Author Archives: wilburns

Japan’s new PM to pressure central bank on monetary stimulus

The Christian Science Monitor outlined newly-elected PM Shinzo Abe’s plans to put pressure on the BOJ to engage in even stronger monetary easing than the previously announced goal of 1% inflation. Along with this new effort, the new government hopes to initiate an unprecedented amount of economic stimulus spending, to the tune of some $119 billion. Continue reading

Evaluating Japan’s Post-3/11 Energy Crisis

S. Yates Wilburn
The political backlash of the Fukishima nuclear meltdown in March of 2011 forced the shutdown of all but two of Japan’s nuclear power plants as well as a harsh reconsideration of the country’s future energy strategy. With pre-earthquake plans calling for Japan to rely upon nuclear sources for over half of its energy production by 2050, this is no minor inconvenience. In the short run, the loss of nuclear energy production in Japan has severely impacted its ability to meet domestic demand. Overall energy capacity in Japan fell from 282 gigawatts (GW) to 243 GW by mid-2011, (EIA) and—as of July 2011—capacity was expected to fall 7.8% short of summer 2012’s projected peak demand. (IEE Japan, 2011) The potential impact upon Japan’s future economic growth could be negative when its current strategy of filling in the production gap with fossil fuels is combined with their rising prices. While this plan may offset the economic impact of Japan’s current energy predicament in the short run, growing energy prices could have a negative impact upon Japan’s future GDP growth as the nation’s electricity providers begin to adjust to a new reality without nuclear power.
Japan’s energy security before the Tohoku earthquake on 3/11 rested upon the hope offered by nuclear power, a hope to move away from over-dependence upon foreign oil and the risks that carries. This strategy took the form of the Basic Energy Plan (BEP) in 2010 and was designed to use nuclear energy production to slow the growing share of GDP that importing fossil fuels took from Japan’s economy, which climbed from “1 percent of GDP in 2003 to 4.8 percent in 2008.” The central goal of the BEP was to bring nuclear power’s share of energy production—30% of the nation’s total just before 3/11—up to 50% by 2030, the hope being that such a heavy reliance upon more domestically produced resources would help guarantee Japan a more secure energy future. The ultimate goal, called “ambitious” by some was to “secure 60% of all energy needs, not only electricity, from nuclear sources by 2100. Simultaneously, this plan would allow Japan to fulfill its environmental obligations to cut Japan’s CO2 emissions by 90% from 2000 levels. (Foreign Policy) Unfortunately, as the situation currently stands, Japan is now sitting on (roughly) 47 GW of generating capacity that is, for all intents and purposes, largely unusable in the short term for political reasons.

Suzuki Evacuates US Auto Market

I found this blog post outlining Suzuki’s plans to exit the US auto market after 27 years of selling cars here. The Japanese auto maker plans to use a Chapter 11 bankruptcy filing to “effectively call it quits on American car sales,” while continuing to sell motorbikes, ATVs, and boats in the US. The blog cites poor sales and unfavorable exchange rates as the reasoning behind the exit. The Reuters article the blog references states that “Suzuki models did not catch on in the US and the company suffered from a lack of investment in new vehicles. It also struggled from the strong yen that makes it more expensive to export products from Japan.”

http://www.smartplanet.com/blog/bulletin/japans-suzuki-throws-in-towel-on-us-auto-market/4764

http://www.guardian.co.uk/business/2012/nov/06/suzuki-pulls-out-us-car-market

I think this is the exact problem that the Japanese auto makers are facing that the professor outlined in his comment on the “More Bad News for Japan’s Auto Industry” post. Suzuki sold the most cars it has ever sold in the US only six years ago at 100,000 vehicles. While this was not at all a large share of the market (0.6% of total auto sales that year), it was a 23.4% improvement and represented a peak for Suzuki. That was the year the company redesigned one of its signature models–the Grand Vitara–and introduced two brand new models –the SX4 and XL7–all to much fanfare and acclaim.

http://www.autointell.com/News-2007/May-2007/May-1/may-02-07-p13.htm

http://www.theautochannel.com/news/2007/01/04/032967.html

Despite this, Suzuki “grew complacent” as the professor says and fell behind after years of producing boring and limited model choices at the same time the traditional Japanese giants were turning out new and innovative models such as the Prius. It’s too bad, my Dad’s second car was a Suzuki.

http://www.businessweek.com/news/2012-11-05/toyota-raises-profit-forecast-after-sales-in-u-dot-s-dot-japan-gain

Trilateral Economic Union in E. Asia Despite Territory Disputes?

