Japan business confidence rises, but doubts remain

Photo: AFP

TOKYO - Japanese business confidence has improved for a sixth straight quarter but companies are expecting a gloomy end of the year amid increased global economic uncertainty, the Bank of Japan said Wednesday.

Sentiment among major manufacturers rose to a higher-than-expected reading of 8 in September from 1 in June, according to the central bank's closely watched Tankan survey of more than 11,000 firms.

The latest figure shows that optimists still outweigh pessimists among major manufacturers in terms of their view of Japan's economic climate, in only the second positive reading since June 2008.

But the forecast for the December survey is for a reading of minus 1, suggesting that companies expect conditions to sharply worsen in the months ahead as Japan remains beset by deflation and the effects of a strong yen.

"Companies are very cautious about the economy towards the year-end," noted Naoki Murakami, chief economist at Monex Securities.

In particular there was "increasing uncertainty about the world economy and the (Japanese) government's dull responses to the chain reaction of the yen's rise and stock price falls."

The strong yen has hurt exporters, making their goods more expensive and eroding companies' overseas profits when repatriated. Videogame giant Nintendo on Wednesday more than halved earlier profit forecasts, citing yen strength.

Exports, a crucial driver for Japan's growth, expanded at their slowest pace this year in August, as the impact of the yen's strength and softening overseas demand illustrated the risks threatening a fragile recovery.

A strong domestic currency also makes imports cheaper, helping prolong a damaging deflationary cycle where consumers hold off on purchases in the hope of further price drops, clouding future corporate investment.

The reading was made with companies expecting an exchange rate of 89.44 yen to the dollar, higher than in the previous survey but much lower than current levels, which if sustained will further erode confidence.

Japan stepped into the currency markets in September for the first time since 2004 in a bid to stem the yen's strength after it hit a 15-year high against the dollar, and has repeatedly warned it is ready to do so again.

"Many (negative) factors are piling up," said Takeshi Minami, economist at Norinchukin Research Institute. "Considering exports and consumer spending are unlikely to be a strong driving force, the economy will be at a standstill."

Japan's economy expanded by an annualized 1.5 percent in the April-June period, sharply lower than the previous quarter's 5.0 percent.

Prime Minister Naoto Kan Monday ordered a supplementary budget for fresh stimulus measures be put together to shore up the flagging economy, after he recently announced 915 billion yen package to add jobs and boost growth.

The Tankan figures are looked at closely by the central bank when formulating monetary policy, and it has come under heavy government pressure recently to do more to help boost the economy.

"The outcome of the latest Tankan will prompt the BoJ to go for additional monetary easing," said Murakami.

The upbeat September reading among big firms was helped by higher automobile demand ahead of the expiration of government stimulus incentives for green car purchases, said Minami.

But including all industries such as medium and small-sized manufacturers and non-manufacturers, the outlook was gloomy at a reading of minus 10.

The index, which measures the percentage of firms that think business conditions are good minus those that believe they are bad, hit a record low of minus 58 in March 2009.

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EU sees Vietnam as a market economy by 2018

A senior EU trade official says that Vietnam will meet all the five criteria for the world’s largest trading bloc to recognise the country as having a market economy by 2018.

Stefan Depypere, Director of Trade Defence under the European Commission Directorate-General for Trade, stated this at a press briefing in Hanoi on September Friday at the end of his visit to Vietnam .

He said he saw the progress made by Vietnam ’s ministries and industries on the criteria for a market economy.

The EC trade representative also made public the positive outcomes of the ninth round of negotiations and said that Vietnam and the EU would sign a new partnership and cooperation agreement during a summit of the Asia-Europe Meeting (ASEM) due to take place in Belgium , in October.

In regard to the EU’s anti-dumping tariffs on Vietnam ’s leather shoes, which will expire in March, 2011, Depypere said that the EU’s next decision will largely depend on developments and the health of the footwear manufacturing industry in Europe .

He added however, that he felt positive after Vietnam ’s bicycles can now be exported to Europe once more.

During his stay in Vietnam, Depypere met with the Ministry of Industry and Trade, the State Bank of Vietnam and the Ministry of Finance, where both parties focused on research on the current accounting system in three major fields, from macro-economic policy to legal frameworks and progress in implementation by businesses.

EU and Vietnamese agencies have reached a consensus on conducting joint research with independent experts, to consider and scrutinise the Vietnamese economy to try and establish the country’s market economy status, said Depypere.

They will compare the outcomes of research with statistics released by prestigious international economic and financial institutions such as the World Bank and the International Monetary Fund before reaching a final conclusion, which should be an advantage for the Vietnamese economy, concluded the EU expert.

