In Japan, the man in the street cares more about pensions than changes to the constitution. – Photo by Mniz

The Japanese economy, the world’s second largest, continues to grow. Revised gross domestic product (GDP) figures issued in June reflect that first quarter growth for 2007 reached an annualized rate of 3.3%. This means that the Japanese economy for that period actually outperformed both the US and the EU.

However, this is probably a flattering figure as growth appears to be slowing and the Central Bank, having raised interest rates to 0.5% earlier this year, is now assessing the situation before implementing any further increases, by August at the earliest. What was unexpected was that the April figures for industrial production saw output fall by 0.2%.

The yen is trading at a five-year low against the US dollar and at record lows against the euro. Japan enjoys a large current account surplus and the world’s second highest foreign exchange reserves at almost US$1 trillion (34.5 trillion baht), which makes the weak currency something of a contradiction, but low interest rates are keeping any attraction in holding yen at bay.

In addition, the Japanese domestic political situation is of some concern. Shinzo Abe, who became prime minister in September 2006, is being widely criticized for his poor management of the economy.

There is an increasing perception in Japan that the economic reforms undertaken by his predecessor, Junichiro Koizumi, have stalled and Abe is concentrating more on being a global statesman.

Abe is seen to be more interested in changes to the constitution and relationships with China than on issues such as pensions and continued economic reform. This has led to foreign criticism, such as the comment from Richard Jerram, an economist at Macquaries Securities, who stated that Mr Abe’s economic policy was “notable by its absence”.

Although not his fault, Mr Abe is being widely criticized for the loss, by Japan’s Social Security Agency, of 50 million pension records. These records will, presumably, eventually be located but in the interim it has become a major news story in Japan.

While Abe is spending a lot of his time on changes to the constitution, a survey in early June found that 71% of respondents wanted the government to focus on pensions while only 25% rated the constitutional changes as more important.

The popularity of Mr Abe’s government has declined sharply. In monthly telephone polls conducted by Japan’s daily newspaper, Asahi Shimbun, Mr Abe’s popularity has plunged from an approval rating of 63% last September to 24% in June.

His perceived mismanagement of the economy is mainly to blame. In fact, the number of respondents who do not support Mr Abe’s economic policies have climbed from less than 20% last September to more than 45% in June.

Elections are scheduled for July 22, when half of the seats in Japan’s Upper House are contested. The ruling party, the LDP (Liberal Democratic Party) and its allies control 133 of the Upper House seats out of a total of 242.

Any major loss will see control move to opposition parties, which will make any legislative changes much more difficult. In addition, there is a concern that Mr Abe may have to take political responsibility and resign. This would cause an unwelcome period of uncertainty.

All these factors are helping to extend the life of the “yen carry trade”, whereby investors borrow against the yen and invest the proceeds in higher-yielding currencies. The most popular currencies invested were the New Zealand dollar, Australian dollar, sterling and the US dollar.

The main players in these transactions were pension funds seeking higher yields and hedge funds, but increasingly this is spreading to the retail sector – the Japanese public. Nick Parsons, of National Australia Bank, says they will be closely watching where Japanese employees invest their half-yearly bonuses, payable in July, as they expect another wave of retail investment in the “yen carry trade”.

He noted that over the past two years the value of the yen has fallen from 11 South Korean won to 7.5 won. South Korea, as a major competitor of Japan, is increasingly concerned about the weak Japanese yen as it impacts severely on its competitive position.

The rush of funds from Japan is also causing problems “down under”. New Zealand recently raised interest rates to 8% to fight a mixture of strong economic growth and inflationary pressures. This naturally led to a further inflow of Japanese capital into New Zealand’s bond markets, resulting in the New Zealand dollar reaching its highest level since the currency was allowed to free float in 1985.

The central bank of New Zealand, called the Reserve Bank of New Zealand, has been selling the local currency to stem the rise in value, but with only limited success. The New Zealand dollar is now at levels that are starting to inhibit exports and threaten the country’s vital tourism industry.

No doubt the Reserve Bank of New Zealand will also be watching where Japanese individuals invest their July bonuses.

Richard G Watson runs Global Portfolios Co Ltd, a Phuket-based personal financial-planning service. He can be reached at Tel: 076-381997, Fax: 076-383185, Mobile: 081-0814611. Email: imm@loxinfo.co.th

Prapijit Thongma has been appointed general manager of the Burasari Resort. She began her career in hospitality with Club Med in 1985 as a cashier and progressed to the position of regional front office product manager for the Asia-Pacific region. K. Prapijit has also worked at the Sofitel Central Plaza in Bangkok and on pre-opening teams at the Phulay in Krabi and the Central Krabi Bay Resort.

Phitsinee “Apple” Detklarharn, from Songkhla, has been appointed personal assistant to the director of Sri Panwa Phuket resort. She graduated from the Faculty of Service Industry Hotel Management program at Prince of Songkla University. During her education she trained as an intern in the F&B department at the Imperial Mae Ping Hotel in Chiang Mai and in the front office and housekeeping departments at the Sheraton Grande Laguna Phuket.