Raw Japan

Oops, that was a secret?

It seems to have been an honest mistake for a new minister and Japan’s new government.

“I didn’t know about that (the release time). I’m sorry. Don’t make much of a fuss” Japanese Trade Minister Masayuki Naoshima told a TV reporter on Monday, right after he accidentally revealed the GDP figures ahead of their official release.

The minister looked sincerely surprised when informed of the official release time, but the light tone of his comments suggested that he did not fully understand the gravity of the error. 

He later offered a more formal apology, and Chief Cabinet Secretary Hirofumi Hirano reprimanded Naoshima for his leak of the market-sensitive data, which showed Japan’s economy grew much more than expected in the third quarter.

Still, I was surprised to see Prime Minister Yukio Hatoyama smiling when asked about Naoshima’s mistake.

“I can understand his wanting to spread the good news to the public,” Hatoyama told reporters.  “But the rule should be maintained. If you say he was careless, he surely was, and in that sense, it was regrettable.”

Naoshima made the blunder in a speech to the oil industry, but the small crowd of domestic reporters covering his event did not report it, and in that sense, the new minister was lucky.

Japan’s bulging debt

How much is too much?

When it comes to Japan’s bulging public debt, no one quite knows, but at about $75,640 for each of the country’s 127 million people, the burden is starting to worry both voters and investors. You can even see it climb in front of your eyes on an unofficial Website.

That’s why some pundits say it’s time for new Prime Minister Yukio Hatoyama to make some tough decisions about delaying costly spending programmes promised in the August election that vaulted his Democratic Party to power.

But with the economy fragile and an election for parliament’s less powerful upper house less than a year away, many wonder if he will.

Support for Hatoyama’s cabinet slipped eight points to 63 percent in a Yomiuri newspaper poll this week, while 85 percent said they’d rather see some campaign pledges broken than a rise in a public debt, already headed for more than 200 percent of GDP this year.

Taking voters at their word, however, could backfire.

“In terms of spending prioritites, it might be possible to prepare public opinion for changes in details in the run-up to the upper house election,” said Sophia University’s Koichi  Nakano. “But it would be risky.

Cheap treat keeps Japan sweet

What is sticky, shaped like a fish and helps Japanese people shrug off the lingering effects of the country’s worst recession since World War Two?

The economy is struggling but sales of a traditional, fish-shaped sweet snack are going along swimmingly, thanks to its low price and auspicious name.

Taiyaki, which means baked sea bream, is a pancake stuffed with a sweet bean jam and served hot and cheap in stalls all over the country.

The name helps. “Tai”, Japanese for sea bream, sounds similar to the word for happiness.

With a price tag of as little as 130 yen ($1.45), the snack, which celebrates its 100th anniversary this year, is making a lot of people happy — including those needing a job as the stalls are easy to get going. 

“Taiyaki has been around from ancient days but I still want to eat one once in a while,” Masako Kano, a 69 year-old housewife queuing outside a new store, told me. “Compared to other cakes, which normally cost around 200 yen to 300 yen, its price is attractive.”

Fancy Corporation recently opened its 45th taiyaki outlet in Kawasaki, just south of Tokyo, saying the cheap snack is as popular as ever in tough times. 

Day one speed bumps

Japanese Prime Minister Yukio Hatoyama‘s first official day on the job has come with lots of media attention, photo opportunities and the first couple of speed bumps for his administration.

The contrast with his predecessor was clear from the TV coverage. All but one of the major channels in Tokyo carried him live. Leading up to his election drubbing last month, former Prime Minister Taro Aso could not always get his pressers carried live even on national broadcaster NHK.

Yet amid the ritual and grand opening statements, one minister gave an already strengthening yen another kick up, while a second pushed down the shares in Japanese banks — both before they’d been officially announced and sworn into their new jobs.

Banking and financial services minister Shizuka Kamei was the first to move markets.

A former police official and anti-postal reform rebel, he was a surprise pick for that job with a lack of markets experience leaving analysts scratching their heads as to what he might do.

They did not have to wait long as Kamei said he would push for banks to freeze repayments of mortgages and small business loans.

from MacroScope:

Vote here on Japan’s economy and its election

Britain's Association of Investment Companies has UK investors who run Japanese equity funds whether they think the general election on Sunday will have a positive impact on the country, which is slowly emerging from recession.

Their answers can be found here, but the consensus was that the Democratic Party of Japan would defeat the ruling Liberal Democrat Party and that this would result in more consumer friendly policy or economic revival through higher living standards.

Managers were more divided on how long-lived any positive impact on stock market would be.

Our unscientific mini-poll below gives you the chance to vote on the issue -- but as ever your comments are also welcome.

• Yes
• No
• No Difference

View Results

from MacroScope:

Ranking economic forecasts

Financial journalists spend a lot of time surveying market economists ahead of macro-economic data releases to find out how they think the next CPI or GDP number is going to turn out. A poll 20 or 30 economists gives a market median forecast, which will determine how traders react when the data comes out. If the figure beats expectations and points to a strong economy and likely rate rises, the currency will jump, and vice versa.

But how good are these forecasts? Why react if there's no track record for accuracy? Economists have a pretty good feel for how reliable forecasts are for different indicators, but it would easier to have a number that tells us how reliable forecasts are for data such as GDP, jobs data or the CPI?

Forecast accuracy is a live topic in academic journals. There’s the MAE and the MSE, the sMAPE and the MAD/Mean ratio among others. Some measures depend on scale so they can’t be used to compare different series of data, such as GDP and the jobless rate. Using percentage error -- the MAPE -- can overcome this but it gives whacky results with outcomes of zero or near zero. One possible solution is to use the mean absolute scaled error – or MASE – suggested by Professor Rob Hyndman at Australia’s Monash University and colleague Anne Koehler from Miami University, Ohio in 2006.

