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Japanese Economy, Finance Minister, Falling Down the Abyss

Japan’s economy dropped an astonishing 12.7% on an annualized basis for the fourth quarter of 2008.  Meaning that it declined 3.3% for the fourth quarter alone.  This is, of course, bad news.

I understand the need to drown your sorrows in these tough times, but Japan’s Finance Minister didn’t have to get himself totally hammered at a G7 meeting in Rome over the weekend.  Not that I don’t feel sorry for the guy, but YouTube video here

Well, in a likely response to the “allegations” that he was drunk, Finance Minster Shoichi Nakagawa announced today that he will resign rather than commit seppuku.

  • NetizenKim

    Well, didn’t Japan already have a depression that lasted more than a decade? It seems they only recovered just in time for another depression, albeit this time one that affects the whole world, not just Japan.

  • natto

    good news for kyopos who love bad news about Japan

  • http://www.xanga.com/wangkon936 WangKon936

    Nope. I just think it’s funny and you’re being too sensitive. If the Korean Finance Minister did the same thing at a G20 meeting, I’d blog about it as well.

    Bad news for the Japanese economy is bad news for Korea’s economy. Do you think it’s just coincidence that Japan’s economy is tanking and Korea can’t find enough buyers for their treasury bonds?

    FYI if you have WSJ subscription:

    http://online.wsj.com/article/SB123483257056995903.html?mod=googlenews_wsj

  • R. Elgin

    There probably will be lynchings of financial leaders going on back in the states before this is all over for this is only part of Act I.

  • taekwonV

    Kind of funny, considering Japan offered $100b to IMF.

  • http://www.xanga.com/wangkon936 WangKon936

    Not a depression. A semi-recession for about 8 years.

    Had a lot to do with banks that were not lending sorta like what’s going on in the U.S.

    The new term for banks who are just “hanging around” and are not lending are “Zombie Banks,” not really alive, not really dead and not doing anything useful and are downright scary.

    http://www.npr.org/templates/story/story.php?storyId=100762999

  • http://www.xanga.com/wangkon936 WangKon936

    Nothing funny about that. Some of that $100B might eventually be lent to Korea…

  • dry

    I’m wondering why no one else is getting hammered, which makes Nakagawa resigning even more disappointing.

    Hey WK (or anyone else), wondering if you could explain something to me. Why is it that the term gyopo/kyopo is used so much here? Recent Korean thing? I recall during my time in Korea another term was used instead, can’t recall what but it translated to something like 2nd gen outside Korea born. The latter might not be totally right, K-E dictionaries were quite shoddy half the time. Also, in the event that gyopo means just that, I know that wasn’t the word…first time I heard it was at MH.

  • http://www.xanga.com/wangkon936 WangKon936

    Well, to be completely fair, Nakagawa wasn’t the only financial official to recently lay an epic fail. Our very own Treasury Secretary Timothy Geithner had a rambling, confusing speech that drained all confidence from the market as well.

    http://www.businessweek.com/investing/wall_street_news_blog/archives/2009/02/geithner_feeds.html

    … and HE was sober!

  • cm

    Korean won is going down further again.

    http://news.joins.com/article/3497527.html?ctg=1100

    What I don’t understand is why Korean government continues to intervene in the currency market and keeps pumping money in a futile attempt at defending the won. They are still doing it! Don’t they realize, this is outside of their scope and should be saving their foreign reserves? Idiots.

  • natto

    They must continue to intervene to defend the won. The Korean companies and financial institutions have borrowed tens of trillion won in Yen and Dollars in short terms and they have to pay back 50% to 100% more in won. The Japanese and American banks are refusing to roll-over the loans. Can Korean banks afford further depreciation of the won? Korea is going to be another Iceland.

  • natto

    The sharp fall in GDP for the 4th quarter is mainly due to inventory adjustments. Japan will be the first country among the major economies to complete inventory adjustments.

