My Politics

I am a centrist in terms of political position: CENTRISTS espouse a "middle ground" regarding government control of the economy and personal behavior. Depending on the issue, they sometimes favor government intervention
and sometimes support individual freedom of choice. Centrists pride themselves on keeping an open mind, tend to oppose "political extremes," and emphasize what they describe as "practical" solutions to problems. See this interesting site!

Thanks a lot for the pointer, Greg Mankiw's blog.

Score of 5

In September I took the test of TOEFL, Test of English as a Foreign Language. My total score is 193 of 300: This level of score is never relatively high. Especially I got score of 5 in the writing section. What does it mean? See the website of ETS, the provider of TOEFL.

A December Hike in Rate?

The other day Mr. or Ms. anonymous asked me, "Do you think the Bank of Japan will raise rates in December?"

My answer to such a question is as follows: Tomorrow never knows. However it is more likely that BOJ will raise the interest rate before the end of the year. Here's the relevant excerpt:

Half of economists see BOJ's next rate hike by January: survey
Jiji Press, October 13, 2006

Half of the private-sector economists polled by a government affiliate expect the Bank of Japan to carry out another interest rate increase by January next year, according to the survey results released Thursday. The Economic Planning Association, affiliated with the Cabinet Office, surveyed 34 economists at private-sector financial institutions. Of them, 17 predicted the next rate hike by the central bank would come by January.

The BOJ raised its unsecured overnight call rate target in July to around 0.25 percent from almost zero percent, its first credit-tightening step since August 2000.

Of those surveyed, nine foresee the BOJ's next move coming in December this year, while five each predict the rate hike taking place in January and February next year. The earliest forecast was for November this year, backed by three of the economists.

Another excerpt:

Central bank won't decide monetary policy on consumer prices alone
Mainichi Shimbun, October 5, 2006

The Bank of Japan won't set monetary policy based on consumer prices alone, a senior bank official said Thursday."Consumer prices are important data, but we will not determine monetary policy on that alone," said Bank of Japan Deputy Governor Toshiro Muto.

"We are closely watching developments of the economy and other movements," told reporters in Kyoto, after meeting regional business leaders there. Muto also said he does not have any preconceptions about when to raise the benchmark interest rate, now at 0.25 percent.

....With prices inching up after years of deflation, analysts have been speculating about when the Bank of Japan will next raise rates. Japan's core consumer price index, which excludes volatile fresh food prices, rose 0.3 percent in August, the third monthly gain under a new, revised calculation method. Under the old system, it would have been the 10th consecutive monthly increase.

Actually Toshihiko Fukui, Governer of BOJ, told the press that BOJ would not keep the rates at the present level. Mr. Fukui didn't deny that BOJ would raise the rate. This Fukui's statement will have some influence on the people's expectation and thus the next development of the Japanese economy: Not denying a hike in the rate seems to be no better than a would-be hike. That is, it makes many people think that BOJ wants to raise the interest rate some day in the future. And the economy is likely to be shrinked by Fukui's prediction.

In fact, of those surveyed, nine economists foresee the BOJ's next move coming in December. Their conjecture will also make the people think of the next hike in the rate and thus the economy will be influenced by itself. I think Mr. Fukui knows that his policy change affects not only the economy itself but also the people's expectation on the next situation of the economy. From this viewpoint, Mr.Fukui seems to aim for a next hike in the rate. He is sure to want to raise it within the year. In any case, there will be a hike in the future.

10,000￥ for Good Habit

There is a interesting topic about the rule and manner of the university students. Akita Keizaihoka University(Akita University of Economics and Law) made a rule to prohibit the students from dyeing their hair brown and wearing pierced earings and also proposed giving 10,000￥(about US$90) to the students who obey the rule. In order to heighten students' sence of social manner and moral and to have students conscious of being a responsible member of society, the University made a decision to ban students from brown hair and having ears pierced.

The hair of the Japanese students is generally black, which is different from that of many of the Western. And there is some resistance against students' dyeing hair brown and golden in the Japannese society. A traditional student rule in the Japanese school bans dyeing hair brown and golden and wearing pierced earings. I think it to be one of the original culures of Japanese tradition. Having black hair and not wearing pierced earings at school is thought to be a good manner and habit for students in Japan.

Surprisingly, the University made a proposal to give 10,000￥to the students who have stopped dyeing hair brown and golden and wearing pierced earings in order to have the students take a social responsibility for their behavior and habit and to have a sence of social manner.

