(CNN) – Japan's benchmark Nikkei 225 index rallied some 5% in the first 15 minutes of trade on Wednesday, bouncing off a 10.5% loss in previous session. Market watchers however warn that the worst may not yet be over given the various challenges Japan faces after the strongest Earthquake ever to hit the country.
"We're hostage to the next headline,” said Richard Yetsenga, HSBC's Asia currency strategist.
Tuesday’s sell off – lead by foreign investors dumping Japanese equities, market watchers say – was described as a panic reaction to the escalating crisis in Japan and the fear problems at the Fukushima Daiichi Nuclear Plant could impact human health and extend evacuation.
Right now, equity players are watching currency players and vice versa. The Bank of Japan, in effort to shore up confidence in the Japanese economy, has injected large amounts of cash into the system to keep money moving and make it easy for the economy to function.
In the first hour of trade on Wednesday the central bank injected another $43.2 billion or 3.5 trillion yen into the system. That raises the total of same day cash Tokyo has injected to support its economy to $325 billion in the past three days.
There's talk the BOJ is prepared to do whatever it takes to stabilize the currency – indeed, we saw a weakening of the Yen within minutes of the central bank's move and the opening of the Tokyo trading day.
Stability is key for investor confidence, analysts say, and the BOJ and government moves are a positive signal. That said, measures of volatility have jumped – the VIX, the so-called ‘fear index,’ jumped 15% during Tuesday’s trade. That's a sign that there are still many unknowns.
There is a huge relief effort already taking place but rolling black outs could impact on productivity in the medium term. One note from BNP Paribas notes the rolling blackouts by Tokyo Electric Power (the company that runs the Fukashima Daiichi plant) will affect nine prefectures of the north, including Tokyo. These nine prefectures account for about 40% of Japan's GDP.
So as the drama unfolds, the potential economic impact of the disaster remains unknown.
Hong Kong, China (CNN) – A delicious delicacy, or a dangerously overfished species? The battle over bluefin tuna is nothing new but now a record purchase has put Hong Kong in the midst of the debate.
A local sushi chain paid 32.49 million yen (about $390,000) for a 342 kilogram Pacific bluefin tuna at the year's first auction at Tokyo's famous Tsukiji market. The chain, known as Taste of Japan, has won the bidding for the past three years as well.
Taste of Japan says it plans to sell the fish at a loss at its Itamae Sushi and Itacho Sushi restaurants. According to a spokeswoman for the restaurants, a piece of Supreme Fatty Tuna will retail for roughly $12, having cost the company more like $110.
WWF Hong Kong is condemning the "promotional gimmick." The conservation group, which believes bluefin tuna is on the road to extinction, says in a statement that Taste of Japan's actions encourage "irresponsible consumption."
Environmental objections don't seem to be warding off business though. The chain plans to start selling the tuna tomorrow night and believes it will sell out quickly.
Hong Kong, China (CNN) – Fishermen detained in disputed waters, an angry call from a neighboring government for an “unconditional and immediate” release as tensions rise.
No, it’s not Beijing ire directed at the September arrest of Chinese fishermen by Japanese Coast Guard off the coast of an East China Sea island both countries claim. On Wednesday, the official Vietnam News Agency called for the release of nine Vietnamese fishermen detained by China in the South China Sea last month. China claims the fishermen were using dynamite to catch fish in waters both nations claim.
The dispute over the Senkaku or Diaoyu islands (what you call the rocks poking out of the sea depends on whether you are Japanese or Chinese) raised tensions to the highest levels in Tokyo and Beijing and spurred nationalist demonstrations in both countries. Talks on sharing undeveloped oil fields in the region were halted along with other economic and cultural exchanges.
The dispute in the South China Sea, however, could prove to be more problematic. Malaysia, Vietnam, the Philippines, Brunei and Taiwan all have claims, along with China, on the Spratley and Paracel islands. Tensions have been rising with China’s Southeast Asian neighbors in tandem with Beijing’s growing economic and military might.
At the heart of both disputes is a term of international maritime law known as “Exclusive Economic Zone,” where nations are allowed sole rights to fish and develop resources within 200 nautical miles of a country’s shores.
“The South China Sea issue is very interesting,” Wu Kang, an analyst at the East-West Center in Hawaii, told me recently. While the Japan-China island in dispute is near potential gas fields, the South China Sea “is currently producing quite a bit of oil and gas,” Wu said.