    Toyota has just announced that they will ramp up domestic production to about 200,000 units in May, an increase of about 30% from the monthly average during the preceding three months as the automaker replenishes inventories.

  • http://www.xanga.com/wangkon936 WangKon936

    Nope. Japan won’t let them. A weak won is not what Toyota, Sony and Toshiba want. It only means that Hyundai, LG and Samsung products will be that much cheaper.

    I predict a currency swap coming from the central bank of Japan to stabilize the won. A weak won is not in Japan’s long-term interests.

  • http://www.xanga.com/wangkon936 WangKon936

    natto,

    Question. Why is Aso’s approval ratings at 9.7%? Even George W. Bush, at worse was at 22% approval ratings.

    Does it have anything to do with the current economy?

  • http://www.xanga.com/wangkon936 WangKon936

    My time in Korea I remember the older people calling something different than gyopo also. However, I used the term all the time and people understood immediately.

  • http://www.jdlink.co.kr Linkd

    Interesting chart tracing the trajectory of US stock market in various recessions/depressions.

    http://dshort.com/charts/bears/four-bears-extended-large.gif

    And why should Korea be saving its reserves, cm? The country had a hard, hard landing in 97-98 because it had no foreign currency to pay its maturing overseas debts. That’s why Korea built up one of the world’s largest cushions of foreign cash. The whole point of gathering up all those USD’s, which the Korean government is making a very poor return on as far as investment, was to have dollars to spend in case of another crisis. Well, here it is. The reserves should be used carefully, of course, but not using them at all will just make things worse. Not using them at all would mean that Korea’s commercial banks would have to go out into the world markets to secure the dollars needed by the chaebol. Honestly, they likely don’t have the strength to do that, and certainly not cheaply. If it came to that, the commercial banks might even have to [horror!] sell ownership stakes to foreigners who want more security than simple interest payments on USD loans.

    All that blah blah aside, I’m pretty pissed off with the exchange rate these days.

  • http://www.jdlink.co.kr Linkd

    This Bloomberg article puts some clarifying numbers on Korea’s dollar churn. You can see that it’s tight, but not disastrous.

  • natto

    Japan has not intervened in the currency market for the last several years to prevent the yen from appreciating against the US dollars. FYI the yen is the only major currency going up in value against the US dollars in this financial meltdown.

    Likewise Japan will not extend help to Korea just to stabilize the won. Additional currency swap was extended to Korea from Japan last December. The US did the same to Korea a few months ago. Another swap? unthinkable.

  • natto

    I have never ever supported Aso. He is finished. He failed to read simple Chinese characters. He is a blooming fool. His only source of support now comes from the right wing youths. Have you ever heard him speak in English? Laughable. He says he is a graduate of Columbia university.

  • http://www.xanga.com/wangkon936 WangKon936

    The yen took a beating today and can do so if the Japanese economy continues it’s slid, a consequence of the fiat nature of a country’s currency.

    http://www.bloomberg.com/apps/news?pid=20601101&sid=a9BSIwoQ_fwo&refer=japan

    Japan’s biggest companies fear a long-term weak won. Per Sony CEO Stringer:

    “…Sony now no longer competing solely against traditional Japanese electronics companies, but also against South Korean manufacturers like Samsung and LG Electronics, which have expanded their product portfolios. Those companies are also cushioned by the weak won, which makes those products cheaper in export markets.”

    The problem with a long term weak won, compared to the yen, is that a long term weak won makes commodity and component prices predictable. Labor is already cheap so that gives Korean products a (artificial) price advantage over Japanese products.

  • http://www.xanga.com/wangkon936 WangKon936

    Okay, when I say weak won, 1200 to 1300 to a dollar is okay. The current 1450 is a little bit in the red zone. Thank goodness commodity prices are a lot lower than summer of 2008 otherwise Korea would be in dire straits.

