For a change, I wrote about poorly performing Japanese stocks. Many thanks to Tetsuya Inoue-san at the Nomura Research Institute, Osamu Takashima-san and Naomi Fink-san at BTMU. The story was published by Asia Times today. If you have time, please go over
Capital rules weigh on Japan stocks
Good weekend! Cheers, Kosuke
Capital rules weigh on Japan stocks
By Kosuke Takahashi
TOKYO - Japan's economy has moved out of recession, but the country's stock market continues to suffer from the impending imposition of tougher international capital rules to be compiled by the end of this year in Basel, Switzerland.
The nation's financial sector, led by Japan's three megabanks - Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group - is dragging down the recovery of Japanese share prices, on concerns that the lenders may seek additional capital increases by issuing common stock in preparation for the tighter capital-adequacy rules that will apply to globally active banks. A weak point of Japanese banks is that without ample ordinary shares they lack capital.
A recent spate of capital-raising in the already weak market in Tokyo, combined with a rising Japanese yen and a heightened sense of uncertainty about the fiscal policies of new Prime Minister Yukio Hatoyama's administration, are also hampering stocks.
On Wednesday, Mitsubishi UFJ Financial Group said it plans to bolster its capital base by issuing one trillion yen (US$11.2 billion) in new shares - a record public sale of additional common shares. This gave rise to speculation that other banks would follow suit.
Japanese stocks have been the worst performer among major economies this year. The key Nikkei stock index has risen only 7.2%. More notably, the broader Topix index of all the Tokyo Stock Exchange First Section issues has fallen 2.4% - the only major broad-based stock index in the world that has lost ground this year. The Topix Index on Thursday fell for a seventh day, its longest losing streak since July, and slid to the lowest level since April 28, although it recouped some of its losses on Friday. The benchmark Nikkei average fell to its lowest level since July 17.
By contrast, the Dow Jones Industrial Average has gained 17%, while China's Shanghai Composite Index has climbed more than 80%, followed by Brazil's nearly 80% rally and India's more than 70% advance.
"It is true Japanese financial stocks are falling due to dilution concerns involving new shares," said Tetsuya Inoue, chief researcher for financial markets at the Nomura Research Institute in Tokyo and a former Bank of Japan official. "The new rules will also force Japanese banks to reconsider their traditional practice of holding shares in other companies over the long term."
Even so, he did not belive that new capital rules being finalized in Basel are specifically targeting Japanese banks. The change "has been discussed for many years and was finally agreed in principle in the Group of 20 (G-20) Pittsburgh summit in September."
The earlier BIS (Basel Capital Accord) agreement on strengthening the risk-capital adequacy requirement in the late 1980s and early 1990s "might have targeted the 'overpresence' of then burgeoning Japanese financial institutions, which foreigners often criticized," Inoue said. "But not so this time."
The Basel Committee
With the global financial crisis receding, international policymakers are working on adjusting rules on capital standards so as to avoid a repeat of the mistakes that can come from highly leveraged capitalism, exemplified by the failure in September last year of US investment bank Lehman Brothers. The planned changes will push banks to have a sufficient cushion of high-quality capital.
In September, leaders from 20 leading countries agreed at a summit in Pittsburgh, Pennsylvania, to impose tougher capital requirements on banks operating internationally. Before this summit, central bank governors and banking regulators of 27 major countries and regions participating in the Basel Committee on Banking Supervision also arrived at the same agreement, designed to standardize minimum capital requirements for banking institutions.
The agreement requires banks to raise the ratio of so-called core capital such as common stock and retained earnings. Although the specifics of the requirements will be worked out by the year-end, the new bank capital rules are widely expected to require banks to hold core Tier 1 capital - mainly common stock and retained reserves - equal to at least 4% of total risky assets. Reuters on Thursday reported the Basel-based committee is likely to require at least 6%.
The tricky thing is that Japanese banks, which are seen as less affected by the subprime loan crisis than their US and European counterparts, generally have lower ratios of common stock in their capital than major US and European lenders.
The core Tier 1 capital at Mitsubishi UFJ Financial was 6.8% as of the end of September, at Mizuho Financial 5.4%, and at Sumitomo Mitsui Financial 5.9%, according to their latest press releases.
