The Economist: Giving Up on Japan?

This weeks Economist piece on Japan almost sounds demoralised and despondent. Are they coming near to throwing the towel in. The article's author doesn't even seem to believe the BoJ will be headed by a deflation targeter any more (they are probably right on this: in fact those like me with a warped sense of humour are begining to imagine the whole Nobuyuki Nakahara affair was 'leaked' to the press to derail any possibility of the candidature ever being presented). Sure, the problems sometimes have a now you see me, now you don't feel about them, but they are real enough even if last weeks official GDP figures confounded all expectations - mine and the Economists alike - by showing that the Japanese economy continued to expand in the final quarter of last year. This news, however, will not make deflation disappear, nor will it take the heat off Japan�s government, which according to the Economist now "appears to be incapable of tackling the country�s deep-seated economic problems".

GOOD news about the Japanese economy is rare these days�and surprising. Most economists had braced themselves for the news that the Japanese economy had shrunk in the final quarter of 2002. So the official figures, released on February 14th and showing that the economy expanded in the October-December quarter, caught people off guard. Growth was modest enough: just 2% at an annual rate. But it means that the economy has now grown for four quarters in succession, and that the country�s fragile recovery is not�yet�over. The figures will provide a welcome breather for the Japanese government, but one likely to be shortlived. The economy�s problems remain daunting and the new data followed hard on the heels of a further slide in business optimism. Moreover, they came just a few days after a new opinion poll showed that the popularity of the prime minister, Junichiro Koizumi, had slumped.


Tackling deflation is a matter of urgency. But even those economists for whom inflation targeting is the preferred solution accept that, by itself, ending deflation will not solve Japan�s problems. What is needed is concerted reform on several fronts�monetary, fiscal and structural. Japanese government debt now exceeds 150% of GDP (more than double the upper limit set by the European Union) and is rising fast. What to some observers seems like an endless series of fiscal-stimulus packages has had almost no economic impact, in part because of a misguided emphasis on wasteful, expensive public-sector construction projects. These have benefited the LDP�s corporate contributors more than the wider economy. Co-ordinated reform seems beyond the current political establishment, and commentators have given up talking about Japan�s last chance to change before being engulfed by a full-blown crisis. The slow speed of the economic decline has meant that the debate within Japan has lacked the sense of urgency that would be needed to overcome opposition to reform. But for Mr Koizumi himself, time might be running out. There is talk of his vulnerability in the LDP leadership election due in September and speculation that he might try to head off a challenge by calling an early general election. What that would do to improve Japan�s miserable economic prospects is far from clear.
Source: The Economist
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Two Views on the Doha Round

It is an obvious truism that how you feel about something is often a result of where you are looking from. Below I post the example of two contrasting views concerning proposed Doha round changes to agricultural tarrifs and farm subsidies, one from Japan and the other from India. Those who are opposed to globalisation in itself will doubtless find here yet more material for criticism. Those, like me, who are convinced of its potential benefits, can and should note that the process in reality is not unproblematic. India has an enormous problem of rural poverty that cannot simply be waived away overnight. It is, however, extremely encouraging to find that the need for change is accepted in principle, and that the Indian economy is becoming more and more open. The European and Japanese case is rather different, tarrifs and subsidies have been used for far too long as a means to preserve activities which often have little economic (but plenty of political) rationale. Change will come, but it is a pity that in the richer economies, where the possibility of gradual change has long existed, things were not resolved earlier. Now the process may be more painful since - on this and many other fronts - reforms will be introduced against a far less favourable economic backdrop.

