Reuters News - EU considers protecting savers against future bank collapses

An employee of Laiki Bank gestures to depositors before the opening of the bank in Nicosia March 29, 2013.

Credit: Reuters/Bogdan Cristel

By John O'Donnell

BRUSSELS | Mon Apr 29, 2013 1:43pm EDT

(Reuters) - Depositors should be the very last to suffer losses when a bank collapses, according to a proposal being discussed by European Union countries and seen by Reuters, which would shield savers from the kind of losses they face in Cyprus.

The idea comes as member countries finalize a new draft law for the European Union that could make losses for larger savers a permanent feature of future banking crises. EU officials, however, are nervous that such a regime will panic savers, prompting them to withdraw money.

In the paper, outlining the process of 'bailing in' savers and other steps to deal with troubled banks, officials in Brussels said that it might be wise to put depositors behind all bondholders when dividing losses from a bank collapse.

Small savers, with less than 100,000 euros, will, in any event, be protected. But officials also raise the possibility of allowing national exemptions from losses for big depositors in their country if a bank fails.

By striking such a compromise, officials hope to rebuild confidence after a botched attempt earlier this year to impose losses on depositors in Cyprus - initially also aimed at small savers although this was later changed.

A more favorable treatment of big depositors in the new EU law, charting how to deal with failingbanks in a regime that could start in 2015, is backed by the European Central Bank and the International Monetary Fund.

Ireland, which currently holds the rotating EU presidency, is also pushing for such concessions ahead of a meeting of EU finance ministers in May.

"This would mean that they are not excluded from bail-in, but other creditors would first absorb losses to their capacity before eligible depositors are bailed-in," officials said in the paper, dated April 29.

Before any such softening of provisions, however, EU diplomats will need to convince Germany, which remains skeptical about making such concessions, according to one official familiar with the talks.

Policymakers have sought to portray the losses suffered by depositors at two of Cyprus's banks as a one-off, but experts believe it marks a change in approach in how Europe deals with troubled banks, sparing taxpayers who have been on the hook for previous bailouts.

"After Cyprus, a number of states would like more clarity," said one official who is involved in the discussions.

"It may be that we give depositors preference, which means that they have a higher likelihood of getting back their money."

(Editing by Greg Mahlich)

BBC News - Greek parliament approves 15,000 civil service job cuts

The Greek parliament has passed a bill which will see 15,000 state employees lose their jobs by the end of next year.

The BBC's Mark Lowen said there were protests outside the parliament building

The bill passed by 168 votes to 123, and had the support of the three parties making up the ruling coalition.

It is part of continuing moves by the centre-right government to cut costs and ensure more bailout money from international creditors.

But it was vociferously opposed by protesters outside parliament.

The new law will overturn what had been a constitutional guarantee for civil servants of a job for life, says the BBC's Mark Lowen in Athens.

The sector has been seen as notoriously bloated since it expanded in the 1970s and 1980s as successive administrations employed their own people, our correspondent adds.

Some 2,000 civil servants will lose their jobs by the end of June, another 2,000 by the end of the year, and a further 11,000 by the end of 2014.

State workers who have broken rules will be targeted for dismissal, but many are expected to be replaced by younger employees in key sectors such as health.

So the law will not slim down the public sector, our correspondent says. That would be achieved by a parallel plan that would see 150,000 state jobs go by the end of 2015, by replacing only some of those who retire.

'Destroying welfare state'

The law is a condition for Greece to receive its next tranche of loans worth 8.8bn euros (£7.4bn; $11.4bn).

Eurozone officials will now meet on Monday to approve the overdue release of 2.8bn euros, said Finance Minister Yannis Stournaras, according to Reuters news agency.

The remaining 6bn euros will be paid on 13 May, he added.

As MPs debated the measures inside parliament, several hundred demonstrators outside took part in a protest called by Adedy, the civil service trade confederation, and the private sector GSEE union.

They were demonstrating against what the unions called "those politicians who are dismantling the public service and destroying the welfare state".

Critics say the law, which is part of a larger package of measures, will only add to Greece's record unemployment rate of 27%.

They say many of those who will lose their jobs are older workers already struggling to support their families and make ends meet.

But others say the measures are overdue.

Divisions

The conservative coalition, led by Prime Minister Antonis Samaras, has 167 seats in the 300-seat parliament so the measure was always expected to pass.