However there are strong oppositions to such a proposal from both internal and external various kinds of people like students, teachers, journalists, pundits and so on. Some oppositions say that the earnest students can't have no reward for not dyeing hair brown and not wearing pierced earings, while the insincere students who dye hair brown and wear pierced earings can be rewarded 10,000￥.

It is natural to oppose such a ridiculous proposal, I think. The university eventually made a decision not to reward the students who have stopped dyeing hair brown and wearing pierced earings. A good choice. I think that the University needs to talk the students into not dyeing hair brown and not wearing pierced earings. However this case will create quite a stir in the educational circles.

2006 Nobel Prize of Economics

Columbia professor Edmund S. Phelps Wins 2006 Nobel Prize in Economics. He has studied the intertemporal tradeoffs between inflation and unemployment. He is so famous that we can see his name anywhere in many undergraduate macroeconomics textbooks. However I don't know much about his research but his name very well. I have never read his articles. I have known that he is a prominent American economist.

Here's the excerpt of the Columbia News:

Professor Edmund S. Phelps Wins 2006 Nobel Prize in Economics

Edmund S. Phelps, McVickar Professor of Political Economy at Columbia University and director, Center on Capitalism and Society at the Earth Institute, was awarded the Nobel Prize in Economics on Monday, October 9 by the Royal Swedish Academy of Sciences.
Phelps won the award – officially named the Sviriges Riksbank Prize in Economic Sciences – for his analysis of intertemporal tradeoffs in macroeconomic policy.

.....Low unemployment and low inflation are central goals of stabilization policy. During the 1950s and 1960s the view of a stable tradeoff between inflation and unemployment was established, the so-called Phillips curve. According to this, the price for reduced unemployment was a one-time increase of the inflation rate. Phelps challenged this view through a more fundamental analysis of the determination of wages and prices, taking into account problems of information in the economy. Individual agents have incomplete knowledge about the actions of others and must base their decisions on expectations. Phelps formulated the hypothesis of the expectations-augmented Phillips curve, according to which inflation depends on both unemployment and inflation expectations.

As a consequence, the long-run rate of unemployment is not affected by inflation but only determined by the functioning of the labor market. It follows that stabilization policy can only dampen short-term fluctuations in unemployment.

Hearing the news, I want to know more about Phelps' research and the relevant studies on the intertemporal tradeoffs. Recently I have read one article about the tradeoffs. I think it a good reference.

Booming Japan

Japan is now booming. I am not feeling that, however. And so are many businesspeople, I think.

The Yomiuri Shimbun
Oct. 7, 2006

The current economic expansion phase will most likely equal that of the Izanagi boom, which was the longest continuous period of growth, lasting four years and nine months in the late 1960s.
The milestone comes as the government decided Friday to declare in its monthly economic report for October that the economy is still in the recovery phase, government sources said.
The report will be announced Thursday. The current economic expansion phase started in February 2002.
The Izanagi boom occurred in the middle of the nation's high economic growth period and lasted from November 1965 to July 1970.
In its outlook in the monthly economic report, the government will say the economic recovery supported by the domestic private-sector demand is expected to continue for a while, the sources added.

I feel it somewhat strange to hear the economy recover. Has the deflation faded away yet? I don't think so.

For Good Relations with China and ROK

Prime Minister Shinzo Abe and the leaders of China and South Korea have agreed to hold summit talks to improve their respective bilateral relations.

Japan gets chance to improve Asian relations as Tokyo and Seoul, Beijing agree to talks

Mainichi Shinbun
Oct. 2, 2006

Abe has made improving Tokyo's relations with Beijing and Seoul the core of his diplomatic policies. Chinese and South Korean leaders hope that Abe will play a leading role in taking concrete action in clarifying the Japanese government's view on its history of wartime atrocities in Asia, according to the sources.

However, the Chinese and South Korean governments are sticking to their demand that Abe refrain from visiting the shrine, where Class-A war criminals are enshrined among the war dead. If summit talks between Japan and China and Japan and South Korea highlight the wide gap on the Yasukuni issue and views on Japan's wartime aggressions, it could make it more difficult to improve their strained relations, observers fear.