I found some remarks made by Ambassador Shin Bong-kil, Secretary-General of the Trilateral Cooperation Secretariat, regarding signs of growing unity and shared responsibility in East Asia despite increasing tensions between China, South Korea, and Japan. In the remarks, which were made during a roundtable discussion at the Center for Strategic and International Studies in early September, the Ambassador claimed that the “deepening economic ties and booming people-to-people exchanges are driving the three countries towards a greater integration than ever before.” Specifically, he pointed to a recent agreement between the three countries to discuss the “Trilateral Free Trade Agreement (FTA)” which he equated to an East Asian version of NAFTA as evidence of this dynamic. In addition, he cited the overwhelming amount of aid from China and South Korea to Japan in the wake of the 3/11 earthquake as evidence of deepening ties.

http://csis.org/publication/japan-chair-platform-trilateral-cooperation-ushering-new-era-cooperation-and-responsibil

However, these remarks were made well before the anti-Japanese riots in China and the ROC, as well as the increase of Chinese maritime presence in the Senkaku/Diaoyu Islands. While the Ambassador did mention the dispute between China and Japan (as they stood at the time) in the remarks, it was only in a passing reference and he provided little to no explanation as to why this serious disagreement would not impede any progress on such an economic union.

http://www.chinadaily.com.cn/china/2012-10/27/content_15851312.htm

While the economic ties between Japan and China in particular have become a huge source of revenue for both countries–China is Japan’s biggest trading partner, Japan is China’s third–that trend has shown signs of decline recently. According to recently released economic data (cited in the New York Times), Japanese trade has decreased by 1.4% in the past 8 months after an increase of 14.3% last year. According the the NYT article, Japanese officials blamed both the global economy but also “concerns over political issues.” Officials added that growth of investment from Japan to China has slowed to 16% growth in the most recent 8 months, with the same period last year showing a 50% growth. This news comes despite Japan’s “near-total reliance” upon China for rare earth minerals, as “Japanese companies seek out countries with even cheaper work forces and less-touchy diplomatic relations.”

Despite the incredible volume of trade and dependence China and Japan share with one another, it does not appear to be enough to smooth over these “concerns over political issues,” nor is it a situations that many Chinese citizens support, as protests in China have exposed a segment of the population that does not appreciate the amount of trade done with Japan. Still, both countries seem to need the other for the near future, as both economies are very fragile, still weathering a tenuous global recovery.

http://www.bbc.co.uk/news/business-19632047

http://www.nytimes.com/2012/09/21/world/asia/japan-china-trade-ties-complicate-island-dispute.html?pagewanted=all&_r=0

 

Failed Inflationary Expectations Hurts Japan’s Economy and Politics

… Yates Wilburn …

The Bank of Japan’s efforts to encourage price increases across the Japanese economy have failed to produce the desired results. The ‘goal’ of a 1% increase in the CPI in Japan is now appearing to be a far more long-term expectation than originally desired by the Japanese government as the try to shake the economy out of nearly ’20 years of deflationary pressure.’ As the BOJ considers the purchase of 10 trillion yen in additional assets as a form of easing, officials at the Bank have blamed the downgraded inflation expectations on the appearance of fresh negative issues such as slowing production levels in China as its economy finally begins to feel the full impact of the global recession. This all plays out in the context of a stronger yen acting as a ‘brake’ on exports, a crucial segment of the Japanese economy (WSJ link below).

The problem of deflation in the Japanese economy is hardly a new one, as shown by the BOJ’s own statistics (link below). Since 2006, the CPI (Laspeyres chain index less fresh food) in Japan has only reached positive numbers five times, and then only for a brief six to seven month spurt only for gains to be almost wiped out by dips of equal weight in the opposite direction. The most extreme instance took place in 2008 when the CPI increased by 1% to 2% over the year to be followed by a 2.5% drop the very next fiscal year. The impact of a stronger yen on Japan’s already depressed exports to China (see ‘More Bad News for Japan’s Auto Industry’ blog entry) could be very negative.

In addition to all of this, the poor numbers have revealed a ‘rare display’ of intense division between the BOJ and the Japanese government as officials criticize the Bank for not being clear enough on its inflationary goals. The government itself is also in a state of disharmony, as Prime Minister Noda’s administration may be ‘left without cash as soon as next month’ as a legislative stalemate in the Diet holds up progress on an economic stimulus package (see Bloomberg link below).

http://online.wsj.com/article/SB10000872396390444734804578064391717778934.html

http://www.boj.or.jp/en/mopo/gp_2012/gp1210b.pdf

http://www.bloomberg.com/news/2012-10-17/japan-to-hold-special-cabinet-meeting-following-stimulus-reports.html