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Japan's economy grows at an annualized pace of 3.5% in the first quarter of 2013 after aggressive monetary easing by the Bank of Japan under Haruhiko Kuroda.

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For every 10 yen change in the exchange rate, profits of exporters are likely to increase by 7-10%, according to Goldman Sachs. This includes companies such as Toyota, Sharp, Panasonic, Sony and Asahi Group Holdings.

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Japan's cabinet approves a change in interpretation for Article 9 of the constitution to permit "collective self-defense." The wording was negotiated with the more pacifist New Komeito party in the coalition government to cover attacks on Japanese allies such as the U.S., but limit it to actions that seriously threaten Japan. Because the Liberal Democratic party of prime minister Abe controls both houses of parliament the change is likely to go through. The U.S. president Obama, Defense Secretary Hagel, and Rear Admiral John Kirby of the U.S. Navy see this as improving security and stability in the region.

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Japan's GDP growth is at an annualized pace of 3.5% for the 1st quarter of 2013.

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Core consumer price index was up 1.3% in December 2013 from the prior year, according to government information. For 2013 the index was up 0.4%, the first increase in 5 years. The Bank of Japan's target is 2% inflation. The ratio of available jobs to applicants increased to 1.03 showing 103 jobs for every 100 job seekers- the first surplus of available jobs since 2007. The jobless rate declined to 3.7% in Dec. 2013, down from 4% in Nov. 2013. A planned sales tax increase to 8% from 5% to tackle the high government debt level goes into effect in April 2014, which is expected to reduce consumer spending.

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Japan says Russian planes intruded into Japanese airspace for over 1 minute on February 7, 2013, over the island of Rishiri, near Hokkaido. F-2 aircraft from Japan's Self Defense Forces responded to the intrusion. The intrusion comes at the time of the Northern Territories Day when Japan's government reiterates its determination to press for return of the Northern Territories from Russia. Japan did not sign a peace agreement with Russia at the end of World War II after Russia refused to leave the islands. The islands are known as the four Kuril islands in Russia. Policy experts at Japan's National Graduate Institute for Policy Studies say the Russian intrusion was an attempt to test Japan after an incident where Chinese radar locked in on Japanese naval ships in the East China Sea. The effects on public opinion are likely to create support for prime minister Abe's effort to increase the budget for Japan's Self-Defense Forces.

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Jennifer Lind, associate professor at Dartmouth, says the right policy for the Abe administration is to follow Defence Minister, Itsunori Onadera's apology for Osaka Mayor Hashimoto's remarks about "comfort women" during the war period. Onadera said, Hasimoto had caused misunderstanding and mistrust in Japan's neighbors with his imappropriate remarks about the history of Japan, and emphasized previous apologies of the Japanese people. A senior Chinese delegate Zhou Bo of the Defense Ministry to the Singapore regional security forum, where Onadera made his statement, stated that Onadera's remarks pointed towards a optimistic future for the region. Editorials in the WSJ have consistently pointed out what Lind says in her op-ed- that the Japanese people support for the Abe administration is based on its efforts for achieving economic recovery and not for creating tensions in the region with neighbors. This also is evidently the policy of the U.S. government and its European allies.

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Huruhiko Kuroda, the new Governor of the Bank of Japan, Japan's central bank, told parliament in confirmation hearings: "If I am confirmed as governor, I will clearly communicate to markets that I am prepared to do whatever it takes to beat deflation... The Japanese economy has suffered from deflation, for over 10, almost 15 years, which is a global anomaly of the most extreme. As prices have fallen, corporate profits and wages have shrunk, depressing consumption and investment and triggering even lower prices in a vicious cycle." Kuroda also emphasized that the weakening of the yen was a side effect not the goal itself- "There is evidence that currencies tend to fall for countries that ease monetary policy on a large scale, but the BOJ's policy is not targeting currencies... The important thing is to ensure price stability and achieve the 2 percent price stability goal, although it could affect currencies in that process."

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Haruhiko Kuroda, 68 years old, a senior finance ministry expert who ran the ministry's currency policy as vice finance minister for 4 years in the early 2000's, is prime minister Abe's nominee for central bank chief. He lectured at Hitoshibashi University for two years before becoming the head of the Asian Development Bank. His book "Success and Failure in Fiscal and Monetary Policy," is critical of the Bank of Japan for mistakes in being first too accomodative in monetary policy to set up the 1987 crash, and then tightening too quickly leading to the deflation and recessions of the last two decades. By choosing an expert with a long experience in the field of monetary policy and a vigorous advocate of getting things right to shake off the deflationary trends, Abe is sending a strong signal to financial markets. Kuroda says he is looking at a shorter time frame to achieve a 2% target for inflation- about two years. In essence Kuroda is taking a page from the policy book of a small group of MIT trained economists, Bernanke at the U.S. Federal Reserve, Draghi at the European Central Bank, and Mervyn King at the Bank of England to boost domestic economies in the context of increasing global growth. The yen weakened to 94.77 to the dollar on Feb 25, 2013, after the announcement. Abe's nominee for one of two deputy governor appointments is Kikuo Iwata, a 70 year old economist who was also critical of Bank of Japan monetary policy since the 1990's. The Abe administration has also carefully communicated this message. Speaking at the Centre for Strategic and International Studies in Washington D.C. Abe said Japan's goal was to increase exports, but at the same time it will increase imports which should benefit the U.S., China, India and other countries. He described a recovery in Middle America from the Dakotas to the Carolinas and sees something like this happening also in Japan. Even the appeals to nationalist sentiment are also coupled with the message to China and S. Korea of not climbing up the escalation ladder and seeking good relations to promote mutually beneficial development. Abe's focus is on building the U.S.- Japan relationship....

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Siemens and Alstom join together to compete effectively against China's CRRC in Asian markets. CRRC is itself the result of the merger of two large rail companies in China. China has about 12500 miles of high speed rail network, more than the rest of the world combined. Prime Minister Shinzo Abe of Japan is pushing for Japan's Shinkansen bullet trains, with billions of dollars in soft loans, including an effort to build the first high speed rail in India between Bombay and Ahmedabad.

Japan and the European companies have an edge when it comes to longer experience with high speed rail and better maintenance track record, to compete with CRRC's lower price tag.

 

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The G-20 statement for the meeting in Washington D.C. in April 2013, says: "Japan's recent policy actions are intended to stop deflation and support domestic demand." Bank of Japan Governor Haruhiko Kuroda's response was that this will help the BOJ implement its monetary expansion program in an orderly way. Kuroda said: "Now that we have obtained the support of the international community, we will be able to implement our program with confidence." These moves come with a call for Europe to proceed with banking union and giving more time for austerity programs to reduce the slowdown in Europe. This happens as fears emerged of a global slowdown in April 2013.

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Changes to Japan's corporate governance code being pushed forward by the Abe administration will give more importance to shareholders interests. This includes improving transparency and management structure, including more independent outside directors on boards, to breakup cozy relationships of executives running corporations in Japan. Improving return on equity is part of the plan proposed by Abe. The government has offered to cut the corporate tax rate down to below 30% in a few years as part of the new deal. Abe told the nation in a televised address that "there are neither taboos or sacred cows, only a singular strong devotion to see this through to the very end." Abe called for more women in the workforce, and the hiring of more foreign workers.