In the background of both China Sea disputes is the U.S. military: The island at the center of the dispute with Tokyo is considered part of Japan in a 1973 U.S. defense agreement. The U.S. conducted joint military maneuvers with Vietnam earlier this year. U.S. Secretary of State Hilary Clinton rattled Beijing when she waded into the territorial dispute at an ASEAN meeting in July, offering to mediate and suggesting a peaceful outcome was in U.S. national interests.
Chinese Foreign Minister Yang Jiechi called Clinton’s comments “an attack on China.”
Already, the growing fracas over islands is being labeled “Asia’s New Cold War.” But the heart of the disputes is this: Who will have unfettered access to the bounty lying below the waters?
Consumer prices in Japan extended their decline for an 18th straight month.
The core consumer price index, which strips out volatile fresh food prices, fell 1 percent in August from a year earlier. That compares to a decline of 1.1 percent in July.
"You've seen deflation pressure easing slightly for the past 12 months," said Richard Jerram, chief economist at Macquarie Securities in Japan. "But it's still a big problem."
Analysts say the country may remain mired in deflation because of the strengthening yen. A stronger yen is making imports cheaper to buy, giving retailers an incentive to lower prices in order to attract more customers.
The yen's rise has also been weighing heavily on Japan’s big exporters and undermining the country's fragile recovery.
An earlier report showed exports have been slowing for six straight month, mainly because a stronger yen and weakening overseas demand.
Despite the uncertainty, the country's labor market has been showing signs of improvement.
The jobless rate slipped to 5.1 percent in August from a previous reading of 5.2 percent. The reading was inline with expectations.
Last week the government said it was planning to introduce a supplementary budget of about $55 billion to pay for a new stimulus plan.
Jerram described the measures as nothing more than smoke and mirrors and won't have the impact needed to stimulate domestic demand. Part of the problem, he says, is Japan’s reliance on exports to boost growth rather than dealing with its domestic troubles, which is what's needed to turn the economy around.
"The government is struggling for good ideas on how to stimulate growth," said Jerram.
A towering national debt, a revolving door of prime ministers and an export-driven economy limping slowly from its worst economic slump since World War II – Japan’s got it bad.
So why is the yen trading at 15-year record highs?
A number of factors have combined to pump the yen up to 83.36 per dollar on Tuesday, the highest since May 1995.
First, to set the scene: In June 2007, the yen was trading at 122.64 against the U.S. dollar – its highest level in five years. Then the U.S. subprime loan market imploded. Japanese who invested in other currencies with higher yields – known as “carry trades” – brought that cash back home as other currencies, particularly the dollar, was hit by the crisis.
The yen’s natural strength lies in the country’s trade surplus. Cars, electronic goods and other Japanese products sold abroad brings a healthy stream of yen back home. Add to that the influx of cash investors brought back to Japan as the global economy crashed, and the yen continued to strengthen.
Another factor: Countries and investors diversifying away from the dollar in the wake of the crisis were looking for a safe investment, and the yen was a popular choice. Most notably, Beijing has been snatching up a record number of Japanese government bonds instead of U.S. ones.
“That to me explains largely what is happening to the yen in the face of what is reasonably dark economic news and a difficult political situation,” said Benjamin Pedley, head of investment strategy in North Asia for HSBC Private Bank.
And that adds to the difficulties for Japan’s recovery – a strong yen cuts the profits of its products abroad.
The markets are waiting to see if the saber rattling among Japanese politicians on the skyrocketing yen will turn into a government intervention to lower the value of the currency. The government hasn’t taken such steps since 2004.
But Pedley doubts any intervention by the government will have any long-term effect on the strength of the yen. Trading partners in Europe and North America, on balance, would prefer a stronger yen. “The problem is, any intervention would be unilateral – they won’t have any cooperation,” Pedley said.
With the re-election of Naoto Kan as head of his party - and as Japanese prime minister - the markets are betting that the yen will remain high. The Tokyo markets closed before the vote, but hit a fresh 15-year high on the belief that Kan would survive the internal challenge from Ichiro Ozawa, who favored a strong intervention in the markets.
Tokyo, Japan – Akihisa Shirota has piles of manga in his office. He likes to take math drills with the students. And he dismisses the “ivory tower” types as living too “in the box.”
Not your average junior high school principal in any country, but especially in Japan, a country renowned for its rigorous and rudimentary educational system.
Look at Shirota’s resume and you notice what’s not there: the words "teacher" or "educator." It’s instead dotted with high tech and publishing companies he’s headed as the president or manager.
