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•  Geneva Motor Show: Green cars offer hope to car industry

Glitz and bling tarnished by the downturn and a succession of grim sales statistics

Japan today reported a 32% collapse in car sales in February – the worst decline since 1974 – and sales slumped in Spain by 48% highlighting the dire state of ­global carmaking on the eve of the Geneva motor show.

Carmakers are experiencing the worst slump in sales for 35 to 50 years, millions of jobs are under threat, several companies could go out of business and dozens of plants will close for ever. Tomorrow the 79th Geneva motor show, traditionally one of the world's biggest and most sumptuous, will showcase an industry starved of credit and customers. Normally an occasion for glitz and bling, for irrationally exuberant launches and parties, it will be leaner – and greener – than usual. Japan, home of the world's biggest car-maker Toyota, as well as Honda and Nissan and the like, reported a 32.4% collapse in car sales in February - on top of a 28% drop in January and the worst decline since 1974.

Spain, once one of the western Europe's fastest-growing economies and markets, saw sales fall 48.4% - close to the record 49.6% slide last November and coming after a "mere" 41.6% in January. The socialist government's "scrappage" scheme, paying drivers €1,500 each to trade in their elderly bangers for new, fuel-efficient models, ain't is not working - yet.

"Consumers continue to shy away in the face of an economic slump," said Kentaro Nakata of the Japanese car dealers' association. "Auto demand remains depressed and it is very difficult to predict an upturn in the market right now."

He could have been speaking for the global industry which, according to ­Carlos Ghosn, chief executive of Renault and ­Nissan and president of the ­European auto-manufacturers' association ACEA, expects sales of just 55m, perhaps even 50m, this year – compared with the expected pre-recession demand of 70m and capacity of 94m. India's Tata, owner of Jaguar Land Rover, today revealed its sales declined by 15%.

Only three months ago, Wendelin Wiedeking, Porsche's chief executive, arrogantly dismissed the clamour of European and US rivals for state bail-outs as he reported profits far exceeding sales. However, todayit announced first-half sales tumbled 27%, with revenues down nearly 13% as rich consumers boycott conspicuous consumption and sacked bankers hoard their shrunken bonuses.

Environmental focus

Undisclosed pre-tax profits at the ­luxury sports-car maker were up – thanks to stock options trading in Volkswagen, where Porsche has acquired a majority and initially planned to raise it to 75% this year. Volkswagen, Europe's biggest carmaker, warned that its profits and sales this year would decline, but insisted it would boost its overall global market share. The ­German group refused to give a precise forecast after reporting record revenues and earnings for 2008 in a ­surprise announcement. However, elsewhere in the industry, the figures are deep red and are threatening to deteriorate as firms such as General Motors, Chrysler and the rest run out of cash.

On a more optimistic note, in Brussels, the European commission (EC) today waved through Italian and Spanish plans to bail out their respective auto industries after securing commitments that they would be non-discriminatory and remain within the hallowed internal market rules.

And, in Paris, Peugeot Citroënsaid it would accelerate a joint venture with Japan's Mitsubishi to launch electric cars on Europe's roads by late 2010. It is already bidding to provide La Poste with 500 electric vans and working with power group EDF on a plug-in hybrid capable of running on batteries for 50km.

This year's motor show will be centred on the environment. "There will be a green focus. It will be a welcome diversion from the financial crisis," said analyst Rebecca Wright of Global Insight. But, amid all the new green models on display, there will still be room among the 85 planned launches for high-performance Bentleys and Bugattis.

The industry's problems could lead to a re-drawing of the ownership structure worldwide with a radical move to shrink capacity. The European commission reckons the European industry is ­saddled with 20% over-capacity that needs to be stripped out in time for the recovery.

General Motors' Europe plan set out last Friday to save Opel and Britain's Vauxhall relies heavily on €3.3bn (£2.9bn) of government aid, including from Britain. Karl-Theodor zu Guttenberg, Germany's federal economics minister, indicated Berlin was in no hurry to oblige.

The plan requires €3bn from parent GM and €1.2bn of savings as well as ­private investors stumping up 25% to 50% of new capital and will almost inevitably see one or more of the plants close.

Brussels says the long-term global outlook is "promising", exponential demand in emerging markets and the imperative of a "greener" fleet bringing new opportunities. But, in the next few days, executives will warn that it could take years for China, India and the rest to recover, and reduced budgets for investment and R&D; will put back the "greening" of the ­industry and make EU targets for cutting emissions to less than 120g a kilometre unreachable.

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•  Matthew Partridge: A Japanese lesson for Afghanistan

Our current problems in Afghanistan are not just to do with lack of troops – they are the result of ignoring history

Until recently, disenchantment with continued participation in the war in Afghanistan was regarded as outside the political mainstream. Even those who opposed the removal of Saddam in 2003 were keen to praise what they claimed was the "smarter" war. Even as he was opposing the troop surge in Iraq, Obama touted a "surge" in Afghanistan and even argued that the Iraq war was wrong because it drained resources from other fronts in the war against terror and tyranny.

However, a consensus is emerging that the war in Afghanistan may be lost. Robert Gates, the US defence secretary, appears open to the possibility of "moderate Taliban" eventually being included in the Afghan government. Although the anti-western coalition of insurgents/terrorists includes non-theocrats, the senior leaders of the Taliban proper are unapologetic Islamists. It would be ironic if Hillary Clinton, as Obama's secretary of state, ends up overseeing a policy which risks setting back women's rights in the region, or for David Miliband and Gordon Brown to jeopardise one of Tony Blair's main aspirations.