Thousands of Japanese farmers rallied Saturday to stop ministers huddled at a World Trade Organization meeting in Tokyo from approving a proposal to slash tariffs. "We are going to send a clear message to the ministers that they must protect Japanese farms,'' Kazuyoshi Fujita who represents agricultural and consumer groups told a crowd of about 8,000 people gathered at a Tokyo park. "Without food, how can people live? Without rice farming, how can Japan survive?'' Delegates from the WTO and 22 member economies are meeting in Tokyo to try to hammer out an agreement on agricultural talks by the end of March, as part of the latest round of WTO global trade talks that began in Doha, Qatar in 2001. The talks Saturday focused on a proposal from former Hong Kong Trade Ambassador Stuart Harbinson, the chair of the WTO farm negotiations, to reduce tariffs by an average 60 percent in five years, reduce subsidies and raise import quotas, officials said. Farmers say Harbinson's proposal would be devastating for Japanese agriculture, which is far more expensive than American agribusiness and the rest of Asia. Japan, which imports 60 percent of its food, protects its rice farms with a 490 percent tariff on foreign rice. "We are fighting hard against the proposal because Japanese farms will be destroyed,'' 58-year-old farmer Yasuhiko Matsunaga said standing among colorful banners that said, "Rice is No. 1.''
Source: The Star Online
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The World Trade Organisation draft proposal on agriculture have come as a shot in the arm for developing countries with many of those attending the mini-ministerial in Japan terming it a small victory, and indicating that it addressed some of their long standing objections related to opening up the farm sector. The latest draft by the chairman of the WTO Committee on agriculture Stuart Harbinson proposed that the developing countries could gradually cut customs duty on agri-products over a negotiated period, and continue with other measures of state subsidy and extraordinary support. But it has also come as something of a jolt to many of the developed countries, including Japan and European Union, which have opposed any drastic reduction of farm subsidy. Delegates from developing countries, including those from India, Kenya and Nigeria said that the outcome could be viewed as a small victory for the strong stand taken by the developing countries at Doha Ministerial gathering against opening up of their agri-market without addressing the problem of the prevailing social conditions. Though India welcomed the draft modalities giving concessions on the state subsidy and special product exemption front, it indicated it would oppose the reduction in the tariff structure as proposed within a period of 10 years, official sources said. The developing countries consider the draft as an important document as it has attempted to take on board the differing views of three major trading blocks - CAIRNS, EU and the developing countries - over the contentious issue of market access in agriculture sector. The CAIRNS countries - including US, Australia, New Zealand, Malaysia, Indonesia, Brazil, Thailand and Canada - being agri-export countries, advocate free market access. Many of these countries have hidden subsidies to boost their agriculture sector. The EU, which gives huge subsidies to the agriculture sector, supports market access but does not agree to link this to a reduction in subsidy. Developing countries fear that their markets will be flooded with products from other countries, which are cheap due to massive state support, thus causing unrest and social tension among the population dependent on this for their livelihood. Explaining the Indian position, the official said 65 per cent of the Indian population was dependent on agriculture and the government views this sector as a means to eliminate rural poverty.Moreover, the total subsidy given by the government through smaller supports in electricity tariff, fertiliser prices and transportations was lower than the WTO benchmark on subsidy. Viewed in this backdrop, the draft modalities proposed by the WTO Committee on Agriculture come at an opportune time. India said that its interests in some key areas had been further protected by the proposition in the draft under the Special Product Exemption category where it could maintain its present tariff.
Source: Redif.com
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Japan Back in Reverse Gear

More bad, bad news from Japan.The economy has begun, once again, to contract. You could call it the incredible shrinking economy, were it not for the fact that humour seems to be out of place here, and that these results may give us a pointer to what's in store for the rest of us if I'm even halfway right about the root cause. Apart from the downturn, also worthy of note is the continuing decline in bank lending and the slow rate of growth in monetary supply.

Figures to be released on Friday are likely to show that the Japanese economy contracted in the December quarter, bringing to an end the shortest recovery in Japan's post-war history, a senior economic adviser to the prime minister conceded on Monday. "I am afraid that the economy is already contracting," said Haruo Shimada, professor of economics at Keio University and senior economic adviser to Junichiro Koizumi, prime minister. He said there was no sign of improvement in domestic consumption, with the only increase in demand coming from the external sector. The concession that the economy has stuttered to a halt came as figures showed last year's mini-export boom beginning to slow. Data for bank lending, also released on Monday, showed the 61st straight month of decline as financial institutions continued to shrink their lending base in an effort to shore up capital adequacy and prevent more loans from turning sour. Bank lending for January fell 4.7 per cent.

"Japan is never going to be driven too much by exports because they account for only 10 per cent of the economy," said Peter Tasker, head of Arcus Investment, a Tokyo-based hedge fund. "There's only so much you can do if the other 90 per cent of the economy is going in reverse." The current account surplus for 2002 rose 34 per cent from the previous year to Y14,248bn ($120bn, �112bn, �74bn), about 3 per cent of gross domestic product. Exports for the year rose 6 per cent thanks largely to a 13.7 per cent increase in shipments to Asia, of which almost a third were electronics goods. "Exports to Asia climbed very steeply in the first half of 2002 and have now levelled out," said Chris Walker, economist at Credit Suisse First Boston in Tokyo. Exports to the US rose just 1 per cent during the year.

