Japan’s Economy Shows Signs of Improvement

[thoughtone]

source: New York Times

TOKYO — Japan’s economy rebounded in the latest quarter for the first time in a year, signaling the possible end of the country’s deepest recession since World War II and brightening prospects for a widespread global recovery.

Japan’s economy, the world’s second-largest, plunged into recession in the wake of the global financial crisis last year. Exports, its mainstay, at one point fell to half their precrisis levels.

But a turnaround in exports and a vast fiscal stimulus program helped produce a 0.9 percent economic expansion in the three months that ended June 30, government figures showed on Monday, equivalent to annualized growth of 3.7 percent.

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

“The results were very positive,” said Takuji Aida, senior economist at UBS Securities Japan. “It’s true Japan would not have achieved growth without government stimulus. Still, the data shows that inventory adjustment is all but over, and we can expect growth going forward.”

The Japanese economy’s resurgence after four consecutive quarters of contraction — including an 11.7 percent fall in annualized terms in the previous quarter — adds to a slowly improving picture of the world economy. (The growth rate for the previous quarter was revised upward Monday from 14.2 percent.)

Last week, the German and French economies showed unexpected growth. The Federal Reserve said last week that the United States, the world’s biggest economy, appeared to be “leveling out.” China, Hong Kong, Singapore and South Korea have reported rebounds as the effects of stimulus efforts across the globe take effect.

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

At home, new tax breaks and incentives to help sales of energy-efficient cars and household appliances, coupled with lower gas prices and a rebound in share prices, spurred consumer spending. Prime Minister Taro Aso has pledged 25 trillion yen (about $263 billion) in stimulus money, including a cash handout plan and more public spending on programs like quake-proofing the country’s public schools, to revive the economy.

Investors have shown recent optimism in Japan’s economy; shares in Tokyo recently rallied to their highest levels since early October.

But the Nikkei 225 average dipped 1.5 percent in early trading Monday after the numbers were announced, after weak consumer sentiment data in the United States sent Wall Street lower on Friday.

Still, the outlook for Japan remains unclear, and some analysts question whether the economy can sustain this recovery after stimulus measures at home and elsewhere run their course. Falling employment and wages are also expected to weigh on consumer spending for some time.

Japan’s jobless rate hit a six-year high of 5.4 percent, and wages showed a record drop in June on an annual basis, dragging down consumer spending. Weak demand, coupled with falling oil prices, have put downward pressure on prices here, raising fears of prolonged and damaging deflation.

“With the factors driving the current rebound being temporary in nature, a self-sustaining recovery is still not in sight,” Ryutaro Kono, Tokyo-based economist for BNP Paribas, told clients in a report published before Monday’s numbers.

The latest growth recoups only a small fraction of the 8.8 percent the Japanese economy has lost since peaking in early 2008, Mr. Kono said.

Private capital investment and real estate values also remain weak, economists say.

Although production activity has increased with the turnaround in exports, “we have yet to see ‘active production’ backed by capital investment,” Kyohei Morita, chief economist for Japan at Barclays Capital, wrote in a note.

Though exports and industrial production are recovering, their levels remain well off their peak, saddling companies with excess capacity and employment, Mr. Morita said.

The Bank of Japan struck a similarly cautious note over prospects for a sustained recovery in a recent report. While the bank said the Japanese economy had stopped deteriorating, it warned that employment and wages would stay low for some time, hurting consumer spending. Despite this quarter’s growth, the bank predicts that Japan’s economy will contract 3.4 percent in the year to March 2010.

The latest uptick is unlikely to enhance the standing of Mr. Aso’s Liberal Democratic Party ahead of national elections this month, when many expect the party to lose its grip on power for only the second time in over half a century.

Voter surveys show that the Democratic Party, Japan’s main opposition party, which vows to put more money in the hands of consumers, is favored to beat the Liberal Democrats in the Aug. 30 balloting.

Support has soared for the Democrats and their ambitious election platform, which includes cash allowances to families with children, free tuition and lower gasoline taxes.

But some economists warn the Democrats’ plans will add to Japan’s growing debt, which already surpasses 180 percent of its gross domestic product.

