Actual finance blog

While Japan undergoes the agony of a nuclear accident, the future of Canada

ST. LOUIS

Portuguese Prime Minister Jose Socrates faces a vote in parliament today against his deficit- cutting plan that threatens to push the country toward early elections and the need for a European Union bailout.

Lawmakers will discuss the government’s so-called stability and growth program of austerity measures at 3 p.m. in Lisbon. The opposition Social Democratic and Communist parties and the Left Bloc group all pledged yesterday to table resolutions against the plan.

“The likelihood that the Portuguese government will fall this week looks high,” Nicola Mai, a London-based economist at JPMorgan Chase & Co. (JPM), said in a note yesterday. “This suggests that the sovereign will likely access” the EU’s rescue fund “in the near term, despite the current government’s efforts to avoid this outcome.”

Between 1995 and 1999, Antonio Guterres led the only minority government in Portugal to survive a full term since the end of a four-decade dictatorship in 1974 business cards. Portugal has been trying to avoid requesting aid for the first time since 1983, when it received external help from the Washington-based International Monetary Fund.

The Social Democrats led the ruling Socialists in a survey of voters’ intentions for parliamentary elections published by Diario Economico on Feb. 25. The survey indicated 48 percent backing for the Social Democrats, led by Pedro Passos Coelho, and 29 percent support for the Socialists, the newspaper said.

Socrates is also scheduled to have his weekly meeting with Portuguese President Anibal Cavaco Silva at 7 p.m. today.

Compromise Possibility

“The opposition may decide to compromise,” Barclays Capital economists Antonio Garcia Pascual and Laurent Fransolet said in a note yesterday. Still, avoiding a political crisis “is looking increasingly challenging.”

Portugal intends to sell as much as 20 billion euros of bonds this year to finance its budget and cover the cost of maturing debt. Portugal faces bond redemptions in April and June worth about 9 billion euros in total. It also faces bill maturities in July, August, September, October and November.

“With bond yields stubbornly high and heavy debt redemptions due over the next few months, it appears all but inevitable that Portugal will be forced to follow Greece and Ireland in accepting financial support,” economists Emilie Gay, Roger Bootle and Jonathan Loynes of Capital Economics Ltd. wrote in a note yesterday.

‘Subdued’ Prospects

Portugal’s credit rating was cut two steps by Moody’s Investors Service on March 15 to A3, four steps from so-called junk status, with the outlook on the grade “negative.” The rating company said there are “subdued growth prospects” and “implementation risks for the government’s ambitious fiscal consolidation targets.” External aid through the EFSF could “help to ensure that the targets are fulfilled,” it said.

Christoph Weil, senior economist at Commerzbank AG (CBK) in Frankfurt, said that it’s “only a question of time” before Portugal seeks outside aid.

Source

Tata Steel Ltd. (TATA), India’s most indebted company, raised 15 billion rupees ($333 million) in bonds without adding the full amount to its balance sheet liabilities.

The Mumbai-based company is India’s third-biggest steel maker by market value after Steel Authority of India Ltd. (SAIL) and Jindal Steel & Power Ltd. Tata Steel’s debt-to-equity ratio compares with 0.5 times for Steel Authority and 0.8 for Jindal Steel, Bloomberg data show.

Source

John Q. Hammons

Age

Sirens wailed Friday along a devastated coastline to mark exactly one week since an earthquake and tsunami triggered a nuclear emergency, and the government acknowledged it was slow to respond to the disasters that the prime minister called a “great test for the Japanese people.”

The admission came as Japan welcomed U.S. help in stabilizing its overheated, radiation-leaking nuclear complex and raised the accident level for the crisis, putting it on a par with the 1979 Three Mile Island accident in Pennsylvania.

Nuclear experts have been saying for days that Japan was underplaying the severity of the problems at the Fukushima Dai-ichi power plant.

Still, Prime Minister Naoto Kan vowed that the disasters would not defeat his country.

“We will rebuild Japan from scratch,” he said in a nationally televised address, comparing the work with the country’s emergence as a global power from the wreckage of World War II.

“In our history, this small island nation has made miraculous economic growth thanks to the efforts of all Japanese citizens. That is how Japan was built,” he said.

Last week’s 9.0 quake and tsunami set off a cascade of problems by knocking out power to cooling systems at the nuclear plant on the northeast coast. Since then, four of Fukushima’s six reactor units have seen fires, explosions or partial meltdowns.