Afghanistan's predicament is due to strategic miscalculation rather than the war being unwinnable. The decision of the US and UK to initially use air power, rather than the immediate wide-scale deployment of ground troops, to tilt the battle decisively in the Northern Alliance's favour, may have minimised causalities. Similarly, the usage of traditional Afghan structures such as loya jirgas, and the granting of regional autonomy to warlords, may have temporarily reduced opposition. However, many warlords were either unable to maintain security in rural areas, or are more concerned with personal enrichment than spreading enlightenment values, such as female education.

Afghanistan could be made a stable and fully democratic state if the lessons of the last time the UK and US occupied a country with weak democratic tradition were taken on board. Postwar Japan was economically devastated with low levels of literacy, a semi-feudal agricultural system, a military that was used to wielding tremendous political power and a society which was extremely retrograde in its treatment of women. Given that Japan is one of the most urbanised countries in the world it is easy to forget that as late as 1950 nearly two-thirds of the population lived in rural areas.

In the six years of the occupation Japan was completely reformed, and the large numbers of troops certainly played a part. However, what distinguished the success in Japan from Afghanistan was the willingness of the American military government structures to direct the civilian administrations when deemed necessary. The supreme commander of Japan, Douglas Macarthur, overruled Japanese foot-dragging on female suffrage and trade unions. Macarthur also dismantled traditional political structures that posed a challenge to the idea of Japan as a democracy, using rural land reform to create a property-owning middle class.

The existence of an elected Afghan government precludes western leadership on the Macarthur model. However, with Karzai's agreement, western agencies could buy the warlords' land, the source of their power, at above market rates, and immediately re-sell it to the population in mountain areas. In the long run this would help create a property-owning rural middle class who were loyal to the Afghan state, both alleviating poverty and ensuring security. Under this plan warlords who continued supporting the Taliban would face having their land confiscated.

Of course, much of the land is currently being used for the production of illegal drugs, the Afghan legal system is largely non-existent and without a credible threat of enforcement warlords could simply take the money and renege on the deal. This plan would have to be rolled out in stages, with legal reform and the securing of property rights in Kabul, and the adjoining lands, a realistic first step. These ideas can also serve as a template for the "hold" phase of "clear and hold" operations against the Taliban.

However, as experts like Daniel Korski of the European Council of Foreign Relations have pointed out, the Taliban have proved adept at exploiting tribal loyalties. The west either needs to try to use such structures to their advantage or somehow undermine them. Given that reliance on warlords has severely limited progress, any new strategy must find ways of supplanting tribal ties with the rule of law. The direct deployment of additional troops to bolster village security, continued progress on human rights and infrastructure connecting Kabul and the outlying regions are also needed.

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•  Sony chief tightens grip and promises 'cool new products'

Sony chief executive Sir Howard Stringer has won a significant battle in his quest to rebuild Sony as a global consumer electronics superpower, announcing yesterday that he will take over from Ryoji Chubachi as president.

The move, which leaves Stringer firmly in control as Sony braces for a first operating loss in 14 years, mirrors executive shakeups at other corporations hit by a slump in demand. The 67-year-old Welshman, who is also chairman, said the reorganisation "is designed to transform Sony into a more innovative, integrated and agile global company with its next generation of leadership firmly in place".

Chubachi will become vice-chairman from 1 April. Sony claimed the changes would "fundamentally reorganise the company's games and electronics business to improve profitability and strengthen competitiveness in the midst of the continued global economic crisis".

Stringer announced the creation of two business groups, headed by younger executives, to break down the "silos" that have prevented full integration of the company's hardware and software, and to devise "cool new products" that will appeal to digital-savvy young people.

"[The changes] will now make it possible for all of Sony's parts to work together to assume a position of worldwide leadership and, together, achieve great things," he said. Analysts said the personnel changes were another sign of Stringer's growing impatience with the slow pace of change at Sony, where, he complained recently, "there is still a lot of the old and not enough of the new". Although he oversaw dramatic improvement in the electronics business in 2007, Chubachi is believed to represent a traditionalist faction at Sony that has hampered Stringer's radical cost-cutting efforts since he became its first foreign head, in 2005.

The changes follow rumours of discord between Stringer and other executives over Sony's direction amid plunging earnings and thousands of lay-offs. The maker of PlayStation game consoles, Bravia flat-screen TVs and Cyber-shot digital cameras has shed 8,000 of 185,000 regular jobs, laid off 8,000 temporary workers and closed about 10% of its 57 factories.

Sony said last month it expected an operating loss - its first for 14 years - of ¥260bn (£1.9bn) for the financial year ending in March.

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•  US economy shrinks at worst pace in 25 years

Data from US and Japan triggered fears that the downturn has turned into the worst slump since the 1930s

The sharpest contraction in US growth for more than a quarter of a century, a collapse in Japanese factory output and an emergency package of help for the struggling countries in Eastern Europe provided fresh grim evidence today of the paralysis in the global economy.

Amid fears that the downturn triggered by the credit crunch has turned into the worst slump in output since the 1930s, data from Washington showed that the havoc wreaked by the problems on Wall Street last Autumn was far worse than originally believed.

American gross domestic product in the final three months of 2008 declined at an annual rate of 6.2%, much weaker than the earlier estimate of a 3.8% fall and the worst performance by the world's biggest economy since early 1982.

A breakdown of the data revealed that consumer spending, exports and investment in commercial property were all even lower than originally believed, although the main reason for the downward revision to growth was that the build up of inventories by companies was far less pronounced than originally believed.

Analysts said there had been no let-up in the bad news since the turn of the year and the markets are now braced for payroll figures next Friday to show that around 750,000 jobs were lost in the US during February, with worse to come in future months.