Others say that Japan needs deeper structural reforms to raise productivity, especially in the face of a shrinking population. An overhaul of the tax and social insurance systems are also priorities for Japan.

Unless Japan can maintain robust growth into next year, the country will have suffered another “Lost Decade” of economic growth, after limping through much of the 1990s with little growth, Yutaka Harada, chief economist at the Daiwa Institute of Research, wrote in a recent note.

“Ten years after our Lost Decade, we’re finding ourselves in the midst of a second Lost Decade,” Mr. Harada said.

This article has been revised to reflect the following correction:

Correction: August 19, 2009
An article on Monday about the Japanese economy’s resurgence after four consecutive quarters of contraction misstated its drop in the previous quarter. The economy, which increased 0.9 percent in the quarter that ended June 30, fell 11.7 percent in annualized terms in the quarter before that — not 14.2 percent. (The figure was revised upward in the latest release.)

 

[thoughtone]

source: New York Times

Toyota Tops List of Cash-for-Clunkers Winners

DETROIT — The cash-for-clunkers program turned out to be a boon for Asian automakers and the small cars they specialize in.

While American government officials hailed the monthlong program, which ended this week, as an overall stimulus to the economy, the biggest winner was Toyota, which accounted for 19 percent of all sales and had two of the top three best-selling models.

The Transportation Department said Wednesday that participants in the clunkers program bought 690,000 new vehicles. About $2.9 billion of the program’s $3 billion was distributed in government vouchers, which were worth $3,500 to $4,500 toward new-car purchases.

Detroit’s three automakers — General Motors, Ford and Chrysler — accounted for 38.6 percent of the vehicles sold. That figure is substantially less than the 45 percent combined market share that the Detroit companies posted in the first seven months of the year.

Japan’s largest automakers — Toyota, Honda and Nissan — sold 41 percent of the new vehicles in the program, compared with the 34 percent combined share they had through July of this year. The Toyota Corolla was the top seller, followed by the Honda Civic, Toyota Camry, Ford Focus and Hyundai Elantra.

Not a single model from G.M. or Chrysler made the top 10 list, although G.M. came in second in overall clunker sales.

The success of Toyota and the other Asian automakers was driven by the type of cars in their showrooms. Participants in the clunkers program clearly were interested in downsizing to smaller, more fuel-efficient vehicles. About 84 percent of the clunkers traded in were trucks, and 59 percent of the vehicles purchased were cars.

Toyota and Honda have been the longtime leaders in sales of small and midsize cars in the United States. So it was hardly surprising that Corollas and Civics flew off dealer lots during the program.

“Consumers gravitated to cars known for reliability and fuel-efficiency,” said Rebecca Lindland, an analyst with the research firm IHS Global Insight.

The interest in small cars, however, could be a hopeful sign for the American auto companies as well.

Ford is betting that consumer tastes will continue to shift away from big vehicles, and is bringing out new versions of the Focus and Fiesta subcompact. G.M. and Chrysler have indicated that their postbankruptcy dealer showrooms will feature more small cars — and fewer trucks.

Over all, the clunker program will have an impact on lowering fuel consumption, albeit a small one given the number of vehicles involved. The average fuel economy of the vehicles turned in was just under 16 miles per gallon, compared with an average of almost 25 miles per gallon for vehicles bought in the program.

The top vehicles traded in, like the Ford Explorer and Jeep Grand Cherokee, were among the most popular of the sport utility era of the 1990s.

“This is a win for the economy, a win for the environment, and a win for American consumers,” said the transportation secretary, Ray LaHood.

A preliminary analysis of the program by the Obama administration said that third-quarter economic growth has been 0.4 percent higher because of auto sales in July and August. In addition, G.M., Ford and Honda all announced that they would increase production at some United States plants because of the increased demand generated by cash for clunkers.

Virtually every automaker reported increased showroom traffic because of the program. Just getting prospective buyers back into dealerships brought some measure of relief to an industry stuck in its worst sales slump in 25 years.

“It’s almost like people were coming out of their caves, and seeing that it was safe to go back into the showrooms,” said George Pipas, chief market analyst for Ford.