On the other hand, US-based Citigroup held 9.1% of core Tier 1 capital, and Bank of America 6.9%, thanks to huge injections of public funds into those banks, according to the Mainichi Shimbun newspaper on September 3.
Late last year, Mitsubishi UFJ issued around 790 billion yen in common shares and preferred stocks. Mizuho raised up to 526.3 billion yen in July by issuing new shares, while Sumitomo Mitsui issued 862.9 billion yen in new shares in the previous month. All seem to have aimed at bolstering their core Tier 1 capital.
With the contours of Mitsubishi UFJ's capital-raising plan for the second consecutive year now announced, attention turns to its two main competitors, in particular Mizuho, which lags in terms of core Tier 1 capital. Market players in Tokyo expect Mizuho and Sumitomo Mitsui to issue new shares early next year, possibly between January and February. This could further buffet the already sluggish stock market in Tokyo.
Political vacuum
Nomura's Inoue said it is unfortunate that the "political vacuum" created by the transition process following the Democratic Party of Japan (DPJ)'s sweeping victory over the long-ruling Liberal Democratic Party (LDP) in a House of Representatives election on August 30 coincided with the intensive discussions regarding banking standards going in the US and the Europe.
Japan's then finance minister, Kaoru Yosano of the LDP, did not attend a meeting of G-20 finance ministers and central bank governors in London in early September, which was aimed at determining the priorities of the G-20 summit in Pittsburgh on September 24 to 25. His absence, attributed to health reasons, raised concern about Japan's low-key presence at the ministerial meeting.
The authorities in the US "have in effect been introducing a tougher de-facto standard for capital adequacy since bank stress tests in May, although it is unclear whether that was intended or not. For the Japanese side, frustration has arisen," Inoue said.
Kosuke Takahashi is a Tokyo-based journalist. Besides Asia Times Online, he also writes for Jane's Defence Weekly as Tokyo correspondent.
(Copyright 2009 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
Friday, November 20, 2009
Wednesday, November 18, 2009
My story on Japan's defence becomes this week's cover story of Jane's Defence Weekly
I've written a feature story on Japan's defense, which was published by Jane's Defence Weekly magazine in UK this week. My story is the cover story. Cheers, Kosuke
Japan's new dawn
Sunday, November 15, 2009
My recent story for Asia Times Online
Special thanks to Patrick Cronin-san, Michael O'Hanlon-san and Toshiyuki Shikata-san.
Japan: A new battle over Okinawa
By Kosuke Takahashi
TOKYO - United States President Barack Obama lands in Tokyo on Friday on the first stop of his maiden trip to Asia, but a less than 24 hours visit may not be enough to change public opinion in the country.
In Japan, it's often said you can gauge social undercurrents by looking at advertising billboards on trains, as they mirror society. "Don't cave in to the threat of the US!" says one such advert for a popular Japanese weekly magazine, currently hung in crowded commuter trains in Tokyo.
The name of the magazine is Shukan Asahi, it has denounced as high-handed the US government's approach to the long-standing, thorny issue of the relocation of the US Marine Corps Air Station Futenma in Okinawa prefecture.
The magazine cites a "warning" made by US Defense Secretary Robert Gates during a visit to Tokyo last month: that unless the heliport functions of the Futenma facility were moved by 2014 to a coastal area in the marines' Camp Schwab located in the less densely populated city of Nago, northern Okinawa - as agreed in the 2006 bilateral pact on the realignment of US forces - the transfer of around 8,000 US Marines from Okinawa to the US Pacific territory of Guam would not occur.
Recently, US heavyweights such as Richard Lawless, former deputy under secretary of defense, have also appeared frequently in Japanese media to reiterate Gates' warning .
Tensions over the US troops stationed on the island, which have simmered since three US servicemen were convicted for the rape of a 12-year-old girl in Okinawa in 1995, are again on the rise .
Despite the sweltering heat, about 21,000 Japanese gathered on Sunday on the island to demand that the base in Futenma be moved off the island. The demonstration was triggered by a deadly hit-and-run incident involving a US serviceman. Japanese Prime Minister Yukio Hatoyama has backed demands that the serviceman detained over the alleged crime, which killed a 66-year-old Okinawan man, be handed over to Japanese justice.