The unfolding disaster has left more than 6,900 dead _ exceeding the 1995 earthquake in Kobe, Japan, that killed more than 6,400. Most officials, however, put estimates of the dead from last week’s disasters at more than 10,000.

It also has led to power shortages, factory closures, hurt global manufacturing and triggered a plunge in Japanese stock prices.

Chief Cabinet Secretary Yukio Edano admitted that Japan was not prepared for what happened.

“The unprecedented scale of the earthquake and tsunami that struck Japan, frankly speaking, were among many things that happened that had not been anticipated under our disaster management contingency plans,” he said.

“In hindsight, we could have moved a little quicker in assessing the situation and coordinating all that information and provided it faster,” he said.

The twin disasters have officially left more than 6,900 people dead and more 10,700 missing. Emergency crews are facing two challenges: cooling the nuclear fuel in reactors where energy is generated and cooling the adjacent pools where thousands of used nuclear fuel rods are stored in water.

Both need water to stop their uranium from heating up and emitting radiation, but with radiation levels inside the complex already limiting where workers can go and how long they can stay, it’s been difficult to get enough water inside.

Water in at least one fuel pool _ in the complex’s Unit 3 _ is believed to be dangerously low. Without enough water, the rods may heat further and spew radiation.

“Dealing with Unit 3 is our utmost priority,” Edano told reporters.

At the stricken complex, military fire trucks sprayed the reactor units Friday for a second day, with tons of water arcing over the facility in desperate attempts to prevent the fuel from overheating and emitting dangerous levels of radiation.

“I think they are racing against the clock,” Yukiya Amano, the head of the U.N.’s International Atomic Energy Agency said of the efforts to cool the complex, after arriving in Tokyo.

Japan’s nuclear safety agency ratcheted up its rating for the Fukushima crisis, reclassifying the nuclear accident from Level 4 to Level 5 on a seven-level international scale. The International Nuclear Event Scale defines a Level 4 incident as having local consequences and a Level 5 as having wider consequences. The 1986 Chernobyl disaster was rated as 7.

While nuclear experts have been saying for days that Japan was underplaying the crisis’ severity, Hidehiko Nishiyama of the nuclear safety agency said the rating was raised when officials realized that at least 3 percent of the fuel in three of the complex’s reactors had been severely damaged. That suggests those reactor cores have partially melted down and thrown radioactivity into the environment.

While Tokyo has welcomed international help for the natural disasters, the government initially balked at assistance with the nuclear crisis. That reluctance softened as the problems at Fukushima multiplied.

On Friday, though, Edano said Tokyo was asking Washington for help and that the two were discussing the specifics of the problem guaranteed personal loan approval.

The U.S. said its technical experts are now exchanging information with officials from Tokyo Electric Power Co., which owns the plant, and with government agencies.

A U.S. military fire truck was also used to help spray water into Unit 3, according to air force Chief of Staff Shigeru Iwasaki, though the vehicle was apparently driven by Japanese workers. The Tokyo Fire Department said five of their trucks have joined in dousing operations at the unit.

The U.S. has also conducted overflights of the reactor site, strapping sophisticated pods onto aircraft to measure airborne radiation, U.S. officials said. Two tests conducted Thursday gave readings that U.S. Deputy Energy Secretary Daniel B. Poneman said reinforced the U.S. recommendation that people stay 50 miles (80 kilometers) away from the Fukushima plant.

Low levels of radiation have been detected well beyond Tokyo, which is 140 miles (220 kilometers) south of the plant, but hazardous levels have been limited to the plant itself. Still, the crisis has forced thousands to evacuate and drained Tokyo’s normally vibrant streets of life, its residents either leaving town or staying in their homes.

The Japanese government has been slow in releasing information on the crisis. In a country where the nuclear industry has a long history of hiding safety problems, this has left many people, in Japan and among governments overseas, confused and anxious.

In the disaster zone, tsunami survivors, rescue workers and ordinary people observed a minute of silence Friday at 2:46 p.m. _ the moment a week ago when the quake struck. Many were bundled up against the cold. As a siren blared, they lowered their heads and clasped their hands in prayer.

In the largely destroyed town of Hirota, 70-year-old Tetsuko Ito wept as she hugged an old friend she met at a refugee center. One of her sons was missing and another had been evacuated from his home near the Fukushima complex.