Industry analysts said the surge in interest would be followed by a letdown now that the program is over.

“Cash for clunkers distorted the market in a way that benefited the industry for four weeks,” said Jeremy Anwyl, chief executive of the auto-research Web site Edmunds.com. “Now the payback begins.”

Mr. Anwyl predicted that consumers might face higher prices on some models that were depleted by clunker sales. Also, manufacturers have little incentive to provide their own sales incentives because inventories are low.

Still, the program injected some life into the dismal auto market. Some analysts are forecasting that August sales will be higher than a year ago, marking the first year-over-year monthly increase since 2007.

“The program did exactly what it was designed to do — stimulate our economy,” said Representative John D. Dingell, Democrat of Michigan.

 

[thoughtone]

source: New York Times

Published: August 30, 2009

With Bold Stand, Japan Opposition Wins a Landslide

TOKYO — Japan’s voters cast out the Liberal Democratic Party for only the second time in postwar history on Sunday, handing a landslide victory to a party that campaigned on a promise to reverse a generation-long economic decline and to redefine Tokyo’s relationship with Washington.

Many Japanese saw the vote as the final blow to the island nation’s postwar order, which has been slowly unraveling since the economy collapsed in the early 1990s.

In the powerful lower house, the opposition Democrats virtually swapped places with the governing Liberal Democratic Party, winning 308 of the 480 seats, a 175 percent increase that gives them control of the chamber, according to the national broadcaster NHK. The incumbents took just 119 seats, about a third of their previous total. The remaining seats were won by smaller parties.

“This has been a revolutionary election,” Yukio Hatoyama, the party leader and presumptive new prime minister, told reporters. “The people have shown the courage to take politics into their own hands.”

Mr. Hatoyama, who is expected to assemble a government in two to three weeks, has spoken of the end of American-dominated globalization and of the need to reorient Japan toward Asia. His party’s campaign manifesto calls for an “equal partnership” with the United States and a “reconsidering” of the 50,000-strong American military presence here.

One change on the horizon may be the renegotiation of a deal with Washington to relocate the United States Marine Corps’ Futenma airfield, on the island of Okinawa. Many island residents want to evict the base altogether.

The Democrats, who opposed the American-led war in Iraq, have also said they may end the Japanese Navy’s refueling of American and allied warships in the Indian Ocean.

The White House issued a statement on Sunday saying it was “confident that the strong U.S.-Japan alliance and the close partnership between our two countries will continue to flourish” under the new government. “President Obama looks forward to working closely with the new Japanese prime minister on a broad range of global, regional and bilateral issues,” the statement said.

Political analysts expect Japan to remain a close American ally, but one that is more assertive and less willing to follow Washington’s lead automatically.

“This is what happens when you have a government in Japan that must be responsive to public opinion,” said Daniel C. Sneider, a researcher on East Asia at Stanford University. “It will end the habits from decades of a relationship in which Japan didn’t challenge the United States.”

At the same time, the Democrats want to improve relations with other Asian countries, including on the touchy issue of history. Analysts say the party seeks to reverse Japan’s growing isolation in the region under decades of right-wing Liberal Democratic rule.

Such changes are not likely to come quickly. Diplomatic analysts expect the Democrats to steer clear of security issues for the time being because they could prove too divisive for a party dependent on a broad ideological spectrum.

And some analysts have played down the rhetoric of Mr. Hatoyama, a bushy-haired former management professor, as a nod to his party’s left-leaning base rather than a firm pledge to alter dealings with the United States drastically. In recent interviews, Democratic leaders have insisted there will be no major changes in that relationship.

“It’s complete nonsense that a non-Liberal Democratic government will hurt U.S.-Japan relations,” said Tetsuro Fukuyama, a Democratic lawmaker who oversaw production of the campaign manifesto. “But there are many things left unchanged from the last 50 years that need to be re-examined.”

Analysts, however, saw the vote less as an embrace of the Democrats than a resounding rejection of the incumbents. The conservative Liberal Democrats, who with their precursors have held or shared power for 62 of the past 63 years, led Japan from bombed-out rubble to economic miracle, while keeping it firmly in Washington’s camp.

