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)

Bloomberg News - South Korea Unveils Fiscal Package to Support Growth: Economy

South Korea Proposes $17.2 Billion Stimulus to Boost Economy

SeongJoon Cho/Bloomberg

Of the stimulus, 3 trillion won will be allocated for job creation and training services, while an equal amount will go toward supporting municipal governments.

South Korea unveiled a 17.3 trillion won ($15.4 billion) supplementary budget to support exporters pressured by a weaker Japanese currency and revive an economy that grew last year at the slowest pace since 2009.

The package will boost growth by 0.3 percentage points and create 40,000 jobs, the Finance Ministry said in a statement in Sejong. The net increase is 5.3 trillion won after covering expected revenue shortfalls, the government said. Another 2 trillion won will be available for support measures from outside the budget, it said.

The government plan may boost consumption and confidence as China’s economy shows signs of weakness and NorthKorea’s Kim Jong Un ratchets up threats against the U.S. and the South. A stronger won, which has risen more than 21 percent against the yen in the past six months, has hindered export-reliant companies such as Hyundai Motor Co. (005380)and Samsung Electronics Co. (005930) by making their products more expensive overseas.

“The extra budget will lift up the recovery in the second half of this year, which is needed as sentiment has been weak,” said Jun Min Kyoo, a Seoul-based economist at Korea Investment & Securities Co. “The focus on job growth and exporters will boost private consumption.”

President Park Geun Hye’s government announced plans for a stimulus package on the same day last month it lowered its 2013 growth forecast to 2.3 percent from 3 percent. The government moved today after the Bank of Korea last week resisted pressure to cut the benchmark interest rate.

Create Jobs

Of the money, 3 trillion won will be used to help create jobs, stabilize consumer prices and finance efforts to revitalize the housing market, the ministry said. Another 1.3 trillion won will support small- and medium-sized exporters.

“With the extra budget, we will be able to see growth at the high end of the 2 percent range this year,” Finance Minster Hyun Oh Seok said at a briefing last week.

The Kospi stock index rose 0.1 percent as of 1:42 p.m. today.

Goldman Sachs Group Inc. today cut its 2013 GDP growth forecast to 2.9 percent from 3.1 percent on weaker-than-expected first quarter activity. Australia & New Zealand Banking Group Ltd. (ANZ) said today it was raising its estimate to 2.6 percent from 2.4 percent.

“The government is trying to kick-start domestic activity,” said Ronald Man, a Hong Kong-based economist at HSBC Holdings Plc., highlighting money earmarked for job creation. “We expect that growth will rebound this year,” he said, adding that the economy’s expansion may be more than 3 percent.

Quarterly Growth

Asia’s fourth-largest economy posted quarterly growth of less than 1 percent for seven consecutive periods. It grew 2 percent last year, the slowest rate since 2009.

The Bank of Korea cited the recent depreciation of the yen when it cut its growth estimate for the year to 2.6 percent from 2.8 percent. Earlier this month, Japan’s central bank embarked on unprecedented monetary easing in a bid to end almost 15 years of deflation.

“Korean and Taiwanese producers are the front line facing newly competitive Japanese producers,” Timothy Condon, head of Asian research at ING Goep NV in Singapore, said before the release. He said that’s why the won and Taiwan dollar have “depreciated more than other Asian currencies this year.”

Of the package, 15.8 trillion won will be financed by issuing new bonds and adjusting a debt buyback program, the ministry said.

National Debt

National debt will increase to 480.5 trillion won, or 36.2 percent of GDP, after the extra budget, up from 34.8 percent in 2012, the ministry estimates.

Elsewhere in Asia, the Reserve Bank of Australia said the inflation outlook gives it room to reduce borrowing costs to a record even as earlier rate cuts boost demand. Sri Lanka keptinterest rates unchanged for a fourth month today.

Euro-area inflation probably accelerated in March from a month earlier, according to economists surveyed by Bloomberg News. German investor confidence for April may have fallen, according to another survey. The U.K is due to report March inflation while Italy will release February trade data.

U.S. industrial production probably rose in March while core consumer prices were unchanged from a month earlier, two separate Bloomberg surveys showed. Data may show builders in March began work on the second-highest number of U.S. homes in almost five years.

BBC News - China economic growth lower than forecast

China's economy, the world's second-largest, has slowed and performed worse than many analysts expected in the first three months of the year.

China's new leaders have vowed to boost growth and make it more inclusive

Annual growth was 7.7% in the January to March quarter, compared with 7.9% in the previous three months. Analysts had forecast a figure closer to 8%.

China wants to spur growth after it hit a 13-year low in 2012.

Other key data on Monday also came in lower than market expectations, raising questions over the outlook for growth.

Industrial output rose 8.9% in March from a year earlier, much lower than analysts' targets of 10%.

Meanwhile, fixed asset investment, a key driver of China's growth, rose at an annual rate 20.9% in the first three months of year. Analysts had expected growth of more than 21%.

"The Chinese economy is showing soft growth momentum in the first quarter," said Wei Yao of Societe Generale. "All these figures showed that the economy is in a weak recovery."