Rob Carnell, economist at ING Financial Markets, said: "Data released so far in the first quarter of 2009 suggest that we are in for another horror story, with new record lows being set in consumer confidence, accelerating declines in the labour market [we may be nearing a million payrolls losses per month before long] and further severe contractions for business investment." Paul Ashworth of Capital Economics said he did not expect the US economy to begin expanding again until 2010 and even then the recovery was likely to be "muted".

Meanwhile, there was also grim news from the world's second biggest economy, with industrial production dropping 10% between December and January and real household spending 5.9% lower last month than it was in January 2008. Exports from Japan have been severely impaired by the retrenchment in the US and much slower levels of growth in China.

Three development institutions - the World Bank, the European Investment Bank and the European Bank for Reconstruction and Development today announced a €24.5bn (£22bn) loan programme to help central and eastern Europe, where plunging industrial production and falling currencies have raised concerns that the region will become the scene for the next stage of the global crisis.

The three banks said the two-year plan would provide quick, large-scale financing to banks and ensure smaller companies would not be shut off from capital, but the markets - which believe a much bigger package will be necessary to prevent economic collapse - greeted the plan coolly. The Hungarian government will tell an EU summit on Sunday that the money from the World Bank, the EIB and the EBRD needs to be multiplied 10 times for central Europe alone.

Under the development bank plan, the EBRD will provide up to €6bn euros this year and next to the region's financial sector, which will include trade finance through banks.

The EIB said it will lend €11bn to businesses in central, eastern and southern Europe, of which €5.7bn is ready to be disbursed, and a further €2.8bn should be approved by the end of April.

The Washington-based World Bank said it intends to propose lending and political risk guarantees of up to €7.5bn for banks, infrastructure projects and trade financing. Its president Robert Zoellick said earlier this week that $120bn (£84bn) could be needed to recapitalise Eastern Europe's banking system, which has seen the large sums invested by Western banks during the boom years disappear during the credit crunch.

"It (the €24.5bn package) sounds like a lot of money, but when (commercial) banks have lent Eastern Europe about 1.7 trillion dollars, 25 billion is peanuts," said Nigel Rendell, emerging markets strategist at Royal Bank of Canada in London.

"Ultimately we will have to get a much bigger package and a coordinated response from the IMF, the European Union and maybe the G7."

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•  Stringer axes Sony president

Sony chief executive Sir Howard Stringer won a decisive battle today in his quest to rebuild Sony as a global consumer electronics superpower with the announcement that he will replace the firm's president, Ryoji Chubachi.

The surprise move, which leaves Stringer firmly in control as Sony braces itself for its first operating loss for 14 years, mirrors executive shake-ups at other major corporations hit hard by the collapse in global demand for cars and consumer electronics.

Stringer, the 67-year-old Welshman who already holds the positions of chief executive and chairman, said the reorganisation "is designed to transform Sony into a more innovative, integrated and agile global company with its next generation of leadership firmly in place".

Today's shake-up will consolidate Stringer's position as the firm attempts to ride out the financial storm.

Chubachi will become vice-chairman from 1 April, Sony said in a statement. It claimed the changes would "fundamentally reorganise the company's games and electronics business to improve profitability and strengthen competitiveness in the midst of the continued global economic crisis".

Stringer announced the creation of two new business groups, headed by younger executives, to break down the "silos" that have prevented full integration of the company's hardware and software, and to devise "cool new products" that will appeal to digital-savvy young people around the world.

"[The changes] will now make it possible for all of Sony's parts to work together to assume a position of worldwide leadership and, together, achieve great things," he said.

Analysts said the personnel changes were another sign of Stringer's growing impatience with the slow pace of change at Sony, where, he complained recently, "there is still a lot of the old and not enough of the new".

Nobuo Kurahashi, at Mizuho Investors Securities in Tokyo, said: "It is a positive sign of how Sony is frantically moving forward toward change, including structural changes, especially in its TV and other electronics businesses."

Since achieving record profits in 2007, Sony has become the victim of the global economic crisis and fierce competition, Stringer said at a hastily arranged press conference.

Though he oversaw dramatic improvements in the electronics business in 2007, Chubachi is believed to represent a traditionalist faction at Sony that has hampered Stringer's radical cost-cutting efforts since he became the firm's first foreign head in 2005.

The changes follow rumours of discord between Stringer and other executives over Sony's direction amid plunging earnings and thousands of layoffs.

The firm behind PlayStation game consoles, Bravia flat-screen TVs and Cyber-shot digital cameras has been forced to shed 8,000 of 185,000 regular jobs worldwide and close about 10% of its 57 factories, as well as laying off 8,000 temporary workers.

Sony said last month it expected an operating loss – its first for 14 years – of 260bn yen (£1.9bn) for the financial year ending in March. A year earlier it was celebrating an apparent return to financial health under Stringer, with profits of ¥475.3bn.

Today's announcement underlined the size of the task facing Sony and other manufacturers, coming after reports that Japan's factory output fell by a record 10% in January.

The government said this week that exports had fallen by a record 46% over the last 12 months.

Stringer, who has waived his bonus and will not receive a salary increase despite his additional role, defended his decision not to appoint a new president.

"This is a crisis – that's why I want to reduce layers," he said. "I'd like to eliminate bureaucracy for a change.

"This is about as excited as I've been for some months so don't try to put a bureaucratic layer between [the four new executives] and me. It's not going to happen … until I leave."

Sony is one of several Japanese firms to have announced management reshuffles amid a collapse in sales and earnings. Toyota, which is expected to register its first annual net loss since 1950, named Akio Toyoda, the grandson of the firm's founder, as its new president. Honda, Japan's second biggest carmaker, this week chose Takanobu Ito, a former engineer, as its new president and chief executive.

