Nikkei Drifts Lower as Yen Rises


The Japanese markets are drawing the logical conclusion from the weaker dollar: less exports, less profitability, weaker 'recovery' etc.

Tokyo stocks were lower in midday trade on Thursday as the shares of the country's largest exporters tumbled, after the dollar fell to a 10-month low against the yen overnight. The benchmark Nikkei 225 average was 0.7 per cent lower at 8,055.13, while the broader Topix index was down 0.5 per cent to 818.58. The dollar fell to a low of Y116 against the yen in the aftermath of the US Federal Reserve's signal about the risks of deflation. The White House reiterated that its "strong dollar" policy was unchanged but economists said market sentiment towards the currency remained weak. The dollar recovered a little ground in morning Asian trade to Y116.5 from its Y116 low, but shares of Japan's leading exporters - many of which derive the bulk of their revenues from overseas markets - were broadly lower. Sony lost 2.5 per cent to Y2,890 and Canon was down 2.7 per cent to Y4,780. Shares of Toyota, which is set to announce its annual results after the market close, were off 1.3 per cent to Y2,745. Honda was 1.7 per cent lower at Y4,040 and Nissan was 0.6 per cent lower at Y320.
Source: Financial Times
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Yen-Dollar: Japan Loses No-contest Test of Strength


Just a snippet from Reuters about yesterday's yen-dollar no-contest to illustrate what I have been saying in earlier posts.

The dollar hit a 10-month low versus the yen on Wednesday in a rapid sell-off that tested Japan's resolve to protect its vital export sector by keeping its currency weak against the greenback and the euro. "I think the fear of intervention is keeping the dollar above 116 yen at this point," said Larry Brickman, currency strategist at Bank of America in New York.In January and February, Japan's central bank intervened by selling yen for dollars, catching many investors off guard. On Wednesday traders said they could not detect intervention by Japanese authorities to stop the sharp dollar decline, which makes Japan's exports less competitive on the world market. "We do think intervention risks are significant given the pace of the dollar/yen fall," said Rebecca Patterson, global currency strategist at JP Morgan in New York. She said the lack of comments from Japanese policymakers on the yen's strength has emboldened shorter-term investors to sell the dollar. At the same time comments this week from U.S. officials supporting a strong dollar policy did little to slow the dollar sell-off, and some analysts were calling them hollow. The dollar fell as low as 116.10 yen on Wednesday before trimming its losses to trade at 116.41 yen, a loss of 0.85 percent from Tuesday's New York close. The euro was also affected by the silence surrounding the yen's strength, falling 1.66 percent against the Japanese currency to trade at 132.20 yen .
Source: Reuters News
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Japan's Zombie Warehouse


This looks like another non-starter 'jump-start' for Japan's continuing problems. The Industrial Revitalisation Corporation is to spend $84 billion buying up bad loans: this sounds fine, it's the bit about reselling them back to the market at break-even prices that should make you start to wonder. If this was half-way serious it would be buying up the debts to write them off, not to refloat non-proftable companies and send them back in to add to the bloated-capacity problem. Of course here it's more a question of how you see the problem dictating how you read the 'solutions'.

A new public body charged with turning around some of Japan's struggling borrowers plans to buy up loans belonging to as many as 400 companies over the next two years. The Industrial Revitalisation Corporation, which starts business on Thursday, has been licensed to spend up to �10,000bn ($84bn, �74.7bn, �52bn), amounting to almost a quarter of the official estimate of �43,000bn in bad loans that is swamping the banking sector.Kazuhiko Toyama, the corporation's chief operating officer, said on Tuesday that the IRC plans to break even within five years.The new body is mandated to buy problem loans belonging to salvageable companies, repackage them and sell the loans back to the market. It is capitalised at �50bn, but can borrow up to �10,000bn.

Mr Toyama, 42, who has built a reputation as a corporate doctor, said the IRC would have to overcome fear among banks and borrowers that might dissuade them from signing up. "Some people might be scared that the IRC is some kind of aggressive private-equity-style player and that we aim to push the purchasing price down and to make an arbitrage profit, but that's completely nonsense. "Our goal is to revitalise Japanese industry."

Mr Toyama said he aimed to sign up borrowers from several industrial sectors as quickly as possible to establish early success stories that would encourage others to come forward."This is not a profit-oriented company, it's a public company, so we are okay with zero profit," he said. In some cases the IRC, as well as buying loans, would provide fresh investment to build a company's competitive advantage. Turnaround meant more than simply cutting headcount, especially given Japanese lifetime employment practices, said Mr Toyama. Canon, the printer and camera manufacturer, showed that a successful hybrid could be developed between US and Japanese management practices.

Mr Toyama denied that the IRC would become a warehouse for "zombie" companies, saying it aimed to sell on investments within three years of purchase. He admitted that some turnarounds might fail, leaving the IRC - and ultimately the taxpayer - to foot the bill."There is always a risk in turnarounds. The IRC has been established to take the risk that sometimes private creditors cannot afford." Mr Toyama was a founder of Corporate Directions, one of Japan's few corporate turnaround specialists, and helped salvage a number of well-known companies including Japan Lease and Akiyama Printer. The IRC, which has a staff of about 100, will rely heavily on outsourcing to experts inside and outside Japan.
Source: Financial Times
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More Monetary Easing in Japan


The Bank of Japan is increasing its target for current accounts again. This is also known as monetary easing. This means effectively there is plenty of money in the banking system, the big question is whether risk averse bankers, whose own entities are not in-themselves that healthy will be willing to lend much of it. Past evidence suggests they won't, and that the effect of this change will be negligable. On the Industrial Rvitalisation Corporation, I suppose it all turns on how you define "weak, but salvageable".

The Bank of Japan on Wednesday surprised markets by easing monetary policy sharply, citing uncertainty in Japan's financial markets and the possible negative impact on the economy of the Sars crisis. The central bank said it would raise the target for current accounts held at the central bank to �22,000bn-�27,000bn ($184bn-$225bn), from the previous level of �17,000bn-�22,000bn. Under the bank's quantitative easing policy, begun in March 2001, the BoJ has flooded the market with enough liquidity to drive interest rates down to virtually zero. Because of "uncertainty regarding the economic and financial situation, the bank thought it appropriate to raise the target balance of current accounts held at the bank to maintain financial market stability, thereby strengthening support for economic recovery," the BoJ said in a statement. Analysts said the announcement showed that Toshihiko Fukui, who became BoJ governor in March, was willing to be more aggressive than his predecessor, Masaru Hayami. In his short time at the helm, Mr Fukui has called an unprecedented emergency meeting, raised the amount of shares the BoJ can buy from banks and initiated a scheme for the bank to buy asset-backed securities from small and medium companies.

Even so, Mamoru Yamazaki, chief economist at Barclays Capital, said the policy moves would have almost no effect on the real economy or on prices, which have been falling for seven years. He said the supply of more liquidity would, however, reassure the edgy financial markets, which have been battered by a sharply falling stock market...............The BoJ also signalled its intention to help in the workout of bad loans, which have paralysed the banks, by treating loans to the Industrial Revitalisation Corporation (IRC) as collateral in its money market operations. The IRC, which begins business next month, is due to buy up to �10,000bn of loans owed by weak, but salvageable, companies in an effort to get them off banks' books and clear them through the market.
Source: Financial Times
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