A joint poll conducted by the Ryukyu Shimpo and the Mainichi Shimbun on October 30 and November 1 found that 69.7% of Okinawans said the Hatoyama administration should renegotiate with the US about plans to move the Futenma base out of the prefecture, or even the country. The poll also showed that 67% of respondents opposed relocation to Camp Schwab.
The long-running relocation dispute over Futenma is rocking the foundations of the Japan-US relationship, just ahead of next year's 50th anniversary of the 1960 Mutual Security Treaty between the countries.
"Much of the punditry in the media would have us believe that Japan and the US were on the verge of a breakup over where to relocate 60 marine helicopters," Patrick Cronin, a senior adviser and director of the Asia-Pacific Security Program at the Center for a New American Security in Washington, told Asia Times Online in an e-mail interview. "Yet durable alliances are based on common interests, not simply disagreements over means."
"As difficult an issue as the relocation of Futenma Marine Air Station has been, the salient question is whether next year's half-centenary celebration of the 1960 Mutual Security Treaty will mark the end of the alliance as we know it or the beginning of the alliance we both need for the 21st century," Cronin added.
During the Japan-US summit, the relocation of the base in Okinawa will not be a major item on the agenda. Obama is widely expected to stress relations with Japan as a "cornerstone" of US foreign policy, seeking re-engagement with Tokyo's new administration.
Obama and Hatoyama are expected to re-affirm cooperation to reduce greenhouse gas emissions by 80% by 2050 - without mentioning any specific base year for calculation, or Japan's consideration for the US, one of the two largest emitters of greenhouse gases, along with China. They will also renew their determination to create a world without nuclear weapons.
Japan's new dawn
As Hatoyama's new administration undertakes a thorough review of Japan's alliance with the US, one which is likely to raise concern in Washington, Japan-American relations face a fundamental political change.
Hatoyama and his center-left Democratic Party of Japan (DPJ) unseated the pro-US Liberal Democratic Party (LDP) in a House of Representatives election on August 30, ending the LDP's near-perpetual one party rule of the past half century.
Nonetheless, the LDP appears to have finally completed its historical mission in the post-Cold War era - supporting Japan's military role as an anti-communist bastion of the US against China and Russia.
The US "nuclear umbrella" has protected Japan against potential adversaries such as China, North Korea and Russia, while assuring other states in the region that suffered under Japan's colonial rule that Tokyo would not return to its militaristic past.
Due to the US nuclear deterrent, Japan has enjoyed a generally stable strategic outlook, with its population wary of major change and militarization since the end of World War II, a legacy of the US atomic bombings of Hiroshima and Nagasaki in 1945. Previous LDP governments have mainly focused on national interests and on economic growth.
The era of Japan's strong pacifism, as enshrined in the US-imposed "peace constitution", determined the posture and structure of Japan's military forces to defend the nation and made the security alliance with the US the centerpiece of Japanese security policy in the post-war period.
"The [Harry S] Truman and [Dwight D] Eisenhower administrations saw a resurgent Japanese economy as the engine of growth in the Asia-Pacific region," Cronin said. "Providing an unsinkable aircraft carrier in exchange for Japan's economic revival was a deliberate political choice made by Washington and Tokyo based on their vital interests at the time of the original 1951 treaty."
During the 2001 to 2006 Junichiro Koizumi administration, a symbol of Japan's reformist policy, Japan aimed to strengthen bilateral military and security ties with the US - a drive reinforced by China's military buildup, North Korea's nuclear crisis and the global threat of terrorism.
The US-Japan security alliance under former US president George W Bush and Koizumi is often referred to as a "golden era" between the two countries. Koizumi deployed Japan Ground Self-Defense Forces (JGSDF) units to Iraq to contribute to America's war against terrorism.
The new leaders in Tokyo still regard US strike capabilities and the nuclear deterrence provided by the US as essential for Japan's overall security - as well as for peace and security in the region - but they do not necessarily see it as essential for the nation's economic development. Enormous economic growth in East Asia - especially in China, which is a 1.3 billion consumer market - is changing the structure of worldwide and regional business and industry.