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•  Japan's factory output drops 10%

Japan has suffered a record drop in factory output while jobs are increasingly hard to find, underlining the severity of the country's recession.

Production at Japanese factories fell by a record 10% in January, according to data released today.

Employment figures for January showed new job offers fell 18.4% from a year earlier, while the ratio of jobs to applicants hit a five-year low, meaning there were only two jobs for every three applicants.

"Japan's economy is now falling off a cliff, and it may not be able to find an exit until early next year," said Takeshi Minami, chief economist at the Norinchukin Research Institute. "The key is how effective US stimulus steps will be, while stimulus steps in Japan may not help much. What Japan should focus on now is steps to help the job market."

Annual core consumer inflation slowed to nothing in the wake of lower oil prices, government data showed, taking Japan closer to deflation less than two years after the last round of falling prices.

The economic woes, and political rows that are slowing government stimulus efforts, have taken the yen to three-and-a-half-month lows as investors lose confidence in a currency once seen as a haven from the global financial crisis.

China gave mixed messages on the outlook for its economy in the coming year. One official was confident the government could engineer 8% growth, but another cautioned that the economy would not stop slowing until at least the second quarter.

"I don't think China's economy will bottom out in the first quarter. That means China's economy will be further weighed down by the worsening external environment," minister Fu Ziying told a forum.

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•  Economic crisis deepens in Japan

Industrial powerhouse left dejected after deficit soars to record level

Japan's economic crisis has deepened with figures yesterday showing its trade deficit soared to its highest ever level, after global demand for its products dried up.

Official figures showed that exports fell by a record 46% in January from a year earlier. But as a measure of how accustomed Japan is becoming to bad economic news, the dismal trade figures were greeted less with panic than with a growing sense of resignation.

On a day when Japan's once all-conquering car exporters reported dramatic falls in output, the world's second biggest economy could only look to the other side of the Pacific ocean for its salvation.

Earlier in the week the prime minister, Taro Aso, urged President Obama, not to retreat into protectionism to kick-start demand, and had won assurances that recovery would be achieved in tandem, or not at all.

Even the modest relief from the bombardment of depressing data cannot come soon enough, both for Aso, whose poor handling of the crisis could see him out of office within months, and for exporters, once the driving force behind Japan Inc., now its biggest victims.

Freefall

The sharp fall in exports in January widened Japan's trade deficit to ¥952.6bn (£6.8bn), the fourth deficit in as many months - but by far the steepest - and the biggest since records began in 1979. The world's second biggest economy now finds itself in the unusual position of pleading with trading partners to resist protectionism, in a reversal of the "Japan-bashing" 1980s, when its vast trade surpluses prompted calls to boycott the country's products in the US.

Its big three carmakers - Toyota, Honda and Nissan - reported staggering falls in production. Freefalling demand for cars has sent shock waves throughout Japan's auto industry. Toyota admitted that exports to the US plunged by 80% last month.

Yesterday's figures follow depressing trade data from across the Asia-Pacific region in another sign that it has joined the US and Europe at the centre of the economic storm. In South Korea, exports fell a record 33% in January from a year earlier, while Taiwan and Singapore reported falls of 43% and 35%.

Plummeting demand for Japanese products - from cars to flat-screen TVs and digital cameras - has forced manufacturers to shed tens of thousands of jobs around the world and slash production. Industrial output fell by a record 9.8% in December and analysts are predicting an even worse figure close to 10% for the January to March period.

Japan's economy shrank at its fastest pace for 35 years in the last quarter, with more contractions expected well into this year. At an annualised rate of 12.7%, Japan's shrinkage was three times the size of that in the US.

Analysts said the next quarter is unlikely to bring any respite. "Further downside seems in store for January-March as a whole, based on reports such as suspensions of production in the auto industry," said Chiwoong Lee, an economist at Goldman Sachs.

Japan is bracing itself for gloomy employment and output figures on Friday. Unemployment rose to 4.4% in December, its biggest climb for more than 40 years. Japan's finance ministry said exports to the US fell almost 53% in January, reducing its bilateral trade surplus by 75% to ¥132.8bn, and those to Europe fell by 47.4%.

Slide

In addition to plunging demand in important export markets such as the US and Europe, Japan's plight was compounded by evidence of a slowdown in Asia. Exports to the continent were down 47%; those to China fell 45%.

"Exports to Asia, particularly to China, are tumbling at about the same pace as shipments to the United States, signalling that even China's economy may be shrinking," said Takeshi Minami, chief economist at the Norinchukin Research Institute. "We don't see any signs of a pickup in the Japanese economy in the near term. The economy will gradually worsen further."

The figures prompted a slide in the yen to a three-month low against the dollar at ¥96.7. The dollar's gains, combined with reports that Japan is about to buy shares in the market to boost prices sent the Nikkei share average up 2.65% in late trading. The Bank of Japan has already launched a trillion-yen scheme to buy shares in cash-strapped commercial banks, while parliament is debating a government proposal to invest ¥20tn in shares of lending institutions.

Other Asian markets were buoyed up by reassurances from the US Federal reserve chairman, Ben Bernanke, that the US was not about to nationalise big banks. In Hong Kong the Hang Seng index was up 1.3% and South Korea's Kospi rose 0.3%.

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•  Larry Elliott: Japan's trade figures signal depression

Anybody who doubts that the global economy is facing its most serious downturn since the 1930s should take a squint at the latest trade figures from Japan. Exports in January were 46% lower in January than they were a year ago – a phenomenal drop for a country that is so heavily dependent on sales of its industrial products overseas.

