Sunday, June 24, 2012

I've moved my blog to SAKURA from Blogger!

Thank you so much for having visited my blog up until today. I'v moved my blog to SAKURA Internet from Blogger, so that I can have everything in one place such as Japanese and English blogs.

Stay tuned to my new blog at

Thanks and regards,


Saturday, June 23, 2012

(My latest for Asia Times) US Marines eye Japan as a training yard

US Marines eye Japan as a training yard

People across the eastern part of the Japanese mainland are bracing for low-altitude US military flights, while Okinawans fear the Futenma base will become a permanent feature after a United States Marine Corps report revealed plans to gain a stronger training foothold. With Japan's ruling party distracted by internal strife, it seems the US has twisted acceptance of the plans to its advantage. - Kosuke Takahashi (Jun 22, '12)

US Marines eye Japan as a training yardBy Kosuke Takahashi

TOKYO - With the energies of Japanese politicians consumed by infighting, the United States Marine Corps (USMC) is pushing forward with plans to gain a stronger foothold in the Japanese archipelago.

Taking advantage of the scheduled deployment of MV-22 Osprey transport aircraft to Okinawa, the USMC plans to conduct training flights over almost all of mainland Japan. With US Marines being forced to reduce their military footprint on Okinawa due to local opposition, America seems intent on making the rest of Japan its training yard.

Starting later this year, the US government plans to deploy a total of 24 Ospreys to the controversial USMC air station at Futenma in Okinawa, to replace aging 24 CH-46 transport helicopters.

According to a recent USMC report titled "Final Environmental Review for Basing MV-22 at MCAS Futenma and Operating in Japan (April 2012)" the US will use this situation to moves the Ospreys around the Japanese mainland freely. This report, published on Japan's Ministry of Defense website, shows detailed plans for low-altitude flight training in Japan via six different flight routes above the Japanese archipelago highlighted by different colors below.

Specifically, those six routes are: the Tohoku route across Akita prefecture(pink); the Tohoku route across Miyagi prefecture(green); the Hokushinetsu route across Nigata prefecture(blue); the Shikoku- the Kii peninsula route(orange); the Kyushu route (yellow); the Amami Islands route (purple).

Those routes apparently avoid flying directly over Japan's four largest metropolitan areas of Tokyo, Osaka, Nagoya and Fukuoka, but still cover a large part of eastern Japan.

The USMC plans have come to light amid a rapidly widening internal rift within the ruling Democratic Party of Japan over Prime Minister Yoshihiko Noda's plans to double the nation's sales tax.

The MV-22 "combines the vertical capability of a helicopter with the speed and range of a fixed-wing aircraft", the environmental review stresses about the significance of the planned deployment of the aircraft. "Its capabilities would significantly strengthen Marine Expeditionary Force's (III MEF's) ability to assist in the defense of Japan, perform humanitarian assistance and disaster response, and fulfill other Alliance roles."

"The US has been always very good at making use of trigger incidents in the past," Ukeru Magosaki, the former chief of the Japanese Foreign Ministry's international intelligence bureau, told Asia Times Online. "It turns situations to its advantage nicely."

Under the proposed action, the USMC would make the fullest possible use of Camp Fuji in Shizuoka prefecture and Marine Corps Air Station (MCAS) Iwakuni in Yamaguchi prefecture on mainland Japan and those six routes extending along Japanese islands. Currently, the CH-46E squadrons do not use Camp Fuji and MCAS Iwakuni and those routes.

"Due to the distance, the CH-46E aircrews do not regularly conduct operations on mainland Japan," the environmental review said. "However, given the MV-22s ability to fly in airplane mode, these aircraft would be able to cover greater distances in less time than the CH-46s."

The MV-22 can fly roughly twice as fast, four times as far, and carry three times the combat or humanitarian mission load of the CH-46E, it said. Ospreys can fly continuously for up to 3,900 kilometers, while the CH-46E has a maximum flight distance of about 700 kilometers.

Although the aircraft would be based at MCAS Futenma, the USMC plans to send a detachment of two to six MV-22s to Camp Fuji and MCAS Iwakuni each month for two to three days. At Camp Fuji, the deployed MV-22 detachments are expected to fly about 500 annual operations making for a 10% increase in overall activity at that location. For MCAS Iwakuni, a similar number of annual MV-22 operations are also expected, on average, which would account for a 0.8% increase in total airfield operations.

