TOKYO (Nikkei)--Japan almost certainly saw its first trade deficit in 31 years in 2011, and experts warn that unless the gap is plugged with interest and dividend income from abroad, Japan will continue to see an outflow of money and have to rely on overseas funds for its fiscal management, such as by issuing government bonds.
Japan booked a deficit of 2.3 trillion yen in its balance of trade -- exports minus imports -- in the January-November period of 2011, according to government data. The red ink is attributed to a slowdown in exports due to the yen's record-breaking appreciation and an increase in imports of liquefied natural gas for thermal power generation to make up for the suspended operation of nuclear plants in the wake of the catastrophe last March.
The last time Japan incurred an annual trade deficit was 1980, at 2.6 trillion yen.
Structural shift For structural reasons, Japan is widely expected to continue running a trade deficit. If the utilization rate of nuclear reactors stays lower than the level before the March 11 earthquake, imports of fuel for thermal power generation will increase. In addition, exports will fail to grow if the European debt crisis continues to weigh on the global economy.
"Japan's trade deficit will expand unless the world economy achieves a high growth rate, as it did in 2002 to 2007, and the yen continuously weakens," said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co.
The Council on Fiscal and Economic Policy, an advisory panel set up by the administration of former Prime Minister Junichiro Koizumi, forecast in its "Vision of Japan in the 21st Century" report in April 2005 that Japan would fall into a trade deficit in fiscal 2030. The fact that a deficit will likely come in 2011 means the nation's trade structure has changed 20 years earlier than forecast due to the Lehman Brothers collapse and the March 11 disaster.
The council report envisioned that Japan, despite trade deficits, would become a "mature creditor country" capable of maintaining a current account surplus on interest and dividend income from abroad and capitalizing on global economic growth. But such a scenario is growing less certain. The current account is the sum of a nation's balance of trade, services, income, and current transfers such as foreign aid. For Japan, the balance of services, which reflects the amount of overseas travel by Japanese people, as well as the balance of current transfers, have remained negative. Japan has thus kept its current account in the black on exports in excess of imports and interest and dividend income.
The surplus in the income balance topped that in the trade balance in 2005 and grew to 16.3 trillion yen in 2007. But it fell to 11.7 trillion yen in 2010 due to drops in interest rates in major countries following the collapse of major U.S. investment bank Lehman Brothers Holdings Inc. in September 2008.
Kanno expects Japan's trade deficit to reach 14.3 trillion yen in 2015 against a surplus of 14.8 trillion yen in the income balance. Combining deficits in the other two balances, Japan will post a deficit in the current account that year, he says. Need for foreign money
Hiromichi Shirakawa, chief economist at Credit Suisse Securities (Japan) Ltd., forecasts that Japan's current account will become negative in fiscal 2014. A deficit in the current account means the need to tap savings in the household, corporate and government sectors. To obtain a loan, the government needs to attract money from abroad, as in the case of the U.S.
Kanno warns that yields on government bonds will "soar" unless Japan shows a path toward fiscal rehabilitation by spending cuts and tax hikes. A comprehensive social security and taxation reform plan, drafted by the government and the ruling bloc, calls for raising the consumption tax rate, currently 5%, to 8% in April 2014 and to 10% in October 2015.
With the likelihood growing that Japan will fall into a current account deficit in the middle of the 2010s, it is becoming more important than ever to restore health to the nation's public finances. Fears of job exodus
Direct overseas investment from Japan strongly affects the country's balance of income. Japanese companies spent a record high of more than 5 trillion yen to acquire foreign businesses in 2011 against the backdrop of the yen's steep appreciation. There is growing concern about a hollowing out of Japanese industry as more manufacturers shift operations overseas. But cumulative direct overseas investment by Japanese companies remains much smaller than that by U.S. and European firms, which have a longer history of making such outlays. For example, such spending equals 15% of Japan's nominal gross domestic product, compared with 75% for Britain and 31% for the U.S.