However, there are reports of divisions within his government on some issues and there is speculation he could reshuffle his ministerial team soon.

Eurozone finance ministers are expected to decide on the next instalment of aid for debt-ridden Greece at a meeting on 16 May.

Since 2010, the European Union and the IMF have promised more than 200bn euros in lending for Greece, the first country to be hit by the eurozone crisis.

The government has imposed tough austerity measures in return for aid, including cuts in pay and pensions leading to numerous general strikes.

Sky News - Spain Slashes Economic Growth Forecasts

Spain's government revises down its growth forecasts, as it unveils the latest reforms aimed at boosting its struggling economy.

Spain's economy minister, deputy prime minister and treasury minister

The Spanish government has forecast that the economy will contract by more than expected in 2013, but will return to growth next near.

The country's deputy prime minister said its gross domestic product (GDP) would shrink by 1.3% in 2013 - down from the 0.5% contraction previously forecast.

But Soraya Saenz de Santamaria said Spain's economy is expected to return to growth of 0.5% in 2014, and will expand by 0.9% in 2015.

At a press conference following the adoption of a new economic plan for the country, she said that no major new reforms, tax hikes and spending cuts were needed to meet the new targets.

The forecasts come a day after protestors took to the streets of Madrid

She added that the government - which had to backtrack from its promise to cut taxes next year - was still aiming to cut some taxes in 2015.

The economy minister, Luis de Guindos, said the deficit-reduction strategy had been agreed with the European Commission and other eurozone officials.

"2014 will be the year of recovery," he said.

The deficit is now forecast to reach 6.3% of GDP in 2013 - well above earlier targets - but would fall to 2.7% by 2016, Mr de Guindos added.

The unemployment rate - which hit a record high of 27.2% in the first quarter of this year - is expected to fall back to 26.7% in 2014, and 25% in 2015.

It comes as protests broke out in Madrid on Wednesday following the release of the latest jobs data.

Around 1,000 people took to the streets in the latest demonstration against the country's austerity measures and tax hikes that have left many without jobs.

The country's economy has been struggling to show signs of recovery since the collapse of its once-booming property market in 2008.

Reuters News - ECB says ditching austerity would not help euro zone

Vice-President of the European Central Bank Vitor Constancio arrives to attends a news conference on the second day of the G20 at a hotel in Mexico City November 5, 2012.

Credit: Reuters/Henry Romero

By Martin Santa and Sakari Suoninen

BRUSSELS/FRANKFURT | Wed Apr 24, 2013 7:28pm BST

(Reuters) - ECB policymakers rebuffed suggestions that Europe should ease up on austerity and said that while the central bank has room to cut interest rates, such a move would not necessarily help theeconomy much.

European Central Bank Vice-President Vitor Constancio said that seeking to stimulate economies by stopping measures aimed at cutting government debt could merely increase countries' borrowing costs rather than triggering growth.

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Finance leaders of the G20 economies last Friday edged away from a long-running drive toward cutting spending and raising taxes in rich nations, rejecting the idea of setting hard targets for reducing national debt in a sign of concern about a sluggish global recovery.

With budget cuts blamed for a second straight year of recession in the euro zone, the EU's top economics official Olli Rehn indicated over the weekend that more flexibility on tough economic targets was needed.

His boss, European Commission President Jose Manuel Barroso, said on Monday that austerity had reached its natural limits of popular support.

Recent surveys and data have pointed to economic weakness spreading to the euro zone core, and on Wednesday Germany's Ifo sentiment indicator came in weaker than the most pessimistic of forecasts as poor exports undermined Europe's largest economy.

"We certainly still have some margin of manoeuvre to take decisions, and as (ECB) President Draghi said in the latest press conference, we stand ready to act if economic conditions continue to provide bad news, as has unfortunately been the case," Constancio told the European Parliament in response to a question.

But ECB policymakers did not accept that weaker growth was a reason to change course on reform, insisting that more balanced budgets were essential to revive sustainable growth.

"Economic adjustment, both internal and external, has been significant, has implied high costs in terms of unemployment and should not (be) put into risk of unravelling now," Constancio told the European Parliament.

Joerg Asmussen, who sits on the ECB's Executive Board, also spoke of a risk of slipping back and warned against taking the current market calm for granted.

"(A) sound fiscal condition is really a precondition for growth," he told the Financial Times. "If one postpones fiscal consolidation to a later day, that comes not without risks."