The USMC expects that the squadrons would likely fly on one or more of these six routes during each day of these brief deployments, conducting a total of 330 operations annually on each route, the report said. These added operations would result in increases in use averaging 21% for all routes, with the other primary users consisting of AV-8B Harriers and FA-18 Hornets.

The MV-22 squadrons are expected to conduct 28% and 4% of these six route operations between evening and night, respectively, or about one-third of them during late afternoon and night. In addition, the US plans to conduct low-level flight training down to 500 feet, or 152 meters, above ground level in those six courses, at airspeeds of 120 to 250 knots, depending upon the flight mode.

The existing US facilities on Okinawa will be a major component of the planned training flights. The USMC plans to operate about 6,700 flights out of Futenma annually, which would result in a net decrease of around 2,600 airfield operations per year.

However, it has proposed 69 landing zones for use by the MV-22 on Okinawa. Fifty of these located on mainland Okinawa and the island of Iejima will be tactical landing zones used solely for training missions consisting of landings, take-offs, and approaches that simulate combat situations.

The review for the first time also mentioned USMC plans to use Ospreys in six landing zones scheduled for construction in the Okinawa's Northern Training Area. It aims to conduct 420 operations in each of those six zones for Ospreys annually for a total of 2,520. This is a 95% increase compared with the current CH-46E's 1,288 operations.

For Okinawans, the plans to deploy the Osprey at Futenma strengthen perceptions that the air base will become a permanent fixture, although local governments, supported by the majority of Okinawans, have demanded the immediate closure and transfer of Futenma outside of the prefecture.

The MV-22 Osprey tilt-rotor vertical take-off and landing (VTOL) transport aircraft was once called the "widow-maker" due to a series of accidents during its development; 36 people have died in V-22s since the plane began flying so far. Most recently two marines died in an MV-22 crash in April in Morocco.

It is this safety record that concerns Okinawa prefectural government and local residents, leading them to fiercely oppose this planned deployment.

The US has capitalized on change of US military bases on Okinawa. In the late 1990s, there were plans to just close the Futenma airbase, not to relocate it to Henoko, Nago, in northern Okinawa, after three marines raped a 12-year-old schoolgirl; but after that, the US administration managed to make the closing of Futenma a package deal linked to the building of a new sea-based heliport off Camp Schwab.

This planned heliport will have two 1,800-meter V-shaped runways. However, helicopters have no need for such long runways and this is especially true for Ospreys, which can take off and land in small spaces.

Military experts believe the US intends to create a second Kaneda Air Base off Camp Schwab just in case the original Kadena Air Base is attacked. This is said to be one of the major reasons why the Pentagon has opposed the integration of USMC Futenma air station with the Kaneda Air base.

Kosuke Takahashi is a Tokyo-based Japanese journalist. Besides Asia Times Online, he also writes for Jane's Defence Weekly as Tokyo correspondent. His twitter is @TakahashiKosuke

(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

Monday, June 11, 2012

(My latest for Asia Times) Osprey a new tinderbox on Okinawa

Osprey a new tinderbox on Okinawa
Okinawan anger at the planned deployment of V-22 Ospreys to the United States' Futenma air base has been directed at both Tokyo and Washington, with islanders accusing the mainland government of "discrimination" in its failure to scale down US military operations. Claiming the tilt-rotor aircraft are accident prone and threaten densely populated Ginowan City, some Okinawans are agitating for independence. - Kosuke Takahashi (Jun 11, '12)

Osprey a new tinderbox on Okinawa
By Kosuke Takahashi

TOKYO - On May 23, 1988, in Arlington, Texas, Bell Helicopter unveiled with much fanfare a new combo-aircraft; a fixed-wing plane that could climb and hover like a helicopter, but also rotate its giant propellers forward and fly like an airplane.

On that day, Peter Van Sant, then correspondent for CBS Evening News with Dan Rather, reported that the never-seen-before plane was a "a revolutionary new aircraft" that was the latest "future shock". He expected the plane would carry commuters to Washington or Boston from downtown Manhattan, as it could take off and land in downtown business districts, reducing travel times.