In February, 2010, the EC recognised Vietnam ’s achievements in meeting the first of five criteria needed to be recognised as a market economy, namely the Government’s allocation of human resources and business decisions, both direct or indirect.

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EU sees Vietnam as a market economy by 2018

A senior EU trade official says that Vietnam will meet all the five criteria for the world’s largest trading bloc to recognise the country as having a market economy by 2018.

Stefan Depypere, Director of Trade Defence under the European Commission Directorate-General for Trade, stated this at a press briefing in Hanoi on September Friday at the end of his visit to Vietnam .

He said he saw the progress made by Vietnam ’s ministries and industries on the criteria for a market economy.

The EC trade representative also made public the positive outcomes of the ninth round of negotiations and said that Vietnam and the EU would sign a new partnership and cooperation agreement during a summit of the Asia-Europe Meeting (ASEM) due to take place in Belgium , in October.

In regard to the EU’s anti-dumping tariffs on Vietnam ’s leather shoes, which will expire in March, 2011, Depypere said that the EU’s next decision will largely depend on developments and the health of the footwear manufacturing industry in Europe .

He added however, that he felt positive after Vietnam ’s bicycles can now be exported to Europe once more.

During his stay in Vietnam, Depypere met with the Ministry of Industry and Trade, the State Bank of Vietnam and the Ministry of Finance, where both parties focused on research on the current accounting system in three major fields, from macro-economic policy to legal frameworks and progress in implementation by businesses.

EU and Vietnamese agencies have reached a consensus on conducting joint research with independent experts, to consider and scrutinise the Vietnamese economy to try and establish the country’s market economy status, said Depypere.

They will compare the outcomes of research with statistics released by prestigious international economic and financial institutions such as the World Bank and the International Monetary Fund before reaching a final conclusion, which should be an advantage for the Vietnamese economy, concluded the EU expert.

In February, 2010, the EC recognised Vietnam ’s achievements in meeting the first of five criteria needed to be recognised as a market economy, namely the Government’s allocation of human resources and business decisions, both direct or indirect.

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EU sees Vietnam as a market economy by 2018

A senior EU trade official says that Vietnam will meet all the five
criteria for the world’s largest trading bloc to recognise the country
as having a market economy by 2018.

Stefan
Depypere, Director of Trade Defence under the European Commission
Directorate-General for Trade, stated this at a press briefing in Hanoi
on September 24 at the end of his visit to Vietnam .

He said he saw the progress made by Vietnam ’s ministries and industries on the criteria for a market economy.

The EC trade representative also made public the positive outcomes of
the ninth round of negotiations and said that Vietnam and the EU
would sign a new partnership and cooperation agreement during a summit
of the Asia-Europe Meeting (ASEM) due to take place in Belgium , in
October.

In regard to the EU’s anti-dumping
tariffs on Vietnam ’s leather shoes, which will expire in March, 2011,
Depypere said that the EU’s next decision will largely depend on
developments and the health of the footwear manufacturing industry in
Europe .

He added however, that he felt positive after Vietnam ’s bicycles can now be exported to Europe once more.

During his stay in Vietnam , Depypere met with the Ministry of
Industry and Trade, the State Bank of Vietnam and the Ministry of
Finance, where both parties focused on research on the current
accounting system in three major fields, from macro-economic policy to
legal frameworks and progress in implementation by businesses.

EU and Vietnamese agencies have reached a consensus on conducting
joint research with independent experts, to consider and scrutinise the
Vietnamese economy to try and establish the country’s market economy
status, said Depypere.

They will compare the
outcomes of research with statistics released by prestigious
international economic and financial institutions such as the World Bank
and the International Monetary Fund before reaching a final conclusion,
which should be an advantage for the Vietnamese economy, concluded the
EU expert.

In February, 2010, the EC recognised
Vietnam ’s achievements in meeting the first of five criteria needed to
be recognised as a market economy, namely the Government’s allocation
of human resources and business decisions, both direct or indirect./.

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Japan PM warns of more action vs yen

Photo: Reuters

TOKYO - Japanese Prime Minister Naoto Kan said Tokyo was ready to act again if the yen moved sharply, keeping traders on guard against further intervention as expectations of US monetary easing weighed on the dollar.

Japan intervened in the currency market last week by selling yen for the first time in more than six years as its surge to a 15-year high against the dollar threatened to derail Japan's slowing economy and worsen deflation.

In an interview with the Financial Times published on Wednesday, Kan said currency intervention would be unavoidable if there were a drastic change in the yen exchange rate.