The surplus in Japan's income balance stems largely from interest income on foreign government and other bonds, with such money accounting for 50% of the balance in the January-October period of 2011. To expand the surplus, dividend income needs to rise by increasing foreign direct investment. Japanese companies are boosting overseas investment to seek new sources of growth. Takeda Pharmaceutical Co. (4502), for example, acquired a Swiss drugmaker for 1 trillion yen. "We cannot grow unless we go to emerging economies," said Takeda President Yasuchika Hasegawa. Slow to act
But if the strong yen continues to weaken the competitiveness of exports from Japan, domestic manufacturing operations will drastically shrink, expanding the country's trade deficit. While a gradual overseas shift in production by firms along with their nation's economic growth is unavoidable to some extent, rapid industrial hollowing-out eats into domestic job opportunities.
What is worrying to many is that despite the fact that the yen's sharp appreciation is making such a consequence more likely, the government and the Bank of Japan have been slow to take countermeasures. -- Translated from an article by Nikkei staff writer Iori Kawate
(The Nikkei Jan. 9 edition)
TOKYO (Dow Jones)--The International Monetary Fund is conducting stress tests on Japanese banks to gauge how vulnerable they are to a potential drop in the value of their huge holdings of Japanese government bonds, people familiar with the matter said, a move that could sharpen investors' focus on another aspect of the risk posed to Japan's economy by its ballooning debt.
Credit ratings firms, investors, and even Japan's central bank governor have expressed concerns about the growing debt, now equal to about twice the country's annual economic output, but much of the attention has been on the government's ability to sustain its large budget deficits. The IMF's tests may shed more light on another danger: the massive exposure of the Japanese financial system to JGBs and how much damage a rise in bond yields could inflict on Japanese banks. This comes as governments around the world are particularly sensitive to the financial-system and fiscal vulnerabilities, in light of the euro-zone debt crisis.
The stress tests will be the first since 2002-2003, when the IMF conducted its first close inspection of Japan's banking system under its Financial Sector Assessment Program. Japan isn't being singled out; the U.S., Germany and the U.K. have also been subject to similar FSAP examinations, one of the people said.
"This is what needs to be done. This is being conducted in other nations as well," the same person said.
The outcome may be made public in July together with the results of separate annual policy consultations between the fund and Japanese policy-makers, the people said. Japan can require the IMF to keep the results private.
Japan's case could attract attention. The sovereign debt crisis ravaging the euro zone has underscored the risks to European banks from their holdings of government bonds. JGB prices have so far shown no signs of weakness, with 10-yield yields now below 1%. But if yields rise, JGBs prices would fall, potentially forcing banks to write down their holdings and take hits to their capital.
Since the early 2000s, Japanese banks have increased investment in JGBs for lack of other profit-making opportunities amid Japan's ever-sluggish economy. Japanese banks held Y383.911 trillion, or roughly 39%, of outstanding JGBs, including short-term debt and government-guaranteed debt, as of Sept. 30, according to Bank of Japan data. That is equivalent to about 25% of their total assets.
A BOJ report on the financial system in October indicated major banks could sustain capital losses worth about Y3.4 trillion and regional banks losses of Y2.8 trillion if bond yields were to rise by a one-percentage point across the curve, pushing down prices of their bond holdings. "Within both major and regional banks, the risks associated with bond investment have clearly increased," the BOJ report said.
Japanese interest rates could eventually rise if the government fails to get a grip on its budget deficits, analysts say. Public debt has grown to more than 200% of gross domestic product from around 150% in 2003, higher than any other major industrialized nation, including debt-crisis-hit European economies.
Closer scrutiny of the dangers posed by Japan's debt problem may add to pressure on the government, which continues to fund more than half of its spending through debt. The government aims to double the 5% sales tax by 2015 to help mend its finances, but the nation's political gridlock has kept the outlook for the tax plan foggy.
Since late last year, discussions on the stress tests have been under way between Japanese and IMF officials, such as over what economic conditions they should assume in measuring risks of banks' exposure to JGBs, one of the people said. The IMF's mission team plans to visit Japan in March for the tests, and the whole process is likely to be completed by July. As in the previous test nearly a decade ago, the IMF is looking at major banks as well as regional banks, the people said. It is also examining Japan Post Bank, one of the biggest single investors in JGBs.
