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Japan Economy Digest January 25-31, 2012 The Office of Commercial Affairs, Royal Thai Embassy in Tokyo, Japan Edano's Diplomatic Jaunts Suggest Big Ambitions TOKYO (Nikkei)--Economy, Trade and Industry Minister Yukio Edano has recently been showing off his diplomatic credentials, a curious contrast to his reputation as an expert on domestic affairs. This begs the questions: What has happened, and what is his goal of all this? In the January edition of his quarterly parliamentary reports, Edano listed the countries he visited as METI minister. The headline stated he had traveled the world as minister to protect Japan's national interests as a major trading nation and secure energy resources. Since assuming the office, Edano has visited North America, Europe, Asia and the Middle East. He was the only minister not at the first cabinet meeting after Prime Minister Yoshihiko Noda reshuffled it earlier this month, as Edano was in Myanmar. "I will be more actively involved this year," Edano said in the January report. Cautious aggression When the magnitude 9 earthquake hit Japan's northeast on March 11, Edano responded to the crisis as former Prime Minister Naoto Kan's chief cabinet secretary. He was always careful about what he said in the many news conferences he held as the tsunami and nuclear crisis unfolded, as he too did not know the exact details involving the accident at the Fukushima Daiichi nuclear power plant. Because of this, Edano developed a reputation as a cautious politician. But his career belies a much more aggressive nature. When Kan made a name for himself in 1996 by aggressively investigating an HIV-tainted blood scandal, which had caused up to two thousand hemophilia patients to contract HIV, Edano, who was a first-term lawmaker with New Party Sakigake, also grilled senior Health Ministry officials in the Diet about their responsibility, looking in every way like a gung-ho opposition lawmaker. When the Democratic Party of Japan merged with the Liberal Party in 2003, Edano refused to the bitter end to accept Ichiro Ozawa as the new DPJ head. When he was given no key posts in the government under the leadership of then Prime Minister Yukio Hatoyama, Edano jokingly said that if he were offered a cabinet position, he would prefer it be that of foreign minister. Why would Edano, well known for his expertise in domestic affairs, want to become foreign minister? The post of foreign minister is seen as essential to hold for any aspiring politician, especially one like Edano who lacks significant diplomatic experience, before taking on another key post -- prime minister. The prime minister can delegate domestic affairs to other ministers, but diplomatic affairs need more direct attention. In other words, Edano's behavior suggests he is gunning to become prime minister. Before Noda formed his government, Edano had said he would like to take a break, citing the heavy duties he took on as chief cabinet secretary under Kan. Although he was initially given no post in Noda's government, Edano was appointed METI's head after his predecessor, Yoshio Hachiro, was forced out after a series of gaffes. Now that he is METI minister, Edano apparently wants to use his new position to overhaul his image as a cautious politician. Looking out for No.1 Japan Economy Digest January 25-31, 2012 1 Earlier this month, Foreign Minister Koichiro Gemba visited Saudi Arabia, Turkey and the United Arab Emirates in quick succession amid rising tension over Iran's suspected nuclear weapons program. METI Minister Edano met with pro-democracy activist Aung San Suu Kyi in Yangon, Myanmar, on Jan. 12. The foreign minister went to the Middle East to secure Japan's oil imports as the METI minister engaged in "human rights diplomacy" in Myanmar. A Japanese government official commented that this is a reversal of roles for the two ministers. Noda has staked his political career on successfully enacting Diet bills for consumption tax hikes, but he will face considerable opposition from within his own DPJ, not to mention the opposition Liberal Democratic Party and others. Basically, if Noda fails to pass the bills, he could see his administration quickly crumble, and Edano could emerge as one of the most likely contenders to succeed him. (The Nikkei Jan. 27 online edition) Industrial Output Up 4.0% In Dec, Beats Forecasts TOKYO (Dow Jones)--Japanese industrial production rose 4.0% in December from the previous month, the Ministry of Economy, Trade and Industry said Tuesday, as the impact of the flooding in Thailand on Japanese manufacturers began to ease. The reading was significantly stronger than a 2.9% gain predicted in a median forecast of economists surveyed by Dow Jones Newswires. A ministry official briefing reporters