Shirota’s lack of experience in education is exactly what made him attractive to Wada Junior High School.
“Principals are people who became teachers right after graduating from college,” said Shirota. As a former Japan Inc. man, Shirota treats his students more like his employees. He knows the name and test score of every single student in the school, all 400 of them.
The day at Wada Junior High begins with a math drill known here as “brain training.” Stealing from the theory that puzzles may prevent dementia among the elderly, Shirota believes drilling with puzzles and problems everyday under time pressure will sharpen young minds.
Later in the day, the students head to a seminar headed by a company. The class teaches business manners, like how to politely greet clients and behave at a board meeting.
Then at 7pm, night school begins. Cram schools, as these evening classes are called, are common in private schools, but not in public ones. Shirota says the purpose is the same: to boost test scores for school entrance exams.
Critics have varied from calling Wada Jr. High too rigorous or too lax.
Koya Nakamura, 15, says he enjoys the school, even if his school day ends at 9pm. Other students call their principal “different” but “cool.”
Call him what you like, says Shirota, both good and bad. But his philosophy has paid off in higher test scores, he says. At the core of this principal’s beliefs is this: Japan’s companies must adapt to the times to compete in an ever-changing global environment. Schools should be no exception.
I never cared much about the currency markets before moving out of the U.S.
Euro, yen, dollar… those words zoomed by on the bottom of the business news tickers, the numbers behind them always fluctuating up and down, seemingly meaningless in my single currency world.
Then I moved to Japan, and like many American expatriates, I got a crash course on the impact of the currency market on my wallet.
When I moved here almost three years ago, the Japanese yen was hovering around 120, 110 versus the U.S. dollar. Now mid-August 2010, the yen is smack dab in the 80’s. The cost of living for me, and many people who are paid in dollars but live in a yen world, has gone up percentage wise double digits, through no fault of our own except for a weakening dollar.
Michigan native Paula Shioi remembers the days of the 300 yen versus the dollar, when she was in high school a few decades ago. Since then, the value of dollar has done nothing but go “down, down, down,” said Shioi. If the dollar strengthens versus the yen, “then I’d make a lot more money,” sighed Shioi.
But that’s not the way the markets are heading, said Professor Eisuke Sakakibara, at Aoyama Gakuin University.
Sakakibara has the unusual nickname of “Mr. Yen” in Japan, known for accurately predicting the trading level of the yen. But the public started calling him Mr. Yen in the late 90’s, when he worked at the Ministry of Finance, trying to influence the dollar-yen exchange rates through public comments.
Sakakibara continues to make public comments and forecasts where he feels the yen will head. Earlier this year, he predicted the yen would strengthen into the 80’s. I sat down with Professor Sakakibara recently, the yen 85 versus the dollar.
“I think it will head down to 80,” said Professor Sakakibara dispassionately, as I cringed at his words. “And I think by the end of the year, it will break the highest level of the yen in 1995, which is 79, 78.”
Really? Can it be? I asked, secretly hoping he’d take it back.
“Of course it’s possible,” said Sakakibara.
50? 60? Is that possible?
“No, I don’t think so,” he said, much to my relief. Then with the professorial kindness you’d expect from a wizened elder, Sakakibara explained the currency markets are not as important for the impact on American expatriates like me, but as a sign of the world’s changing economy order.
“It’s not necessarily the yen strength we should be talking about, but weakness of the dollar, weakness of the dollar and euro. The center of the gravity of the world economy is now shifting towards Asia. China, India, and East Asia, are gaining strength, relative to countries like the US and Europe. This is the trend.”
It’s why Sakakibara also doesn’t advocate currency intervention, absent sudden and large spikes or dips, because the currency reflects the changing world economy. Sakakibara talked on about his predictions of a common Asian currency, like the euro, for China-India-Japan. A currency that might one day take over the dollar as the world currency, as the U.S. economy loses its dominance in the next century.
Americans living overseas are just getting a front seat to the changing world economy. Personally painful at times, but a change that Mr. Yen says is coming, ready or not.
(CNN) – A key reading on business sentiment shows that optimism is on the rise in the country’s business sector. The closely watched Tankan survey is out, and it shows – for the first time in a long time – the country's big businesses are feeling good about the state of the economy.
The quarterly survey had a reading of plus one. Most economists were expecting a reading of minus four. That means optimists outnumber pessimists.