  • http://www.xanga.com/wangkon936 WangKon936
  • http://www.xanga.com/wangkon936 WangKon936

    Well, we at least agree upon something… ;)

  • tinyflowers

    I read that secretary Clinton was meeting with the Japanese opposition democratic party today. That’s sure to rankle the Aso government.

  • http://www.xanga.com/wangkon936 WangKon936

    I think it’s time for a change. The LDP has been in power since when? Since the end of WWII, huh?

  • JW

    Hey, sorry for being off topic, but how the hell do you just run off with 8 billion dollars? This is quite an amazing feat. They don’t know where this guy is.

    http://finance.yahoo.com/news/Stanford-whereabouts-unknown-rb-14401684.html;_ylt=Apjf9WkGCuGa4otKtn9GHW27YWsA

  • tinyflowers

    Yeah, my first thought reading the article was: Wait, Japan has an opposition party?

  • tinyflowers

    That guy sure knew how to work the system if he was able to perpetrate an eight billion dollar fraud. I’ll never cease to be amazed by the sheer greed of individuals and the corruption of the system that enables them.

  • wjk, 검은 머리 외국인

    i could buy what he’s saying.

    what I always found interesting was that no matter what the Japanese govt does, the Japanese will always vote for one political party to rule and that’s pretty much it.

    The LDP.

    Japan as a democracy is certainly a very weird one.

    LDP winning all the time is fine, but it is a direct stem off of the war department prior to 8-15-1945, so LDP leadership will always be hesitant to own up to Japanese war crap. Imagine the Nationalist Socialists in Germany winning every election in Germany every single year, by a legit vote, just like Japan.

    Japan is a weird country.

    It is not a true democracy.

  • wjk, 검은 머리 외국인

    i could buy that he wasn’t drunk, but medicated.

  • wjk, 검은 머리 외국인

    Geitner was a true disappointment to Wall Street, on that one day. Long term, nobody knows.

    It’s only a matter of time before the smart guy’s cabinet starts resigning and bearing the blame for the finances.

    They are not doing anything materially different from what Bush was doing for damage control.

    the change stuff was fluff.

    however, unlike Bush, they add a lot of irresponsible riders on the stimulus bill they passed. Typical of them.

    By December 2009, if the economy is shit, I expect Geitner to lose his job. By Feb 2009, Obama will guaranttee himself of being not re-elected.

  • wjk, 검은 머리 외국인

    Geitner was a true disappointment to Wall Street, on that one day. Long term, nobody knows.

    It’s only a matter of time before the smart guy’s cabinet starts resigning and bearing the blame for the finances.

    They are not doing anything materially different from what Bush was doing for damage control.

    the change stuff was fluff.

    however, unlike Bush, they add a lot of irresponsible riders on the stimulus bill they passed. Typical of them.

    By December 2009, if the economy is shit, I expect Geitner to lose his job. By Feb 2011, Obama will guaranttee himself of being not re-elected.

  • cmm

    Since when was the racist dark-haired foreigner faux-med student allowed back on here?? There goes the neighborhood again.

  • Scipio

    Japan is a weird country.

    It is not a true democracy.

    That’s about it. The CCP look at the LDP Japan set up as the model to attain, multi-party elections with the same party always winning.

    They’ll never get it, Chinese aren’t passive and indifferent enough for it to work.

  • Mizar5

    “Japan is a weird country. It is not a true democracy.”

    Um, define “true democracy.” Can we say that the US is a weird country and not a “true democracy” because the same 2 parties keep getting elected? While governments all suck, consider the alternative – anarchy. As Churchill wrote, “democracy is the worst form of govt except for all thos others that have been tried.”

  • tinyflowers

    The US isn’t a true democracy either, it’s a constitutionally limited republic. There have been few true democracies in world history.

    I don’t think you can realitically describe a country with decades of one party rule as a democracy, just because they happen to have elections. Cuba has elections, Saddam Hussein’s Iraq had elections, even North Korea has elections. But much like Japan, the results are never in doubt.