It was called the V-22.

"By the year 2000, there could be a market of five to eight million passengers annually," a company spokesperson at Bell Helicopter predicted at the ceremony.

Twenty-four years later, the V-22 has yet to be used as a commuter aircraft between New York and Boston. Instead, across the Pacific, the Bell-Boeing MV-22 Osprey tilt-rotor aircraft is becoming the next tinderbox issue on Japan's southernmost subtropical island prefecture, Okinawa.

Ospreys over Futenma
Plans to deploy 12 Osprey aircraft to US Marine Corps (USMC) Air Station Futenma in Okinawa prefecture have emerged as a fresh flashpoint between Okinawa residents and Tokyo and Washington.

How the national governments handle the islanders' sensitivities over the Osprey could prove critical for the future stability and preservation of the Japan-US alliance.

The dispute over the MV-22 erupted on June 7 when the Okinawa chapter of the ruling Democratic Party of Japan (DPJ) demanded that newly appointed Defense Minister Satoshi Morimoto resign over remarks related to the safety of the Osprey deployment.

The Japanese Defense Ministry had asked the US government to conduct a thorough investigation prior to the aircraft's planned deployment to Futenma, following a MV-22 crash in April in Morocco which killed two marines. However, Morimoto said at a press conference on June 5, "It would be ideal to receive all the results [from the US] on the investigations into the accident prior to the deployment, but there is a chance that might not happen."

"Does the [Japanese] government view the Okinawans as Japanese!" Chobin Zukeran, a DPJ lawmaker representing Okinawa, shouted tearfully at a press conference in Naha City on Okinawa. "Don't think Okinawans are stupid!" said Zurekan, who appeared in his shirt sleeves to emphasize his anger at the new defense minister, who was appointed on June 4.

Futenma air base is located in the heart of densely populated Ginowan City. In August 2004, a US Marines CH-53 military helicopter crashed into a university building in the city, causing no serious damage or injuries but causing a major international incident.

"Defense Minster Morimoto's remarks show nothing but contempt for Okinawans," the chapter said in an emergency statement. "There is no more room to reach a compromise between Okinawa and the Japanese government, and this should be taken as all-out confrontation.

"It is unacceptable to increase the burden borne by the people of Okinawa prefecture anymore, and this can't help but spark the public opinion that Okinawa should become independent," the statement also said.

As if in damage control, the Japanese Ministry of Defense announced on June 8 that a US investigation into the crash in Morocco had found no mechanical flaws in the MV-22. However, the ministry admitted that the investigation was ongoing and had yet to specify the crash's cause.

Although this year marks the 40th anniversary of Okinawa's reversion to Japan from US control, US military bases still occupy almost a fifth of the main Okinawa island. While Okinawa only accounts for 0.4% of Japan's land area, 74% of all US bases are concentrated there.

The US plans to deploy Ospreys to Futenma this year as part of an ongoing replacement of the USMC's ageing CH-46 Sea Knight helicopter fleet.

However, this comes amid a decade-long deadlock over plans to relocate Futenma air station to Henoko, Nago, in northern Okinawa by constructing a new sea-based replacement facility off Camp Schwab.

Local governments, supported by the majority of Okinawans, have demanded the immediate closure and transfer of Futenma outside of the prefecture, but it seems the opposite is happening.

In April, the Japanese government agreed with the US to pay refurbishment costs for the Futenma base until the sea-based replacement facility was constructed on the north of the island. But Okinawans are worried that maintenance and repair work on Futenma will mean its continued use.

For Okinawans, the plans to deploy the Osprey at Futenma strengthens perceptions that the air base will become a permanent fixture.

In an apparent attempt to ease tensions, the US and Japanese governments are reportedly considering temporarily stationing the Osprey at Iwakuni Air Base in Yamaguchi prefecture in July, and demonstrating their safety by conducting test flights there. The MV-22 would then be deployed to Futenma by mid-August, the Asahi Shimbun reported on June 9.

An alternative plan to transport the Ospreys in pieces by sea to the Naha Military Port on Okinawa as early as July, with the aircraft to be assembled there, was aborted as the Naha City Council unanimously adopted a resolution against and Naha Mayor Takeshi Onaga voiced his opposition.

