Weekly News from Tokyo
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TOKYO SKY TREE DITP TOKYO (2013 April13 – April19) Weekly News From Tokyo 29 June – 5 July 2013 Japan Mulls Cutting Tariffs On Rice For Processing TOKYO (Nikkei)--The government may agree to reduce import tariffs on rice used for processing in exchange for preserving current rates on staple-food varieties under the Trans-Pacific Partnership talks, The Nikkei learned Tuesday. The compromise will be presented to the U.S. and other trade partners in bilateral talks slated to begin as early as August once Japan officially joins the negotiations. Japan consumes roughly 7.15 million tons of rice a year as a staple food, while rice processed into crackers, sake and other products accounts for just 600,000 tons. There are 58 tariff categories for rice. But those targeting staple-food varieties, such as brown rice and polished white rice, total about six to eight, with the rest covering rice for processing. The government has long excluded rice as a whole from trade negotiations and has not looked into making distinctions between the tariff categories. The types of rice subject to possible tariff cuts under the new policy will be chosen carefully by weighing the impact on producers and processors. Rice distributed on the market for processing includes domestic crops grown for such purposes, varieties that do not meet standards for staple consumption, and foreign-grown imports bought through the minimum-access trade arrangement. Some processed-food firms are being forced to pay high tariffs for imports. Banner rice crops last year meant smaller portions diverted for processing, leading to higher prices. Lower tariffs would thus be welcomed by food processors but likely draw protests from domestic farmers. One government official sees a compromise as inevitable. "The 11 countries have already begun full negotiations," this source says. "Japan cannot insist on not cutting tariffs on farm products even by 1% after coming to the negotiating table late." By offering a concession on rice, Japan hopes to extract tariff cuts on industrial products and secure better protection of intellectual property. The TPP aims to eliminate tariffs on all trade products. But with the U.S. and Canada also intent on keeping import taxes on sugar and dairy products, some experts say tariffs will be eliminated on 98% of all product categories. 1 TOKYO SKY TREE DITP TOKYO (2013 April13 – April19) Weekly News From Tokyo 29 June – 5 July 2013 The rate comes to around 98% for other recently signed free trade agreements, such as those between South Korea and the European Union, and between South Korea and the U.S. (The Nikkei, July 3 morning edition) DJ: BOJ Survey Of Consumers Shows Prices Strongly Expected To Rise TOKYO--A Bank of Japan survey showed the general public overwhelmingly expect prices to rise over the coming year, and well beyond what the central bank currently projects, as the economic policies of Prime Minister Shinzo Abe take hold with consumers. Helping fuel this optimism, an index of data most reflective of the current state of Japan's economy rose in May, in a sign the world's third-largest economy has escaped its downturn phase and is heading for an expansion. Three months after the BOJ launched drastic monetary easing steps to overcome deflation, Japan's economic recovery is gaining momentum as exports improve on the yen's weakness and consumers loosen their purse strings amid high hopes for better economic times ahead. According to the BOJ's June survey of 2,273 consumers released Friday, 80.2% of the respondents said they expect the prices of goods and services to rise over the coming year. The reading is the highest since 81.2% in September 2008 and up from 74.2% in the previous March survey, the BOJ said. The quarterly poll excludes the effects of a planned three-percentage-point sales tax hike in April next year. The survey also showed that the respondents expect prices to rise 5.1% on average in a year's time compared with a 4.0% increase in the previous poll. That figure is the highest since a 5.7% increase in December 2008. "Inflation expectations are starting to strengthen among households," said Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute. One reason is the rising costs of imports due to the yen's weakness, a product of Mr. Abe's policy mix centering on bold monetary easing, he said. The strong expectations among the public for prices to increase along with another closely-watched survey pointing to rising inflation expectations among corporations may give a sense of relief to BOJ Gov. Haruhiko Kuroda, who has made it a top policy priority to reverse what he calls the "deflationary mindset" of the Japanese. Once businesses