Hatoyama has called for an East Asian "community" to develop to the extent that it resembles an Asian version of the European Union. He also advocates a common Asian currency as a natural extension of the rapid economic growth in the region. Hatoyama aims to conduct a swift shift in Tokyo's axis of cooperation towards other Asian nations.
The DPJ, the dominant party in the ruling coalition led by Hatoyama, has advocated policies of multilateral cooperation while calling for a more equal partnership with the US. The DPJ has often refused to support US policies, most notably the war in Iraq, and has criticized post-war Japanese diplomatic policy as "toeing the US line".
Japan's newly elected government was voted into office on a platform of curtailing the US military presence on Okinawa, where 75% of all US forces in Japan are located. In an Upper House question-and-answer session on October 29, Hatoyama said the review of Japan's alliance with the US would be "comprehensive". He later told reporters that it would cover Japanese funding of US bases, the Status of Forces Agreement (SOFA) and the relocation of the Futenma station.
Hatoyama said his government was exploring the possibility of reducing Japan's host-nation spending on US military bases. This so-called "sympathy budget" began in 1978 and covers utilities and other expenses.
The allocation for fiscal year 2009 comes to 189.7 billion yen (US$2.1 billion). With government debt expected to reach 187% of gross domestic product this year, foremost among major economies, Tokyo no longer wants to outlay the large sums of money it currently pays to support US military forces in Japan. This fiscal restraint also places a limit how much it can spend to modernize its Self Defense Forces (SDF) domestically.
The SOFA, which governs US military operations in Japan and legal arrangements for its personnel, has not been revised for nearly half a century. A group of governors representing prefectures that host military facilities, such as the Okinawa and Kanagawa prefectures, have called for a clause covering environmental pollution and destruction at US military bases in Japan.
In terms of the relocation of Futenma, the prime minister said "various options" would be considered. The government inherited the 2006 Japan-US agreement that calls for relocating the base within Okinawa, but Hatoyama has indicated that he will seek to relocate the air station outside of Okinawa, possibly even outside Japan.
Japanese Foreign Minister Katsuya Okada has floated the idea of merging Futenma's heliport functions with the nearby Kadena Air Base - the largest US military base in the Far East.
"It is possible, I believe, to merge operations at Kadena - for normal day-to-day circumstances," Michael O'Hanlon, a senior fellow in Foreign Policy at the Brookings Institution in Washington, where he specializes in US national security policy, told Asia Times Online. "But in that event, we need much better preparation for crisis operations, including greater access to SDF and even civilian airfields on Okinawa [and preparations in advance at those sites]."
Under US pressure, Japan has also announced it will spend as much as $5 billion over the next five years to help with the reconstruction of war-torn Afghanistan.
"The majority of the Japanese won't accept that Afghan aid," Japanese military analyst Toshiyuki Shikata told Asia Times Online. "Historically, Alexander the Great, the British Empire and the Soviet Union all failed to conquer Afghanistan. The US, as an oceanic state, will have further difficulties to control Afghan, which is just surrounded by mountainous areas and lands. It's not cost-effective for the US."
Kosuke Takahashi is a Tokyo-based journalist. Besides Asia Times Online, he also writes for Jane's Defence Weekly as Tokyo correspondent.
(Copyright 2009 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
Japan: A new battle over Okinawa
By Kosuke Takahashi
TOKYO - United States President Barack Obama lands in Tokyo on Friday on the first stop of his maiden trip to Asia, but a less than 24 hours visit may not be enough to change public opinion in the country.
In Japan, it's often said you can gauge social undercurrents by looking at advertising billboards on trains, as they mirror society. "Don't cave in to the threat of the US!" says one such advert for a popular Japanese weekly magazine, currently hung in crowded commuter trains in Tokyo.
The name of the magazine is Shukan Asahi, it has denounced as high-handed the US government's approach to the long-standing, thorny issue of the relocation of the US Marine Corps Air Station Futenma in Okinawa prefecture.
