Elections? Economics? Oretachi?

It will be interesting over the next few days to see how the Abe Cabinet and the LDP improvise off the relatively good GDP preliminary report.

Courtesy: Mainichi Shimbun

What will be the campaign talking points?

"Wow, through Prime Minister Abe's farseeing leadership consumer spending has soared to exactly the same level it was six months ago!"

"Damn, nothing can stop the beautiful people from building crap and investing in machinery!"

"Wow, our exports keep rising! Who could possibly have a problem with that? We are just the most awesome exporters in the world! Keep using chopsticks!"

"After years of cutting back, public investment is going up...because...because...I've forgotten why."

[Alternate] "Public spending is going up? There are local and prefecture-wide elections? This year?"

"The economy is doing great...but not that great. But then, the Bank of Japan is independent. Politicians are only representing their constituents. Yokota Megumi!"

"You ARE richer. Really. Unless you are poor. Why didn't you invest New Zealand bonds when you had the chance?"

"No, we DO have a plan that both closes the budget gap and does not raise taxes. Until September."

"Oh, the Democrats always saying, 'We have to wait until revised figures come out. Preliminary figures are almost always overoptimistic.' Let me tell you, maudlin, cockeyed, boot-strapping optimism is what made this country great! Didn't you see Always-Sanchō no Yūhi? Now that's nostalgia the way it used to be!"

The Wave Hits

A huge jump in GDP, even in the nominal figures, reported by the Cabinet Office today.

The wire services are all jumping up and down about the rise in consumer spending. Nice, up 0.7% in real, that is to say nominal, money.

Japan, the only advanced industrialized economy where real GDP is a complete, delusional fiction.

I tend to look further down the report and worry about the immense rise in private residential investment (up 2.3%). Like those of us in Tokyo and Aichi could ignore the forests of kōkyū jūtaku shooting up into the sky (Can you believe a 55 59-story residential tower next to Musashi-Kosugi Station?)

Private non-residential investment--all that capex and all those great glass temples of commerce--has slowed a bit--but only after soaring like bird earlier this year.

Government spending also increased but only after falling like a stone during the last few months of the Koizumi administration (hints of a lessened commitment to fiscal reform, anyone?)

Also interesting is the quarter-to-quarter drop in imports, with negative growth in the nominal figures. This took place as the steep drop of the value of the yen in Q4 kicked European exporters in the gut. Before predicting serious trans-Eurasian and to a lesser extent trans-Pacific friction over Japan's weak appetite for imports, however, let us see how much of this drop can be attributed to falling energy prices.

Look today for a dipping dollar, a plummeting euro-yen rates, rising bond prices and Bank of Japan officials dancing naked on the Nihonbashi and kissing the sidewalk.

Upon one condition...wait...upon two conditions...hold on...

When asked in Diet interpellations on the ninth of this month whether the government of Japan supports the Bush surge plan for Iraq, the Prime Minister Abe responded thusly:

「こうした努力が効果的に行われることを期待している。この地域の復興と安定を図らないといけないとの観点から、（米国の政策を）理解し、支持をしている」

from 米のイラク新政策、理解し支持…衆院予算委で首相表明 ("The Prime Minister Expresses in the House of Representatives Budget Committee...that He Comprehends and Supports the New American Policy for Iraq") Yomiuri Shimbun, February 9, 2007.

Now I think I know what the prime minister is trying to say. What I am having trouble discerning is what he is actually saying.

"(The Government) expects that the effort will be undertaken in an effective manner. From the point of view that it is necessary to attempt to bring economic revival and security to this region, (we) comprehend and support (the American plan)."

Now given the Bush Administration's past record on security and economic revival in Iraq, that first sentence ("The Government expects...") represents the triumph of wishful thinking over experience.

It is the second sentence that has my head twirling about, though.

Is the Prime Minister following the White House line so closely that he thinks foreign policy is not a matter of winning or losing but whether one put in a "best effort" or not? "From the point of view that it is necessary to attempt..." is fine...but what about from another point of view, like "let's not get killed out there for no reason" or some other rational desire for self-preservation?

Or is this a sly way of giving only half-hearted support to the plan, on the order of:

"If we are talking about the need to do something, anything, to try to improve the situation in Iraq, sure we support the plan. However, from the point of view of believing the plan will actually be improving the situation on the ground, no, we do not support it."