The results will depend on assumptions used, such as how quickly JGB yields could rise. Some finance ministry officials say the pace of any JGB yield gains could be slow as it wouldn't be easy for investors to shift such huge amounts of money quickly into other assets. But analysts warn moves could be abrupt, as illustrated by the rapid rises in Italian government bond yields in recent months. Few economists expect Japan to fall immediately into a crisis similar to Europe's. More than 90% of JGBs are held by Japanese investors. Japanese private-sector savings, for now, is also enough to absorb the government's debt sales.
But if Japan's current debt trajectory continues, it could become harder for the government to maintain such stability in the JGB market. Standard & Poor's cut Japan's credit rating by one notch to double-A-minus last January, the first downgrade for Japan since April 2002, and has a negative outlook on the rating. Moody's Investors Service has a stable outlook on its Aa3 rating on Japan. The IMF in November warned in a report that "Should JGB yields rise from current levels, Japanese debt could quickly become unsustainable ."
(The Nikkei Jan. 5 edition)
TOKYO (Nikkei)--Panasonic Corp. (6752) expects to post a group net loss of 420 billion yen in the year to March 31 due to a range of structural reforms, including efforts to aggressively scale back its domestic TV business.
"As business models, vertical integration and self-sufficiency are impossible because of six key obstacles in Japan," said Panasonic Chairman Kunio Nakamura. Japanese manufacturers are struggling under the strong yen, heavy corporate taxation, the slow response to trade liberalization trends, electricity shortages, strict labor laws and tough environmental rules.
Hamano Products has transformed itself into a company that generates 500 million yen in annual sales. Panasonic has concluded that it will be strategically impossible to compete by cutting costs or continuing the mass-production of key parts such as liquid crystal panels, or even final products. The company is therefore trying to position itself as an environmental innovator.
"We are on the edge of a cliff," Nakamura said. "We will do our utmost to generate high earnings and dividends by 2015." Smarter operations
Many Japanese manufacturers need to fundamentally change their way of thinking and shift to "wiser" production models if they wish to avoid self-destructing. The future success of such firms hinges on whether they can start to make this shift this year. One way to achieve wise production is to develop technologies that incorporate expertise that cannot be easily duplicated. For example, Seiwa Kogyo Co., a hydraulic equipment manufacturer in Yokohama, has cornered the market with its photocatalyst-based air purification technology, yet it only has about 30 employees.
Over the course of nearly two decades, Seiwa has cemented its status by developing and applying photocatalytic technologies under the leadership of its founder and chairman, Kaoru Kuriyano. It recently developed an energy-saving air purifier using a photocatalytic technology, along with several major companies as part of a development project by the government's New Energy and Industrial Technology Development Organization (NEDO).
The NEDO project developed a method that uses visible-light diodes, which can be mass-produced, so it should pave the way to an inexpensive power-saving solution. Based on this development, Seiwa has devised the new air purifier. University of Tokyo professor Kazuhito Hashimoto, the project leader, said Seiwa has developed the first energy-saving, photocatalytic air purifier in the world. "It was the result of long, accumulated efforts," he said.
NEDO's antivirus and sterilization project at New Chitose Airport in Hokkaido, meanwhile, is testing 386 air purifiers supplied by Seiwa. The experiment, if it proves successful, will pave the way for Seiwa to become a new leader in Japan's infrastructure exports. Even existing technologies can become distinctive if properly used. Hamano Products Co. in Tokyo's Sumida Ward, which was a small sheet-metal working subcontractor with a workforce of four or five people 10 years ago, has transformed itself into a company that generates 500 million yen in annual sales and employs some 30 workers, due to a strategic shift made by its second president, Keiichi Hamano.
He changed Hamano Products from a subcontractor that mass-produced low-cost parts into a company that makes trial products for rapid delivery to client firms, ensuring that it even generates profits on small-lot orders. The company is now able to design efficient mass-production plans tailored to the development aims of its clients.