But the party has appeared increasingly exhausted and directionless, and Japan’s traditionally apolitical electorate, in a rare display of popular democratic muscle, firmly blamed it for the decline of this former economic superpower and its increasingly cloudy future.

“We have been trying to outgrow this old one-party system ever since the collapse of the Berlin Wall,” said Takeshi Sasaki, a political expert and former president of the University of Tokyo. “It took two decades, but we finally made it.”

Prime Minister Taro Aso told reporters that he would take responsibility for the defeat, and stepped down Monday as head of the party.

The exhilarating sense that Japan had reached a turning point drew long lines of voters to polling stations in Tokyo, where they braved darkening skies from an approaching typhoon. About 70 percent of eligible voters cast ballots, according to NHK, the highest turnout in nearly two decades.

“I want the Democratic Party to have a go at running the country,” said Akiko Tanaka, a 34-year-old nursing home care worker who voted at a junior high school in the Tokyo suburb of Sayama. “If we keep going like we’ve been, nothing will get better. We need a new government.”

A top priority for the new government will be simply maintaining the unity it achieved on Sunday. The largely untested Democrats, a broad coalition of former Socialists and Liberal Democrat defectors, hope to avoid the mistakes of the only previous non-Liberal Democratic government, in 1993, which collapsed in just 11 months because of infighting and defections.

That imperative virtually assures no sudden, radical departures in foreign policy. Rather, analysts expect the Democrats to focus at least initially on their more ambitious domestic agenda.

The party has pledged to change the postwar paradigm here as well, promising to ease growing social inequality by handing more money and social benefits directly to residents rather than to industry or other interest groups.

It has promised to strengthen the social safety net and raise the low birthrate by giving families cash handouts of $270 per month per child. And the party has said it will rein in the powerful central ministries in Tokyo, which have run postwar Japan on the Liberal Democrats’ behalf.

But even here, most people have not embraced the party’s platform with much enthusiasm, nor are they optimistic about the Democrats’ ability to solve looming problems like the growing government debt and a rapidly aging population.

To many voters, the most important fact of this election was that they finally had a choice.

“This vote is about making a system where parties that fail get kicked out,” said Yoshiyuki Kobayashi, 40, one of the white-collar corporate workers known here as salarymen. “We need to teach politicians to be nervous.”

 

[thoughtone]

Japan gets it!

source: New York Times

Published: August 31, 2009

Japan’s Victors Set to Abandon Market Reform

TOKYO — Japan’s opposition party won an overwhelming victory at the polls on Sunday pledging to increase social welfare, better protect workers and do away with American-style, pro-market reforms to lead the country out of its long slump.

But while the presumptive prime minister, Yukio Hatoyama, rallied campaign crowds with his pledge to shift away from the “excessive” market reforms of recent years, many economists here say Japan may need more American-style deregulation and market-led growth, not less, to invigorate its stagnant economy.

“Reform has become a bad word” in Japanese politics, said Richard Jerram, chief economist for Japan at Macquarie Securities.

“Japan is now more reluctant than ever to use market forces to raise productivity,” he said. “But these changes are crucial.”

In a manuscript widely circulated in business and diplomatic circles, Mr. Hatoyama, the leader of the Democratic Party of Japan who stands to become prime minister when the party assumes power this month, railed against American-style capitalism as “void of morals or moderation” — a blight Japan must cast aside at all costs.

“The recent economic crisis resulted from a way of thinking based on the idea that American-style free-market economics represents a universal and ideal economic order,” Mr. Hatoyama wrote in a recent syndicated opinion article. The article was first published in a Japanese monthly magazine and later carried by the online edition of The New York Times.

Mr. Hatoyama, however, seemed to back away from his tough language a day after his victory at the polls.

The Op-Ed article “did not present an anti-American way of thinking over all,” he told The Yomiuri Shimbun, Japan’s largest daily newspaper.

The young party’s defeat of the long-ruling Liberal Democrats, who have governed Japan for nearly its entire post-World War II history, comes amid a wider backlash against what many voters see here as damaging reforms championed by the long-serving former Prime Minister Junichiro Koizumi. The reforms, which coincided with a swing toward pro-market policies in the United States, included liberalizing Japan’s rigid labor market and forcing banks to cut off support to heavily indebted “zombie” companies.