Japan has got used to economic setbacks over the past two decades: it has been in and out of recession on a regular basis. But make no mistake, this drop in exports does not mean recession: it means depression.

In the circumstances, comments by analysts that the data was "not good" and "seriously bad" were somewhat otiose. The Office for National Statistics confirmed today that the UK economy shrank by 1.5% in the final three months of 2008 and is on course for an annual decline in GDP this year of between 2.5% and 3%. But in Japan, things are much, much worse. Maya Bhandar at Lombard Street Research, says that the economy is contracting at an annualised rate of 14-15% in the current quarter. Strong exports have tended to disguise the weakness of Japanese domestic consumption in recent years: now that prop has been kicked away, growth is plummeting.

Why is this happening? Quite simply, the great engine of globalisation has gone into reverse. During the long boom, the US acted as the consumer of last resort: it sucked in exports from China and Japan. As China industrialised, it needed high-grade investment goods from Germany, and as prosperity spread in the world's most populous country, there was strong demand for Japanese electronics, cars and consumer gizmos. Now that America has stopped spending, Chinese factories have closed. The knock-on effects of that are being felt in Tokyo and Hamburg.

In Japan, all the main industries are reporting decreases in exports of more than 40%. The big car companies – Toyota, Nissan and Honda – are really feeling the pinch: overseas sales by the transport equipment sector were down almost 54% on a year ago. What's more, car sales are slumping everywhere: J­apanese exports to North America, Europe and the rest of Asia were all down by more than 50%.

The assumption, since the financial crisis began in the summer of 2007, has been that lessons have been learnt from the Japanese experience in the 1990s. Much comfort was taken from the fact that Ben Bernanke, the chairman of the US Federal Reserve, had produced an erudite paper on how to avoid the deflationary problems ­suffered by the world's second biggest economy.

As things stand, that optimism is starting to look a tad misplaced. It is not just that the generalised falls in industrial production over the past few months has been far worse than ­anything experienced by Japan in the 1990s; it is also that policymakers – including Bernanke – do not seem to have fully assimilated the lessons of the Japanese experience.

Japan's problem in the 1990s was not that the government failed to act: there were any number of emergency packages and bail-outs for the stricken banks. But nothing Tokyo did got to the heart of the crisis, which was that land prices continued to fall year after year, creating fresh losses for the financial system as quickly as the last batch of toxic waste was cleared up.

Something similar is happening now to Wall Street banks. With real-estate prices in freefall, the losses just continue to mount and the pressure on the banks remains acute.

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•  Japanese carmakers slash production by up to 50%

Japan's big three carmakers today reported a dramatic fall in production as the auto industry counts the cost of plummeting global demand.

Toyota, the world's biggest carmaker, said global production dropped 39.1% in January from a year earlier to 487,984 vehicles. Honda reported a fall of 33.5% worldwide to 226,551 vehicles and Nissan 54% to 145,286.

The global economic crisis has ravaged demand in major markets, forcing Japan's carmakers to slash production and lay off thousands of workers.

The figures come days after the Unite union leader Tony Woodley warned of the imminent closure of a UK car plant with the loss of as many as 6,000 jobs.

Peter Mandelson, the business secretary, dismissed the claim and major carmakers have all insisted they had no plans for factory closures in the UK.

But other job losses in the UK have been confirmed. Nissan, which is to slash 20,000 jobs worldwide over the coming year, will cut 1,200 jobs at its plant in Sunderland. Toyota is implementing pay freezes and voluntary redundancies that could affect 3,500 workers at its factory in Burnaston, near Derby, and 570 employees at an engine plant in Deeside, Flintshire.

The firm, whose output fell to its lowest level for more than 20 years, said production in Japan fell by 40% last month, and by 65% in the US. Its global exports fell 57%, while those to the US, traditionally its most lucrative market, fell 80%, it said in a statement.

Honda's total exports fell by 23.4% and Nissan by 31%.

Freefalling demand has sent shock waves throughout Japan's car industry, only months after Toyota ended General Motors' 77-year run as the world's biggest carmaker by sales.

Industry-wide sales fell at their fastest rate for 34 years in 2008, and Yoichi Amano, head of the country's automobile dealers association, said this week that domestic sales of vehicles could fall below 3m this year.

Last year car sales in Japan fell to a 34-year low of 3.21m vehicles, down from a peak of nearly 6m units in 1990, the association said.

The US car industry is expecting sales to reach a 27-year low of 10.5m vehicles this year, according to GM. In Britain, car production fell 58.7% in January from a year earlier, the Society of Motor Manufacturers and Traders said last week.

Honda, Japan's second-biggest car firm, suffered its biggest global sales slump since 1999, with exports to the key US market down 62% in January from a year earlier. The firm is also suspending production for 35 days in April and May at its plant in Swindon, in addition to stoppages announced for February and March.

The dismal figures come amid a backdrop of unrelenting bad news for Japanese exporters across the board.

Figures out today showed exports fell by a record 46% in January from a year earlier, leaving the country with a record trade deficit of ¥952.6bn (£6.8bn), the fourth deficit in as many months and the biggest since records began in 1979.

The world's second-biggest economy last week reported that GDP had contracted at by 3.3% in the last quarter of 2008, three times faster than the shrinkage seen in the US.

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•  Export slump confirms Japanese economic crisis

Japan's economic crisis deepened today after figures showed exports fell by a record 46% in January from a year earlier, leaving the country with a record trade deficit.

The dramatic fall widened Japan's trade deficit to ¥952.6bn (£6.75bn), the fourth deficit in as many months, and the biggest since records began in 1979.

The world's second biggest economy now finds itself in the unusual position of pleading with trading partners to resist protectionism, in a reversal of the "Japan-bashing" 1980s, when its vast trade surpluses sparked calls to boycott the country's products in the US.