The comments coincided with the dollar's drop below 85 yen to its weakest level since last week's intervention, after the Federal Reserve signaled it was ready to stimulate the US economy more.

Traders said the yen was still below levels that would trigger another intervention, but more yen selling could not be ruled out.

"I don't think markets are bracing for imminent intervention with the dollar still above 84.00 yen. But if the dollar falls further to test 82 yen, markets will focus on whether authorities will step in again to defend that level," said Ayako Sera, market strategist at Sumitomo Trust & Banking.

"Japanese authorities will intervene in the event of sharp market moves, regardless of whether Kan will be away from Japan or not."

Kan, who is traveling to New York this week for a U.N. General Assembly meeting, said there was an agreement among G20 nations that overly rapid currency movements were undesirable, and that he would seek to defend Japan's action.

Bank of Japan Governor Masaaki Shirakawa declared further support for the country's economy, saying in a newspaper interview the central bank would provide ample funds to the market.

That would include liquidity supplied through intervention, Shirakawa said, suggesting that the BOJ would continue to refrain from draining funds released into the market when authorities sell the yen.

The BOJ also stands ready to ease policy further at its next rate review on October 4-5, although there is a debate within the bank on what exactly it should do next with its policy options limited, sources familiar with the bank's thinking said.

BOJ's options

Those options include increasing government bond purchases, buying private sector assets or expanding a cheap fund-supply scheme targeting growth industries, sources say.

Shirakawa told the Yomiuri newspaper that greater uncertainty about the global economy meant increased risks to Japan's recovery, a warning echoed by BOJ board member Ryuzo Miyao.

Miyao, who joined the board in March, told business leaders in western Japan that a possible extended spell of sluggish US economic growth could force the BOJ to alter its forecast of a sustained moderate recovery in Japan's economy.

He also said the BOJ was not ruling out any policy option, including increasing its government bond buying from the current 21.6 trillion yen per year.

With its hands tied by public debt double the size of Japan's $5 trillion economy, the government has mainly counted on the BOJ to come up with ways of revving up the sagging economy.

But Kan said Tokyo planned a comprehensive package of measures that would stimulate domestic demand and help to weaken the currency.

While he did not elaborate on measures to boost domestic demand, he said one option was to use the yen's strength to invest in natural resources overseas.

"I think it is necessary to combine economic policy and monetary policies that will be conducive to ... slightly lower than the current level," he added.

Kan has instructed his cabinet to compile an extra budget for the current fiscal year to March, although the size of spending will likely be too small to significantly boost the economy.

Unsterilized interventions are a departure from the usual central bank practice of absorbing the extra funds through issuance of government bills, effectively making intervention a part of a monetary loosening mix.

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Macro-economic instability a national concern

Photo: Tuoi Tre

How to keep the macro-economy growing steadily topped an on-going workshop in Ho Chi Minh City, where economists pointed out differing trends in the national economy that are difficult to forecast.

Dr. Tran Dinh Thien from the Vietnam Economic Institute said that the national economy was looking good as GDP growth has been high for consecutive years and in the third quarter it is likely to reach 7.18 percent, with inflation under control at 5.08 percent in the first eight months.

He warned however, at the two-day workshop on September 21, that the macro-economy has shown uncertain signs and was very difficult for economists to forecast.

He also complained of slow reforms in the internal structure.

Thien, urged immediate reforms in the State budgets, public investment and State-owned economic groups.

He also called for the State Bank of Vietnam to hold an independent position, and more efforts to develop the supporting industries and regional economies.

Salary reforms in the State economic sector and improving the handling of the macro-economy were the other steps that the senior economist urged to be taken.

Dr. Vo Dai Luoc pointed out the nation’s illogical macro-economic developments that need to be addressed, such as high inflation, the highest interest rates on deposits and loans in the world and an inflated Vietnamese dong amidst fixed exchange rates.

To address these problems, Luoc called on the State to introduce economic adjustments.

The State should also ensure reasonable growth and control inflation when handling the macro economy, he emphasised.

The World Bank’s Acting Economic Head, Keiko Kubota, recognised Vietnam’s efforts to reach to the world’s average income level of US$1,100 thanks to its drastic economic growth.

However she pointed out that the development was based on the renewal process which has been losing its momentum and has been threatened with emerging challenges in management as well as poverty and imparity.

The Vietnamese economy is still highly competitive and has yet to fall into the income trap, the senior economist from the world’s largest development bank said.

She called on Vietnam’s development strategy to focus its economic growth on the private sector and prevent the real estate market from overheating.

Top priority should be given to pre-empting crises and supporting productivity including human resources, urbanisation and infrastructure, the WB economist concluded.