ECB Governing Council member Ardo Hansson said EU states must push economic reforms further, strengthen public finances and avoid complacency.

German Bundesbank President Jens Weidmann had a stern message for France, the euro zone's second major economy, which is slipping already this year from commitments to cut its budget deficit.

Lessons should be drawn from earlier breaches of debt limits, Weidmann said. "France especially has an important role to serve as an example for credibility of the rules and trust in the sustainability of public budgets."

(Additional reporting by Eva Kuehnen in Frankfurt, Alexandra Hudson in Dresden and David Mardiste in Tallinn, writing by Sakari Suoninen; Editing by Ruth Pitchford)

BBC News - Australia's central bank to invest in Chinese bonds

Australia's central bank is planning to invest around 5% of its foreign currency reserves in Chinese government bonds, its deputy governor has said.

Australia and China have been trying to foster closer economic ties

It will be the first time the Reserve Bank of Australia (RBA) will invest in sovereign bonds of an Asian country other than Japan.

The RBA has foreign currency reserves of A$38.2bn ($39.2bn; £25.7bn).

Earlier this month, the Australian dollar became the third currency to trade directly with the Chinese yuan.

"This decision to invest in China is an important one," Philip Lowe, deputy governor of the RBA said in a speech to the Australian Chamber of Commerce in Shanghai.

"It reflects the broader economic relationship between China and Australia and our increasing financial ties.

"It provides greater diversification of our investments and will help with our understanding of the Chinese financial markets," he added.

Experiment

China has been slowly opening up its tightly controlled financial and capital markets, to try and spur a fresh wave of economic growth.

Last year, it raised the investment quota for Qualified Foreign Institutional Investors twice to give them greater access to its markets.

At the same time, it has been loosening its grip on its currency as part of its attempts to internationalise the yuan.

It has announced plans to set up a special business zone in the southern city of Shenzhen to experiment with the yuan's convertibility.

It has also widened the range in which the yuan is allowed to trade against the US dollar, from 0.5% to 1.0% on either side of a daily rate set by the People's Bank of China, the Chinese central bank.

Analysts have said that all these moves are a part of China's push for a more global role for its currency.

Beijing has been trying to promote the yuan as an alternative to the US dollar's status as global reserve currency.

Bloomberg News - Bernanke Warned by Barnier That Bank Unit Rules Risk Retaliation

EU Financial Services Chief Michel Barnier

Jock Fistick/Bloomberg

EU financial services chief Michel Barnier wrote in his April 18 letter to Bernanke, obtained by Bloomberg News, the proposals are “a radical departure from the existing U.S. policy,” and may undermine efforts to ensure that large banks can be safely wound down if they fail.

The European Union intensified its campaign against U.S. Federal Reserve proposals to toughen oversight of bank units belonging to overseas lenders, warning of “potential retaliation” against the plans because they will drive up costs.

Michel Barnier, the EU’s financial services chief, last week sent a three-page critique of the draft measures to Fed ChairmanBen S. Bernanke, saying that they risk leaving EU banks at a competitive disadvantage. The move follows a meeting this month between Barnier and U.S. Treasury Secretary Jacob J. Lew, where the Frenchman pressed for a change of course.

The proposals are “a radical departure from the existing U.S. policy,” and may undermine efforts to ensure that large banks can be safely wound down if they fail, Barnier wrote in his April 18 letter to Bernanke, obtained by Bloomberg News. The standards “could spark a protectionist reaction from other jurisdictions, which could ultimately have a substantial negative impact on the global economic recovery.”

Under the draft Fed plans, published in December, foreign lenders would be forced to organize their U.S. subsidiaries under a locally regulated holding company, with its own reserves of capital and easy-to-sell assets that could be tapped in crises. Bernanke has said the measure would be an “important step” in addressing “the risks that large, interconnected financial institutions pose to U.S. financial stability.”

Rigorous Regulation

The Fed standards shouldn’t apply to banks that are already subject to rigorous regulation in the country where their headquarters are based, according to Barnier’s letter.

As they stand, the measures would have “relevant economic consequences” for EU banks, arising from the costs of meeting extra capital and liquidity requirements, reporting rules, and risk management standards, Barnier wrote.

Banks would be required to comply with the new Fed rules if they have consolidated assets of $50 billion, with U.S. subsidiaries accounting for $10 billion.