Today's data comes after a slew of depressing trade data from across the Asia-Pacific region in another sign that it has joined the US and Europe at the centre of the global economic storm.

In South Korea, exports fell a record 33% in January from a year earlier, while Taiwan and Singapore reported falls of 43% and 35%.

Plummeting demand for Japanese products - everything from cars to flat-screen TVs and digital cameras - has forced manufacturers to shed tens of thousands of jobs around the world and slash production.

Industrial output fell by a record 9.8% in December and analysts are predicting an even worse figure of around 10% for the January to March period.

Further downside

Japan's economy shrank at its fastest pace for 35 years in the last quarter, with more contractions expected well into this year. At an annualised rate of 3.8%, Japan's shrinkage was three times the size of that in the US.

Analysts said the next quarter is unlikely to bring any respite. "Further downside seems in store for January-March as a whole, based ovn reports such as suspensions of production in the auto industry," said Chiwoong Lee, an economist at Goldman Sachs.

"This implies further manufacturing layoffs and labour market deterioration."

Japan is bracing itself for an onslaught of poor employment and output figures on Friday. Unemployment rose to 4.4% in December, its biggest climb for more than 40 years.

Japan's finance ministry said exports to the US fell almost 53% in January, reducing its bilateral trade surplus by 75% to ¥132.8bn, and those to Europe fell by 47.4%.

In addition to plunging demand in key export markets such as the US and Europe, Japan's plight was compounded by solid evidence of a slowdown in Asia.

Exports to the continent were down 47%, while those to China fell 45%.

"Exports to Asia, particularly to China, are tumbling at about the same pace as shipments to the United States, signalling that even China's economy may be shrinking," said Takeshi Minami, chief economist at the Norinchukin Research Institute.

"We don't see any signs of a pickup in the Japanese economy in the near term. The economy will gradually worsen further."

The figures sparked a slide in the yen to a three-month low against the dollar of ¥96.7.

The dollar's gains, combined with reports that Japan is about to buy stocks directly from the market in a last-gasp attempt to boost share prices sent the Nikkei share average up 2.65% in late trading today.

The Bank of Japan has already launched a ¥1 trillion scheme to buy shares in cash-strapped commercial banks, while parliament is debating a government proposal to buy ¥20tn in shares from lenders.

Asian markets were buoyed by reassurances yesterday from US Federal reserve chairman, Ben Bernanke, that the US was not about the nationalise major banks.

In Hong Kong the Hang Seng index was up 1.3%. South Korea's Kospi rose 0.3%.

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•  Japan's prime minister Taro Aso visits Barack Obama

Taro Aso's meeting with the president sends a signal that Japan remains a vital partner of the US

Barack Obama today told Taro Aso, Japan's prime minister, that his nation was the cornerstone US security policy in east Asia and to America's links to the world economy.

The Japanese leader was the first foreign leader to visit Obama at the White House, and the president said that was a testament to the importance both countries place in their mutual ties.

"It's a testimony to the strong partnership between the United States and Japan," Obama said, sitting at Aso's side in the Oval Office. The Japanese leader said only the United States and Japan enjoyed sufficient economic strength to effect changes in the global economic recession.

The two leaders face starkly different political fortunes: While Obama enjoys worldwide popularity; Aso is struggling to stay in power.

In selecting Aso as the first foreign leader to visit the Obama White House, however, the new administration is interested less in giving him a boost than in sending a message that Japan - a sometimes-neglected ally - remains a vital partner in addressing global economic and security crises.

Japan, which has the world's second-largest economy, trails only China as the largest foreign holder of US treasury bonds, holdings that help finance the ever-growing US budget deficit. Japan also is the linchpin of US security efforts in Asia, hosting about 50,000 US military personnel and working with the United States and three other countries to press an increasingly hostile North Korea to give up its nuclear bombs.

Washington's invitation to Aso, who arrived on Monday night, was a broad signal "to the Japanese political establishment that the Obama administration is going to work with whoever is there," said Michael Auslin, a Japan specialist with the American Enterprise Institute think tank.

"If we continue to wait for the next Koizumi, the next strong leader, we're going to be waiting forever," Auslin said.

Since popular former prime minister Junichiro Koizumi left office in 2006, he has been followed by a series of ineffectual leaders.

Aso, of late, has faced single-digit approval ratings, appeals from his own party to resign and the worst Japanese recession in 50 years. His administration reached a low point last week when his finance minister stepped down after appearing to be drunk during a world finance ministers' meeting.

Still, secretary of state Hillary Clinton's response, when asked in Tokyo about the embarrassing resignation, signalled a US willingness to stand by Japan regardless of political or economic turmoil: "I think that the resilience of the Japanese people and the Japanese government is what's important here."

Aso's visit, while symbolically important, might be overshadowed as Obama presses a series of politically sensitive economic initiatives; Aso comes to Washington on the day of Obama's first address to a joint session of Congress.

Japan has been looking for US reassurance about its place as the top US ally in Asia. Some in Tokyo are worried about increasing US cooperation with, and dependence on, China on a host of diplomatic, economic and military matters.

Clinton's decision to make Tokyo her first destination as secretary of state, as well as Aso's early White House visit, are important signals from the Obama administration. Japan still remembers that Clinton's husband, former President Bill Clinton, bypassed Tokyo during a trip to China in 1998.

"The sentiment in Japan is quite delicate right now in terms of what place it holds in US priorities," said John Park, a senior researcher at the United States Institute of Peace.