That’s in contrast to negative numbers out of Japan earlier this week, led by news that unemployment inched upward in May. Still, the results will likely come as welcome relief, particularly to exporters who have been hammered this week by a stronger yen.
Meanwhile, Chinese state media is reported that China’s Purchasing Managers’ Index (PMI) was at 52.1 percent. That’s down from 53.9 percent in May, a sign China’s red-hot economy is starting to cool.
(CNN) –Lara Farrar’s story on how foreigners are being hired to portray executives and fake employees makes me mindful that the biggest break I have ever gotten in my career was from being a foreigner in Japan.
In 1997, I was living in rural Kumamoto Prefecture in Japan, teaching English as a second language to high school students in the small town of Hitoyoshi.
The instant celebrity of being a foreigner there was sometimes maddening. Children would run up to you and shout, “How are you?” – as if they were throwing pebbles at an animal to see how it would react. Or when old people followed me around a supermarket – curious what foreigners ate, I guess.
But mostly – I’ll admit it – the attention was cool. People would go out of their way to make you feel special, and local journalists would do stories on you. It was on the strength of one of those stories that my life was forever altered. An article mentioned I used to be a newspaper reporter in the U.S., and that attracted the attention of a radio producer for RKK Kumamoto.
He came to our school and sat down with the school’s top administrators and my supervisor and spoke with me at length. There was an awkward pause, and I turned to my supervisor for the translation: “He wants you to join a weekly radio talk show to give an American’s impressions of living in the countryside of Japan. But first he wants to get a sense of how good your Japanese is.”
“I guess he knows now,” I cracked, bursting into laughter that no one else joined. At the time, my Japanese could barely get me in and out of a restaurant.
So began my strange odyssey of learning how to speak Japanese by talking on a live radio show every week. I would prepare a five-minute segment, learn it in Japanese, and pray to God my co-hosts wouldn’t ask me any questions. Often those prayers weren’t answered.
For the first six months when I headed to the remote location where we did our show, I often fantasized of my car rolling off the side of the road – anything to prevent me from getting on the air and making a fool of myself again. But I slowly got the hang of it, and continued to do the program for two years.
More importantly, my language skills improved to the point where I was eventually hired by The Wall Street Journal Asia as a feature writer in 2000 – a gig I would have never gotten were it not for the skills I picked up from the radio show. Which is a gig I never would have gotten unless I was a foreigner living in the countryside of Japan.
Tokyo, Japan (CNN) – Every international journalist covering Japan has been talking about the country’s revolving door of prime ministers this week. But believe it or not, having a series of prime ministers who have all served a year or less is not so unforgivable by Japan’s electorate.
A more dangerous problem in this latest political upheaval is expressed by Maya Sugiyama, a 20-year-old commuter we met this morning. Sugiyama was heading into work, one of the many young people trying to make ends meet in Tokyo, the world’s most expensive city.
Japan’s young have a disproportionate rate of unemployment compared to their elders. They also feel the shrinking of the world’s second largest economy and in public opinion polls say they lack a sense of hope in a country rapidly aging and racking up the world’s highest debt-to-GDP ratio - a debt they fully expect they’ll be saddled with.
“Because the prime minister changes so often, I can’t trust anybody,” said Sugiyama. “They’re all the same. I have no interest.”
Yukio Hatoyama and his Democratic Party of Japan roared into power eight months ago, promising a change in the way the political business is done in the country. The DPJ promised more power to the people and less power to the bureaucrats; less political corruption and more political action. Voters felt it was a new dawn in politics for Japan.
But Hatoyama stumbled early, unable to contain the problem of relocating the U.S. military base in Okinawa. Eight months later, his poll numbers, which started at 71%, had fallen to 17%.
Voter let-down and the resulting apathy from Hatoyama’s fast fall is a much bigger problem, says Doshisha University Professor Noriko Hama, than the seemingly big problem of Japan’s revolving door of prime ministers. Professor Hama believes this is a critical time for democracy in Japan. Voters could become “so exasperated and so disappointed that they actually turn their backs on politics and no one goes to vote anymore,” warned Hama. “I think that would be the really frightening situation.”
Prime Minister Kan spoke at length and multiple times in the early hours of his tenure about regaining the public’s trust, eyeing the upcoming parliamentary elections in July. He knows what’s at stake for his party —that is clear. Analysts warn there’s also the bigger issue of keeping the public engaged in the political system, that in the last four years has only expanded the rift between it and its people.
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