“The U.S. operations of large foreign institutions have changed in recent years -- marked in part by significantly greater reliance on potentially unstable, short-term wholesale funding and rapid growth in their capital markets activities,” said Barbara Hagenbaugh, a Fed spokeswoman.

The “targeted adjustments” to the Fed’s supervision “create a more consistent regulatory structure for all firms operating in the United States,” Hagenbaugh said. The U.K., “the most comparable host country to the United States, has already required that subsidiaries of large foreign financial firms in London meet local capital and liquidity requirements.”

Home Countries

The proposals would allow overseas-based banks to maintain branches in the U.S. without setting up the holding company structure. Branches allow banks to carry out some activities overseas, with regulatory oversight still largely conducted by the lender’s home country.

The measures, which are open for comment until the end of April, would take effect from July 1, 2015.

The U.S. proposals contradict international agreements on how regulators should co-operate cross-border to handle the failure of a large international bank, and may undermine the implementation of Basel bank capital rules, Barnier said in the letter.

The plans would have “a ringfencing effect, which, besides fragmenting the global banking activity, also affects cooperation among regulators in the resolution of cross-border institutions,” Barnier wrote.

The Fed rules are one of two main battles Barnier is waging to change proposed U.S. financial requirements.

Swaps Rules

Barnier was among nine overseas finance officials that signed a separate letter last week urging Lew to limit the cross-border reach of swaps rules they say are fragmenting the market for over-the-counter derivatives.

That letter, signed by ministers including U.K. Chancellor of the Exchequer George Osborneand Taro Aso, Japan’s deputy prime minister, follows complaints by JPMorgan Chase & Co., Goldman Sachs Group Inc. and overseas officials about the planned reach of U.S. Commodity Futures Trading Commission rules.

“We fully understand the American concern to safeguard financial stability, but we would like to ensure that there is a fair, level playing field for European banks operating in the U.S., and that the regulatory approach to them is proportionate,” Chantal Hughes, Barnier’s spokeswoman, said by e-mail.

By Jim Brunsden - Apr 23, 2013 9:52 AM GMT+0200

Reuters News - Commodities slump sends slow ripples through world economy

A driver pumps petrol into his car at a petrol station in Brussels March 8, 2011.

Credit: Reuters/Yves Herman

By Alan Wheatley, Global Economics Correspondent

LONDON | Mon Apr 22, 2013 6:18am BST

(Reuters) - Lower airfares, cheaper food and rising profit margins are among the benefits that should flow from tumbling oil and commodity prices - but only after a long lead time.

Having poured $400 billion (262 billion pounds) into commodities over the past decade, many investors are now selling. Their confidence that risky assets could only float higher on a rising tide of cheap central bank money has crumbled as the global economy fails to respond to the stimulus.

Even China, an important buyer of natural resources, is slowing. Inflation, against which gold in particular is a classic hedge, is falling nearly everywhere.

Price pressures will ease further if natural resources keep falling. That is bad news for exporters such as Saudi Arabia and Brazil but good news for net importers.

Weaker commodity prices should be positive for the world economy on average because falling inflation supports consumer spending, said ABN AMRO economist Han de Jong.

Standard and Poor's Goldman Sachs Commodity Index .SPGSCITR has fallen 6.6 percent so far this year.

But raw materials represent a small part of most firms' costs, so it is not surprising that some businesses, especially those in very competitive markets, are not getting carried away.

"There are thousands of components in a car so the impact might not be that great," said Cui Liyan with Great Wall Motor Co Ltd (601633.SS) (2333.HK), China's top maker of SUVs and pick-up trucks. "Great Wall has never passed on additional costs to consumers when commodity prices have surged in the past."

For a U.S. economy experiencing slow growth, cheaper energy is a positive, said Michael Ward, chief executive of CSX Corp (CSX.N), the country's second-largest railroad. But CSX itself is indifferent because it runs a fuel surcharge programme. "Over time, we're passing the increases or decreases in fuel to the customer," Ward said.

An official at South Korea's largest food maker, CJ CheilJedang Corp (097950.KS), said it normally takes four to six months before a fall in agricultural futures prices passes through into the firm's product prices.

OIL IS THE ONE TO WATCH

The lurches in gold, including the sharpest one-day drop in 30 years on Monday, have grabbed the attention, but falling oil prices are of much greater economic significance.

Brent crude is down about 16 percent from the year's high at $119.17, hit on February 8.

Economists at JP Morgan estimate a 15 percent drop in the price of oil, caused by a supply increase, would be enough to lift global economic output this year by 0.2 percentage points.