Hamano Products now serves approximately 650 client companies, up from four when it started. Over the past year, it has signed between 70 and 100 new clients. Sales rebounded in November, after falling in the wake of the disaster on March 11, 2011, to double the amount typically seen in a normal year. This has ensured that Hamano Products is still in the black, according to company officials.
Seiwa and Hamano Products have both shown the importance of taking new and resourceful approaches to business. --Translated from senior Nikkei staff writer Kazuo Mori
(The Nikkei Jan. 9 morning edition)
TOKYO (Nikkei)--Robust sales of high-priced items, such as jewelry and accessories, are boosting department store earnings.
Pretax profit rose at Takashimaya Co. (8233) and J.Front Retailing Co. (3086) in the nine months ended Nov. 30. Including the two firms, four of the nation's five major department store operators saw December sales increase on the year.
Mitsukoshi Ltd.'s store in Tokyo's ritzy Ginza district enjoyed a 10% year-on-year jump on Monday, the first business day of the year. At Seibu Ikebukuro Department Store, shoppers in their 20s and 30s were seen snapping up designer-brand wallets and other big-ticket items. Regional cities, such as Sendai and Fukuoka, also saw lavish spending by consumers. Sales at the JR Nagoya Takashimaya store shot up 5.9% on the year to 11.87 billion yen in December, a single-month record. Hakata Hankyu department store in Fukuoka beat its sales target for the first three days of 2012 by 10%.
A factor contributing to the robust sales of upscale items is the redemption of Japanese government bonds for individuals, which started last year. Unable to find new investment vehicles, they are spending part of the redeemed funds, analysts say.
(The Nikkei Jan. 7 morning edition)
TOKYO (Nikkei)--Clothiers with Harajuku-style fashion brands will join forces to help smaller apparel companies open stores in China. Nice Claup Co., OLIVEdesOLIVE, M's Co. and a Chinese firm will establish in the spring an organization dubbed Harakawa to aid clothiers hoping to break into the Chinese market. Around 10 companies are expected to join in the first year.
The group, to be based in Shanghai, will consolidate negotiations to clinch large spaces for joint store openings, boosting their bargaining power in terms of rents and leasing periods. By exploiting the expertise of the four firms, which each have 80-120 stores in China, Harakawa aims for about five joint store openings a year. To help spread the brands nationwide, Harakawa will hold four events a year, including fashion shows for magazine publishers and retailers.
Although Japanese fashion is high on the radar of China's younger generation, smaller apparel companies face difficulties securing prime locations in commercial facilities on their own. The four firms hope to increase their own store networks in China by helping others set up shop.
(The Nikkei Jan. 5 morning edition)
TOKYO (Nikkei)--While Tokyo Sky Tree, the city's newest, tallest landmark, is an everyday topic of conversation ahead of its opening in May, a number of other big facilities will open to much fanfare
in Tokyo in 2012 -- a sign of hope amid scars left by the March 11 earthquake and tsunami.
East Japan Railway hopes the restored Tokyo Station building will become a symbol of the Marunouchi district.
A project to restore Tokyo Station's Marunouchi building to its former glory after 67 years is gathering steam. Built in 1914, the building was partially burned down during World War II. When it was rebuilt, a number of shortcuts were taken with the original design to get the station open quickly.
The original building had two dome-shaped roofs and the restored edifice work uses natural slate from a supplier in Ishinomaki, Miyagi Prefecture for the roof. The slate was washed away by the March tsunami but was undamaged.
The restored building will rise three stories above the ground and have two underground floors, and a total floor space of 43,000 sq. meters. On the second and third floors, it will have a 150-room hotel with a Western-style interior. Rooms will go for about 20,000 yen per person, per night. East Japan Railway Co. (9020) began the restoration in 2007, estimating its cost at 50 billion yen. It is hoped the building will become a symbol of the Marunouchi district, where a number of redevelopment projects are under way.
