shelters, so the shortage can even impact recovery efforts in damaged regions of Japan.
Mitsui Mining is taking steps to boost zinc production at other facilities in Japan, as well as cease exports of the metal and seek procurements of ingots from overseas.
Copper is used for the wiring and circuit boards of electronic products. Copper refineries that were stopped by the quake include the Onahama smelter of Mitsubishi Materials Corp. (5711). This has not caused much trouble so far, since production of cars and consumer electronics has declined. But if copper supplies remain tight, shortages could hold back a recovery in these industries.
Declines in supplies of basic petrochemicals are having a widening impact on materials that are synthesized at chemical complexes. Operations at the major petrochemical production site of Mitsubishi Chemical Holdings Corp. (4188) in Kashima, Ibaraki Prefecture, have been completely halted.
Fully 70-80% of domestic production capacity for hydrogen peroxide, used for paper bleaching and semiconductor cleaning agents, was shut down by the earthquake.
Mitsubishi Gas Chemical Co. (4182) has a roughly 50% share of the market but its Kashima plant is not operating. Another maker, Adeka Corp. (4401), has stopped operations at its Fuji Plant since March 14 because of the planned rolling blackouts.
Mitsubishi Gas Chemical said that its inventories for hydrogen peroxide will run out sometime in April, so it plans to import the chemical from its plant in China and from other foreign makers.
Even so, it is not clear whether domestic demand can be met, and that has Japan's papermakers beginning to voice worries.
Makers of inks for newspapers and offset printing, which account for half of all domestic ink demand, face a situation where supplies of the basic resin ingredient for ink could run dry in around a month.
Maruzen Petrochemical Co., which basically monopolizes the domestic market for ink resin, does not know when it can resume operations at its quake-damaged Chiba plant.
In response, Sakata Inx Corp. (4633) is seeking procurements of pigments from China and India, while Toyo Ink Mfg. Co. (4634) is considering the use of substitute materials for its inks.
Source: The Nikkei April 1 morning edition
TOKYO (Dow Jones)--Japan's domestic sales of new cars, trucks and buses dropped 37.0% from a year earlier in March, as the devastating earthquake and tsunami on March 11 disrupted domestic production for all automakers and cut off vehicle supplies to dealers.
Auto sales totaled 279,389 in March, the seventh-straight monthly decline, the Japan Automobile Dealers Association said Friday.
The massive quake and tsunami hit auto assembly and parts manufacturing plants in northeastern Japan, causing parts shortages for domestic and some overseas car makers.
Japan's top three automakers all reported sharply lower sales in the month. Toyota Motor Corp.'s (7203) sales fell 45.9% in March from a year earlier, while Nissan Motor Co.'s (7201) sales fell 37.7% and Honda Motor Co.'s (7267) sales fell 28.3%.
Auto sales, as measured by registrations of vehicles with the government, are monitored by economists, since they are the first consumer spending numbers released each month.
The figures don't include sales of mini cars or trucks.
Source: The Nikkei April 1, 2011
TOKYO (Nikkei)--FamilyMart Co. (8028) is expected to report a group pretax profit of nearly 40 billion yen for the year ended February, up 12% on the year and exceeding an earlier forecast by about 800 million yen to mark an all-time high.
Sales grew an estimated 15% to a little shy of 320 billion yen, buoyed by the acquisition last March of the former am/pm Japan Co. Some 330 am/pm stores were converted into FamilyMarts, and these locations boosted the appeal of such products as boxed lunches and desserts. As a result, daily sales increased roughly 20% on average compared with before the conversion.
Demand was robust for private-label prepared foods, including high-margin rice balls with gourmet ingredients. Cold beverages under the private brand also sold well.
FamilyMart lured smokers, with cigarette sales surpassing year-earlier levels by about 20% each in January and February. This helped push up daily same-store sales about 3%.
Overseas operations also delivered strong earnings, with subsidiaries in South Korea and Taiwan recording higher profits and a Thai unit swinging to the black.
Source: The Nikkei March 25 morning edition
The Office of Commercial Affairs, Royal Thai Embassy in Tokyo, Japan
Source : http://www.depthai.go.th