...."China-Japan relations are at an important historical phase," Premier Wen Jiabao said, with another top official repeatedly calling for leaders to "work together" to improve bilateral relations. Observers say Tokyo may have already promised that Abe will at least make a statement on the issue during the upcoming summit meeting that will satisfy Beijing. .....As Japan and China move toward improving ties, South Korea also appears to have made a realistic decision when it also agreed to hold summit talks between Abe and President Roh Moo-hyun, the diplomatic sources said.

However, it remains to be seen whether the upcoming Japan-South Korea summit talks will be a turning point in bilateral ties. "Even if the Abe administration is inaugurated, our stance toward the Yasukuni issue will remain unchanged," a high-ranking official of the South Korean government said. Seoul has also urged Japan to take "sincere action" to clarify its interpretation of history, specifically the brutal acts committed during the Japanese occupation of the Korean Peninsula during World War II.

Anyway, Abe should not visit Yasukuni shrine, which will solve the problems between China, ROK and Japan in the end. However I don't think so. The difficulties could not be overcome as long as China and ROK play the role of the heroine of tragedy. As far as Abe doesn't insist on his ideas about the visit to Yasukuni and his interpretation of the Japanese aggression history, Japan could not have China and ROK understand well what it will do for improving the relations with China and ROK.

What This Recovery Tells

Business confidence among major manufacturers has improved, according to the Bank of Japan's closely watched Tankan economic outlook survey for September.The survey showed business confidence among major manufacturers up three points to plus 24 in the key diffusion index (DI) for the second straight quarterly rise.

The DI figure is calculated by subtracting the percentage of companies reporting unfavorable business conditions from that of those reporting favorable conditions. BOJ announces the Tankan survey every three months. The latest survey was conducted from Aug. 30 to Sept. 29, covering 9,863 firms.

Here's the excerpt:

The Yomiuri Shimbun
Oct. 3, 2006

The first survey since the central bank ended its five-year zero-interest policy in July confirmed the steady overall economic improvement was sustained even with the interest rate above zero. Analysts said the figures were above market expectations, and that the result might encourage the central bank to go forward with another interest rate increase in coming months.

The improvement in business sentiment was especially notable in raw material-related industries and exporters that benefitted from declining oil prices and a weaker yen. The survey also showed a rise in corporate manager sentiments that there are human resource shortages.

.....As for capital investment in plants and equipment, major manufacturers in all industries planned to spend an average of 11.5 percent more in fiscal 2006 than the previous year. The figure was at the highest level since fiscal 1990's September survey, near the height of the nation's bubble economy.

The employment index, which is calculated by subtracting the percentage of companies reporting underemployment from that of those reporting overemployment, was three points down from the previous survey at minus eight for all industries of all sizes, meaning that more companies are becoming shorthanded. This feeling of employment shortage was the greatest since August 1992.

The biggest contributor to the improvement in major manufacturers' business sentiment was the strong performance of raw material industries. The slowdown in crude oil prices helped raw material firms such as steel and nonferrous metal makers turn profits, while also succeeding in passing on earlier high oil costs in sales prices. The DI figure for steel manufacturers rose 14 points to plus 53, and rose 13 points to plus 41 for nonferrous metal makers.

Though small and midsize companies lag big firms in business sentiment, their projection for capital investment reflected growing optimism among corporate managers.

The concern now is the deceleration of the U.S. economy. Japan's exporters may lose momentum if demands abroad continue to slow down. Some analysts even think the nation's economy has already peaked, and are alarmed another interest rate increase could severely hurt the financing of small and midsize companies.

According to the above excerpt, there are mainly three characteristics of the recent recovery of the Japanese economy:

(1) The improvement in raw material-related industries and exporters

The slowdown in crude oil prices enabled raw material firms such as steel and nonferrous metal makers to turn profits, while also passing on earlier high oil costs in sales prices. Declining oil prices, a weaker yen and booming China and US boost up the exporters.

(2) The employment shortage for all industries of all sizes

More companies are feeling shorthanded. It seems that the Japanese economy is picking up. This is, however, rather the sign that Japanese economy is becoming aged: The number of retiree is sure to increase, while decreasing younger workers. So many companies need hiring workers so as not to face the shortage of human resource.

(3) Weaker sentiment in small and midsize companies

This recovery might be merely big firms'. Many small and midsize companies might not be benefitting from this recovery. Most of all companies in Japan are small and midsize ones, which is, in terms of the number of firms, about 70 percent of all firms. In this regard, the increasing profit from the recovery is unlikely to be distributed fairly among most companies and workers. It can say that it is far from the true recovery that improves the life of every member of our economy.