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Fukuda steps down, foreign media doesn’t get why

In an article published very recently, we read this:

Japan’s stock and bond markets will likely suffer another blow from the sudden resignation of Prime Minister Yasuo Fukuda

I guess that’s good news for those looking for a bottom, though it makes little rational sense. Here’s the kicker:

[Fukuda’s] departure is seen clouding the reform outlook and potentially spurring debt-funded spending.

Really? Fukuda was about as anti-reform as they come. Who does this reporter expect next - Ito Hirobumi?

My favorite part:

[A]nalysts said foreign investors will not be thrilled with Japan’s prime minister departing in surprise fashion

What surprise? Two weeks ago ago, Yoshiro Mori, the big gun and Kingmaker in the ruling Liberal Democratic Party, said that Fukuda was all but done - on national television, no less. There is no surprise here. Those of us who live in Japan and pay taxes here - and watch television - understand exactly why this happened now - the ruling Liberal Democratic Party needs more time to get its bills through the diet. Let me say it again: There is no surprise. Mr Mori said on national television that Fukuda was no good and that he wanted Aso in the position.

The article goes on to explain how Fukuda’s resignation will be bad for Japan’s equity markets (despite the fact that Japanese equity markets have already had two weeks to price in Fukuda’s resignation):

Since Fukuda took over from Abe nearly a year ago, the Nikkei share average has lost 22 percent — even more than the U.S. S&P 500 — as foreign investors have soured on Japan.

That sounds like good news to me. Get rid of the guy who oversaw a 22% loss in equity value while Japan’s longest post-war period of economic growth died. Good news!

The article then points out:

Fukuda’s likely successor, ruling party executive Taro Aso, is seen as someone who could boost the size of the government’s just-launched spending package to help households and small companies, but the length of his tenure is expected to be short.

Too bad the author doesn’t actually know Mr Aso’s current position, which is Secretary General of the LDP. Before that, he was one of the best Foreign Ministers Japan has seen in the post-war ear (not saying I support them man, not by any means, just that he was an excellent foreign minister).

The stock market is not the issue. Mr Fukuda’s resignation means that a special session of the diet will have to be called in addition to the extraordinary session. This gives the ruling party an extra 30 days to pass the bills they would otherwise not be able to get through in a shortened extraordinary session - this is a huge middle finger to the New Komeito Party and means that the extension to the refueling mission in the Indian Ocean should get fifity-nined through the diet.

Reform is not the issue. Reform in Japan is dead, and died a long time ago. We are looking at the LDP trying to stay alive. It’s not the economy, stupid - it’s pure politics.

Japan’s food self-sufficiency to 40%; Marubeni to source soybeans and corn directly from the US

In last night’s post on Prime Minister Yasuo Fukuda’s new cabinet, Japan’s food self-sufficiency rates merited a brief mention at the end:

[N]ew agriculture minister Seiichi Ota also spoke to reporters on Monday, saying that Japan needs to achieve a level of food security. Can Ota put policies in place to help Japan boost its current 39% self-sufficiency rate on a calorie basis.

This morning, Kyodo reported that Japan’s food self-sufficiency rate had risen one percentage point to 40% in fiscal 2007. This was the first rise seen in 13 years. Former Agriculture, Forestry and Fisheries Minister Masatoshi Wakabayashi had set a goal of reaching 50% food self-sufficiency by 2015. New Agriculture, Forestry and Fisheries Minister Seiichi Ota told reporters, “We will make efforts both on the production and consumption sides to ensure this trend.” Read more

Fukuda’s new cabinet under economic fire from all sides

With a brand-spanking new Cabinet that is supposed to take economic issues by the horns, it’s not a good sign that the Cabinet Office seems set to drop the word ‘recovery’ from its upcoming August economic report, though that move has been anticipated. Has the economy peaked? According to the Nikkei, “Even if Japan has fallen into a recession, the Cabinet Office would need at least a year or so to collect enough data to officially determine when the economy peaked.” Still, some optimism is seen in the fact that inventories are low and demand from developing nations could hopefully lessen the damage caused by a serious downturn in US import spending.