“Every day is terrifying. Is there going to be an explosion at the reactor? Is there going to be word my other son is dead?” she said.

She searched for her missing son for three days, then her car ran out of gas.

“I think he’s dead. If he was alive, he would have contacted someone, somehow,” she said. “My other son is alive, but we don’t know if there’s going to be a nuclear explosion.”

If the situation gets worse in Fukushima, she said her son and his family will have to live at her already crowded house, which escaped the tsunami.

“It’s strange when this destroyed area is a place someone would consider safe,” she said.

Police said more than 452,000 people made homeless by the quake and tsunami were staying in schools and other shelters, as supplies of fuel, medicine and other necessities ran short. Both victims and aid workers appealed for more help as the chances of finding more survivors dwindled.

About 343,000 Japanese households still do not have electricity and about 1 million have no water.

At times, Japan and the U.S. _ two very close allies _ have offered starkly differing assessments over the dangers at Fukushima. U.S. Nuclear Regulatory Commission Chairman Gregory Jazcko said Thursday that it could take days and “possibly weeks” to get the complex under control. He defended the U.S. decision to recommend a 50-mile (80-kilometer) evacuation zone for its citizens, wider than the 12-mile (20-kilometer) band Japan has ordered.

Crucial to the effort to regain control over the Fukushima plant is laying a new power line to the complex, allowing operators to restore cooling systems. Tokyo Electric missed a deadline late Thursday, said nuclear safety agency spokesman Minoru Ohgoda.

Power company official Teruaki Kobayashi warned that experts will have to check for anything volatile to avoid an explosion when the electricity is turned on.

“There may be sparks, so I can’t deny the risk,” he said.

Even once the power is reconnected, it is not clear if the cooling systems will still work.

The storage pools need a constant source of cooling water. Even when removed from reactors, uranium rods are still extremely hot and must be cooled for months, possibly longer, to prevent them from heating up again and emitting radioactivity.

Source

Japanese shares fell again Thursday amid jitters over the nation’s nuclear crisis, erasing a portion of the gains from a post-quake rally.

The benchmark Nikkei 225 shed 4.1 percent to 8,721.88 points. That wiped out a portion of gains from Wednesday’s rally, which followed a sharp plunge in prices. Japan’s devastating earthquake, tsunami and nuclear crisis last week triggered widespread selling, wiping out all of the stock market’s gains this year.

In currency markets, the U.S. dollar fell to a record low against Japan’s yen as companies sold dollar-denominated assets to raise Japanese currency for earthquake recoverty efforts.

The post-quake plunge prompted extraordinary government efforts to reassure investors and keep markets functioning to support recovery. Japan’s central bank has pumped 26.5 trillion yen ($326 billion) into money markets and the Tokyo exchange’s president publicly appealed for calm.

“Growing uncertainty over the nuclear plant really spooked investors, promoting them to adjust positions and buy back the yen,” said Masatoshi Sato, market analyst at Mizuho Investors Securities Co. Ltd.

“Foreign investors continued to dump stocks on growing fears over the nuclear accidents. Also investors are worried that the quake and the nuclear disaster could surely dent economic growth.”

The index had shed more than 1,600 points, or 16 percent, Monday and Tuesday as worries over the nuclear crisis triggered widespread selling.

Source

While the full extent of the disaster’s aftermath is not yet clear, the earthquake and tsunami that devastated parts of Japan could be the most expensive quake in history.

Its toll on Japan — its people and its institutions — is already staggering.

By official counts, more than 1,500 people have perished and about as many have been reported missing. There are fears that the death count could go much higher as rescuers get to towns that were washed away by powerful flooding.

Damage to power reactors has sparked fears of nuclear meltdown and radiation contamination. As of Sunday morning, nearly 5 million homes were without power. (Bank of Japan to help banks)

And the financial cost to the Japanese government, businesses and individuals is expected to be big. Cautioning that their estimates are preliminary, several experts made early calculations of the quake’s financial cost on Sunday.

Losses from the quake, tsunami and fires will total at least $100 billion, including $20 billion in damage to residences and $40 billion in damage to infrastructure such as roads, rail and port facilities, catastrophe modeling firm Eqecat estimated.

Another firm, AIR Worldwide, estimated that losses covered by insurance could reach between $15 billion and $35 billion from the earthquake alone. It did not estimate losses from the tsunami or the damage to the the Fukushima Daiichi nuclear plant in northeastern Japan.

