Japan faces its own power crisis via its enormous energy imports

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by Shaun Richards

Today we can stay in the Orient and even with a similar opening issue as we note this.

(Bloomberg) — Japanese equities fell, pushing the Nikkei 225 Stock Average to a seventh-daily loss and the brink of a technical correction, amid market disappointment with a new government and a host of threats to global economic growth.

The blue-chip measure closed 2.2% lower, capping its worst longest losing streak since May 2019 and extending its loss from a September high to 9.3%.

With it being Japan there is a lot to consider here and let me start by welcoming the new Prime Minister Fumio Kishida. This week has not been much of a welcome in equity markets and we have seen a bit of a buy the rumour sell the fact since the market soared above 30,000 setting multi-decade highs. An overall perspective comes from a @MitchKew below.

I started covering Japanese equities in Apr ’81 when Nikkei225 was 7,000. It went constantly upwards to peak at 39,000 in Dec ’90. Now 30,249 & bull market that started in Nov 2012 has been missed by many. 2021 has been a great year, with much more to come…

Short-term not so hot as we have lost around 2400 points but if you have been long since the Abenomics rally began then for once the ‘Tis but a scratch saying of Monty Python would still be true.

Bank of Japan

Next comes the issue of how important equity markets are in Japan. After all the Bank of Japan has bought some 36.2 trillion Yen of equity ETFs ( exchange-traded funds) so it must think it is important as it sang along with Elvis Costello.

Pump it up, until you can feel it
Pump it up, when you don’t really need it

Regular readers will be aware of the media claims that this is over and my pointing out that this would apply if we saw any sustained falls.

She’s been a bad girl, she’s like a chemical
Though you try to stop it, she’s like a narcotic

So it was hard not to have a wry smile when they bought another 70.1 billion Yen on the first of this month. None today but they may be holding back due to the change of PM.

Energy Crisis

In spite of the fact that it has put so much emphasis into nuclear power Japan is being effected by this.

Japan may see some restarts of oil-fired power generation units this winter, amid soaring LNG and coal prices, Petroleum Association of Japan President Tsutomu Sugimori said Sept. 15, as refiners carry out contingency planning in response to the tightened power supply and demand balance over the past season. ( SPGlobal )

In fact Japan had trouble earlier this year with this issue. From @JavierBlas on January 10th.

In case you missed it, Japan is suffering its worst energy crisis since the 2011 Fukushima nuclear disaster, with very tight supply of both electricity and natural gas. Domestic wholesale electricity prices have spiked to a record high.

In fact they seem to be digging a bit of a hole for themselves.

TOKYO, Oct 5 (Reuters) – Japan aims to expand renewable energy as much as possible and restart nuclear power plants whose safety has been confirmed, its new industry minister said on Tuesday, to meet a 2030 target of a 46% cut in greenhouse gas (GHG) emissions from 2013 levels.

The nuclear power output had fallen towards 5% of the total after the post Fukushima closures leaving Japan like this according to nuclear-power.org.

Up until 2011, Japan was generating some 30% of electricity from its reactors and this was expected to increase to at least 40% by 2017. The plan is now for at least 20% by 2030, from a depleted fleet.

The first two reactors restarted in August and October 2015, with a further eight having restarted since. 16 reactors are currently in the process of restart approval.

The basic issue is this.

Japan needs to import about 90% of its energy requirements.

The resources issue as in lack of has dogged Japan for many decades and was a major factor in its decision to attack Pearl Harbour in 1941.

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As you can see this is an issue of great national vulnerability and it may be typically Japanese to use a climate change target to open up again some old nukes. There are of course issues with that in terms of safety especially as they were closed on safety grounds in the first place.

This issue is one that Japan is contributing to by considering using oil fordomestic power this winter and via its large imports suffers from.

FirstFT: US oil price hits 7-year high

With the price of a barrel of Brent Crude Oil above US $81 as I type this you can be sure that Japanese minds will be focused on this issue.

Retail Sales

August was a reminder of past problems with consumption.

Retail trade in Japan dropped 4.1% in August compared to July, the Ministry of Economy, Trade and Industry reported on Thursday. On a yearly basis, retail trade decreased by 3.2%, significantly lower than predicted.

Compared to August 2020, sales of machinery and equipment fell the most, plummeting 13%, followed by fabrics, apparel and accessories at 12.1%. Fuel recorded a 12.9% jump year-on-year, while motor vehicles improved by 1.5%. ( BreakingTheNews)

There were no doubt Covid-19 issues here but it does show that the expected boost from the Tokyo Olympics rather disappeared with the international spectators.

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Also industrial production lost its way.

  • Industrial Production is pausing. ( METI )

Actually the monthly fall was 3.2% driven by these factors.

Industries that mainly contributed to the decreased1.Motor vehicles, 2.Electrical machinery, and Information and communication electronics equipment, 3.Production machinery, in that order.

Comment

Let me open with something that makes Japan very very different. Here is Bank of Japan Governor Kuroda giving a speech to business leaders last week.

Let me move on to price developments in Japan. The year-on-year rate of change in the consumer price index (CPI, all items less fresh food) has been at around 0 percent.

Essentially his job is to explain why he gets nowhere near the 2% per annum inflation target and in this speech he blames phone companies.

For instance, mobile phone charges alone have pushed down the overall rate of change in the CPI by more than 1 percentage point due the significant decline
brought about by the launch of low-cost mobile phone plans this spring.

Perhaps they should raise his mobile phone tariff! But Japan has not had any inflation for years and indeed decades. Even in the midst of a worldwide inflationary surge the Tokyo CPI forward indicator has only risen to 0.3%. Actually I think that the failure here is in fact one of the reasons why the Japanese economy has held together and thus is a success.

The growth picture however is different to that presented by the media. It looks relatively good when you see a pandemic contraction of 1.4% reported. But Japan was already contracting due to the impact of raising the Consumption Tax and also Governor Kuroda thinks the numbers are larger anyway.

The level of real GDP for the April-June quarter this year is still almost 3 percent below the pre-pandemic level.

Now there is the energy price issue which will affect things via both prices and imports and thereby economic growth. Although Japanese inflation measures always seem to shrug these things off. No wonder Governor Kuroda wants to focus on climate change.

Conclusion
Lastly, let me talk about the Bank’s monetary policy actions to address climate change.

Meanwhile in other news a development that we on here have been predicting for some years gives history an echo.

3 OCT, the JMSDF conducted verification of takeoff and landing of the USMC F-35B to JS IZUMO. The JMSDF continues to steadily carry out the necessary modifications to the IZUMO class to acquire the capability to operate the F-35Bs.

 

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