  • http://www.jdlink.co.kr Linkd

    Premonitions of things to come…

    Greenspan backs bank nationalisation

    ”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”

    “We should be focusing on what works,” Lindsey Graham, a Republican senator from South Carolina, told the FT. “We cannot keep pouring good money after bad.” He added, “If nationalisation is what works, then we should do it.”

    Bank nationalisation gains ground with Republicans

    Long regarded in the US as a folly of Europeans, nationalisation is gaining rapid acceptance among Washington opinion-formers – and not just with Alan Greenspan, former Federal Reserve chairman. Perhaps stranger still, many of those talking about nationalising banks are Republicans.

    Lindsey Graham, the Republican senator for South Carolina, says that many of his colleagues, including John McCain, the defeated presidential candidate, agree with his view that nationalisation of some banks should be “on the table”.

  • http://www.xanga.com/wangkon936 WangKon936

    It also helps that one of our favorate economists also supports bank nationalization.

    http://www.business-standard.com/india/news/nouriel-roubini-time-to-nationalise-insolvent-banks/00/54/349377/

  • http://www.xanga.com/wangkon936 WangKon936

    I respect Nouriel Roubini’s economic analysis despite the fact that he’s a Facebook stalker…

    http://gawker.com/5063986/dr-dooms-facebook-stalking-technique

  • NetizenKim

    That’s me in about 15 years.

  • NetizenKim

    This is what the “Go To Guy” has to say about this:

    http://www.gotoguy.com/2009/02/19/banks-are-what-really-matters/

    Bank of America (BAC) share price is falling like a rock.

    Within the past five days the stock price has dropped everyday with total losses reaching 30%. Over this same time period our President signed the stimulus/spending bill.

    The financial system falls first, then the economy as a whole. Think about it.

    Our current crisis started with financial company failures and has mushroomed over the past year. Whether greed, conflicts of interest or just out right fraud, it all began in the financial markets.

    When Bear Stearns failed, the DOW was at 12,000. It is currently trading at 7500 with financials still getting rocked.

    I noticed a few things while at the mall yesterday. I got the second spot nearest the entrance. I was one of the few people carrying a bag (and I was making a return). The store had four clerks but not one customer, besides me. Interesting?

    The companies such as Bank of America, Freddie Mac and Bear Stearns are all financial related components of the “Market”. At the end of the day, the market is our financial system.

    Alan Greenspan and the Republican Party are calling for the nationalization of banks. The champions of no financial regulation now call for complete nationalization? This is the most amazing reversal in modern economic history. These guys have been consistently a day late and a dollar short. Can financial Armageddon be far behind?

    The cycle has just begun. The market has more risk to the downside. Financial stocks have not stopped tanking – the failing economy is just getting into gear.

    Major layoffs will continue. Empty commercial space will explode. Time to get a grant?

    This market could bounce but long term trend remains down.

  • Scipio

    Um, define “true democracy.”

    While I cannot be bothered to define democracy, either in its Greek theoretical roots or its modern ‘liberal’ practice, I can tell you what Democracy is not.

    1. Democracy is not a system of government operated by familial cliques (After the next elections, when Koizumi will stand down,his son will be the 4th generation of Koizumi’s to be elected from the seat) that inherited their seat in the Japanese parliament from their parents. 30% of the politicians in the japanese lower house are these ‘seshu’.

    2. Democracy is not a system of societal values where the general populace, as a whole, feel totally powerless and indifferent to the function of governance and the influence that they might exert on those who govern.

    3. Democracy is not……..

    Oh I could go on for ages, do some research, Japan is very very far from being a politically democratic country and Yoshida Shigeru had it right when he said to Macarthur, ‘You are trying to make the Japanese democratic, you will fail’

    As a good Japanese friend said, the only time that Japan stands a chance of having a system of government that in anyway resembles democracy of the ‘western’ model is after Japan goes thru an Indonesian type revolution.