A slowdown in exports has added to calls for China to restructure its growth model

'Not a bad thing'

Over the past few years, China has relied heavily on its exports and investment spending to maintain a strong pace of growth.

However, as economic growth in its key markets such as the US and Europe has slowed, and its exports have weakened, there have been calls for China to rebalance its economy.

Beijing has acknowledged this and has indicated that it wants to increase domestic demand to reduce its dependence on exports and achieve more sustainable growth.

At the same time, China has had to deal with a widening wealth gap, which has prompted fears of social unrest in the country.

There have been calls for the new leadership, which took charge in March, to work towards a more inclusive growth model.

Analysts said a slower rate of growth may actually help China, as it tries to achieve those goals.

"Given Beijing's goal of restructuring the economy, a relatively moderate economic growth is not a bad thing in the longer term," said Ms Yao of Societe Generale.

She added that this "could help policymakers focus more on the quality rather than speed of the economy".

Accommodative policy

China has taken various steps over the past few months to spur growth.

The central bank has cut interest rates twice since June to reduce borrowing costs for businesses and consumers and increase lending.

Beijing has also approved infrastructure projects worth more than $150bn (£94bn).

Analysts said China was likely to continue to use easy monetary policies as a tool to sustain growth, and would not raise rates or look to limit access to capital.

"Certainly with this number, policy certainly would not tighten and would continue to be quite accommodative," said Tao Wang, an economist with UBS.

However, some analysts warned against any further aggressive easing measures, adding that such measures may promote asset bubbles and overheat the economy.

"Another year of propped-up growth via state spending and a credit deluge would, we fear, push China dangerously close to proving Wen Jiabao correct - that the current economic model is 'unsustainable'," said Alistair Thronton, senior China economist at IHS Global Insight.

"If something is unsustainable, at some point, it won't be sustained."

Reuters News - Strong start to 2013 not going to last for U.S. economy: Reuters poll

1 of 2. A job seeker reads job postings at the Virginia Employment Commission office in Alexandria, Virginia November 6, 2009.

Credit: Reuters/Molly Riley

By Leah Schnurr

NEW YORK | Thu Apr 11, 2013 10:38am EDT

(Reuters) - After a strong start to the year, the world's largest economy is set to slow as some of the effects of government spending cuts take hold, likely leaving the central bank's extraordinary stimulus in place into at least 2014.

Still, the labor market is expected to continue healing this year, even after last month's disappointingly weak job gains, and the housing recovery should gain momentum. Both should help keep the economy from cooling too much.

Economists in a Reuters poll taken after the latest job report ratcheted up their forecasts for first quarter growth to an annualized 3 percent from the 2 percent forecast last month.

But that pace is not expected to last, slowing to 1.6 percent in the second quarter before picking up to 2 percent for the rest of the year.

While the consensus for the first quarter is the highest since polling began for that period in October 2011, the second quarter expectation in the poll is the lowest.

"We are expecting growth to slow but I wouldn't throw this into the category of another 'spring slowdown'," said Michael Gapen, senior U.S. economist at Barclays Capital.

A solid start followed by a weaker spring has been the norm for the economy in recent years, though past years have had more to do with flare-ups in the euro zone debt crisis, said Gapen.

"This year, we think it's mainly a very large fiscal policy drag in the U.S.," he said, estimating that fiscal tightening will take 1.8 percentage points off of growth this year compared to 1 percent in each of the past two years.

SPENDING CUTS STARTING TO HURT

Across-the-board government spending cuts of $85 billion went into effect at the beginning of March.

Beyond reducing spending, the hit to the economy could also show up through actions such as furloughs, job cuts or lost contracts in the private defense sector.

Truck and military vehicle maker Oshkosh Corp (OSK.N) said on Tuesday it will cut about 900 jobs in its defense business due to U.S. budget cuts.

Consumer spending could also cool after holding up surprisingly well in the first months of 2013.

Payroll taxes increased at the beginning of the year and economists expect that could prompt Americans to curb purchases. Consumer activity makes up about two-thirds of the U.S. economy.

Tighter fiscal policy and an economic recovery that is still vulnerable to setbacks suggest that the Federal Reserve will leave its stimulus efforts in place for at least another year.

"The key offset has been monetary policy. I think in this battle between fiscal drag and monetary stimulus, the Fed is winning," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics.

The Fed is currently buying $85 billion a month in assets to keep borrowing rates down and boost the economy.

The latest round of quantitative easing - known as "QE3" - is open-ended, and the central bank has said it will continue the program until the labor market outlook improves substantially.

The number of analysts calling for the Fed to end its current bond buying program this year has gradually come down over the last three months.

Thirty-five of 45 analysts anticipated the Fed would end its current round of QE not this year, but in 2014.

Only seven respondents expected the Fed to end its bond purchases later this year, while the remaining three thought the central bank would extend the program out to 2015.

Of those that forecast 2014, the majority said the purchases would end sometime during the first half of the year.

STILL SLOW IMPROVEMENT IN JOB MARKET

Economists expect the unemployment rate to steadily improve this year, with a median forecast of 7.6 percent for 2013, down from the 7.7 percent seen in January's poll.