The magazine cites a "warning" made by US Defense Secretary Robert Gates during a visit to Tokyo last month: that unless the heliport functions of the Futenma facility were moved by 2014 to a coastal area in the marines' Camp Schwab located in the less densely populated city of Nago, northern Okinawa - as agreed in the 2006 bilateral pact on the realignment of US forces - the transfer of around 8,000 US Marines from Okinawa to the US Pacific territory of Guam would not occur.
Recently, US heavyweights such as Richard Lawless, former deputy under secretary of defense, have also appeared frequently in Japanese media to reiterate Gates' warning .
Tensions over the US troops stationed on the island, which have simmered since three US servicemen were convicted for the rape of a 12-year-old girl in Okinawa in 1995, are again on the rise .
Despite the sweltering heat, about 21,000 Japanese gathered on Sunday on the island to demand that the base in Futenma be moved off the island. The demonstration was triggered by a deadly hit-and-run incident involving a US serviceman. Japanese Prime Minister Yukio Hatoyama has backed demands that the serviceman detained over the alleged crime, which killed a 66-year-old Okinawan man, be handed over to Japanese justice.
A joint poll conducted by the Ryukyu Shimpo and the Mainichi Shimbun on October 30 and November 1 found that 69.7% of Okinawans said the Hatoyama administration should renegotiate with the US about plans to move the Futenma base out of the prefecture, or even the country. The poll also showed that 67% of respondents opposed relocation to Camp Schwab.
The long-running relocation dispute over Futenma is rocking the foundations of the Japan-US relationship, just ahead of next year's 50th anniversary of the 1960 Mutual Security Treaty between the countries.
"Much of the punditry in the media would have us believe that Japan and the US were on the verge of a breakup over where to relocate 60 marine helicopters," Patrick Cronin, a senior adviser and director of the Asia-Pacific Security Program at the Center for a New American Security in Washington, told Asia Times Online in an e-mail interview. "Yet durable alliances are based on common interests, not simply disagreements over means."
"As difficult an issue as the relocation of Futenma Marine Air Station has been, the salient question is whether next year's half-centenary celebration of the 1960 Mutual Security Treaty will mark the end of the alliance as we know it or the beginning of the alliance we both need for the 21st century," Cronin added.
During the Japan-US summit, the relocation of the base in Okinawa will not be a major item on the agenda. Obama is widely expected to stress relations with Japan as a "cornerstone" of US foreign policy, seeking re-engagement with Tokyo's new administration.
Obama and Hatoyama are expected to re-affirm cooperation to reduce greenhouse gas emissions by 80% by 2050 - without mentioning any specific base year for calculation, or Japan's consideration for the US, one of the two largest emitters of greenhouse gases, along with China. They will also renew their determination to create a world without nuclear weapons.
Japan's new dawn
As Hatoyama's new administration undertakes a thorough review of Japan's alliance with the US, one which is likely to raise concern in Washington, Japan-American relations face a fundamental political change.
Hatoyama and his center-left Democratic Party of Japan (DPJ) unseated the pro-US Liberal Democratic Party (LDP) in a House of Representatives election on August 30, ending the LDP's near-perpetual one party rule of the past half century.
Nonetheless, the LDP appears to have finally completed its historical mission in the post-Cold War era - supporting Japan's military role as an anti-communist bastion of the US against China and Russia.
The US "nuclear umbrella" has protected Japan against potential adversaries such as China, North Korea and Russia, while assuring other states in the region that suffered under Japan's colonial rule that Tokyo would not return to its militaristic past.
Due to the US nuclear deterrent, Japan has enjoyed a generally stable strategic outlook, with its population wary of major change and militarization since the end of World War II, a legacy of the US atomic bombings of Hiroshima and Nagasaki in 1945. Previous LDP governments have mainly focused on national interests and on economic growth.
The era of Japan's strong pacifism, as enshrined in the US-imposed "peace constitution", determined the posture and structure of Japan's military forces to defend the nation and made the security alliance with the US the centerpiece of Japanese security policy in the post-war period.
"The [Harry S] Truman and [Dwight D] Eisenhower administrations saw a resurgent Japanese economy as the engine of growth in the Asia-Pacific region," Cronin said. "Providing an unsinkable aircraft carrier in exchange for Japan's economic revival was a deliberate political choice made by Washington and Tokyo based on their vital interests at the time of the original 1951 treaty."