Signs that the export-led recovery may be petering out came with figures for December, which showed the current account surplus shrinking 1.4 per cent year-on-year. Economists said an improvement in Japan's external performance tended to strengthen the yen, which then choked off further growth. "You had quite a sharp recovery in industrial production driven entirely by the export sector, but momentum peaked in summer and has been easing off since then," said Mr Tasker. He said there had been no collapse in economic activity since growth had never properly got going in the first place. "It's hard to collapse when you're already sprawling on the ground." The Bank of Japan also said on Monday that monetary supply in January grew at 2 per cent year-on-year, its slowest rate of increase since the end of 2000. The central bank's policy board meets on Thursday, but is unlikely to contemplate a radical change of policy before March, when a new governor is due to be appointed.
Source: Financial Times
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Japan Preparing to Oppose Agricultural Reform at the WTO

Japan and the European Union look set to be the two holdouts against freer trade in agricultural products when the World Trade Organization meets informally in Tokyo next week.The trade and agriculture ministers of the WTO member states will be gathering as part of the latest round of multilateral trade negotiations that began with the November 2001 agreement in Doha. Their main focus will be on agriculture: an area where the EU like Japan seems extremely reluctant to give anything away, and an area in relation to which third world protests are becoming increasingly vocal.

Japan and the EU will try to stymie efforts to liberalize farm trade at next week's informal meeting in Tokyo. The United States and the 17-member Cairns Group of agricultural exporting nations are calling for sweeping tariff cuts. Japan and the EU are opposed. Agriculture minister Tadamori Oshima even went so far as to say a broader market opening would ``completely destroy'' the farming sector in Japan and other Asian nations. Ministry officials are particularly concerned about rice growers. The government shields them from foreign competition with high import tariffs. The pro-liberalization states propose cutting tariffs on all farm products to below 25 percent within five years. Tokyo currently charges a tariff of 341 yen per kilogram of imported rice-upwards of 300 percent of the price of most imported rice varieties. Domestic rice, meanwhile, wholesales for 200 to 450 yen per kilogram, depending on the brand.

The protectionist impulse sits well with the powerful farm lobby. Isamu Miyata, who heads the Central Union of Agricultural Cooperatives, urged Prime Minister Junichiro Koizumi late last month to resist any calls for drastic liberalization. Miyata invoked ``the nation's self-sufficiency in agricultural products'' in calling for continued trade barriers. The agriculture ministry also sees the EU as a trusty ally in the fight against trade liberalization. Oshima formally announced Japan's support last week for an EU proposal that tariffs on farm products be lowered by an average of 36 percent. The EU proposal would allow each country to decide its own tariff cuts, so long as they are not less than 15 percent. The pro-liberalization camp's tariff cuts offer no such flexibility, which is permitted under a provision of the 1986-1994 Uruguay Round of trade talks. The EU trade regime would, for example, allow Japan to cut its tariff on imported rice by the 15-percent minimum, to 290 yen per kilogram. A 100-yen kilogram of imported rice would therefore wholesale for about 390 yen-as opposed to 125 yen if the Cairns Group and the United States prevail. Tariff cuts are at the center of the dispute over farm trade, which is one of the seven items on the table in the latest round of multilateral trade talks.

The outcome of the agricultural talks will therefore make or break the new round. WTO member states are working toward a March 31 deadline to conclude a framework agreement on farm trade. It will specify means, such as formulas and tariff cut targets, by which agricultural markets are to be opened. The Tokyo ministerial meeting, which runs next Friday through Sunday, will be an important venue for consultations among members. But there are few signs of a consensus emerging from the meeting, with the two camps still far apart. Many negotiators say they doubt the member states will even be able to meet the March 31 deadline. WTO members are eagerly-and cautiously-waiting for the first draft of the framework agreement for liberalizing farm trade, which Stuart Harbinson, the WTO official chairing the agricultural negotiations, is expected to release just before the Tokyo meeting. The report could set the tone of the meeting, to which 25 countries are expected to send their ministers.
Source: Asahi.com
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