The most important piece of the French President’s visit to Japan was to discuss a cooperative agreement with the Japanese Prime Minister on the development of new and improved nuclear powered electricity-generating facilities. The Japan Times and Bloomberg both reported that “Hollande and Abe discussed nuclear energy and agreed to promote joint development of a next-generation nuclear reactor as well as to support private-sector efforts to export nuclear power technologies to emerging countries.” Japan’s Mitsubishi Heavy Industries and France’s Areva Corp. are two of the main developers of nuclear technology for domestic purposes. As I have written previously, the issue of nuclear energy is a vital link in the ABE economic plan. Prior to the 2011 tsunami and Fukushima disaster, Japan produced most of its electricity through nuclear power generators. The tragic outcome from the tsunami forced Japan to curtail most of the nuclear generators and become more reliant on imported energy, especially liquified natural gas (LNG).
When the YEN was holding at 75 to 80 to the DOLLAR the cost could be easily absorbed, but the recent depreciation of the YEN by 30 percent has driven the cost of energy imports sky-high. Japanese industry has seen the weak YEN benefit exports but the flip side is that energy costs have skyrocketed dulling the profitability of energy dependent manufacturers. For ABENOMICS to be successful Japan is going to have to turn on the nuclear power generators. This issue is covered in a cursory fashion by Bloomberg reporter Ulrike Schaede in “Abenomics Needs Cheap Nuclear Power to Work.” As the demand for LNG has risen so has the price since supply has not yet increased enough to satisfy global demand. Many LNG projects are in development but the Japanese do not have the time to wait so PM ABE knows full well that nuclear power may be the true third arrow in his economic strategy.
While Japanese public opinion is opposed to nuclear power generation, there is increased support as the distance between Fukushima and Abenomics becomes blurred. The French are looking for partners to promote nuclear energy as it seems that the German Chancellor Merkel has sided with the Green Party and decided to end all nuclear power generation over the next decade. The backbone of French industrial policy has been its nuclear sector and to ensure its independence from Germany, it seeks “fusion” with new partners. In return for Japanese nuclear cooperation the French seem to meet Japanese demands about maintaining the European arms embargo to China (in place since Tiananmen Square). Some may see Japan’s return to nuclear energy as bullish the YEN since there will be less outflow of YEN for energy purchases. I believe the ultimate result will be that it will give the BOJ the greenlight for further efforts to weaken the YEN. I shot an arrow in the air where the devaluation effects I do not care.
***A quick hitter: Last week the IMF issued a MEA CULPA to Greece for the poor quality of its projections on the outcomes for the country’s installation of massive spending cuts and tax increases. In the FT’s LEX column last Friday it said, “Running through the IMF report is the Fund’s intense discomfort at being very much the third-party in the TROIKA that rescued Greece, alongside the European Commission and the European Central Bank.” One of the key aspects the IMF report was “that it was a mistake to delay the restructuring of Greek debt….” This is not a surprise as the debt restructuring was delayed so that major banks in France and Germany would not have to absorb a huge capital hit to their balance sheets in a write down of the Greek debt, causing a possible meltdown of the European financial system.
The ECB and the EC only wanted the IMF to provide a third of the financing. (Remember that Christine Lagarde was put into the position of IMF director to ensure THE FUND’S support for a EU bailout.) At the time of Lagarde’s appointment to replace the disgraced Dominique Strauss-Kahn, many economies were pushing for an IMF director from the emerging markets. The Europeans would not have it–control over the purse of the IMF was needed to protect the EU‘s banks. The IMF MEA CULPA must be the result of a newfound conscience or else Director Lagarde is under severe pressure from the IMF staff for producing a very weak piece of research. En GARDE, the promoters of a corrupt status quo.