  • natto

    No “seshu” is guaranteed unless he or she is elected by the voters. However, people are fed up with the LDP’s family succession, the rule will be changed in a few years in such a way that the son or daughter can only run for election from a different constituency.

    The LDP has not totally dominated the government since the end of the war. The government was briefly ruled twice by the other parties. Even today, the House of Councilors is ruled by the opposition parties while the House of Representatives by the LDP. With a 100% probability the LDP will lose the next election to be held by the end of this year.

    Democracy requires at least one recondition, which is a free election based on majority rule; and should result in the greatest happiness for the greatest number. In this sense, Japan can be qualified to be called a Democracy.

    I have never heard such a gross insult to Japan as the Scipio’s last sentence.

  • Scipio

    ‘No “seshu” is guaranteed unless he or she is elected by the voters.’

    Wrong, there are 2 electoral procedures for entry into the Japanese parliament. There is is the single constituency seat direct election procedure and there is the proportional representation list procedure.

    ‘the rule will be changed in a few years in such a way that the son or daughter can only run for election from a different constituency’

    It will never happen because not only would it be ruled illegal, by the Japanese Supreme court, going against articles 10 -15 of the Japanese constitution, but according to some projections, the percentage of Seshu in the Japanese Parliament, after the lower house elections, no matter which party wins the election, is expected to increase to 50%.

    ‘The LDP has not totally dominated the government since the end of the war. The government was briefly ruled twice by the other parties.’

    I can’t fathom this unless your claiming that the Liberal and Democratic parties who dominated the Diet, before the creation of the Liberal Democratic in 1955, were different parties from the Liberal Democratic party that they created.

    Both the Hata (lasted 3 months) and the Murayama governments (lasted 6 months) of 1994 were coalition governments with the LDP. The LDP was the kingmaker with the Hata Renewal (ex-LDP politiicians) Party coalition government and although Murayama could have looked for allies elsewhere, he didn’t and he was largely a socialist figurehead who led an LDP government.

    ‘Even today, the House of Councilors is ruled by the opposition parties while the House of Representatives by the LDP.’

    The House Of Councilors is very like the British House Of Lords, it can delay legislation but as long as the ruling party and its allies have a 2/3 majority in the lower house, it can do nothing else. The only reason that the LDP doesn’t railroad more legislation thru parliament is the constraint of political convention (it’s such an ‘unJapanese’ thing to do), but as everyone should know, when push comes to shove, the japanese can push with the best.

    ‘With a 100% probability the LDP will lose the next election to be held by the end of this year.’

    Your applying western mores to Japanese politiics. Ozawa, who is both seshu and ex-LDP, might be the next PM, but after or before the September elections, factions from the LDP will join and be gladly welcomed into the DJP and we will back where we were; the same elites under another name.

    ‘Democracy requires at least one recondition, which is a free election based on majority rule; and should result in the greatest happiness for the greatest number. In this sense, Japan can be qualified to be called a Democracy’

    Sorry, even this is wrong. The electoral districting of parliamentary seats in Japan are so weighted that 1 rural vote is equivalent to 7 urban votes. If it walks like a duck and quacks like a duck it must be gerrymandering. As an added note some Japanese citizens petitioned the Japanese Supreme court 3 years ago about this and the Japanese Supreme court, while admitting a certain discomfort with the set up, ruled that it did not controvene the constitution.

    Japan is, intellectually, culturally, politically and socially far from democratic. The majority of Japanese accepted the facade of the western political model in the hope that it would bring western economic power and prosperity. On this point, they were largely right but for the wrong reason. However once that economic power and prosperity goes heads up, they might well resort to historical form.

  • Scipio

    Sorry, I don’t know how to ammend previously posted posts.

    That should read, ‘The electoral districting of some parliamentary seats in Japan are so weighted that 1 rural vote is equivalent to 7 urban votes.’