As Prime Minister Yasuo Fukuda has directed new Economic and Fiscal Policy Minister Kaoru Yosano to come up with new ideas to boost the economy, the government itself still faces the stiff challenge of winning over public sentiment to any plan involving a hike in consumption taxes - a path which Yosano clearly favors. Back in October of last year, we reported that the Ministry of Finance had hired its first employee ever through a public appointment process. Yoshio Masuda, a 48 year-old who served with Dentsu for about ten years, was hired for a two year stint as the ministry’s Director of Public Relations Planning and Coordination, a position believed to be involved with helping the ministry communicate its decisions better to the public. Read more

Japan’s pension fund lost 5.65 trilion yen in fiscal 2007

As a quick follow-up to yesterday’s post on the creation of a sovereign wealth fund and the taking of seed money from Japan’s pension fund, it was announced today that the Government Pension Investment Fund lost 5.65 trillion yen in fiscal 2007. Although estimates had been published before, this is the first time we’ve seen detailed numbers from the government.

As one would expect, the fund made money from its investments in domestic government bonds, but lost about 7.5 trillion yen in equities positions both at home and overseas. This was the largest loss ever incurred by the pension fund, which has been investing full-scale in financial markets since 2001.

LDP panel proposes soverign wealth fund setup for Japan

Things have been slightly quiet on the sovereign-wealth-fund-for-Japan front lately - a bill proposing an SWF for Japan was supposed to have been written in April - but today the issue finally made its way back into the news.

According to the Nikkei, an LDP panel has proposed taking 10 trillion yen out of the nation’s Government Pension Investment Fund (GPIF), which currently oversees about 150 trillion yen in assets. About two-thirds of this money is held in Japanese government bonds, while the rest is in overseas government bonds and both domestic and foreign equities.

The interesting part of the proposal is what follows. As the Nikkei puts it:

the LDP panel urged the government to set up a state-owned asset management firm that would manage about 10 trillion yen on behalf of the GPIF. The proportions of the different types of assets would remain unchanged, but the fund would be staffed by financial professionals, who would be authorized to invest more aggressively than the GPIF.

The proportions would remain unchanged? Why force an SWF to put about two-thirds of its funds into Japanese government bonds? Oh yeah, we know the answer to that one already. We do need to keep in mind that Japan’s pension fund lost money on its investments last year.

It seems as though the Ministry of Finance has successfully kept the government’s hands away from the nation’s foreign reserves. They’re going to deplete the pension reserves first…

On a side note, the Ministry of Finance has been bossing the government around to quite an extent recently, especially over budget items, including education-related expenditures (more details to follow soon) and cutting in wasteful spending at the Foreign Ministry (which should be done). Can Fukuda stand up to the MOF? Is this revenge for not getting through an MOF Old Boy as Governor of the Bank of Japan? It’s starting to look like Mr Abe being laid to waste by the Ministry of Health, Labor and Welfare all over again…

Japan to commence emergency butter imports from October

A post discussing Japan’s recent importation of whale meat from Iceland published back on June 4 ended with the line, “Seriously, we could use some butter.”

The Ministry of Agriculture has listened. Today’s Nikkei is reporting that Japan will import about 5000 tons of butter this autumn, from Europe and other yet unspecified markets. The plan is to get the butter into Japan sometime around October, when it is believed that shortages will be the most acute.

In case you’re worried over whether The Ministry of Agriculture will allow the butter to be imported under a free market, fear not: the Agriculture and Livestock Industries Corporation, an entity controlled by the ministry itself, will be handling the import shipments.

Japan looking for 20 million foreign tourists annually by 2020

A very short piece in Friday’s Nikkei tells us that the Japanese government’s tourism promotion panel has set a goal of having 20 million foreign tourists visit Japan each year by 2020. In order to explore potential methods for meeting this goal, the panel will set up a working group by the end of July.

