3 Senior Spokesmen on Japan's ongoing malaise

Takeaway From Japan’s 20-Year Malaise: The Danger of Delusional Thinking

by: Darrel Whitten September 13, 2010

The Sunday, September 12 edition of the Japanese language Nihon Keizai Shimbun (Japan Economic Journal) carried three views of people who were major players in Japan’s two lost decades.
The first was Yasushi Mieno, former Bank of Japan governor between December 1989 and 1994, who was credited with pricking Japan’s excess credit bubble and continued to have a strong influence on the Bank of Japan for many years afterward. The second was Kaoru Yosano, an ex-LDP veteran who is now the co-head of the LDP spin-off party “Tachi Agare Nippon,” a party sometimes described as party of “grumpy old men.” Mr. Osano was involved in the liquidation of the Senjyu, the specialist housing loan companies that were the first shot across the bow in Japan’s financial crisis. He also was an original member of the Structural Financial Reform Committee. He has also served as the chairman of the LDP’s policy research council, the tax research council, the economic and fiscal advisory committee, LDP chief cabinet secretary and as and economic and financial minister as well as treasury minister. The third is Heizo Takenaka, the ex-private sector economist who became the Junichiro Koizumi Cabinet’s financial minister and financial reform point man between 2002 and 2006.

Basel III ain't all that

This is Basel III??

Arriving at the rush, with extra impetus doubtless imparted by the recent and ongoing Eurobanking panic, we have the Basel III capital and liquidity reforms (there’s a one pager, a full press release and, oh, not wholly unexpectedly, a somewhat anticlimactic phase-in timetable). In fact, the liquidity reforms here are just timetable entries – the relatively demanding funding ratio proposals from December last year got shunted into a siding, back in July.
So, errm, for the moment, what we have are just some capital ratios, actually. Enough to get DB moving: they are raising another EUR10Bn, at the front of the queue. So I suppose the Germans are once again first to put their beach towels on the prime sunbathing spots.

Shockingly, research finds hedge funds mismarking positions to their favour

 … although giving credit where credit is due, they are doing so intelligently - rarely, only a little and only when they aren't likely to get caught. The gory details are here …

Why Some Hedge Funds Appear to Be Fudging Valuations

by: Christopher Holt September 13, 2010

Unlike mutual funds, the reporting requirements of hedge funds, particularly offshore hedge funds, mean that managers often have a significant amount of discretion with regard to valuing their portfolios. So do some hedge fund managers take advantage of this and fudge returns? Researchers have uncovered several clues that suggest they do. Regular readers will recall this study, for example, showing that there is an odd lack of slightly-negative returns in the performance history of hedge funds. It’s almost as if managers exercised some “flexibility” in valuing their portfolios in order to nudge their returns above zero. For those managers, the benefits of not having a minus sign in front of their return outweighs the costs.
But what is the mechanism that leads to this anomaly and others like it? Do managers just goose the returns they report to databases and clients or it is more complicated? A new study explores how exactly “misreporting” occurs.

Why the yen has been strengthening

The Yen Conundrum by: Marc Chandler September 10, 2010

Seventy years ago next month, Winston Churchill described Soviet foreign policy as a “riddle wrapped in a mystery inside an enigma.” That now may be apropos of the Japanese yen.

Japan is a country that appears to be literally in decline. The population has begun shrinking, as has the work force. It has been almost 21 years since the Japanese stock market peaked. The overnight rate has been close to zero for the better part of 15 years. Deflation continues to grip the economy, which is plagued with slow growth. In fact, despite the 1.5% expansion reported in the April-June quarter, in nominal terms, that is when unadjusted for prices the Japanese economy contracted by 0.6%. The lost decade has turned into two.