The EIA reported Japan had 281 gigawatts (GW) of installed electrical generation capacity as of 2008. A total 12 GW of that went offline due to automatic shutdowns (i.e. nuclear reactors shut off as a precaution whenever a major tremor is detected) or structural damage (i.e. damage to Fukushima Daiichi nuclear reactor plus a few thermal power plants), leaving 269 GW of generation capacity. Transmission losses are normally 5% of the total electricity generated, which effectively leaves 256 GW of electricity available to customers. Given that national electricity demand peaks at a pre-recession level of 175.2 GW as of FY2008 according to FEPCO , Japan has plenty of generation capacity to spare. Yet, rolling blackouts continue to roil Japan (except on weekends due to voluntary electricity conservation) because of inadequate capacity to transmit and transform electricity.
This year marks Chernobyl’s 25th anniversary and how ironic it is that the world has a new nuclear emergency on its hands: Japan’s Fukushima power plant, operated by TEPCO. The situation at Fukushima continues to worsen, with now 2 more reactors experiencing cooling problems and the radiation released so far surpassing that of Three Mile Island. General Electric designed the troubled, 40-year old reactors, which were due for decommissioning at the end of this month.
The Thai government’s PR department released a sanguine report on Thailand’s Q2 GDP data yesterday, glossing over the economic impact of the violent protests that flared up in April and May:
Thailand’s gross domestic product (GDP) in the second quarter of this year has expanded by 9.1%, setting the highest record of half-year figure in 13 years, according to the National Economic and Social Development Board (NESDB).
Source: “Half-year GDP hits 13-yrs highest“, National News Bureau of Thailand
A look at the data reveals however that real GDP actually contracted in Q2 2010 by 5.6%, not seasonally adjusted. The 9.1% growth reported by the National News Bureau refers to year-over-year growth. By this metric, Thailand’s expansion is really nothing surprising considering GDP rose from a very low base formed after the deepest contraction since the 1997-98 financial crisis. When the bar is set low, it’s quite easy to jump the bar. What’s more striking is, Thailand failed to even meet that bar in some respects:
The widening discrepancy between the yen and economic fundamentals raises the risk of market intervention by the Bank of Japan. Officials have made verbal interventions yet the yen proceeds to strengthen versus the U.S. dollar, ignoring the sharp slowdown in Japan’s Q2 GDP growth and instead feeding off the Federal Reserve’s entry to quantitative easing. Export volumes have yet to fully reflect the impact of a strong yen, shrinking only slightly in June, but export values have already tapered off. Q3 exports may show a more pronounced effect as the yen sinks further below the 92 yen breakeven level for exporters, lowering export volumes and local currency revenues and delaying repatriation of Japanese assets overseas. A strong yen also lowers import prices, counteracting efforts to end deflation.
BoJ Intervention in the Offing?
Australia’s 40% mining tax could discourage the establishment of new mines.
Thailand has continued its struggle to expand democracy since the absolute monarchy was ousted in a 1932 coup—when Siam became Thailand. Most coups and protests in Thailand have been relatively bloodless compared to the Philippines, where election violence is the norm. But once in a while, the death toll stacks up to heights that terrify Thais. As of May 18, 37 people had died in two months of protests, the bloodiest since the “Black May” protests in May 17-20, 1992, which killed at least 52 according to the official count.
The Philippines will hold its first automated general elections ever in May 2010. However, automation doesn’t guarantee fair elections. Does Florida in the 2000 U.S. elections ring a bell? Diebold may be gone now (it sold off its voting machine business to Election Systems & Software), but its competitors seem just as shady. And one of them is working to automate the Philippines’ voting system: Smartmatic, an Amsterdam-registered, Florida-based firm which formed a consortium with Filipino firm Total Information Management to provide voting machines and technical support to the COMELEC (Philippines Commission on Elections).
The Reserve Bank of Australia’s (RBA) recent move to raise its overnight lending rate to 3.25%—the first rate hike in a G20 country in the aftermath of the financial crisis—came earlier than many onlookers would have predicted weeks or months beforehand. But the move wasn’t inconsistent with economic fundamentals. Resilient commodity demand from emerging markets […]
Today, following the release of our U.S. and China outlooks, we present another preview from the updated 2009/10 RGE Monitor Global Economic Outlook, which will be available by the end of next week to subscribers. This week we focus on Japan, which will not only underperform the U.S. and EU economically in 2009, but also faces political uncertainty. National elections, scheduled for the end of August, are quite likely to bring some changes to Japanese economic policy, and could also hold ramifications for the U.S. dollar.
RGE Monitor expects the pace of Japanese economic contraction to ease from the sharp decline of Q1 2009, but the road to recovery will be long and bumpy. Inventory restocking is coming to an end and rising commodity prices could curtail a nascent recovery in consumer demand. Meanwhile, public spending is constrained by soaring public debt, and Japan’s export-oriented model of growth seems increasingly unsustainable, given the degree to which deleveraging is stifling external demand from the U.S. and Europe.
Japan’s Lost Decade might thus be more aptly called its “Lost Decades.” The sharp economic slowdown of the early 1990s culminated in a recession in 1998-1999, only to be followed by almost another decade of recessions and paltry growth. Being the most trade-dependent of major industrialized nations, Japan suffered the worst GDP contraction among these countries in Q1 2009, and is on track to perform the worst of the G3 in 2009. Aggregate demand slid precipitously and deflation took hold once again, despite massive fiscal spending and monetary expansion. RGE projects Japan’s recession will persist through 2009, then give way to gradual recovery in 2010.
Feeble Aggregate Demand
On the whole, Australian banks seem in better shape than those in the EU27 and U.S. Though Australian banks will not be immune to asset quality deterioration and funding difficulties during the global credit crisis and recession, Australia’s recession will likely be milder than in its North Atlantic counterparts. With less exposure to on- and off-balance derivatives, Australian bank health is tied primarily to the strength of loans – 55% of which are housing-related, the highest share among the 3 regions. Fortunately, Australia’s housing market has swung around an inflection point into an uptrend driven by lower interest rates and the government’s First Home Owner Grant. As of end-2008, Australia scored best on most of the alphabet soup of bank performance indicators (see table below):
Profitability: ROE, ROA, NIM
Australian banks are more profitable than those in the U.S. and EU27. Return on Equity (ROE) is 10 times that of the U.S. and EU27. Return on Assets (ROA) in Australia is only half that of the EU27 but is 5 times that of the U.S. Australian banks’ net interest margin (NIM) – the difference between lending rates and deposit rates – has remained wide at 6.47%, slightly higher than the 6.1% at end-2007. Banks have sought to widen spreads between borrowing and lending rates to help recuperate bank profitability. NIM in the U.S. and EU27 is only half that of Australia’s, which implies a lower net interest income. Operating expense as a share of assets in Australian banks is 5 times higher than in the U.S. though.
Balance Sheet Risks: NPLs