Raw Japan

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 Summit Notebook:

Asia still a wealth of wealth players

A few years ago, domestic and international financial players were chomping at the bit to lure Mrs. Watanabe's millions of yen or fellow Asians' yuan, won or dollar holdings from their futons or equal-interest savings accounts.

The global financial crisis in the last year has sparked a rejigging of foreign institutions' expectations about Asian wealth and their own ability to attract it, with some opting out of the game altogether.

Barclays Asia-Pacific CEO Robert Morrice isn't letting his rivals' woes temper enthusiasm.

He says the No.2 British bank will boost staff and its private banking arm, Barclays Wealth, expects to manage $20 billion in Asia outside of Japan by 2012, compared with $10 billion at end of this year.

"We see some very interesting opportunities in that space. We believe we're still small and need to grow the business aggressively," he told the Reuters Japan Investment Summit. "We need to be patient and pick our spots."

India has been one of those, likely to hit $1 billion under management by the end of this year, while its overall staff there now number 7,000.

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.

The poetic side of recession

Japan’s salaried workers may have an image as corporate drudges, but some are turning economic angst and political ire into poetry for a competition. 

“My motivation, falling in tandem with steps to cut corporate costs” is one entry in the contest for “Best 10 Senryu”, a type of humorous verse similar to 17-syllable “haiku” but without references to nature or the seasons.

“I’d like to enjoy the rising strength of the yen - but I have no yen,” wrote another poet, referring to the growing value of a currency that is hurting Japan’s exports but making it cheaper to buy imports or go on holiday overseas.

One Muse-struck salaried worker weighed in against a political stalemate that has seen three Japanese leaders take office in less than three years: “Now I must again teach my children the name of the prime minister.”

Another took aim at unpopular Prime Minister Taro Aso, known for his fondness for ‘manga’ comics with this concise jab: “A fan of manga, my son says he will be prime minister one day.”

The competition has been run for a few years by Dai-Ichi Mutual Life Insurance Company, but it is only this year that the contest has taken a recessionary turn.

Last year’s top 10 poems took on such topics as global warming, high fuel costs, and Japan’s creaking pension system.

The allure of free money

People say there’s no such thing as a free lunch. But in theory, a government can have one, some economists and Japanese politicians say, if it wishes to save the economy from deflation and recession. It should just print money and then spend it.

In the past few weeks, some members of Japan’s ruling coalition as well as economists have proposed such a move as the spectre of deflation looms in Japan, now amid what is likely to be its longest economic contraction in modern times.

And the idea, outlandish as it may sound, does not come from fringe economists — Nobel-laureate Joseph Stiglitz  proposed this remedy in 2003 as a way to bring Japan out of deflation.

Government spending would make up for the sharp fall in demand from the private sector, while printing more money could cause a minor loss in public confidence in money — a good thing.

Countries normally finance spending by issuing debt, effectively passing on the cost to future generations. But by simply printing money, the government can save the economy at no cost, proponents say.

Kimono trader sees no easy money

Japan’s best known retail currency trader, a housewife who made 800 million yen ($9 million) on the dollar, euro and pound, warns there is no such thing as easy money and investors must work hard and educate themselves not to get caught out in the volatile market we see these days.

Nicknamed the “kimono” trader by foreign and Japanese media, 61-year-old Yukiko Ikebe says many retail traders in FX margin trading lost big money late last year when Lehman Brothers collapsed and the yen soared broadly on safety bids.

The financial damage was severe for those who had a lot of money to spend and they now come to Ikebe’s lecture tours on FX trading to learn how to cope with tsunami in the foreign exchange markets and to find ways to recover their huge losses, she says.

“Those who had managed to survive the yen’s advance in August 2007 and March 2008 by paying margins to avoid automatic closure of the positions were all crushed with yen’s big jump in October last year,” Ikebe told me. “That became a wake-up call for everyone.”

For years Japanese retail investors profited from investing in higher yielding currencies abroad like the Australian and New Zealand dollars, with the yen shrinking, and higher interest rates elsewhere offering better returns.

But that has all changed with world financial markets in crisis and the yen at 13-year peaks versus the dollar and seven-year highs versus the euro.

Too soon to see Japan intervening on the yen

The yen’s surge to a 13-year high against the dollar, record highs against sterling and a multi-year peak against the euro are unlikely to push Japanese authorities into trying to halt the currency’s rise. Japan hasn’t intervened in the foreign exchange market since March 2004, after a 15-month long, 35 trillion yen ($390 billion) selling spree aimed at preventing the currency’s strength from snuffing out an economic recovery.

And even though the plunge in exports is looking painful, it seems unlikely the Ministry of Finance and the Bank of Japan will step in just yet, although rhetoric about watching currency markets closely will continue and may get louder.

Analysts reckon the trigger for any intervention would be a steeper fall in the stock market and a much sharper and sustained climb in the yen — or a steeper fall in the dollar — to 85.00 yen per dollar or beyond. The yen was at 89.00 on Friday and it has been as strong as 87.10 already this year, as investors worried about the U.S. and European banking sectors have played safe by buying yen.

The reason a weaker share market would be a trigger is that Japanese authorities will be concerned that falling stocks will hit business sentiment further, impair companies’ ability to raise capital, erode national wealth and harm the financial sector.

The other problem is that with interest rates close to zero the central bank has little room to use rates to boost the economy, but a stronger exchange rate hurts exporters already suffering from a slump in demand overseas.

The markets are keeping a watchful eye for any signs Japan will intervene. But analysts have also noted U.S. Treasury Secretary-to-be Timothy Geithner’s comment that major trading partners should operate with a flexible exchange rate system in which market forces determine the value of exchange rates. In the past, that has tended to mean “leave your currency alone”.

Geithner has subsequently said a strong dollar is in the interests of the United States – but the world will wait to see what that means in terms of action.