The two-day workshop, was held in the nation’s largest economic hub under the co-sponsorship of the National Assembly’s Economic Committee and the Vietnam Academy of Social Sciences. It drew representatives from the Party, National Assembly and Government as well as senior experts, both from Vietnam and abroad

 

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Macro-economic instability a national concern

How to keep the macro-economy growing steadily topped an on-going
workshop in Ho Chi Minh City, where economists pointed out differing
trends in the national economy that are difficult to forecast.

Dr. Tran Dinh Thien from the Vietnam Economic Institute said that the
national economy was looking good as GDP growth has been high for
consecutive years and in the third quarter it is likely to reach 7.18
percent, with inflation under control at 5.08 percent in the first eight
months.

He warned however, at the two-day workshop on
September 21, that the macro-economy has shown uncertain signs and was
very difficult for economists to forecast.

He also complained of slow reforms in the internal structure.

Thien, urged immediate reforms in the State budgets, public investment and State-owned economic groups.

He also called for the State Bank of Vietnam to hold an independent
position, and more efforts to develop the supporting industries and
regional economies.

Salary reforms in the State
economic sector and improving the handling of the macro-economy were the
other steps that the senior economist urged to be taken.

Dr. Vo Dai Luoc pointed out the nation’s illogical macro-economic
developments that need to be addressed, such as high inflation, the
highest interest rates on deposits and loans in the world and an
inflated Vietnamese dong amidst fixed exchange rates.

To address these problems, Luoc called on the State to introduce economic adjustments.

The State should also ensure reasonable growth and control inflation when handling the macro economy, he emphasised.

The World Bank’s Acting Economic Head, Keiko Kubota, recognised
Vietnam’s efforts to reach to the world’s average income level of 1,100
USD thanks to its drastic economic growth.

However she
pointed out that the development was based on the renewal process which
has been losing its momentum and has been threatened with emerging
challenges in management as well as poverty and imparity.

The Vietnamese economy is still highly competitive and has yet to fall
into the income trap, the senior economist from the world’s largest
development bank said.

She called on Vietnam’s
development strategy to focus its economic growth on the private sector
and prevent the real estate market from overheating.

Top priority should be given to pre-empting crises and supporting
productivity including human resources, urbanisation and infrastructure,
the WB economist concluded.

The two-day workshop, was
held in the nation’s largest economic hub under the co-sponsorship of
the National Assembly’s Economic Committee and the Vietnam Academy of
Social Sciences. It drew representatives from the Party, National
Assembly and Government as well as senior experts, both from Vietnam and
abroad./.

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BOJ vows timely action but few clues on next move

Bank of Japan (BOJ) Governor Masaaki Shirakawa answers questions during a press conference at the BOJ headquarters in Tokyo.

Photo: AFP

TOKYO - The Bank of Japan (BOJ) stood pat on monetary policy on Tuesday but vowed timely action when needed, setting the stage for possible easing next month when it has clarity on political leadership and the strong yen's damage to the slowing economy.

But Governor Masaaki Shirakawa offered few clues on what exactly the BOJ may do next and said monetary authorities could not control foreign exchange rates, triggering yen buying on speculation no aggressive easing was on the horizon.

"The dollar approached its 15-year low of 83.58 yen because of disappointment over Shirakawa's comments," said Keiji Matsumoto, currency strategist at Nikko Cordial Securities.

"He doesn't seem to suggest additional easing. Unless the BOJ fully downgrades its economic assessment, it will not take new additional steps. The dollar/yen could fall to around 82 yen."

Still, government pressure on the BOJ for more aggressive steps will likely grow in coming months with the economy expected to slow and as a leadership battle in the ruling party raises the chances of looser fiscal policy, analysts say.

Japanese government bonds tumbled in the last two weeks on worries of a possible shift away from Prime Minister Naoto Kan's efforts to rein in Japan's huge debt pile if he loses a Sept. 14 vote for the party's top spot to powerbroker Ichiro Ozawa.

Media surveys suggest Ozawa could win and investors are speculating he may be forced to issue more bonds to keep spending promises made when the party swept to power last year.

"So far, the market expectation is that Ozawa would pursue more fiscal expansion than Kan, and the market has to some extent priced in the possibility that Ozawa may become the next prime minister," said Makoto Yamashita, chief Japan interest rate strategist at Deutsche Securities.

"Fiscal expansion can easily be associated with a rise in government pressure on the BOJ to ease. And there are many market players who are looking at it that way."

Others expect the BOJ to come under pressure no matter who wins the battle to head the Democratic Party of Japan.