Whatever the interpretation, one hopes that some day the "partial credit" warriors will be forced into a well-deserved retirement.

Please let it be soon.

Behold All Your Banners Against Medievalism Unfurled

Poor William Pesek. He is Bloomberg's Asian economics columnist, an important economic voice... and yet nobody seems to listen to any of his recommendations.

Contemporary Japan in particular is starting to really aggravate him.

Let's Tap Japan's Baby 'Machines,' Immigrants
Bloomberg

Feb. 12 -- Japan has never been known for a thriving feminist movement. The World Economic Forum ranks it 69th out of 75 countries in female empowerment. Tokyo is still awash with women wearing work uniforms that make them look like 1970s flight attendants.

The weakness of women's lib in the world's No. 2 economy may come as a surprise to Hakuo Yanagisawa. Japan's embattled health minister has been front-page news since describing women as ``baby-making machines'' on Jan. 27. You would think millions of Japanese women had suddenly discovered Gloria Steinem.

Even by the standards of Japanese politicians, Yanagisawa went too far. "I reprimanded him severely," Prime Minister Shinzo Abe told reporters after female lawmakers called for Yanagisawa's resignation. Yanagisawa, 71, apologized, further displaying his cluelessness by saying women were "people whose role it is to give birth."

What's more, Yanagisawa defined "baby-making machines" as women between the ages of 15 and 50. Was he suggesting that teenage girls do more to increase Japan's low birthrate? The man should resign, and now.

Dear William, Yanagisawa Hakuo's still on the job--if not on the ball, if you know what I mean.

Pesek has just about had it with Japan. Nothing works here, at least as far as he sees it. Women and children are not valued. Immigration is limited. Politicians are venal and narrow minded. Interest rates are too low, flooding the world's asset markets with too much liquidity.

He needs a break, I'm afraid. While he has in the past acknowledged that cures to Japan's ills could kill the patient before the turnaround kicks in, he hopes for (demands) too much of a country without visionary, forward-looking leaders.

He is starting to chase his own tail.

Where to begin?

1) stop worrying about future liabilities. Barring an invasion, the Japanese people, Japanese business and Japanese public servants will manage, somehow.

Corollary: children are not solutions to shortfalls in future social welfare spending, so stop referring to them as such. The difference between a person who considers women baby making machines and one who considers children the sherpas of future armies of rudely healthy retirees is not large. Of course, children cannot vote, so there is no electoral price to pay when one demeans them as "snotty little immature future taxpaying machines."

2) stop listening to the Finance Ministry, gaishikei investment bankers, taxi drivers and Ishihara Shintarō. Listen to small-town mayors, highway construction company executives, whaling ship owners, students riding kakuekiteisha trains from Ueno to Fukushima Prefecture to save 1850 yen...

... the story of what Japan is and what it can become is out there.

While I am airing out my grievances, somebody please convince me that Ed Lincoln, the person who in many ways is the reason why I keep this blog, has not sold out completely in an essay for this week's Newsweek.

From Hatano to Tsurumaki Onsen

A Gabby Foursome
Hatano-chō, Kanagawa Prefecture. February 12, 2007.

Konara (Quercus serrata) near Zenba Tōge
Hatano-chō, Kanagawa Prefecture. February 12, 2007.

Last Light over Kōbōyama
Hatano-chō, Kanagawa Prefecture. February 12, 2007.

Thanks for the pointer, Mr. N

If I am this damn astute at 88 years of age, I will cease cursing God for shackling me to this aging carcass of mine:

Shinzo Abe at a crossroads
By YASUHIRO NAKASONE
Special to The Japan Times

With media polls showing approval ratings for the Cabinet falling from over 70 percent upon its inauguration four months ago to the lower 40 percent level, the administration of Prime Minister Shinzo Abe appears to be at a crossroads.

The plummeting popularity may be ascribed largely to failures in Abe's selection of Cabinet ministers and party executives. He appointed a number of his longtime friends as well as those who had contributed materially to his election as president of the Liberal Democratic Party. The prime minister's office and the Cabinet are packed with some of "the best students in class" who enjoy Abe's favor. There are no politicians in the true sense of the word....

Read the whole thing. Soon. The gang at The Japan Times puts material behind a wall too damn fast for their own good.

