In this edition of TPR News: The Defense Ministry is finally a reality, and in an non-news event, Shinzo Abe visits the Meiji Shrine, former LDP vice president Taku Yamasaki visits North Korea, Japan’s politicians continue to sound off on the dangers of having a female sit on the Chrysanthemum throne, Nintendo’s Wii is outselling Sony’s Playstation 3 by a factor of 2 to 1 and the Last Word takes a look at interest rates, the economy and their place in politics, for better or for worse…

Politics

As of Tuesday morning, Japan’s Defense Agency no longer exists. The new Defense Ministry makes its debut, though the Self Defense Forces and Japan Maritime Self Defense Forces have retained their names, both in Japanese and in English translation.

The new ministry started off by announcing four new instances of inadvertent data loss caused by SDF members who used the file sharing software known as Winny. There are now 31 known cases of such information loss. As the Yomiuri put it:

The information leaks have brought to light lax informational security controls on information the agency had put in place, despite the fact it was to be upgraded to a ministry Tuesday.

Japan’s press made a rather large deal out of Prime Minister Shinzo Abe’s New Year’s visit to the Meiji Shrine in Tokyo. When asked by reporters why he chose to visit the Meiji Shrine, Abe, who signed the guestbook as “Prime Minister Shinzo Abe,” said, “This is a venerable shrine. Since this place is close to my house, I often come here.”

In the wake of the recent scandal involving former Tax Commission chief Maasaki Honma, many lawmakers have become wary of accepting government-subsidized housing, even as the government puts the finishing touches on a new facility in Akasaka, a ten minute walk from the diet building. As one diet member put it, “I cannot say I am going to enter the Akasaka dormitory in front of my supporters.” Lawmakers pay about one fifth of typical market price in order to live in subsidized dormitories.

On Tuesday, Prime Minister Shinzo Abe hinted that a visit to North Korea by former LDP vice president Taku Yamasaki was in violation of Japan’s sanctions against the communist country. Yamasaki, who plans to stay in North Korea until Saturday, reportedly plans to hold discussions with high-ranking North Korean officials, including Song Il Ho, who is in charge of leading diplomatic normalization talks with Japan. At a press conference on Tuesday, chief cabinet secretary Yasuhisa Shiozaki said:

We think it undesirable that a Diet member who represents the public visits North Korea, since we decided that public servants should refrain from taking a trip there and we have asked people to abide by this.

At a summit in Hanoi in November, South Korean President Roh Moo-hyun suggested to Prime Minister Shinzo Abe that the Sea of Japan be renamed the “Sea of Peace” or “Sea of Friendship.” The incident came to light on Monday and has been reported broadly by the Japanese press. Chief Cabinet Secretary Yasuhisa Shiozaki said Japan was sticking to its position that the Sea of Japan would continue to be called the “Sea of Japan” and that Roh’s suggestion was made as an unofficial proposal.

Society

Deputy Chief Cabinet Secretary Hakubun Shimomura continues to address the issue over whether or not a female should be allowed to ascend to Japan’s imperial throne. In a recent interview with the Japan Times, Shimomura had this to say:

For 125 generations over the past 2,000 years, the male paternal line has been unbroken and I believe we should make efforts to maintain this culture and history…[The Imperial succession] is not a matter of the quality of men and women, nor should it be discussed [in such a manner]…Nobody in other countries brings up gender equality against the Dalai Lama and the pope, and the same should go for the Emperor…If [Japan] allows the descendants of females to become emperors, then they would be no different from ordinary citizens. The respect that people have [for the emperor] will become distorted, thereby distorting the Imperial system itself.

Shimomura hopes to soon have a law passed that will ensure male-lineage based succession for the future.

An all girls high school in Sasebo, Nagasaki Prefecture has decided to test applicants on their chopstick skills. Hisatagakuen Sasebo Girls’ High School will administer a ten minute exam in which aspiring students will have to demonstrate their skills with a specially designed pair of chopsticks.

The Daily Yomiuri has published a piece detailing the efforts of a nonprofit group called Cinema Access Partners, which has produced, developed and promoted voice guidance systems that help the visually disabled better enjoy films. CAP director Chihoko Hiratsuka was quoted as saying:

But in Japan, products with audio guidance have just started hitting the market. Since quality voice guidance can also help the visually unimpaired to enjoy the detailed depiction of films, we want to popularize products that everyone can enjoy.

CAP is also busily working on solutions for the hearing impaired.