said the gains came from increases in output of cars, mobile phones and semiconductor manufacturing equipment. But economists remain cautious about the outlook for Japan's industrial base. While the figure represents a recovery from the problems caused by the Thai flooding, other issues remain. "Since there will be differences in the pace of economic improvement in the April-June period, depending on whether areas are benefited by reconstruction demand, we probably should wait until the July-September quarter to see if the Japanese economy returns to a recovery path," said Mari Iwashita, chief market economist at SMBC Nikko Securities. The strong yen continues to weigh on the country's exporters, with the dollar remaining near its post-war low of Y75.31 hit Oct. 31. The dollar took a tumble overnight due to expectations that the Fed will keep interest rates low until the end of 2014. At mid-morning the dollar was at Y76.28. Also weighing on sentiment is the European debt crisis, with unclear implications for consumer demand for goods over the longer term. But manufacturers said they expect gains to continue. The data showed that companies expect output to rise 2.5% in January on month, and 1.2% in February. METI maintained its assessment of production in December, saying output as a whole was flat. For the October-December period, output fell 0.4% from the previous quarter. It rose 4.3% in the July-September period as the supply chains for parts for cars and electronics recovered after the March 11 earthquake and tsunami. In separate figures released Tuesday, the government said the jobless rate rose slightly to 4.6% from 4.5% in November. December household spending was better than expected, however, rising 0.5% from the same time last year, compared with an expected 0.2% fall. An official briefing reporters said the government Japan Economy Digest January 25-31, 2012 2 was upgrading its assessment of household spending, which "more or less flattened out" from its previous decline. Web site: http://www.meti.go.jp/english/statistics/index.html (The Nikkei Jan 31 edition) Japan Has Trade Gap For Dec, 1st Full-Yr Deficit Since 1980 TOKYO (Dow Jones)--Japan posted a Y2.493 trillion trade deficit last year, its first annual shortfall since 1980, and economists expect more deficits ahead as the yen remains strong, global growth slows and Japanese demand for energy imports continues to surge. A slew of unusual events, such as the March earthquake and nuclear accident and the European debt crisis, played a major role in pushing Japan into trade deficit. Another key factor was autumn flooding in Thailand, a key production center for many Japanese manufacturers. These factors helped to produce a shortfall of Y205.1 billion in December, worse than the Y150.5 billion shortfall forecast by analysts. Many economists see no quick end to the trade shortfall, with Japan's export-driven economic model losing its luster as the strong yen continues to hollow out the domestic manufacturing base. The nation's shift away from nuclear power leaves it no choice but to import more energy. "The last year was an extraordinary year," said Hideki Matsumura, a senior economist at Japan Research Institute. "Still, the problem is that Japan may run a trade deficit again this year. There are signs that the trend is changing." Japan's 2011 deficit in goods trade was the second-largest on record in the Finance Ministry's data, which go back to 1979, and compared with a Y6.635 trillion surplus in 2010, ministry data showed Wednesday. Japan last logged a record Y2.613 trillion trade deficit in 1980 in the wake of the second global oil crisis. A diminished trade edge bodes ill for Japan's economy, which has long relied heavily on exports for growth amid persistent deflation and a shrinking population. "We believe there is a high possibility that weakening external demand will cause Japan's gross domestic product to contract in the October-December period" at an annual 1.5% rate after a 5.6% annualized expansion in the previous quarter, said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute. The strength of the yen, which marked a record high when the dollar hit Y75.31 in October, and which has remained near that level since, has made Japanese exports less competitive abroad and fueled a shift of production overseas. A large increase in fossil fuel imports for electricity generation was a key driver of higher import costs. Such imports jumped 25.2% to Y21.783 trillion for the year, accounting for roughly a third of the total value of all imports. Output of electricity from nuclear power has been declining sharply since the March nuclear plant accident in northern Japan, stoking the need for more fossil fuel to generate power.
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