Earthquake shadows damp squib

The highly predictable Reserve Bank decision to put a hold on interest rates, possibly through to next March, was a bigger damp squib than expected.

The monetary policy statement was far from bullish, with downgraded (pre-earthquake) forecasts of 2.8% for the year to March and 2.6% for the following 12 months. That is down from respective forecast of 3.5% and 3.6% only three months ago.

Later in the day, Governor Alan Bollard told MPs at Parliament that while the export economy is still humming along with high commodity prices, “we have seen households and businesses less confidence about the speed of the recovery...they have taken the view they need to reduce debt to a greater extent than we had predicted.”

The upside of this, as NBR’s Rob Hosking explains,  is that New Zealanders are beginning to address long-standing issues around poor savings and high indebtedness. The reduced demand also means inflation will be kept well in check, despite the looming GST increase and other government imposts such as the emissions trading scheme.

The immediate impact on the financial markets – a drop in interest rates and the value of the kiwi – is adding to this momentum. It also makes the longer-term kicker of the Canterbury earthquake recovery spike – likely to hit by the end of the year – even more interesting.

Frustrated in Tokyo

The Japanese surprised everyone this week – not by refusing to replace one of their hapless prime ministers but with a currency intervention.

The yen has been the major beneficiary of the uncertainties in the global economy throughout the sovereign debt problems in Europe and the fall in US interest rates.

But it was crippling Japan’s big car and electronics exporters. Finally, the Bank of Japan moved on Wednesday, just as the yen soared to a 15-year high against the US dollar. Even at $US16 billion’s worth, the intervention was piddling and seen as ineffective.

As for political leadership, one of Japan’s pressing problems since the departure of Junichiro Koizumi, the future will be more of the same.

Newsweek, for one, thinks Democratic Party strategist Ichiro Ozawa is the only man capable of making a difference, though he is deeply unpopular.

The long-time “shogun” of Japanese politics came within a whisker among MPs of unseating Prime Minister Naoto Kan, but support was lacking from the party’s rank-and-file.

Mr Kan has been in office only three months and has latched on to Obama-style politics:

“I have a dream. That is to break the 20 years of blockage, to point a new way for Japan, to revive Japan and to pass a vibrant Japan on to the next generation.”

But Newsweek’s Takashi Yokoota says instead of waffly visions Japan needs Mr Ozama’s more aggressive approach, with a shift in power from the powerful bureaucracy to elected politicians:

He [Ozama] called for an end to wasteful government spending—a hallmark of the long-ruling Liberal Democratic Party—in favor of corporate tax cuts to put money in the people’s pockets. He urged individuals to stand up and change Japan, and for Japan to stand up and play a more active role in world affairs.

Solving the innovation dilemma

Two professors at the Tuck School of Business at Dartmouth College have thrown cold water on the proposition that startups are the be-all and end-all of innovation.

In The Other Side of Innovation: Solving the Execution Challenge, Vijay Govindarajan and Chris Trimble address two subjects that are usually given short shrift: established companies rather than start-ups and the implementation of new ideas rather than their generation.

A summary of their work in The Economist says

…companies need to build dedicated innovation machines. These machines need to be free to recruit people from outside (since big companies tend to attract company men rather than rule-breakers). They also need to be free from some of the measures that prevail in the rest of the company. But they must avoid becoming skunk works.

They need to be integrated with the rest of the company—they must share some staff, for example, and they must tap into the wider company’s resources as they turn ideas into products. And they must be tightly managed according to customised rather than generic rules.

This sounds like what F&P Appliances has done with its new fridge compressor and the sort of stuff that drives Japanese business.

So a new report by the Economist Intelligence Unit, Talent strategies for innovation: Japan, is pertinent.

It examines how they face the challenge of recruiting, nurturing and retaining talented people to ensure their organisations remain innovative.

Its four main findings are that Japanese companies:

• will have to look farther afield for talent due to the pressures of globalisation and competition

• place less emphasis on the importance of talent management in their organisation's ability to innovate, and consequently delegate responsibility for it lower down the chain of seniority.

• are more likely to employ structured, long-term talent-management strategies, and rely on internal development; and

• tend to value technical knowledge and learning ability over creativity and entrepreneurship. It is also pertinent to remember that the yen’s strength has put Japanese companies at the forefront of global mergers and takeovers, as this roundup the Wall Street Journal shows.

One  recent billion-dollar deal saw Lion Nathan owner Kirin Holdings become an indirect owner of rival brewer DB through a significant shareholding in Singapore’s Fraser & Neave.

The return of Gordon Gekko

The much-awaited sequel to Oliver Stone’s Wall Street (1987) will finally surface next week, held back to coincide with the post-summer season in the US for more demanding films, as well as the two-year anniversary of Wall Street’s real-life meltdown.

The collapse of Lehman Bros, before the US government took on a series of bailouts, is widely blamed for triggering a credit crunch. This is a key event in the Wall Street: Money Never Sleeps, though it is dressed up as fiction.

Similarly, crisis meetings of the US Federal Reserve with the titans of Wall Street are re-enacted, along with glittering charity functions among the rich and powerful.

Double-dealing and the Goldman Sachs “swaps” scandal are also covered, giving aficionados of financial films some choice moments (another is Jim Carrey’s Fun With Dick and Jane (2005)).

A shortcoming is that the trading sequences, like the Carrey film, are visually obsessed with a flurry of computer screens and the makers think viewers will tire of anything more than a brief explanation. (This brilliant YouTube comedy clip shows how it can be done with just talking heads.)

By contrast, the personal entanglements of Gordon Gekko, again played by Michael Douglas, are far less frenetic and more comprehensible. Incidentally, director Stone knows more than he lets on: his father, Louis Stone, was well-known stockbroker on Wall Street during the 1950s and 1960s.

Stone senior’s firm was taken over by Sandy Weill’s Citigroup at a time when the major banks moved into stockbroking.