What I found particularly instructive was this passage:

The previous administration, which derived its strength largely from the personality of Prime Minister Junichiro Koizumi, pushed reforms in specific areas, such as the privatization of the postal services and the Japan Highway Public Corp. Koizumi practiced "theatrical politics," using grandiose political methods that appealed to popular sentiment.

By contrast, the Abe administration signifies a return to mainstream conservative politics, as shown by his unambiguous commitment to constitutional revision and education reform. Abe practices the "politics of the parliamentary Cabinet," centered on coordination and cooperation with the governing LDP.

Thus there are distinctive differences between Koizumi and Abe. If Koizumi was a presidential-type prime minister, Abe is a parliamentary Cabinet-type leader.

Presented this way (and I must commend the former Prime Minister, for it is a very artful presentation) Abe is merely choosing a style. Indeed, he is choosing an orthodox style. The operative word, with its powerful resonance even in English, is "mainstream"--the sense that Koizumi was not just different, but deviant.

This lulls the reader into accepting Nakasone's radical thesis--that the orthodoxy of Abe is a return to a comfortable and comforting normalcy--a normal ("Cabinet-type") administration for more normal times.

Unfortunately, outside the boundaries of Nakasone's reasonable presentation, is the uncomfortable and undeniable reality that "mainstream conservative politics" is what the people loathe. It is what they reject and been rejecting since 1993. There is little taste for such politics now, even for (especially for?) the reactionary side of the political spectrum.

Democrats, thank the Prime Minister for the pointer.

Here's lookin' at you, kid

From The Lion King:

Simba: Who are you?

Rafiki: The question is, whooooooo are you?

Simba: I thought I knew. Now I'm not so sure.

Rafiki: Well, I know who you are. You're Mufasa's boy.

Simba: You knew my father?

Rafiki: Correction. I know your father. He's alive! And I'll show him to you. Look down there.

Simba: That's not my father. It's just my reflection.

Rafiki: No. Look harder. You see he lives in you!

Yoshida Shigeru at home
July 21, 1961

Aso Tarō in the House of Councillors Committee Chamber No.1
February 5, 2007


Courtesy: Sankei Shimbun

Damn. Just one generation off...

With his chin tucked in like that and the glasses, he's a dead ringer for his grandpa.

I don't think that word means what you think it means

Time to get out the bar of soap: the world's premier financial daily gets a little rowdier than its editors probably wanted in terms of Japanese expletives.

Japanese pinball
Financial Times

Chikusho! Investors who put money into Fujishoji, a pachinko machinery maker, must have been cursing its miserable debut on Friday...

Now someone please correct me if I am wrong but is not the "C word" pretty much as offensive as one can get in Standard Japanese? To progress (regress?) any further into the wilds of profanity, you really have to have the plumb the depths of the regional dialects.

In my office, I "suggest" that the "C" word not be used. I make our most flagrant and frequent offender, when the mood to swear strikes him, say, "Chiku...shi Tetsuya!" instead.

Then again, one of the great charms of the members of the British upper crust is their ability to shift gears, enunciating a spritely, "Excuse me, but could you please just go f--k off?" when they wish to be left alone.

If I were a poll taker...

...for the Democrat Party of Japan (DPJ), I would want to find out the answer to this question:

"What is it about Prime Minister Abe Shinzō that annoys you the most?"

If the results from Sunday's election mean anything, it is that the seriously annoyed floating voter is back on the warpath against the LDP.

The DPJ needs to take note.

For me, the answer to the question would be that Abe (and Nakagawa Hidenao is an unindicted co-conspirator in this) has allowed the reflorescence of the worst aspect of the pre-Koizumi LDP: the delaying of crucial policy decisions "until after the next election". One of the gifts that Koizumi gave Abe (and which Abe, during his apprenticeship as Chief Cabinet Secretary, should have picked up) was a wrenching apart of the policy discussion and implementation process from the political calendar.

Right now the country has two ticking timebombs set to go off--the revelation that the economy has been in a stall for over half a year and the need for a tax increase to fund government obligations. Action on or even honesty about these two issues is being deferred, in the case of the tax increase officially deferred, until September.

The voters see through these delaying tactics. Indeed, I think the voters feel insulted by the implications of the delay. "If the issues are so important, why don't we attack them now? Do you think we can't handle the truth?" would be the average voter's lament.