  • natto

    Yes, we have a party-list representation system, where parties make lists of candidates to be elected, and seats get allocated to each party in proportion to the number of votes the party receives. Therefore, a candidate(a son or daughter) cannot be elected unless he or she comes near the top of the party-list and/or the party can receive enough votes. No guarantee is given.

    The majority of the LDP which will win the next election are for the change. The court has no power to rule over what the parliament decides on this particular election sytem change unless some unhappy sons or daughters take it to the court.

    Not 1 versus 7, but 1(most depopulated constituency) versus 5(most populated constituency) for the Councilor. Urban voters and Rural voters don’t compete for different candidates. Every vote is counted as one for proportional representation election.

    The US also has gerrymandering with many Rorshach test-like voting districts.

  • Scipio

    ‘Yes, we have a party-list representation system, where parties make lists of candidates to be elected, and seats get allocated to each party in proportion to the number of votes the party receives. Therefore, a candidate(a son or daughter) cannot be elected unless he or she comes near the top of the party-list and/or the party can receive enough votes’

    What you mean like the young deadbeat, who got in the last lower house elections on the LDP PR list and when asked why he wanted to be a politician replied he wanted to buy a BMW and hang out with Geisha – I’ve forgotten his name?

    ‘The court has no power to rule over what the parliament decides on this particular election sytem change unless some unhappy sons or daughters take it to the court.’

    First you are under the illusion that the Japanese political model is like the British model, where Parliament is supreme. Wrong again, as an example just look at the Supreme Court’s recent decision concerning the nationality law and children born to Japanese fathers and non-Japanese mothers. What the Supreme Court says, goes. Secoundly do you really expect Seshu or the LDP to passively give up a lifetime’s free ride and accept something unconstitutional without challanging it in the courts? Apart from the fact that the DJP itself is staffed and led by Seshu – no matter what they say before the election – be real!

    The simple fact that the DJP could make an election promise, something they know is illegal, and that the Japanese people don’t even question a poltical party making aqn obviously unattainable election promise shows you how far Japan has to go before it has the basics of a democratic society.

    Cake and circus, my friend, that is the workings of the Japanese political model. The circus has always been below par – food programs and talentless talentos – and the cake is fast disappearing…..

  • natto

    Before answering your questions, tell me which country do you think is more democratic, Japan or Korea?

  • Scipio

    Before answering your questions, tell me which country do you think is more democratic, Japan or Korea?

    Seems a bit of puzzling question and the loaded relativism is not important. Al I said and continue to say is

    1. This ‘usism’ of people outside Japan and the Japanese, who thru a desire to seperate themselves from the unwashed ignorant hoardes of the developed world and to claim membership of a self imagined world elite, is wasted when talking about Japan being a democracy. The facade of democracy, with its rituals, are there, but it is merely a veneer which hides a one party state. The party might well change its name after the elections in September, but it will be the same party in all but name.

    2. Japan is culturally, socially and politically far from being a democratic state and will remain so until there is an Indonesian type revolution in the country.

    Finally as a last point, which has relevance to Korea, Korean democracy was something hard fought for and was a struggle from the bottom up. Japanese Democracy was something dropped into the laps of the Japanese by an occupying power and toterated by the elites of old. In that historical process lies half the problem with Jaapan and Democracy. We respect very little something that is easily gained

  • natto

    I would like to conclude the discussion with the following data.

    Economist Intelligence Unit democracy index 2006

    1. Sweden
    2. Iceland
    3. Netherland
    17. US
    20. Japan
    23. UK
    24. France

    Flawed democracies

    29. South Africa
    30. Chile
    31. South Korea
    32. Taiwan

    http://www.economist.com/media/pdf/Democracy_Index_2007_v3.pdf

  • Scipio

    Natto,
    Are you Japanese because you cogitate factual information like one?

  • http://www.xanga.com/wangkon936 WangKon936

    http://www.koreatimes.co.kr/www/news/biz/2009/02/123_40061.html

    I was right.

    An overly weak won is in neither country’s best interest.