"Any logic that does not understand the Okinawan mind and our history won't be accepted," Onaga said at a press conference on June 6. "Although we are requesting the easing of the burden, they are bringing about excessive burdens on us further. There is no need to consider the deployment."

According to a joint survey conducted by the Asahi Shimbun and the Okinawa Times in April ahead of the 40th anniversary of Okinawa's reversion to Japanese sovereignty, 50% of residents of Okinawa Prefecture said "discrimination by the mainland" was the reason why the scale of US military bases in the prefecture remains unchanged.

"The opinion that mainland discrimination is behind the lack of reduction of US military bases in Okinawa has spread since around 2010, when then Prime Minister Yukio Hatoyama broke his promise to relocate the US Marine Corps Air Station Futenma outside of the prefecture," the Asahi Shimbun concluded.

The widow-maker
The MV-22 Osprey tilt-rotor vertical take-off and landing (VTOL) transport aircraft was once called the "widow-maker" due to a series of accidents during its development.

Development of the MV-22 got off to rocky start with the deaths of 23 marines in two crashes during testing more than 12 years ago. A US Air Force version of the tilt-rotor aircraft, the special mission CV-22, crashed in Afghanistan in April 2010, killing three service members and one civilian contractor.

It is this safety record that concerns Okinawa prefectural government and local residents, leading them to fiercely oppose this planned deployment.

The Pentagon has dismissed such safety concerns.

"The MV-22 is among the safest aircraft in the Marine Corps' inventory," Captain Richard K Ulsh, USMC public affairs officer told Asia Times Online. "Including the mishap on April 11, 2012 in Morocco, since the Marine Corps resumed flight operations in October 2003, the MV-22B has demonstrated a safety record that is consistently better than USMC averages while conducting military training, humanitarian assistance missions, and combat operations in very challenging environments."

"According to Naval Safety Center records, since the Marine Corps resumed flight operations in October of 2003 through April 11 2012, the MV-22B has demonstrated a safety record that is consistently better than USMC averages," Ulsh said.

According to Ulsh, MV-22's mishap rate, determined by the number of mishaps over a period of 100,000 flight hours, is the second lowest among the five aircraft as described below.

MV-22: 1.93
CH-46: 1.11
CH-53E: 2.35
CH-53D: 4.51
AV-8B: 6.76
ALL USMC: 2.45

"The Marine Corps views the MV-22 as a highly capable, reliable and safe aircraft," Ulsh said.

Latent anti-US base sentiment is likely to rise in coming months as local elections approach. Naha's mayoral election is scheduled for November, and there is speculation that low approval ratings for Yoshihiko Noda's government, currently sitting at just around 20%, could soon spur a general election.

Major political parties and prefectural chapters in Okinawa are highly likely to use the votes to campaign for the relocation of the Futenma facility outside of the prefecture as well as a halt to the V-22 deployment.

"It was unavoidable that the deployment of Osprey would become a source of friction and conflict," Japanese military analyst Toshiyuki Shikata told Asia Times Online. "Without the accident in Morocco, the situation would have been better. Okinawans vividly remember the crash of the crash of a marine helicopter into Okinawa International University. The US and Japanese governments will now be forced to delay the deployment later than originally scheduled. A cooling off period is needed."

Kosuke Takahashi is a Tokyo-based Japanese journalist. Besides Asia Times Online, he also writes for Jane's Defence Weekly as Tokyo correspondent. His twitter is @TakahashiKosuke

(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

Wednesday, June 6, 2012

(My latest for Asia Times) Noda future hangs on a tax thread

Asia Times Online :: Noda future hangs on a tax thread

Hello, my friends. Here is my latest story.

Noda future hangs on a tax thread 
Japanese Prime Minister Yoshihiko Noda, in office only since last September, has staked his political future on pushing through legislation for an increase in consumption tax before the present parliamentary session ends on June 21. With the economy in a parlous state, that is unlikely - and the country's revolving door of short-term premiers looks set to turn once more.
- Kosuke Takahashi
(Jun 6, '12)

Noda future hangs on a tax threadBy Kosuke Takahashi

TOKYO - With Japan's economy remaining sluggish after two decades of prolonged deflation, Prime Minister Yoshihiko Noda is scrambling to pass bills to raise the consumption tax before the current parliament session ends on June 21.