The MASE measures how forecasters have performed against a so-called naïve forecast -- simply forecasting that next month’s result will be the same as last month’s. The lower the result, the better the forecast. So 0 is a perfect forecast, while a score above 1 means the forecast is worse than a naïve forecast.

Applying the test to some Japanese economic indicators, we can rank forecasts of the different data series according to how much better they are than a naïve forecast. So from best to worst:

Industrial output Score 0.25 - Economists are very good at forecasting industrial production, which measures the output of items such as flat-screen TVs, automobiles and electric machinery. Apart from manufacturer’s own forecasts, economists can monitor export data, electricity usage and steel and auto output figures for clues.

from MacroScope:

How to count a recovery

If it takes two successive quarters of falling GDP to enter a recession, how can a country emerge from recession with only one quarter of growth?  In the past week or so, journalists have declared the recession over in France, Germany and now Japan.  Of course, most reports rightly ask how long this will last and stress that a genuine recovery is far from certain.

Some people regard the two quarters definition of a recession as arbitrary and a bit silly, something supposedly cooked up by one of Lyndon Johnson's economic advisers  to avoid acknowledging a downturn until after the next election.

But it does serve a serious purpose: At least it reduces the risk that we'll be misled by a statistical blip in one quarter's data which might be revised away in the next release.

Regardless of its murky origins, economists and lay people around the world use the two quarters recession rule. So why not be consistent?  Why not wait another quarter before we declare the French, German and Japanese recessions over?

from MacroScope:

It’s the Summer of L-U-V

It's starting to look like the Summer of Love. Two reasons: The recovery is taking on a L-U-V shape globally, and it's going to require huge amounts of love and nurturing to keep growth alive.

• L stands for Europe, where slowness to confront deep damage and write down the remaining $500 billion odd in bad bank debt, mean rebuilding will be protracted and painful.
• The United States sports a U, bouncing along bottom right. But its financial giants swallowed harsh medicine early and the U.S. has the flexibility to stage an impressive rebound, if not undone by a fast-rising jobless rate at 9.5 percent and heavily indebted consumers.
• V stands for Asia (ex Japan), the surprise region showing resiliency, thanks to its rapid Q4/Q1 inventory workdown and huge infrastructure spend by China.

Like the Summer of Love 41 years ago, it is a drug-fueled affair. G20 governments are peddling $820 billion in stimulus this year, equivalent to 2 percent of GDP. Central bankers are spending even more. The Fed has doubled its balance sheet to $2.04 trillion the past 12 months.

These actions might have cushioned a severe cyclical downturn but the structural adjustment to a world of costlier credit is only just beginning.

Will politicians and central bankers have the wisdom or the stomach to keep the drug supply going long enough to prevent L-U-V from turning into an ugly W?

Road trip!

Japanese tourists often get a lot of flak for going everywhere in packs. Last weekend, I became one of them.

As part of its efforts to stimulate the economy, the government last week kicked off a two-year discount on the country’s notoriously expensive highway tolls. The pricing system differs between rural and metropolitan areas, but what caught the nation’s attention was the all-you-can-drive toll of 1,000 yen ($10) on regional highways on weekends and holidays.

I took this as a chance to rent a Toyota Prius, and I told my mother to pick any place she wanted to go to celebrate her birthday that Sunday. She picked a spot on the tip of the Boso peninsula, east of Tokyo. The idea was to take the Aqualine, a 15 km pass across Tokyo Bay that combines a submarine tunnel and a bridge offering a scenic view. The 1,000 yen toll for that alone was a steal compared with the 2,320 yen on a regular day.

Our outing was relatively tame — 300 km (186 miles) there and back. The day before, I had seen one hard-core leisure-seeker interviewed on TV saying he was driving more than 600 km to the island of Shikoku in western Japan to enjoy the region’s famous “udon” noodles. (The Japanese will go to crazy lengths for good food, but that’s another story.) I reckon he saved close to $200 in tolls.

So the government’s plan, at least after the first weekend of the rollout, seems to be working. In addition to fanning tourism, the land, infrastructure and transport ministry hopes to alleviate congestion on regular, free roads as more people opt for the highways.

Of course, the maxim that you can’t please all of the people all of the time applies here, too: Ferry and railway operators are up in arms, and I’m sure those concerned about the environment aren’t exactly enthusiastic. Japan Railways is cranking up a “No traffic jam” slogan to promote rail travel these days.

Whither the yen — a withering yen?

The yen’s fall against the dollar the past few weeks has been remarkably fast, and calculated from where it is now around 97.70 yen, the dollar has jumped nearly 9 percent this month, on track for its biggest such gain since August 1995.

The yen surged last year as the worsening financial crisis forced investors to unwind risky carry trades – meaning they had to buy lots of yen – under the belief that Japan’s economy and banks were holding up through the storm.

Only last month, the yen hit an over-13-year high of 87.10 per dollar. So why has the Japanese currency fallen so fast?

Analysts tell me one reason is some traders and investors who thought it would continue to rise, perhaps as far as 80 or even 70 yen, got out of such bets.

One catalyst was data showing the sharpest economic contraction in 35 years in the last quarter.

The bleak data seems to have further soured overseas investors’ views on Japanese stocks. Foreigners have been been net sellers for 12 straight weeks to the tune of 2.97 trillion yen, around $30.4 billion.