If someone would ask her, of course.

In order to profit from this particular annoying aspect of the current regime (there are probably so many others polling would identify) the DPJ does not have to tell the voters how it will deal with these pressing issues (Okada Katsuya tried that approach in the summer of 2005 and the party got blown away for his troubles). The DPJ leaders need only say that if the DPJ in power, it would face these issues, squarely, honestly...and not keep putting off the day of reckoning.

For in truth, there is always a "crucial next election" just a few months away...and real leaders don't keep avoiding problems.

Real Money

Today's Financial Times has an interesting editorial calling on the the Bank of Japan to sell off some of its immense holdings of dollars.

(I think that in practice the BOJ and the Ministry of Finance would have to act together to convert BOJ's dollar assets into yen assets. Others know much better than moi about the technicalities. I defer to them.)

Selling dollars to buy up yen is an eminently sensible idea. The BOJ is sitting on an 895.38 billion dollar stack of reserves, most of which are in dollars, a lot of which are in U.S. Treasuries.

Given the generally comatose Japanese consumer, it remains political suicide for the Bank of Japan to raise interest rates (oddly, news of overall weak Japanese consumer spending seems to have failed to reach the desk of the first deputy manager at the IMF--but that is the subject of another post). Raising rates would benefit domestic savers and bondholders. However, it might also wipe out capital investment and urban real estate development, the two drivers of the current recovery (not that one can really say anything for certain about the effects of interest rates below 1%, which are well inside the "pushing on a string" zone of monetary policy).

As nearly everyone points out, BOJ independence is still in its formative years. The Bank's board cannot openly defy politicians, though the declining fortunes of Abe Shinzō must be wearing away at the formerly awesome authority of LDP Secretary General and fierce interest rate hike opponent Nagakawa Hidenao.

Since Japan's ultra low interest rates are essentially fixed, everybody and his/her mother is betting on the yen carry trade.

As a result, the yen is at a 21 year trade-weighted low, or rather a bit more when one considers, as Dr. Brad Setser has, the way prices have moved since the last time the yen was cheap:

...I calculated the cumulative inflation differentials (CPI inflation) between the US and Japan since 1998, and, if I did the math correctly, Japanese prices today are down 3% since 1998, while US prices are up 23%. I think that means that a yen/ dollar of 121 is about equal to a yen/ dollar of 152 in 1998 in real terms. It wasn’t that weak in 98...

This has left some individuals, rather a large number of whom inhabit Europe, feeling rather upset at the BOJ.

Selling a some fraction of the BOJ's foreign currency reserve mountain would at least demonstrate to the Europeans that the BOJ cares--and it would lessen the political pressures on European finance officials to "do something about the value of the yen".

So why do I have my doubts that the BOJ will follow through on the FT's suggestion?

I can think of about 30 billion reasons.

That is at least the amount of money in dollars the BOJ earned last year from the interest on its foreign currency reserves. That is straight, stupid, keep-your-money in-one-place-and-not-even-think-about-it profit. That is not taking into account the valuation increase in the currency reserves from the increased value, as measured in dollars, in the euro fraction of reserves.

Take the interest income and the valuation increase in the euro portion, convert that total in yen and remit that sum to the Ministry of Finance...and man, you're talkin' 'bout earnin' the taxpayers some real money.

It probably too much to ask the BOJ to sell its foreign currency holdings in order just to put on a good show for a European audience.

First, if the BOJ does sells its dollar and euro assets, the market will send those dollar and euro assets right back to Japan in....ta dah...the carry trade.

Remember, the interest rate differential, the 4 percentage point or more difference in between the cost of borrowing money in Japan and the return one can earn overseas--the engine of the carry trade--will remain unaffected by the sale of the reserves.

Second, and I think this is the kicker, selling the reserves would deny the BOJ the opportunity to make money off of the interest rate differential it has created. As Dr. Setser notes in a whiplash-inducing aside:

Of course, the biggest carry trader of them all is the Japanese government. It borrowed a lot of yen to buy something that yielded a bit under 5% a few years back.

The biggest carry trader of them all...is the Japanese government.

What chance is there the BOJ boys and girls--and their counterparts at the MOF--are going to blow up their own deal?