While stressing in many occasions that "without a tax increase, Japan would go fiscally bankrupt like Greece", Noda has publicly vowed to stake his ''political life'' on the tax hike plan and now faces the possible end of his premiership. He is attempting to raise the consumption tax rate from the present 5% to 8% in April 2014 and to 10% in October 2015.

The nation is still struggling to recover from damages wrought by the triple disaster of a devastating mega-earthquake, tsunami and nuclear meltdown in March 2011 and the debate about the tax increase could sap still-fragile consumer spending and business confidence. That could send the nation into a vicious deflationary spiral, in which falling prices and wages lead to rising unemployment.

The uncertainty created by the continuing global financial crisis is also casting a pall over the export-driven Japanese economy. Facing such heightened risks, Noda's rush to force through significant tax increases is questionable

"He has been subject to the mind control of the Ministry of Finance [MOF]," Toichiro Asada, a professor of macroeconomics at Chuo University in Tokyo, told Asia Times Online. "The MOF attempts to secure its vested interests through tax increases.

"The consumption tax hike amid a deflationary depression, however, would further shrink GDP [gross domestic product] and facilitate Japan dropping out of the club of economically developed nations," Asada said. "A wrong policy brings about disastrous outcomes."

Noda became prime minister last September after serving as a senior vice finance minister and finance minister for a total of two years. The MOF became his first ministerial portfolio, and he had been fully immersed in the ministry's policies, functions, ideas, guidelines and wishes.

The MOF, in return, catered to the wants and needs of a dutiful minister Noda, known as a fiscal hawk. It is said among the Japanese political cycles that the MOF unofficially supported Noda, rather than his rival Seiji Maehara, in the ruling Democratic Party of Japan's presidential election last September.

"The Noda administration is a puppet government of the MOF," political analyst Minoru Morita told Asia Times Online. "It's a stupid thing to raise the consumption tax at a time when the nation is in a deflationary situation and when people are worrying about a global depression."

Fiscal crisis of the state?
The MOF has announced that the accumulative long-term national and local debts of Japan will reach 196% of GDP by March 2013 (the end of Japan's fiscal year), the worst among developed countries. Moreover, Japan's reliance on debt in its initial budget for fiscal 2012 hit a new high of 49%.

Thus, the MOF is very reluctant to issue new government bonds and is keen to secure financial resources through an increase in the consumption tax to help cover the nation's swelling social security costs as the population ages and fewer babies are born.

Experts such as Asada have pointed out that the MOF is taking advantage of the Greek debt crisis and last year's triple disaster in eastern Japan, trumpeting that "for Japan, the euro-zone crisis is not a fire on the other side of the river" and that "restoration from the great earthquake disaster requires tax hikes".

But in fact, the MOF itself has admitted that economic crises overseas are totally different from the situation in Japan in the past. For example, in May 2002, Moody's downgraded Japan's long-term credit rating to A2. Around that time, the MOF made rebuttal statements against three rating agencies, namely, Moody's, Standard & Poor's, and Fitch.

It told them, "In the case of industrialized countries such as the US and Japan, defaulting on local-currency denominated debt is unimaginable. What kind of risk is exactly contemplated as 'default'?"

The MOF also pointed out that Japan has the largest savings surplus in the world, and that this surplus enables the nation to finance most of the debt domestically and stably at very low interest rates. In addition, the nation had the largest current account surplus, that it is the largest creditor country, and that it had the world's largest foreign exchange reserves.

Although China has since then past Japan as the world's largest holder of foreign exchange reserves, the rest of conditions remain. Currently, 94% of Japanese government bond is funded domestically at low interest rates.

"The MOF had done double-dealing," Asada said. "While prompting fears of a public-finance crisis domestically, it has denied the nation is in a financial crisis externally. This is a double standard."