Secretary of state Clinton has also sought to soothe Japanese anger over the Bush administration's handling of North Korea's abduction of Japanese citizens in the 1970s and '80s. The United States, despite vehement public and private Japanese protestations, removed North Korea last year from a US terrorism blacklist, which Japan felt was one of the few levers negotiators had with the North on the abduction question.

Clinton met with the families of kidnapped Japanese during her visit to Tokyo and pledged to give the matter a high priority in stalled disarmament talks with North Korea.

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•  Video: North Korea provokes missile test fears

North Korea has made its clearest reference yet to an impending launch that neighbours and the US suspect will be a provocative test of a long-range missile




•  Passengers suffer head and neck injuries as Manila-Tokyo plane hits turbulence

Japanese television shows passengers coming off plane holding their heads and necks

Nearly 50 airline passengers suffered neck and head injuries today when severe turbulence forced a Manila to Tokyo flight to drop altitude suddenly.

The Northwest Airlines plane ran into turbulence while circling off the coast of Chiba, east of Tokyo, about 30 minutes before landing.

Many of the passengers not wearing seatbelts were thrown out of their seats, according to Masashi Takahashi, a spokesman for Northwest Airlines in Tokyo.

Of the 408 passengers, 47 suffered injuries. Most hurt their heads by crashing into overhead lockers or jerking their necks. The plane landed at Tokyo at around noon local time. Japanese television showed passengers coming off the plane holding their heads and necks.

"I was so scared, I thought I would die," a passenger who was not named told the TBS television network. "My whole body was lifted into the air."

Another told the network: "The person in front of me flew up to the ceiling. The person behind me collapsed and looked unconscious."

Northwest Airlines insisted that the "fasten seatbelt'' light had been turned on when the plane hit turbulence.

None of the injuries were life-threatening. Officials had feared that two passengers were seriously hurt, but they were in better condition than expected upon examination. One of the passengers was taken away in a wheelchair and another on a stretcher.

Fire engines and ambulances were on the tarmac when the plane landed.

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•  Bill Emmott: A silver lining for Japan

The economic suffering here has been harsh and long, but at last political change is coming

In the race to report the worst economic contraction among rich countries this year, Britain is being run close by another island nation: Japan, the world's second biggest economy. Japan is, however, winning the contest for the country with the most shambolic politics - this week its finance minister, Shoichi Nakagawa, resigned after turning up drunk to a press conference after the G7 summit in Rome last weekend. Nevertheless, Japan stands a good chance of being one of the few countries to benefit from the economic crisis.

Many Japanese would find that hard to believe. Unemployment is rising sharply; the big, famous Japanese names such as Toyota, Panasonic and Sony are all making losses; exports are plummeting; and manufacturing output has dropped to a level last seen in 1983. Any Briton who thinks the reason our economy is weak is that we no longer have much manufacturing should come to Japan, for the reason Japan is weak is that it has too much (20% of GDP, compared with 10% in Britain), making precisely the things that everyone has just stopped buying, such as cars and fancy televisions.

So where is the silver lining to all those clouds? It lies in politics, and the sharp kick in the pants that the economic crisis is about to give to the old political elite. A general election must be held by October at the latest, and could be forced much sooner. The same outfit - the Liberal Democratic party, which is actually a conservative group - has run the country for the whole of the past half century, barring nine months in 1993. The LDP survived even the country's stagnation during the 1990s, when Japan's financial crash destroyed its banking system. But, finally, the LDP is running out of road as fast as it long ago ran out of ideas. The prime minister, Taro Aso, has an approval rating that would shame even George Bush.

As a result, the main opposition, the Democratic party of Japan, a centre-left group, is miles ahead in the opinion polls. Its leaders are plotting what they will do when they win power in a manner reminiscent of Labour in 1997, though with a touch of 1979 Thatcher too. The party's secretary-general, Yukio Hatoyama, says that as soon as it wins, the DPJ will outline its policies and fire any bureaucrat who won't support them.

More than that, however, this opportunity matters because in Japan the public services are in desperate need of reform, just as the economy itself is. The national health system is starved of funds, with the recent tragic result that a woman died in childbirth after having been refused admission by several over-crowded hospitals.

The public pension scheme is in disarray, with the government having lost 50m pension records and many people distrusting the state's promises. And, for all its fabled equality and social cohesion, this is a country where there is only a scant safety net for the unemployed, whose numbers are about to rise dramatically. Many of the new unemployed will be part-time and non-contract workers with low pay and few protections: new labour laws in 2001-03 enabled manufacturers to switch to cheap workers, raising profits but also enabling them to slash costs rapidly.

It is a country, in other words, that is in desperate need of a change of government, and the election of a party dedicated to repairing broken social services as well as shaking up the economy. No doubt as and when the DPJ wins power, it will bring disappointments and its own occasionally shambolic ministers. No matter. The important thing in a democracy is to punish those who have failed and to bring in a new crowd capable of making new mistakes. Japan has waited far too long for that.

• Bill Emmott is author of Rivals - How the Power Struggle between China, India and Japan will Shape our Next Decade bill

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•  City squares up to the Rio Tinto bulldozer

Tapping China for cash is latest skirmish in war over who controls big companies

When Rio Tinto decided last week to turn to one of its biggest customers in China rather than its existing shareholder base to raise cash and cut its towering debts, the reaction was all too predictable: "It sucks," said one of the miner's biggest shareholders. "It is completely outrageous. We will happily vote against it."

He was not alone. Rio's apparent decision to ride roughshod over "pre-emption rights" - giving shareholders the first option to buy any new shares - is about to provoke one of the biggest standoffs between the management of a major company and those who own it.