According to AIR, the number of Japanese businesses and homeowners with earthquake insurance is relatively low, ranging between 14% to 17%. As a result, the total financial toll for the catastrophe could be considerably higher than the estimate of insured losses.

In the 1995 earthquake in Kobe, the most expensive in history, total losses were $100 billion but insured losses only $3 billion, according to the Insurance Information Institute.

By comparison, the 1994 quake in Northridge, Calif., northwest of Los Angeles, had the highest tally of insured losses ever — $15.3 billion. In today’s dollars, adjusted for inflation, that comes to insured losses of $22.7 billion.

The Insurance Information Institute said it believes the losses from Friday’s disaster will prove to be the most expensive earthquake in history, although it did not give any dollar estimate of the costs. 

Source

Prime Minister Naoto Kan, battling what he called Japan’s worst crisis since the end of World War II, plans a post-earthquake rebuilding package, a step that may worsen the challenge of curbing the world’s biggest public debt.

Policy makers will need to compile a spending bill “over the medium to long-term” to cope with the aftermath of the 8.9- magnitude earthquake and the tsunami it triggered, Chief Cabinet Secretary Yukio Edano told NHK Television. For now, officials will use about 200 billion yen ($2.4 billion) left over from the budget for the fiscal year ending March 31, he said.

To maintain financial stability, Bank of Japan Governor Masaaki Shirakawa said the central bank will provide “massive” liquidity. The northern Tohoku region most affected by the disaster makes up about 8 percent of gross domestic product, and is host to factories making products from cars to beer. It also has a nuclear power plant the government said is at risk of a meltdown after an explosion.

Factory shutdowns, power cuts and the impact on consumer confidence may hurt Japan’s GDP for a period of months, while contributing to growth later as reconstruction occurs, economists said. The additional public spending risks hurting demand for Japanese government bonds, said analyst Alicia Ogawa.

‘Leg Down’

“A supplementary budget is like the last thing that people watching the JGB market want to hear,” said Ogawa, adjunct professor at Columbia University’s School of International and Public Affairs in New York, and a former Japanese banking analyst who lived in the nation for 15 years. The prospect of rebuilding “signals another leg down in Japan’s fiscal health. So I’m concerned that in the short to medium run, there’s going to have to be more borrowing,” she said.

The leader of the largest opposition party, Sadakazu Tanigaki, told Kan that he would support a temporary tax to help fund relief spending after Japan’s strongest earthquake on record. Edano said later he couldn’t rule out such a measure.

“The prime minister must consider seriously whether funding can be secured by issuing government bonds alone,” Tanigaki told reporters today in Tokyo. He added that the secretaries general of his and Kan’s party will discuss the matter further.

Finance Minister Yoshihiko Noda told reporters in Tokyo that it will be “difficult” to compile the extra spending package before month-end.

Debt Load

The Ministry of Finance projected in January that government debt will increase 5.8 percent to a record 997.7 trillion yen ($12.2 trillion) in the year starting April 1. That signaled Kan would break his past pledge to limit bond sales to 44.3 trillion yen a year. U.S. government debt held by the public is less than $10 trillion.

For Kan, the task of assembling a reconstruction plan adds to a burden that includes his failure so far to persuade opposition lawmakers to enact bills allowing the government to sell deficit-financing bonds in the coming fiscal year.

Japan’s bond market has so far failed to signal concern at the fiscal outlook, with more than 90 percent of government debt held by domestic investors led by financial companies. The yield on the benchmark security due in 2021 was 1.27 percent late March 11 in Tokyo, compared with an average of 1.39 percent over the past decade.

Risk to Yields

“Considering that Japan’s sovereign debt was recently downgraded, financial markets may become more wary of even an incremental increase in government borrowing and bond issuance,” Dan Ryan, an economist at Lexington, Massachusetts- based IHS Global Insight.

Japan’s rating outlook was lowered to negative from stable by Moody’s Investors Service Feb. 22 on concern that political gridlock will constrain efforts to tackle the debt burden. The ranking is Aa2, the company’s third highest. Standard & Poor’s cut its grade in January to fourth highest.

Stocks already began to respond to the quake, with the Nikkei 225 Stock Average tumbling 1.7 percent by the close March 11, which came 14 minutes after the 2:46 p.m. strike of the main earthquake. Abroad, investors took the quake in stride, with the U.S. Standard & Poor’s 500 Index rising 0 payday loan lenders.7 percent.