A rapid increase in suicides again?
An increase in the consumption tax to 5% from 3% in 1997 may have been responsible for pushing many people to suicide. The following year, 1998, suicide rates in Japan jumped by 35% to 32,863 from 24,391 in the previous 12 months. Some experts say this increase was due to increased taxes, while others say it correlates with economic troubles and a rise in unemployment triggered by currency devaluations in Asia in the middle of 1997.

Many Japanese are still mired in a deep socioeconomic malaise in the wake of last year's natural and nuclear disasters. The number of suicides could jump again following a consumption tax hike in coming years.

Noda reshuffled his cabinet on June 4, sacking two ministers including the defense minister, whom opposition parties had demanded he replace. Noda was apparently seeking the cooperation of the main opposition Liberal Democratic Party in enacting a law for a consumption tax increase - the opposition bloc controls the House of Councillors, the upper house of parliament.

"Noda will fail to pass the sales tax hike-related bills in the current parliament session, and his administration will collapse sooner or later," political analyst Morita said. "Many politicians in both ruling and opposition parties hesitate to pass the tax legislation within this parliamentary session."

Noda's decision to push for a tax increase while the economy is so sluggish is bad timing, certainly in the eyes of voters. Only 17% of respondents to an Asahi Shumbun survey think bills related to a sales tax rise should be passed in the current parliament session, against 72% who said there is no need to pass the bills this session.

And if failure to pass the tax legislation leads to Noda's resignation, Japan's political chaos amid a familiar landscape will continue, according to Morita, not least the regularity with which Japan's prime ministers come and go from office.

"Whoever becomes the next prime minister, the next government will become a caretaker government until a general election," Morita said. "Japan's revolving door of prime ministers who keep resigning after very short tenures is likely to continue."

Kosuke Takahashi is a Tokyo-based Japanese journalist. His twitter is @TakahashiKosuke

(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

Friday, June 1, 2012

Asia Times Online : Japan, China bypass US in currency trade

Asia Times Online :: Japan, China bypass US in currency trade

Japan and China on Friday started direct trading between the yen and the yuan in Tokyo and Shanghai, by-passing the need first to exchange either currency into the US dollar. The move should strengthen bilateral trade between the two economies while marking an important step in the internationalization of the yuan. - Kosuke Takahashi (Jun 1, '12)

Japan, China bypass US in currency tradeBy Kosuke Takahashi

TOKYO - Japan and China started direct trading of their currencies, the yen and the yuan, on the inter-bank foreign exchange markets in Tokyo and Shanghai on Friday in an apparent bid to strengthen bilateral trade and investment between the world's second- and third-largest economies.

Direct yen-yuan trades also aim to hedge the risk of the dollar's fall in the long run as the world's key settlement currency and as the main reserve currency in Asia, the world's economic growth center in the 21st century. By skipping the dollar in transactions, the region's two biggest economies intend to reduce their dependence on dollar risk and US monetary authorities' influence on the Asian economy - aiding China's goal of undercutting US influence in the region.

It is the first time that China has allowed a major currency other than the dollar to directly trade with the yuan. For Beijing, this new step brings benefits of further internationalization of the yuan. For Tokyo, the possible future correction of China's still artificially undervalued yuan may bring the plus of a weaker yen, boosting profits of Japanese exporters such as Toyota and Sony in the long run.

Japan's three megabanks - Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group - began direct yen-yuan trades with major Chinese banks on Friday. Exchange rates between the yen and the yuan will be determined by their transactions, delinking the current "cross rate" system in which the US dollar intermediates in setting yen-yuan rates.

"We can lower transaction costs and reduce settlement risks at financial institutions as well as making both nations' currencies more useful and energizing the Tokyo market," Japan's Finance Minister Jun Azumi said on May 29.

China welcomed the new trading agreement with much fanfare.

"This will help lower currency conversion costs for economic entities, facilitate the use of RMB [the renminbi, as the Chinese currency is also referred to] and Japanese yen in bilateral trade and investment, promote financial cooperation and enhance economic and financial ties between the two countries," the People's Bank of China (central bank) said in a statement.

Skipping the dollar
Up until Friday, Japanese and Chinese firms had paid currency conversion fees twice. For Japanese companies, they first had to convert the yen into the dollar, then they exchanged the dollar for the Chinese currency. For Chinese firms, it was vice versa. With this removal of the interim step by skipping the dollar in transactions, many expect cost reductions.