Something old, something new On a vacant lot next to Tokyo Station that was once home to the Tokyo Central Post Office, a 38-story building, JP Tower, is rising. It will be completed this spring, shortly before the new station building is finished.
JP Tower will have office spaces of more than 3,000 sq. meters each above the eighth story, making it one of the most spacious office buildings in the Marunouchi district, according to people involved in the project.
Among other features, JP Tower will have a replica of an old post office, commercial facilities and a tourist information center on its lower floors. To the southwest, in Tokyo's Shibuya Ward, Tokyu Corp. (9005) will open a 34-story building complex called Shibuya Hikarie, on the vacated site of the Tokyu Bunka Kaikan hall on the east side of the railway operator's Shibuya Station on April 26.
The new building will host offices and commercial facilities, including 26 restaurants offering Japanese and foreign cuisine on the sixth and seventh floors. Tokyu Department Store Co. will open a store that will occupy five stories aboveground and three of the four underground stories.
Shibuya Hikarie will also be the home of Tokyu Theater Orb, a musical theater that will occupy floors 11-16 of the complex. The theater, whose walls and seating will be done in blue, is scheduled to show popular Broadway musicals such as "West Side Story" and "Million Dollar Quartet." As the tallest tower in the world, Tokyo Sky Tree in Sumida Ward has drawn the most attention among the big new facilities making their debut in 2012. Well before its scheduled opening on May 22, Tokyo Sky Tree has already received nearly 30,000 reservations for group tours. The tower will do far more than relay signals. It will have two observation decks, an aquarium and 310 stores in its "Soramachi" section. These are expected to attract 25 million visitors a year, according to the operator.
Its neighbors in Taito Ward are also looking to cash in on Tokyo Sky Tree fever. The ward office is launching a campaign to lure tourists to its Ueno and Asakusa districts, through which many visitors will pass on their way to the tower. Sumida Park nearby with be lit with paper lanterns and an Asakusa Ondo dance festival will be held on Kaminarimon Street near the district's famous Sensoji Temple.
(The Nikkei Jan. 5 morning edition)
TOKYO (Nikkei)--Amid the possibility of a Japanese trade deficit, the yen is not likely to replicate last year's sharp gains in 2012, said Minori Uchida, senior analyst at Bank of Tokyo-Mitsubishi UFJ, in a recent interview with The Nikkei. Excerpts from the interview follow.
Q: What do you expect for the yen this year?
A: The yen will probably not appreciate like it did last year. The dollar may hover at 75-84 yen. The yen may face increasing selling pressure this year from the standpoint of Japan's trade balance. The nation's trade surplus has historically been massive, making the home currency susceptible to surges. But energy imports have picked up sharply since the Fukushima Daiichi nuclear crisis.
At the same time, slowing growth in Asian economies -- major buyers of Japanese goods -- will sharply reduce Japan's exports, resulting in a trade deficit. Consequently, the yen may see selling this year.
Upward pressure on the yen will abate. The currency market continues to harbor concern about the prospect of yen-selling interventions by the government and the Bank of Japan. The market will require a considerable amount of energy to push the yen past its all-time high of 75.32 set against the dollar last Oct. 31.
Q: Speculation is growing about the possibility of another round of U.S. quantitative easing.
A: Such a move could be possible depending on U.S. economic conditions, but whether additional easing would weaken the dollar is doubtful. Dollar-yen exchange rate movements are correlated with U.S. interest rates. Two-year rates have fallen to 0.2%, limiting room for a further decline. If U.S. interest rates don't fall, the dollar is unlikely to face selling.
Q: What about the outlook for the euro?
A: The European currency will probably not decline sharply. European banks under pressure to shore up their capital may pare back emerging-market currencies and other assets while increasing euro purchases. This will help underpin the euro. Even if the currency weakens to 95 yen or so, further depreciation is unlikely.
(The Nikkei Jan. 6 morning edition)
The Office of Commercial Affairs, Royal Thai Embassy in Tokyo, Japan
Source : http://www.depthai.go.th