But if the price fall reflects a darkening economic outlook, the same 15 percent decline is consistent with a 0.5 percent downgrade in global growth prospects for the year, the bank calculates.

An executive at Indian engineering company Larsen & Toubro (LART.NS) said the broader fall in commodity prices cut both ways. Cheaper materials would help profit margins and, if the trend were sustained, would increase the chances of lower interest rates, he said. But prices were falling for a reason.

"Prices are down today because the investment cycle has slowed and demand for commodities has slowed. If this extends over the long term, it cannot be a good thing for a projects company such as ours," he said.

THE EXCHANGE RATE FACTOR

Pinpointing the repercussions of the commodity sell off is further complicated because it cannot be seen in isolation.

KCE Electronics Pcl KCE.BK, a Thai maker of printed circuit boards, should be sitting pretty because it uses a lot of copper, which is down 12 percent so far in 2013.

But executive director Panja Senadisai said the savings are outweighed by the strength of the Thai baht against the dollar, which hurts KCE's exports.

The story is similar at Tenneco Inc's (TEN.N) Indian subsidiary: the auto components maker is seeing lower prices for steel and rubber - the key Tokyo Commodity Exchange rubber contract has shed more than 8 percent this week - but a weak rupee and high inflation are diluting the benefit.

Currencies also muddy the waters for Japan Airlines Co Ltd (9201.T), with a weakening yen on balance a negative for the airline, said JAL spokesman Taro Namba. Still, JAL has already responded by announcing a 7.6 percent cut in cargo fuel surcharges from May 1 to 122 yen per kilogram on long-haul international routes. And Korean Air Lines Co Ltd (003490.KS), South Korea's biggest airline, expects a drop in fuel surcharges to lead to lower passenger ticket prices with a one month's lag.

PASSING ALONG THE FOOD CHAIN

Cheaper food is a particular boon in countries with uncomfortably high inflation. Take Indonesia, where inflation scaled a nearly two-year high of 5.9 percent in March.

Thanks to falling prices for everything from rice to meat and shallots, the month-on-month rise in consumer prices will probably be less than 0.1 percent in April, according to deputy central bank governor Perry Warjiyo.

Business models differ and not everyone is rushing to pass on cheaper inputs. Danish shipping group A.P. Moller - Maersk Group MAERSKb.co is an example.

"Our job is to make sure that the customers understand that they actually have a big value proposition by shipping with us... The customers are willing to pay a bit more. This is not a commodity. There's more to it than just shipping a box," said chief executive Nils Anderson.

With global inflation by and large benign, the door is open for leading central banks to provide even more monetary stimulus. St. Louis Fed President James Bullard said he would favour increasing the pace of the Federal Reserve's bond buying if inflation continues to go down. U.S. consumer prices rose just 1.5 percent in the 12 months through March.

Falling commodity prices and slower wage growth give the Bank of England more scope to resume bond-buying to try to galvanise the economy, BOE policymaker Martin Weale argued.

Even the conservative European Central Bank has hinted that it is open to doing more. With the bank's economists forecasting an inflation rate of just 1.3 percent in 2014, well short of its target of just under 2 percent, more and more economists expect an interest rate cut next month.

China too has increased policy room. "The drop in global commodity prices is obviously very good news for China, because it will help lessen imported inflationary pressure and leaves Beijing much more scope to expand credit and loosen monetary policy to bolster the domestic economy," saidYuan Gangming, a researcher at the Chinese Academy of Social Sciences.

INDIA VS AUSTRALIA

India, Asia's third-largest economy, is hoping that the commodity rout will not only dampen inflation but also reduce its twin deficits. Crude and gold imports contribute nearly 45 percent of India's total import bill.

"The fall will help us deal with the widening current account deficit, which is the biggest worry for the government," said a senior official at the ministry of finance in New Delhi.

India spent $169 billion on foreign oil in the fiscal year that ended in March, 9 percent more than the year before. That is a big factor behind a full-year current account deficit likely to have been around 5 percent of GDP - a level the central bank governor has called unsustainable..

And because India heavily subsidises consumer fuels and fertilizer, the government's budget deficit for the new fiscal year could well come in below its target of 4.8 percent of GDP if global commodity prices keep declining, the official added. The fall in crude prices could halve the oil subsidy bill.