Japan ranks fourth among China's trading partners after the European Union, the United States and the 10-country Association of Southeast Asian Nations (ASEAN), while China has been Japan's largest trading partner for the past three years.

Bilateral trade rose 14.3% year-on-year to reach US$344.9 billion in 2011. For Japan, China accounts for about 20% of its world trade value. Around 50% to 60% of that is being settled in dollars, with less than 1% of it settled in yuan. One Chinese news outlet has estimated direct yen-yuan transactions will realize $3 billion in cost savings.

There are still cautious views on the scale of cost reductions among Japanese market participants.

"Dollar-yen transaction costs are already very low," Daisuke Karakama, market economist at Mizuho Corporate Bank in Tokyo, said on Thursday. "The cost reduction effect of direct yen-yuan trading should be limited."

Internationalization of the yuan
For China, this new trading is a step in its moves to internationalize the yuan, accelerating the currency's wider use. More than 9% of China's total trade was settled in yuan last year, up from only 0.7% in 2010, according to Xinhuanet.

Yuan-denominated trade between the mainland China and Hong Kong started in July 2009, as Beijing allowed companies in Shanghai and four cities in the southern province of Guangdong to use yuan in trade with Hong Kong, Macau and members of ASEAN. In July 2010, China also allowed the yuan to be more freely traded and transferred in Hong Kong, establishing an offshore yuan market for the first time.

But many experts such as Mizuho's Karakama believe China will soon face a trilemma in its economic policy.

An economy cannot combine at the same time a non-floating dollar peg currency, free capital mobility and autonomy in its monetary policy. Developed nations such as Japan and South Korea abandoned a dollar peg system in order to secure international inflows of money and discretionary monetary policies. (In contrast, countries using the euro abandoned individual monetary policy by consolidating their financial policy instruments to the European Central Bank.)

In April, the People's Bank of China announced it would widen the yuan's daily trading limit against the dollar to 1% from 0.5%.

"With the internationalization of the yuan, it will become more and more difficult for China to control the yuan," Karakama said.

Should China shift to a limited floating exchange rate system, the yuan will likely appreciate against major currencies such as the dollar. With Japan's business with China expanding and the presence of the yuan increasing in Japan's international trade, this will push down the yen's effective exchange rate against major currencies. Annual trade between China and Japan more than doubled in the past 10 years.

Kosuke Takahashi is a Tokyo-based Japanese journalist. His twitter is @TakahashiKosuke

(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

Wednesday, May 30, 2012

My latest for Asia Times : Pyongyang starts to feel the heat

Pyongyang starts to feel the heat
North Korea, facing its worst drought for half a century after little rainfall for more than 40 days, may soon have to appeal for help from China and international organizations such as the World Food Programme. A rare admission of vulnerability last week signals probable delay in Pyongyang's third nuclear test. Having blown a barter deal with the United States, it has little choice but to comply with Beijing's wishes. - Kosuke Takahashi (May 30, '12)

Pyongyang starts to feel the heat
By Kosuke Takahashi

TOKYO - North Korea, in a rare admission of vulnerability, late last week announced to the outside world that it is suffering the most severe drought in half a century and that its vast agricultural lands have been damaged.

If the drought persists, the subsequent crop failure could exacerbate already dire food shortages in the hunger-stricken nation. This will test the leadership capabilities of North Korea's young dictator Kim Jong-eun, whose new government has placed a high priority on the food problem as "a burning issue in building a thriving country".

Ordinary North Koreans may be raising fears that the impending natural disaster will cause something similar to the "great famine" of the 1990s. This comes at a critical time, with power only recently having been transferred to Kim Jong-eun following the death of his father, Kim Jong-il, last December.

During the famine in the 1990s, called the "arduous march", millions of people died of starvation, as Kim Jong-il succeeded his father Kim il-sung, the founder of the nation, in 1994. The official propaganda "arduous march" was also used amid Kim Il-sung's guerrilla resistance to Japanese occupation in the late 1930s.

