Can Japanese retiree sending make up for lost exports?

I'm reading Paul Krugman's book "The Return of Depression Economics" (which has been updated to include discussion of the current crisis). Krugman devotes a chapter to Japan and points out that strong exports ultimately pulled them out of their financial turmoil.

Now, just a few years later, Japan is scrambling with lost productivity due to the huge drop in exports. This week, Prime Minister Aso announced an unprecedented budget of $980 billion to inject money into the economy. The investment in social security and pensions seems directed at Japan's large population of retirees. The question is if the infusion of cash will be enough to ease the concerns of a particularly frugal segment of the population.



http://english.aljazeera.net/business/2008/12/2008122611729888367.html

China's piracy

China has been working toward modernizing their navy for years. Now Somalia's pirates have provided a legitimate excuse for China to flex its muscles and test foreign waters. Member nations of the U.N. Security Council have dispatched vessels to protect their commercial ships from the pirates, and they have asked fellow member, China, to assist.

The hijacking is a serious problem. Of the 100 vessels attacked off the coast of Somalia, 40 have been hijacked.

I suspect that once China enters the waters off the Horn of Africa, they will never leave. China has many African investments and trade relationships. China imports more oil from Angola than Saudi Arabia. These are relationships China wouldn't want its competitors, such as India, to enjoy too easily.

Obviously, the piracy issue is a serious problem, but I doubt China is going to leave African waters even if it is resolved.


http://www.cnn.com/2008/WORLD/asiapcf/12/17/china.pirates/index.html

Will Tokyo intervene? Low dollar bad for Japan

As the dollar continues to drop against the yen, American exports become cheaper while Japanese exports look frightfully expensive.

With yesterday's interest rate cut to near zero, the U.S. now has a lower rate than the Japanese rate of 0.3. The interest rate cut will likely cause Japanese investors to abandon U.S. investments. According the the Wall Street Journal (12/15/08), Japan is only behind China as the world's largest investor in U.S. Treasuries.

They're not the only ones bailing. Most investors see the dollar as weak and are selling them in order to buy other currencies. (Then again, whenever the stock market takes a hit, investors run to the relative safety of the dollar and yen).

The Fed's plan to stimulate growth is to use quantitative easing, which means they are going to pour more money into the economy, even at the risk of inflation. Many economists feel that contracting the economy later in response to inflation is easier than pulling ourselves out of a deflationary situation. So their goal is to nip deflation before it spirals down.

Japan used quantitative easing in 2001 when it created money to directly buy Japanese stocks, bonds and asset-backed securities.

Will Tokyo intervene as their exports become less competitive? With the dollar at 88.78 yen, I imagine we are going to see action from Japan shortly.




The best explanation I saw of quantitative easing is from the Wall Street Journal (12/17/08): "it tackles the quantity of money in the financial system rather than its cost (the interest rate). I also translates into an increasing supply of U.S. dollars, potentially putting pressure on the currency because of an oversupply."

Japan, China, S. Korea working together?

Can the economic crisis do what the past 60+years hasn't been able to do ... namely allow three WWII scarred countries to work together? Past meetings have been merely symbolic, with distrust tainting any real outcomes.

Saturday's Fukuoka, Japan, meeting was the first ever trilateral summit. Observers may have thought the meeting was vague, with promises for stimulating the economy and committing to no new trade barriers for the next year.

Yet, just the meeting alone is significant as the three nations, who have barely tolerated one another due to residual emotion and economic rivalries, came together in solidarity.

The most specific summit outcome is that Japan and China agreed to lend foreign currency to S. Korea. S. Korea has struggled the most with the crises. The three countries comprise 75% of the east Asian economy.

The next summit is scheduled for next year in China.




http://english.aljazeera.net/news/asia-pacific/2008/12/200812138361719177.html
http://www.nytimes.com/2008/12/14/world/asia/14japan.html
http://english.aljazeera.net/news/asia-pacific/2008/12/200812138361719177.html
http://hosted.ap.org/dynamic/stories/A/AS_JAPAN_TRILATERAL_SUMMIT_ASOL-?SITE=YOMIURI&SECTION=HOSTED_ASIA&TEMPLATE=ap_national.html

Japanese reinvestment

Sony may be cutting jobs, but in much of Japan, companies are investing in their businesses. It's a smart thing to do when no one else is doing it. To the Japanese, the long-term is key to decision making.

Conversely, even when times were good, American businesses were only planning from quarter to quarter (while the Japanese had a 5-7 year plan). I guess when U.S. CEO stock options and bonuses are based on quarterly results, that's what you're going to get.

Time will tell if the current Japanese investment, and innovation, allows them to pull ahead of the pack when the recession dust settles. Or perhaps they will swimming in costly overcapacity.

My bet is on the long-term view.






http://www.nytimes.com/2008/12/12/business/worldbusiness/12yen.html

Sony's job cutting

The job losses announced by Sony Corp's electronic division are not just temporary worker jobs. As part of their restructuring, Sony is eliminating 16,000 jobs worldwide -- 8,000 regular jobs -- and then, 8,000 temporary workers.

Surprisingly, Sony is laying off the regular workers first ...quite a shift for a Japanese company. This cut represents 5 percent of the 160,000 worldwide workforce.

As long as the yen remains strong, Sony, and other export reliant businesses, will keep hurting. Temporary workers will allow Sony to be flexible, which is a smart move. Overall, however, this will have a huge negative effect on consumer confidence as the Japanese become excessively concerned about the safety of their jobs.






http://www.yomiuri.co.jp/dy/business/20081210TDY01304.htm

Japan's Temporary Workers

One of the difficulties of managing Japan's 1990s economic crisis was their cultural reliance on lifetime employment. In Japan, workers devote their lives to their employer, as the company is more important than family. In return for their loyalty, workers are essentially guaranteed employment for life.

Japan ramped up temporary worker hiring in the 1990s and this employment shift was credited with helping to pull Japan out of their decade plus spiral. While helping the economy, it caused other problems. There's been a growing income divide that had been unheard of in Japan previously. (Temporary workers are paid 30-40% less than their counterparts). This divide started to cull a second class citizen mentality. Yet, many young Japanese expressed a preference for temporary work as it allowed them to dodge the responsibilities of full-time employees, such as working late each night.

Except, now that the economy is contracting again the temporary workers are the first to go.

At 3.7% Japan's unemployment rate is low compared to the U.S. rate of 6.7%. Both countries are expecting more layoffs in the upcoming months.



http://www.bloomberg.com/apps/news?pid=20601101&sid=ab4g.SY6x5dA&refer=japan
http://www.bls.gov/news.release/empsit.nr0.htm

Credit lessons

Most rural Chinese don't know what a credit card is. Yet, to make up for a drop in exports, the Chinese government is encouraging the population to spend to stimulate the economy. They may want to look to South Korea and temper their approach.

In 1999, S. Korea's government worked to get their tightfisted population to borrow and spend to grow the domestic economy. By 2003, S. Korean households had a $2,000 debt average.

Today, at 66% of gross domestic product, S. Korea's household debt is one of the largest in the world. The good news is the delinquency rate is low, a mere 0.5%.

Confucian influenced societies are proud of their habit of saving, and the disgrace of debt is enormous. Chinese farmers compete over who can save more of their income, sometimes saving two-thirds to one-half of their $2,200 annual income.

It'll be interesting to see how vigorously China approaches credit and spending as their economy contracts.




Sources:

http://www.time.com/time/magazine/article/0,9171,552170,00.html
http://www.nytimes.com/2008/12/03/world/asia/03china.html
Wall Street Journal, November 29-30, 2008, p. A5.