"The BOJ has a tricky political road regardless of who leads the Democrats. Ozawa might pressure the BOJ, but if Kan stays and there's no big fiscal stimulus, this could also pressure the BOJ," said Frederic Neumann, co-head of Asian economics at HSBC in Hong Kong.

No aggressive action?

After easing policy just last week, the BOJ kept interest rates on hold at 0.1 percent on Tuesday but warned that it would take appropriate and timely action when necessary.

The central bank also repeated that it needed to watch out for downside risks to growth amid increasing uncertainty over the outlook for the US economy, which has jolted currency and stock markets in recent weeks.

But market players see a small chance of aggressive easing steps from the Japanese central bank as it stuck to its forecast of a moderate economic recovery, and Shirakawa said monetary policy was not directly aimed at the yen.

"We are always considering various policy options," Shirakawa told a news conference. "But monetary authorities are unable to control currency rates freely ... We are carefully watching how the yen's rise impacts the Japanese economy."

The yen briefly climbed to 83.70 against the dollar, near the 15-year high hit last month, following his comments.

Japanese policymakers have tried to talk down the yen and threatened to intervene in the currency market after its surge.

The BOJ also stands ready to ease further if the yen soars at a pace of 1 to 2 percent in a single day. Otherwise, it hopes to wait until next month, when it is seen revising down its economic and price forecasts in a semiannual report due on Oct. 28.

The BOJ boosted its cheap loan scheme on Monday of last week, bowing to government pressure for steps to protect the fragile recovery. But the move did little to deter yen gains or stock price falls as investors saw it as a symbolic gesture with little effect in supporting the economy and beating deflation.

That has led some BOJ officials to believe that bolder action is needed to send a clearer message to markets that it is determined to keep the strong yen from harming the economy.

There is no consensus yet on what the next step should be, but the list of options includes a return to zero interest rates and an increase in the bank's government bond purchases.

Expectations of further monetary easing have pushed down the short end of Japan's bond yield curve, while the long end has been pushed up by speculation that Ozawa, if he wins next week's vote, may take a more fiscal expansionary stance than Kan.

But the yield curve has flattened beyond the 10-year zone lately as investors hunting for bargains trimmed earlier losses in the superlong sector, suggesting that the recent sharp rise in yields may have started to peter out.

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Experts discuss economic restructuring

With tariffs cut in line with Viet Nam's WTO commitments and lack of techical barriers, a huge volume of imports have entered the country. — VNA/VNS Photo Kim Phuong

HCM CITY — The importance of restructuring the economy from primarily agrarian to one centred on industry and services was highlighted at a meeting held in HCM City yesterday.

Viet Nam's accession to the World Trade Organisation (WTO) has been positive for the economy but it also poses big challenges, Tran Dinh Thien, director of the Viet Nam Economics Institute, said.

After joining the global trade body in 2007, foreign direct investment into the country rose dramatically as did exports, he said.

But the WTO accession has also revealed the weaknesses of the economy, including low quality of growth, poor infrastructure, high inflation, poor human resources, and low competitiveness, he said.

The quality of human-resources has yet to meet the need of development and co-ordination between businesses to achieve a combined strength remains poor, he added.

Nguyen Dinh Cung, deputy director of the Central Institute of Economic Management, said: "We need to restructure our economic mechanism."

Economic growth in recent years has been mainly due to the transformation from agriculture to industry-services, while productivity has barely increased, he explained.

With its weak economic structure, the country will find it very hard to become a modern economy by 2020, he added.

Tran Du Lich, deputy head of the HCM City National Assembly delegation, said the problem faced by the Vietnamese economy was not a shortage of capital but how to effectively absorb it.

"Our economy rests on three weak pillars – weak economic institutions, poor human resources, and poor infrastructure – that do not ensure stability for absorbing capital in the most effective way and developing in a sustainable manner," he said.

The country needs measures to strengthen these pillars, he said.

A programme to support economic restructuring in HCM City has yielded results in the last three years but progress remained slow, he said.

In restructuring the economy, the city should focus on improving its quality and urban infrastructure, he said.

It should create a level playing field for all business sectors, continue with administrative reform, improve human-resource training, and develop infrastructure, he said.

The Government should stabilise the macro economy to retain the people's and market's trust and improve the effectiveness of public investment and the role of State-owned groups, he said.

But the country had yet to assess the impact of Viet Nam's accession to the WTO, a task that required great skill, he said.

With tariffs cut in line with Viet Nam's WTO commitments and a lack of technical barriers, a huge volume of imports have entered the country, causing difficulties for local producers.

The country should therefore adopt measures to safeguard local producers from imports, Lich added. — VNS

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