and consumers 2 TOKYO SKY TREE DITP TOKYO (2013 April13 – April19) Weekly News From Tokyo 29 June – 5 July 2013 become convinced that inflation is around the corner, they will spend and invest more, thereby lessening the deflationary pressure that has gripped Japan's economy for 15 years, he has argued. But economists say the expected inflation rates in the survey of consumers often come in far above overall price levels, as the general public tends to be impressed more by products whose prices are increasing than those whose costs are stable or falling. Excluding volatile fresh food prices, Japan's nationwide consumer price index for May stood where it was a year earlier. Regardless of what consumers think about prices, a strong reading in the May coincident composite index, an index of 11 key indicators best used to gauge the current state of the economy, showed that Japan has hit what the Cabinet Office calls a "turning point" toward an upturn. The wording means that the government, like many private-sector economists, now view the economy to be in an expansion stage. The index, which includes barometers such as industrial output and retail sales, rose 0.8 points on month to 105.9. "The economy has been in an expansionary phase since last December after bottoming out" in November, said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management. The government's move comes as BOJ officials weigh putting back the term "recovery" in their latest monthly economic assessment due out next week, people familiar with the central bank's thinking have told Dow Jones Newswires. The bank last used that word in January 2011. But analysts warned that even if inflation returns to Japan, bringing the BOJ a step closer to meeting its 2% inflation target, consumers would suffer unless wages grow in tandem. The BOJ's findings on wages are indeed mixed. The percentage of respondents seeing income growth over the coming year declined to 9.2% from 9.5%. But those predicting falls in income slid to 32.3% from 37.0%--the lowest since 32.2% in March 2006. (The Nikkei, July 5) June Tankan Shows Signs That Corp Prices Are Rising TOKYO (NQN)--The June tankan quarterly survey of business sentiment, released Monday, showed solid results. Business sentiment among large companies and capital-investment plans by such firms surpassed market expectations. Pricing by companies and the pricing outlook will depend on how deeply easing measures by the central bank penetrate now that the BOJ has set a 2% 3 TOKYO SKY TREE DITP TOKYO (2013 April13 – April19) Weekly News From Tokyo 29 June – 5 July 2013 inflation target over the next two years. The latest tankan survey shows signs that prices are rising. The diffusion index for the change in output prices among large manufacturers stood at minus 4 in the June survey, up six points from the previous quarter and matching the level seen in the quarter ended December 2008. The DI among large nonmanufacturers came in at minus 2, the highest since the quarter ended September 2008, when the index stood at 5. The index is the key to gauging the outlook for corporate prices, and it is clear that companies are beginning to hike prices instead of cutting them. Meanwhile, the DI for the change in interest rates on loans rose across the board. The DI is obtained by subtracting the number of companies that said interest rates on loans fell from the number of those that said the opposite. Given the growing perception that the DI for several months down the road will rise, positive effects from the BOJ's easing steps may not thoroughly penetrate. The DI for employment conditions also showed different results depending on the size of the companies and type of industry. According to a survey conducted every six months on corporate plans for hiring new graduates, employment of new graduates by all companies across all industries will likely rise 5.3% on the year in fiscal 2013. However, such hiring is expected to drop 2.6% in fiscal 2014, indicating that companies remain cautious about the future. It will likely take more time until prices rise and employment and income improve to the degree assumed under Prime Minister Shinzo Abe's economic policy. FT: Japan Is Not Ready For 4th Of Shinzo Abe's Arrows A tax rise now means hitting the fiscal brake while stepping on the monetary accelerator Is it the right time to fire Shinzo Abe's fourth arrow? There has been so much emphasis on arrows number one to three that many have forgotten about the fourth altogether. This entails doubling the consumption tax in two stages, starting in April next year, to 10 per cent. By some accounts, the fourth arrow, the opening shot in an effort to repair Japan's finances after years of deficits, is the most important of all.