Although that consensus for this year is the lowest since polling began for that period in January 2012, a majority, 33 of 48, expect the unemployment rate to fall to the Fed's target of 6.5 percent only in 2015. Ten said that would to happen sometime next year and the remaining five said only in 2016.

Housing, long the thorn in the economy's side, will likely build on the recovery it began last year with a 7.1 percent gain in home prices in 2013. That is expected to slow to a 5 percent rise the following year. Both figures are sharply higher than the 4.2 percent and 3.4 percent consensus figures from January.

(Polling and analysis by Snehasish Das and Rahul Karunakar; Editing by Ruth Pitchford)

Sky News - President Obama Unveils 2014 Budget Blueprint

By Dominic Waghorn, US correspondent

Mr Obama delivers remarks on his proposal at the White House Rose Garden

President Barack Obama has sent a $3.77trn budget to Congress hoping to overcome fundamental differences with Republican rivals.

The ongoing struggle between Republicans and Democrats over taxing and spending has pushed the US to the brink of dysfunctional shutdown a number of times.

The American leader is looking for a compromise between the two parties on the issues that have divided US politics.

Republicans are ideologically opposed to raising taxes, hoping to balance books with severe spending cuts instead. They believe it is not possible to tax and spend a way out of deficit.

Democrats believe raising taxes on the rich will not jeopardise recovery and oppose drastic cuts in public spending. They seek inspiration from the Bill Clinton years when a strong recovery took the US from deficit to surplus in one presidential term.

The White House says Mr Obama's budget is a common sense and reasonable balance between spending cuts and tax increases. 

But at its heart is an offer he has already made to Republicans and seen rejected. House Speaker John Boehner has already walked away from the proposal to raise taxes on the rich.

Among its other proposals are plans to reduce defence spending by an additional $100bn, set aside a billion to launch manufacturing innovation institutions nationwide and cutting $400bn from health care programmes for the elderly and poor.

The president has been criticised from the right and left on his proposals but insists they form the basis for a longer term solution to an issue that has bedevilled US government for much of his term in office.

To try and win over opposition Mr Obama is inviting a dozen Republican senators to the White House for dinner to discuss the budget, along with gun control and immigration.

BBC News - China and Australia in currency pact

The Australian dollar has become the third currency, along with the US dollar and the Japanese yen, to trade directly with the Chinese yuan.

Beijing has been trying to push the yuan as an alternative global reserve currency

The move is seen as a significant step in China's push for a more international role for its currency.

Beijing is trying to promote the yuan as an alternative to the US dollar's role as a global reserve currency.

"The yuan is on its way to becoming fully convertible," said Stuart Oakley, managing director at Nomura.

"This ties in with a trend that we have been observing for a some time. And being fully convertible is a pre-condition to becoming a reserve currency."

Reducing dollar dependence?

China is the biggest buyer of Australia's natural resources such as iron ore.

But with no mechanism in place to directly convert between the Australian dollar and the Chinese yuan, the two countries have long used the US dollar as a trading currency.

Indeed, most commodities and commodity futures are priced using the US currency.

With the new deal coming into effect, there is likely to be an increase in Australian and Chinese firms agreeing prices in either of their currencies.

"There is no international law that dictates that all contracts must be agreed upon in US dollar terms," said Mr Oakley.

"All that the companies have to do is pick up the phone, talk to each other, and decide what currency they want to use."

However, as yet the deal does not pose a threat to the US dollar's dominance, in spite of its intention to indicate China's resolve for a global role for its currency.

"While some contracts may be drawn up in other currencies, international pricing and trade of commodities will continue to be done in US dollar terms," said Michael McCarthy, chief market analyst as CMC Markets in Sydney.

"There is no reason why that would change at this stage."

Reducing costs

The deal is, however, expected to reduce the cost for businesses in China and Australia when they deal with each other.

Until now, companies had to first convert their respective home currencies into the US dollar, before exchanging into the yuan or the Australian dollar.

That added an extra layer of currency conversion, which increased their operational costs.

A direct conversion of the two currencies is likely to help firms save those costs.

At the same time, analysts said the agreement may also help further boost bilateral trade between the two countries.

"Once you have directly convertible currencies, it becomes a lot more easier to do trade," said Jonathan Barratt, chief economist at Barratt's Bulletin in Sydney.

Cautious moves?

China has been loosening its grip on its currency as part of its attempts to internationalise the yuan.

Last year, it said that it will set up a special business zone in the southern city of Shenzhen to experiment with the yuan's convertibility.

The zone is scheduled to be established over the next eight years, with construction set to start this year.

China also widened the range in which the yuan was 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 central bank.

All these moves have raised hopes that the Chinese government intends to press ahead with plans to fully liberalise its currency in the coming years.

However, some analysts said that while the deal indicated that China was pressing ahead with its plans, it was unlikely that Beijing would rush to achieve that goal.

"They will only allow full convertibility of the yuan when they are confident that they have the structures and policies in place to deal with any currency fluctuation and its impact on the Chinese economy," said Mr McCarthy of CMC Markets.