The panel’s previously stated goal of having 10 million tourists visit Japan each year by 2010 is still posted on their website. In 2007, 8.35 million tourists visit Japan. The jump to 20 million would be a 140% increase. There are also supposed to be 60,000 new landing slots opening up for international flights at Narita and Haneda airports over the coming few years. Might more new landing slots, and perhaps runways, be on the way?

The Nikkei’s piece ends with this short paragraph:

One idea likely to be considered is making traffic signs and displays at tourist sites available in several languages, as well as employing more multilingual tour guides.

Not exactly revolutionary. Hopefully the panel itself will have some ideas better than the low bar being set here.

Fukuda: Now is “crucial” time to act on sales tax

According to today’s Nikkei, Prime Minister Yasuo Fukuda said that now is a “crucial time to make a decision” on whether or not to raise Japan’s sales tax rates in order to finance the nation’s social security obligations while speaking to reporters from nations attending the G8 summit next month.

Fukuda pointed out that Japan has lower tax rates and an older population than many other nations in North America and Europe, and thus has run into financial trouble.

Has Fukuda managed to divert attention away from the fact that environmental issues are fading from the G8 agenda?

Nikkei highly critical of Japanese government’s decision to block The Children’s Investment Fund

Now that Japan’s government has effectively blocked TCI from upping its stake in J-Power from 9.9% to 20%, a slew of negative reactions to such action is bound to be published, and some pressure is expected to be put on Japan’s government to allow the nation’s current stunted form of capitalism to develop on its own.

The Nikkei got the ball rolling today, in an opinion piece titled Govt ‘Selection’ Of Shareholders Costs Japan Dearly. Some selections:

[M]arket insiders are wary of an acceleration in Japan selling by overseas investors. “TCI had offered an alternative plan restricting its voting rights even if it was allowed to increase its stake,” said Kengo Nishiyama, a strategist with Nomura Securities Co. “The government failed to give a convincing explanation of why the plan was not acceptable.”

…Each time a foreign activist fund’s attempt to take over a Japanese company has been blocked — a typical case is the aborted bid by Steel Partners to take over Bull-Dog Sauce Co. — or calls to control foreign investment in sensitive sectors have emerged, foreign investors have rushed to sell Japanese equities, regarding Japan as remaining closed to them…

…It is unusual for the government to get involved so directly in private-sector investment activities.

(I’m not so sure about that last statement; this just seems like a particularly egregious example.)

“Japan must now face the question of whether management of a company or the government has the right to choose shareholders,” said Yoshihiro Ito, director of Okasan Capital Management Co. The effective selection of stockholders through cross-shareholdings — a practice that is reviving in Japan — listings of both parents and subsidiaries, and government intervention will distort the stock market and cost companies dearly.

Bull-Dog Sauce is a case in point. The company has spent a total of more than 12 billion yen, or about 70% of its sales, to purchase cross-shareholdings and other securities in the past five years since Shoko Ikeda became president.

The government needs to be extremely cautious and have a clear justification to intervene in private-sector investments. Otherwise, it could seriously damage the national interest.

The word “could” seems a bit light in this sentence; The LDP has been damaging national interest for decades. One question they will be faced with in the future is whether the population will believe that their actions are in the voting public’s best interest or if they are more akin to amakudari back-scratching. Although this may not seem like a bread-and-butter issue at first glance, it certainly looks as if the public is going to have more of a “choice” on these matters in the coming years, if you’ll pardon the pun.

Shirakawa to be nominated for vacant Bank of Japan Governor post?

Yes, the Bank of Japan still has no Governor, and the next G7 meeting of finance ministers and central bankers kicks off on April 11, just over a month from now. The Nikkei is now speculating that a third candidate for the governorship may be nominated as early as tomorrow, though it could happen next Monday. If this schedule is followed, the new BOJ Governor could be fully approved by the middle of next week.

Interestingly, the Nikkei also speculates that Deputy Governor (and acting governor) Masaaki Shirakawa could be the nominee. This would be an interesting about-face for the ruling Liberal Democratic Party, who just over a week ago was dismissed by the ruling camp as a candidate on the grounds that it would be “inappropriate” to elevate someone who had just been handed the Deputy Governor position to the head of the bank. Read more

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