Rio needs cash to pay down its $20bn (£14bn) of debt. In the current climate raising that cash from a traditional rights issue would be difficult. So Rio has gone to Chinalco, which already owns 9% of the company. The deal agreed is that the Chinese company stump up £12.3bn for a stake in some of Rio's best mines. It will also lend Rio £7bn which can be converted into another 9% of the company. Rio, meanwhile, will pay 9.2% interest for the cash.

The other shareholders are furious at what they regard as a sweetheart deal and question the wisdom of allowing Chinalco such a big stake when the Chinese group is a major customer. They argue it could destroy Rio's pricing power.

They also reckon Rio doesn't need to raise as much as $20bn, which makes a normal rights issue more feasible and, if Rio is willing to pay a coupon of 9.2%, they would like some of that too, please.

The Association of British Insurers, whose members own about 20% of the shares quoted on the stock exchange, immediately swung into action.

"The deal ... seems to favour the Chinese shareholder ... Investors are deeply concerned," it said. That might seem a measured response but from the ABI it is very tough talk indeed. It illustrates the anger institutional investors are feeling about Rio's proposal, but, more widely, it underlines an increasingly bitter cold war between big companies and their shareholders.

The institutions are under fire as never before for failing to properly monitor the excesses of the big banks over recent years. They stand accused of being asleep at the wheel and putting at risk the savings of the millions of ordinary people whose life insurance investments and pension funds they manage.

Front and centre among the attackers has been Lord Myners, a former chairman of the Guardian Media Group and himself a former fund manager, who is now the government's City minister.

"Institutional shareholders need to be asking themselves: were they appropriately engaged in asking questions about the risk appetite of our banks?" Myners said last month. "Were they asking sufficient questions about competency of directors, and were they appropriately engaged in examining and approving compensation cultures?"

Numpties

Those same investors recently felt the rough side of BBC business editor Robert Peston's tongue. Peston branded them "a bunch of numpties" and asked: "Are there greater hypocrites in the world than British institutional investors?"

Peston is not the first to assert that many of the shareholders now putting pressure on companies to pay down debt are the same shareholders that a couple of years ago were demanding companies take on debt, gear up their balance sheets and return cash to investors.

The criticisms aren't playing at all well among many shareholders. "There are companies that are starting to accuse all shareholders of stupidity," said one leading fund manager who has regularly been a thorn in the side of errant directors. "They say we all universally encouraged them to gear up and return cash to shareholders. Well we certainly never did.

"Peston is saying we are all dozy and numptyish. There is a real risk that this will prompt knee-jerk legislation that requires us to jump through hoops when there is no need. OK, so some shareholders don't intervene, but some absolutely do and always have done."

The problem, said another investor, is that "like companies and chief executives and politicians and ordinary people, shareholders are not all the same".

There are some, he said, "who really don't care about corporate governance issues as long as they are making money. They just ignore the responsibilities that come with share ownership."

What is undoubtedly true is that the relationship between companies and their big shareholders has changed. Until recently there was mutual, if occasionally grudging, respect. But as corporate profits, directors' salaries and City expectations roared ahead in recent years, shareholders' views became increasingly disregarded.

Company directors and their advisers dismissed those that raised unwelcome questions as "box tickers" or "activists". What companies wanted were silent shareholders who would let them get on with things without any irritating intrusions.

When investors' concerns and friction have leaked out, it is usually anonymously. Companies then dismiss their unnamed attackers as "spineless", while the investors concerned say they cannot risk cutting off diplomatic relations in businesses where their holdings can be worth many, many millions of pounds.

Shareholders have certainly not been completely impotent. The activists point to victories such as last year's ousting of the entire executive team at the underperforming pest control company Rentokil Initial. They also blocked the appointment of Sir Ian Prosser as chairman of Sainsbury's and demanding new executive blood at rival supermarket chain Morrisons.

They fought hard to stop Barclays going to Middle Eastern investors for funding last year - almost exactly as Rio is now doing - only pulling back from voting against the plan because of fears about what might happen to the bank if it was left without the cash.

Similarly, shareholders were outraged by Marks & Spencer's decision last year to promote its chief executive, Sir Stuart Rose, to the position of executive chairman - a move that contravenes two main planks of good corporate governance.

Backlash

M&S;'s biggest shareholders were given just a few hours' notice, which is far from the consultation they expect. The result was a backlash among shareholders. Such was their anger that one senior retail executive claims he was contacted by two separate large M&S; shareholders to ask if he would be willing to be parachuted into the retailer if they were to organise a coup.

Only when Rose agreed to limit his time in the position and offer himself up for annual re-election as a director was the promotion given the nod by investors.

More recently, shareholders voted against big bonuses at housebuilder Bellway, even though they couldn't stop the cash being paid, while fund manager Aviva Investors wrote to the remuneration consultants that advise boards on pay schemes to demand a moratorium on pay rises and "considerable restraint" on bonuses.

Legal & General boss Peter Chambers took the opportunity at a select committee hearing to make it clear that L&G; had not been remiss in its handling of the banks. His group, he said, had asked Royal Bank of Scotland time and again last year if it needed extra finance, and the bank's directors had insisted they didn't. L&G; also wanted chief executive Sir Fred Goodwin and chairman Sir Tom McKillop to stand down, but they refused.

Now L&G; is going direct to the companies in which it has holdings. The fund manager has warned them that if they have a cash call they will need to moderate executive pay and even change their management teams to win support.

Chief executive Tim Breedon said: "There'll be something to pay for new capital - better governance, better risk management and better management in certain cases."

It is just the sort of ultimatum that critics like Lord Myners probably want to hear.

But they should bear in mind the law of unintended consequences. L&G-style; warnings may just prompt the opposite outcome from that expected - instead sending companies, Rio-style, to friendly investors who will make no such demands.

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