Australia would appear to be an obvious loser from an end to the commodities super-cycle. The 'Lucky Country' has enjoyed more than 20 years of unbroken growth, largely thanks to booming exports of minerals and energy to Asia.

Lower commodity prices and a strong Australian dollar have already forced Treasurer Wayne Swan to slash his forecast for tax revenues, especially from company earnings and a new profits tax on big iron ore and copper mines. As a result the government has had to abandon its promise to return to a budget surplus for the year ending in June. But Swan remains optimistic about growth prospects across Asia.

"The growth in the middle classes across the Asian region will produce demand for a whole range of goods and services, not just in resources, not just in agriculture, but across a wide range of activities and I think the consequence of that will only be good for Australia," he said.

(additional reporting by Reuters reporters globally; editing by Janet McBride)

BBC News - Mining company in South Africa finds rare blue diamond

A rare blue diamond has been unearthed at a mine in South Africa.

The company said it was unusual for such a diamond to go on sale

The 25.5-carat stone was recovered by Petra Diamonds at its Cullinan mine and is expected to bring large profits.

Experts say it could be worth more than $10m (£6m), and the find gave a boost to Petra's share price.

Similar finds in recent years from the Cullinan mine have commanded high prices and Petra, with operations in Botswana and Tanzania, is expecting a high level of interest from buyers.

"It's very unusual for a diamond of this quality and size to come to market," said company spokeswoman Cathy Malins.

The mine, north-east of Pretoria, has produced hundreds of large stones and is famed for its production of blue diamonds.

A similar 26.6-carat blue rough diamond discovered by the company in May 2009 was cut into a near perfect stone and fetched just under $10m at a Sotheby's auction.

It was named the "Star of Josephine" by its new owner.

Another deep-blue diamond from Cullinan was auctioned for $10.8m last year and set a world record for the value per carat.

In 1905, the renowned Star of Africa blue diamond - the world's second largest cut diamond - was discovered at the Cullinan mine.

The pear-shaped 530-carat stone was presented to King Edward VII and became part of the British crown jewels.

BBC News - Japan reports record annual trade deficit

Japan, the world's third-largest economy, has reported a record trade deficit for the year to 31 March.

Recent aggressive stimulus moves by the Japanese policymakers have weakened the yen

The deficit hit 8.17tn yen ($83.4bn; £54.5bn) as a slump in global demand hurt exports, while greater domestic consumption of fuel boosted imports.

A weak yen, which has dipped nearly 20% against the US dollar since November, also boosted the value of the imports.

Analysts said the deficit was likely to shrink in the coming months as the weaker yen will help Japan's exports.

The yen has dipped after policymakers introduced aggressive measures aimed at spurring a fresh wave of economic growth and stoking domestic demand.

Trade shift

Japan, which has traditionally been known for its exports, has seen a shift in its trade pattern in recent times.

It has seen its imports rise, driven mainly by an increased demand for fuel.

This was after most of its nuclear reactors were shut after the earthquake and tsunami in 2011 which damaged the Fukushima Daiichi nuclear plant and resulted in radiation leaks.

As a result, utility providers have had to turn to traditional thermal power stations to generate electricity.

These power plants need natural gas and coal to operate, resulting in a surge in imports of these commodities.

Meanwhile, its exports have been hurt by a slump in demand from key markets such as the US and Europe, while a territorial dispute has hurt sales to China.

That has seen it report a deficit for nine straight months.

Delayed impact

Policymakers have been hoping that their recent measures, which have weakened the currency, will help the country's exporters.

A weak currency makes Japanese exports more affordable to foreign buyers and also boosts profits of exporters.

However, analysts said that while a weakening currency has an immediate impact on the value of imports, it takes longer for it to help exports.

At the same time, exports are also influenced by global demand, which analysts said had remained subdued.

"The broad picture remains intact as the weaker yen is having more of an impact on boosting imports than exports, while the recovery in the world economy, particularly China, is tepid," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

"We'll need to wait at least until around summer before the weaker yen enhances price competitiveness of Japanese products abroad to boost exports."

The were some signs of recovery in the data for March, which showed a 1.1% increase in exports during the month, from a year earlier.

That was better than the 0.4% gain that many analysts had forecast.

Reuters News - As global price slumps, "Abenomics" risks drive Japan gold bugs

By Chikafumi Hodo and Osamu Tsukimori

TOKYO | Tue Apr 16, 2013 5:05pm EDT

(Reuters) - When he woke up to news of a collapse in gold prices, Yujiro Yamashita, 63, made his way to Tokyo's posh Ginza district to buy the precious metal for the first time in 20 years.