"North Korea began to disclose bad things through a change in leadership," Mitsuhiro Mimura, director and senior research fellow at the Economic Research Institute for Northeast Asia in Niigata prefecture, told Asia Times Online. "The happening of the natural disaster has no blame attached to Kim Jong-eun and is easy to disclose. By stressing substantial damages, Pyongyang is appealing for food aid to the rest of the world." Mimura specializes in the North Korean economy.

"West coastal areas of the Democratic People's Republic of Korea [DPRK] experience a long spell of dry weather," the North's official Korean Central News Agency (KCNA) said on May 25. "This is an abnormal phenomenon witnessed in the country in 50 years."

If it doesn't rain by the end of the month, the drought will be recorded as the worst since 1962, the news agency said.

The drought has hit North Korea's southwestern rice belt, such as South Hwanghae province known as the "bread-basket" of the hermit kingdom. Except for east coastal areas and northern high-mountain regions, there has been little rainfall in the country for more than 40 days, affecting 40% of farmland, the news agency said, adding that in Pyongyang just 2 millimeters of rainfall was registered in the past 30 days.

During the infamous famine of the 1990s in the wake of a vicious circle of devastating floods and the subsequent drought, the northern regions of the country were said to be much better off than the south, in part because of the geographical closeness to China. People in the north could barter for food with China, while those in the south were geographically isolated. This pattern could happen again.

It is not uncommon for the Korean Peninsula to suffer severe droughts historically. For example, during the Joseon Dynasty (1392-1910), droughts that continued for more than two years occurred 23 times, according to the Korea Institute of Construction Technology, a public research institute based in South Korea.

Most notably, about a million people, nearly 20% of the population, starved to death during the drought-induced famine of 1671, the institute said.

"The drought has badly affected the transplant of corn seedbeds and rice planting," North Korea's official daily newspaper, Rodong Sinmun, said on May 25. "Wheat, barley and potato fields have been damaged."

Still, more than a few experts have pointed out that the drought may not have a major impact on rice yields because rice planting is not in full swing.

"There are still one or two months left before a rice-planting season in North Korea," Masao Okonogi, a research professor at the Research Center for Korean Studies of Kyushu University in Fukuoka City, said. "The incoming amount of precipitation is a key."

Looking anew at the world, La Nina in the Pacific Ocean off the coast of Peru seems to have caused abnormal weather conditions worldwide, let alone North Korea. South American nations such as Brazil and Argentine are also suffering droughts, skyrocketing soybean futures prices in Chicago. In northeastern Brazil, severe drought - also the worst in 50 years - has even triggered fighting in rural areas

Water is life. An average of one person a day is being killed in "water wars", while scores of animals led to debilitation and death, the Brazilian newspaper O Globo has reported. Even in Tokyo, an abrupt weather change due to atmospheric instability is frequently occurring in recent weeks, alternating between thunder showers and clear sky.

There are expectations that North Korea will officially ask for help from China and international organizations such as the World Food Programme if the drought continues, and this would make it difficult for Pyongyang to carry out a third nuclear test in the coming months - to meet Beijing's wishes.

Food relief, however, is unlikely to come from the US and South Korea following Pyongyang's internationally-condemned rocket launch on April 13. The US suspended a plan to deliver 240,000 tons of food as the two nations' "Leap Day deal" bartering food aid for nuclear concessions came apart.

Still, Pyongyang seems to welcome continuing bilateral negotiations with the US.

"The DPRK will never need even a single nuke when the US renouncement of its hostility towards it is confidently verified and its nuclear threat is completely defused," KCNA said on May 27. "This tells that the master key to the settlement of the above-said nuclear issue is in the hands of the US."

"The US would be well advised to behave in a responsible manner, bearing in mind that the prospect for the solution to the nuclear issue hinges on its attitude," it concluded.

"Pyongyang will conduct a third nuclear test once its negotiations with the US are completely cut off," Mimura said.

Okonogi echoed Mimura's views. "Kim Jong-eun needs to consolidate the foundation of his new-fledged regime. For him, all-out confrontation with the US in the wake of a third nuclear test cannot be a good choice now."

Both Mimura and Okonogi denied the view that severe food shortages would lead Pyongyang to adopt a hard-line foreign policy to divert people from dissatisfaction.

Kosuke Takahashi is a Tokyo-based Japanese journalist. His twitter is @TakahashiKosuke

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