The Democrats argued that such measures, intended to snap the country out of a long period of slow or negative growth, may have weakened the economy further. They also argue that overdependence on exports, as well as other close economic ties with the United States, has exposed Japan to the devastating effects of the global financial crisis.

“We’re in the midst of an economic crisis, and there’s a feeling that the crisis originated in the United States, and it was the fault of American policy makers and that the countries are paying the price of policy errors,” said Steven Vogel, political science professor at the University of California, Berkeley. “There you have the makings of a very appealing political platform.”

The Democrats are expected to form a coalition with the Socialists and the conservative People’s New Party — smaller parties that are decidedly against market reform — which could reinforce this tendency toward government-led solutions to the economic crisis.

The Democrats’ platform centers on initiatives like cash allowances for child-rearing families and lower gasoline taxes. Such policies could bring about the start of recovery by lifting Japan’s flagging consumer spending.

The Democratic Party has also promised to wrest away power from ministerial bureaucrats to ensure that spending more closely reflects public needs. But the party’s leaders have not had much to say about how to address productivity, or Japan’s continuing battle with deflation, or the overhang of a huge public debt.

Japan may be famous for its ruthlessly efficient, competitive manufacturing industries — like Toyota’s just-in-time production, in which parts are delivered just before assembly to keep inventory low. But its domestic service sector, which makes up 70 percent of the economy, is an overregulated, inefficient mess, businessmen and economists say.

The backlash against reform worries entrepreneurs like Hideo Sawada, who forced open Japan’s cloistered domestic airline sector in 1998 with Skymark Airlines, its first new carrier in 43 years.

After years of delay by the Japanese government, Skymark received permission to fly just half a day before its first flight was due to depart. Eleven years later, the carrier has still not been granted a license for international flights.

“To do anything new in Japan means dealing with a nightmare of licenses, rules and vested interests,” Mr. Sawada said. “For Japan to grow, and for it to stay competitive, it needs to get serious about opening up what are frankly backward sectors. I don’t get the sense the Democrats see that as a priority.”

Many outdated rules protect inefficient companies, while entrepreneurship is kept in check by cumbersome barriers. Economists say excessive government assistance to small and medium-size companies works to dampen competitive pressure.

The state of affairs is a legacy of an industrial policy, formed under the rule of the departing Liberal Democrats, that has long focused on honing the competitiveness of Japan’s export-oriented manufacturing sector. The policies helped bring about Japan’s rapid postwar economic growth and fed its bubble economy until its collapse in 1990. The rest of the economy, in contrast, has been relatively sheltered from both international and domestic competition.

Now, with a rapidly aging population and almost no immigration, Japan must increase its productivity, economists say.

“If the population isn’t growing, then there’s no other way forward than for each worker to be more productive,” said Hideo Kumano, economist at the Dai-Ichi Life Research Institute in Tokyo. “But that’s not happening, at least in most areas of the economy.”

The fragility of Japan’s export-oriented economy has been underlined in the global financial crisis: a collapse in Japan’s overseas shipments amid falling demand for cars and electronics caused an annualized 11.7 percent fall in the country’s gross domestic product in the first three months of the year.

The economy rebounded 3.7 percent in the latest quarter, as overseas shipments picked up; but economists doubt whether that recovery, set off by stimulus spending worldwide, is sustainable.

Evidence of low productivity is everywhere in Japan: multiple workers crowd around cars at gas stations to clean windows and collect trash; the shift to information technology at Japanese offices is surprisingly slow, with workers still laboring over paper files and records.

Japan’s jobless rate is at a record high of 5.7 percent, and it could be as high as 12 percent if not for a government subsidy program that encourages companies to keep surplus workers, according to a recent report by Nomura Securities.

“The Democrats are veering off the reform path, but I don’t see what will come in its place,” Toshio Nagahisa, executive director of PHP Research Institute, a Tokyo-based research group, told a recent forum.

“Right now, I find it hard to envision Japan’s future.”