Yamashita and other contrarian, individual Japanese investors understand that gold is a volatile investment, but say that buying the precious metal is better than the alternatives.

They cite worries that the new high-octane economic policies of Prime Minister Shinzo Abe, designed to shock the economy out of nearly two decades of deflation, might prompt a collapse in the yen or that the recent rally in stock prices might fizzle.

"Bank deposits generate virtually zero interest," said Yamashita, as he bought two gold coins worth almost $5,000 on Tuesday with some of the money he made from the recent sale of his house.

"Stock prices have jumped like crazy but there are concerns about the risk of war (from North Korea). So I try to buy gold when I can."

Japan's demand for gold, amid a global slump that saw prices tumble around $125 an ounce on Monday, owes partly to the declining value of the yen against the dollar.

Although global gold prices have been in retreat since October and are down about 20 percent this year, after an unbroken 12 years of gains, the weaker Japanese currency drove yen-denominated gold prices to near record highs last week.

As a result of the currency effect, yen-based investors in gold who bought during the worst of the global slump in late 2008 would still be sitting on a 118 percent gain even after Monday's declines, the biggest daily drop ever in dollar terms.

By contrast, a dollar-based investor would have seen gains over the same period of just 46 percent.

ABENOMICS HEDGE

Some Japanese also harbor fears that the expansionary monetary and fiscal policies dubbed "Abenomics", coupled with a national debt more than twice as large as annual economic output, could trigger a crisis down the line.

Skeptics about the radical attempt to reflate the economy -- or those simply worried that a slide in the yen that began in anticipation of Abe's election victory last December will continue unabated -- are still buying gold, dealers say.

"Investors in gold are convinced that Japan's fiscal position will get worse," said Wakako Harada, general manager of Japan's top bullion house, Tanaka Kikinzoku Kogyo.

"What I see at our counter is that more people are getting worried about Japan. That's why we are seeing a lot of buying."

Tokyo's stock market has rallied hard in response the latest efforts to stimulate the stagnant economy, with the Nikkei share average rising around 27 percent so far this year.

But Kazuko Ohide, a 64-year old retiree, is one of the household investors who think the effect of Abenomics will not last long.

Ohide used the proceeds of a matured term bank deposit to buy three 24 carat Japanese oval gold coins totaling $3,000 at a gold exhibit and sales event at an established department store in Tokyo's Ginza shopping district last week.

"I still own the shares of the company that I had worked for but I didn't want to hold other company's shares," Ohide said as she showed off her gold coins in a paper bag. "Stocks go down quite a lot. They are very strong now but I'm not sure how long that will last."

FIREPROOF INVESTMENT

Yuichi Ikemizu, branch manager for Standard Bank in Tokyo, said that a record high for gold two years ago had prompted heavy sales by retail investors.

"In contrast this time, we are seeing interest to buy on dips to take exposures to gold," Ikemizu said.

"Investors are using this opportunity to buy gold to diversify beyond bonds, stocks and the yen currency as Japan's fiscal situation could deteriorate."

A week ago, as the yen-denominated price neared a new peak, jewelry stores and gold merchants across Japan saw long lines of mostly older Japanese looking to cash in on unwanted jewelry and other items that they had held for years.

But on Tuesday, buyers outnumbered sellers by a wide margin. At Ginza Tanaka, the headquarters shop of Tanaka Holdings, gold buyers waited for as long as three hours for a chance to complete a transaction.

Nearby at Ginza SGC, a gold merchant, buyers had taken about 6 kg (13 lbs) of gold home by early afternoon on Tuesday. In one case, a 60-year-old man, who asked not to be identified, walked out of the store with 500 grams of gold for about 2.2 million yen ($22,500).

At a special gold exhibit organized earlier this month at the Matsuzakaya department store, staff said that an 18-carat gold Buddhist bell used in a household altar to honor deceased relatives was selling well. It was priced at 4 million yen.

"You could buy it as a family treasure as many of our customers do," one salesman said. "But if your house burned down and you lost everything, gold is fire resistant and you would still have it." ($1 = 97.9600 Japanese yen)

(Additional reporting by Emi Emoto; Writing by Kevin Krolicki; Editing by Aaron Sheldrick and Alex Richardson)