During the 2001 to 2006 Junichiro Koizumi administration, a symbol of Japan's reformist policy, Japan aimed to strengthen bilateral military and security ties with the US - a drive reinforced by China's military buildup, North Korea's nuclear crisis and the global threat of terrorism.
The US-Japan security alliance under former US president George W Bush and Koizumi is often referred to as a "golden era" between the two countries. Koizumi deployed Japan Ground Self-Defense Forces (JGSDF) units to Iraq to contribute to America's war against terrorism.
The new leaders in Tokyo still regard US strike capabilities and the nuclear deterrence provided by the US as essential for Japan's overall security - as well as for peace and security in the region - but they do not necessarily see it as essential for the nation's economic development. Enormous economic growth in East Asia - especially in China, which is a 1.3 billion consumer market - is changing the structure of worldwide and regional business and industry.
Hatoyama has called for an East Asian "community" to develop to the extent that it resembles an Asian version of the European Union. He also advocates a common Asian currency as a natural extension of the rapid economic growth in the region. Hatoyama aims to conduct a swift shift in Tokyo's axis of cooperation towards other Asian nations.
The DPJ, the dominant party in the ruling coalition led by Hatoyama, has advocated policies of multilateral cooperation while calling for a more equal partnership with the US. The DPJ has often refused to support US policies, most notably the war in Iraq, and has criticized post-war Japanese diplomatic policy as "toeing the US line".
Japan's newly elected government was voted into office on a platform of curtailing the US military presence on Okinawa, where 75% of all US forces in Japan are located. In an Upper House question-and-answer session on October 29, Hatoyama said the review of Japan's alliance with the US would be "comprehensive". He later told reporters that it would cover Japanese funding of US bases, the Status of Forces Agreement (SOFA) and the relocation of the Futenma station.
Hatoyama said his government was exploring the possibility of reducing Japan's host-nation spending on US military bases. This so-called "sympathy budget" began in 1978 and covers utilities and other expenses.
The allocation for fiscal year 2009 comes to 189.7 billion yen (US$2.1 billion). With government debt expected to reach 187% of gross domestic product this year, foremost among major economies, Tokyo no longer wants to outlay the large sums of money it currently pays to support US military forces in Japan. This fiscal restraint also places a limit how much it can spend to modernize its Self Defense Forces (SDF) domestically.
The SOFA, which governs US military operations in Japan and legal arrangements for its personnel, has not been revised for nearly half a century. A group of governors representing prefectures that host military facilities, such as the Okinawa and Kanagawa prefectures, have called for a clause covering environmental pollution and destruction at US military bases in Japan.
In terms of the relocation of Futenma, the prime minister said "various options" would be considered. The government inherited the 2006 Japan-US agreement that calls for relocating the base within Okinawa, but Hatoyama has indicated that he will seek to relocate the air station outside of Okinawa, possibly even outside Japan.
Japanese Foreign Minister Katsuya Okada has floated the idea of merging Futenma's heliport functions with the nearby Kadena Air Base - the largest US military base in the Far East.
"It is possible, I believe, to merge operations at Kadena - for normal day-to-day circumstances," Michael O'Hanlon, a senior fellow in Foreign Policy at the Brookings Institution in Washington, where he specializes in US national security policy, told Asia Times Online. "But in that event, we need much better preparation for crisis operations, including greater access to SDF and even civilian airfields on Okinawa [and preparations in advance at those sites]."
Under US pressure, Japan has also announced it will spend as much as $5 billion over the next five years to help with the reconstruction of war-torn Afghanistan.
"The majority of the Japanese won't accept that Afghan aid," Japanese military analyst Toshiyuki Shikata told Asia Times Online. "Historically, Alexander the Great, the British Empire and the Soviet Union all failed to conquer Afghanistan. The US, as an oceanic state, will have further difficulties to control Afghan, which is just surrounded by mountainous areas and lands. It's not cost-effective for the US."
Kosuke Takahashi is a Tokyo-based journalist. Besides Asia Times Online, he also writes for Jane's Defence Weekly as Tokyo correspondent.
(Copyright 2009 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
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