Companies from Sony Corp., Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. to beermaker Sapporo Holdings Ltd. and refiner JX Nippon Oil & Energy Corp. shut down facilities in northern Japan. Cosmo Oil Co. suffered a fire at a refinery in Chiba, outside Tokyo, while Tokyo Electric Power Co. battled to avert a meltdown to a nuclear power station 220 kilometers north of Tokyo after cooling systems failed.

Human Toll

The devastation has caused the death of more than 800 people, according to the National Police Agency. The number in Miyagi Prefecture could rise to 10,000, NHK reported, citing the Miyagi police department. Kan, returning from an inspection of the devastated area around Sendai said he would mobilize 50,000 Self Defense Force personnel to aid the relief effort.

In Tokyo, residents emptied supermarket shelves and steeled themselves for power outages that Kan said in a news conference will start tomorrow.

“The quake and the tsunami are a tragic devastation, but they will have only minimal impact on the Japanese economy overall,” said Michael Boskin, a Stanford University economics professor in Stanford, California, and former head of the White House Council of Economic Advisers. “When there are natural disasters, there’s a big disruption of capital and, tragically, life as well that will require capital to rebuild and so on. But it’s not widespread enough to disrupt” GDP very much, he said.

Economic Outlook

Provided the danger to the nuclear reactor is defused, “something several magnitudes lower than the 1.9 percent GDP impact” of the January 1995 Kobe earthquake is likely, London- based ING Financial Markets analysts Rob Carnell and Tom Levinson wrote in a note. “One potential fly in the ointment, is that in 1995, although seriously challenged, Japan’s fiscal situation was not in such a parlous state as it is today.”

For its part, the Bank of Japan pledged to ensure financial stability, setting up an emergency task force and saying it will do everything to provide liquidity. Tomorrow, the central bank holds a meeting, bringing its scheduled policy announcement forward one day to speed its reaction to the temblor.

Meantime, the Ministry of Finance may be prompted to intervene in the foreign exchange market should the nation’s currency climb and risk worsening deflationary pressures and undermining export competitiveness, analysts said.

Yen Gain

The yen advanced 1.4 percent to 81.84 per dollar March 11, bringing its appreciation over the past year to about 10 percent. The yen typically climbs during crises because Japan’s current- account surplus means it doesn’t need foreign funding and because of the likelihood of Japanese investors repatriating assets. Japan holds $882.3 billion of Treasuries, the highest tally after China, according to the U.S. Treasury.

“Insurance companies are unlikely to buy overseas assets aggressively while they worry about pending claims” stemming from the earthquake, Mansoor Mohi-uddin, the head of global currency strategy at UBS AG who was in Tokyo for visits with clients and present for the earthquake, wrote in a note. He predicted that the yen won’t strengthen past 80, citing the likelihood of authorities selling the currency to stem gains.

The earthquake hit at a point when the economy was pulling out of a contraction in the fourth quarter. Recent data showed factory orders increased 4.2 percent from December, the biggest jump in five months, industrial production rose in January and the unemployment rate held that month at 4.9 percent, matching the lowest level since March 2009.

“This is a Keynesian stimulus program that nobody can argue with: just rebuilding the city of Sendai,” said Marcus Noland, deputy director of the Peterson Institute for International Economics in Washington, co-author of the 2001 book “No More Bashing: Building a New Japan-United States Economic Relationship.” “Rebuilding Sendai could actually be an opportunity to try to create a growth pole in northern Japan.”

Source

European Union commissioners Olli Rehn and Michel Barnier said they are confident in Greece’s efforts to tackle its debt in the wake of its downgrade by Moody’s Investors Service.

Rehn, the EU’s economic and monetary affairs commissioner, and Barnier, who is in charge of financial-services policy in the region, said they are “confident in the actions the Greek government is carrying out.” Planned EU rules to regulate credit-rating companies “will be fundamental and tackle the problems we know exist,” the commissioners said in an e-mailed statement today.

Proposals on rating-firm regulation are “due before the end of the summer,” they said in the statement no fax needed payday loans. “The last few days highlight, once again, how important a more and better regulated environment for ratings is.”

Moodys downgraded Greece’s government bond ratings to B1 from Ba1, and assigned a negative outlook to the rating, on March 7. The ratings firm today cut Spain’s credit rating to Aa2, citing its concerns that the cost of shoring the banking industry will eclipse government estimates.

Source