Business and the Economy

In response to recent laws placing limits and caps on consumer loans, Citibank has decided to scale back its consumer finance operations in Japan. Although Citibank is not planning to withdraw completely from the sector, it will close 270 of its 320 lending branches, and 700 of its 800 automated lending machines.

Nintendo’s new Wii console has been outselling Sony’s Playstation 3 at a clip of almost 2 to 1. Although the Wii hit the market nearly three weeks after the Playstation 3, it came close to its goal of selling one million units in Japan by the end of 2006.

Via Japan Economy News & Blog and Reuters: Speaking at the Center for Strategic and International Studies in Washington, Finance Minister Koji Omi said he believed that the Japanese economy would pick up in terms of growth over the coming summer, in time for the upper house elections. This statement was made despite the fact that the economy is growing at around a 1.8% annual clip and the government’s own projections are for 1.8%-2% growth.

The administration of Shinzo Abe is finding itself between a rock and a hard place: it must somehow simultaneously find a way to sustain economic growth while ensuring that fiscal conditions in Japan are reconstructed. In a special Yomiuri piece on the situation, former internal affairs and communications minister Heizo Takenaka has said that the government’s draft budget for the upcoming fiscal year seems to imply that no increase in consumption tax is thought to be necessary.

Japanese stocks fell on Wednesday, as investors, spooked by the idea that the Bank of Japan seems set to raise interest rates at its board meeting next week, dumped stocks such as Canon and Honda. Atsushi Osa of Mitsui Sumitomo Asset Management said, “The concern among investors is that there is a 50-50 chance the BOJ will raise interest rates next week.”

The Last Word:

Interest rates hardly seem like the sexiest or most fascinating of topics, but here in Japan, little else bears as much importance as the outcome of next week’s Bank of Japan governor’s meeting. Should the BOJ decide to raise interest rates, as it did last July from 0.7 to 0.25, many observers worry that we might see the ongoing economic recovery vanish.

In 2000, the BOJ raised the then-interest rates from their effective 0% to .25%, and the economy plunged back into recession, with deflation once again taking hold. Six months later, the BOJ was forced to drop rates back down to 0. It is also worth noting that the average wage in Japan remains lower today than it was in 2000.

Interest rates are meant to be used as a tool for controlling inflation. This is what economists call monetary policy and it is supposed to be carried out by a central bank that is independent of political pressure. As Time magazine points out, however, “Although the BOJ is officially independent, its governors are subject to far more government influence than U.S. or European central bankers.”

Currently, political pressure would be telling the Bank of Japan not to raise interest rates. Bank of Japan governor Toshihiko Fukui is keen to raise them; he wants his legacy to include returning Japan to a normal monetary status. The economy, however, is giving mixed signals on whether or not raising rates would be a good idea.

Certainly, Japan is in its longest period of post-war economic growth. That said, the current ‘boom,’ if it can be called that, has returned 2-3% annual gains in GDP. Further, the recovery has been fueled by capital expenditure. This means that corporations are the ones spending the money, not consumers. Consumer spending has remained flat in Japan, and it accounts for 50% of GDP.

There are those who have argued for interest rate increases by claiming that a rate hike would provide a better return on savings accounts. This, of course, is disingenuous. Current returns are next to nil; even doubling the prime rate from 0.25% to 0.50% would mean little in the way of returns on savings accounts. It would, however, mean substantial increases in terms of mortgages, business loans and automobile loans.

Plenty of experts have wondered why consumer spending has yet to increase in Japan. Yet, the reason seems obvious: wages declined by about $4,000 on average per worker from 1995-2005 and then increased by about $400 per worker over 2006. Given that two recent effective tax hikes have taken place, in January 2006 and January 2007, the average worker in Japan simply has less money.

The bigger questions would be: Why haven’t companies been able to increase wages during this period of supposed economy recovery? That, however, is a question for another time.

Back to interest rates. There seems to be about a 50% chance that they will be increased next week. If they are, will the sky fall on the Japanese economy? Most likely not. But will it cause a pinch in the average consumer’s wallet? Most likely so. Will it hurt Mr Abe’s chances at winning the upper house election in July? Only if the economy falters and capital spending slows as a result. Is that likely? This observer thinks so. Is that the legacy Mr Fukui wants to leave behind?

Perhaps, we might see just a bit more political pressure put on the Bank of Japan. Or, we won’t see it, but if it’s there, we won’t feel it either.

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