Fukuda Quits as Japan Prime Minister Citing Gridlock (Update2)

Sept. 1 (Bloomberg) -- Yasuo Fukuda resigned as Japan's prime minister after less than a year in office marked by political gridlock, plunging approval ratings and disarray within the ruling Liberal Democratic Party.

``Policies must be carried out under new leadership,'' Fukuda, 72, said at a press briefing in Tokyo today. He follows predecessor Shinzo Abe, who quit last September, in resigning since the LDP lost control of the less-powerful upper house in July 2007 to the Democratic Party of Japan.

Both Fukuda and Abe proved unable to work with the opposition or win popular support for road taxes and increased health care for the nation's aging population. The new prime minister, most likely the next LDP president, will need to revive an economy that contracted in the second quarter, bringing Japan to the brink of its first recession in six years.

``This is an act of suicide for the Liberal Democratic Party,'' said Yasunori Sone, a professor of politics at Keio University in Tokyo. ``The public will probably want new elections to be held, instead of an LDP leadership vote.''

The yen pared gains after Fukuda's resignation, trading at 108.18 against the dollar at 11:04 p.m. Tokyo time, compared with 107.80 before the announcement.

``It shouldn't dampen the yen too much at this stage,'' said Chris Furness, head of currency strategy in London at 4Cast Ltd., a research company that counts central banks among its subscribers. ``Fukuda was not the most popular of prime ministers and he wasn't tremendously effective either.

Koizumi Legacy

Taro Aso, the man Fukuda defeated a year ago in a leadership battle, will handle the selection of a new LDP president, who would then be nominated as prime minister. Former Pemier Yoshiro Mori said today that many LDP members support 67-year-old Aso as leader.

Fukuda's resignation comes two years after ex-Prime Minister Junichiro Koizumi tried to privatize the postal service and vowed to destroy his ruling party after encountering opposition to the plan. The political gridlock that followed his departure led to the first leadership vacancy at the Bank of Japan in more than eight decades and helped drive down Japan's Nikkei 225 Stock Average about 20 percent since Koizumi left office.

``The 53-year-old LDP is reaching the end of its political shelf life,'' said Masayuki Fukuoka, a professor of political science at Hakuoh University north of Tokyo. ``Koizumi promised to change Japan by destroying the LDP, and that's what we're seeing -- an eviscerated party on its last legs.''

Election Looms

The LDP is required to hold lower-house elections by September 2009. The party has been in power through coalitions for all but about a year since it was formed in 1955.

The ruling coalition had to use its two-thirds majority to override upper-house vetoes of legislation to renew refueling missions in the Indian Ocean for allied forces fighting in Afghanistan, and taxes earmarked for road construction. It was the first time the lower house used the maneuver since 1951.

Fukuda's approval rating has fallen by almost half since he took office last September. Public support for his Cabinet fell to 29 percent, down 9 percentage points from early August, the Nikkei newspaper reported earlier today, citing its own telephone survey. Fukuda's disapproval rating rose 14 points to 63 percent. Nikkei said it contacted 1,549 households and obtained 866 valid responses. The newspaper didn't provide a margin of error.

Fukuda replaced Abe, who cited his inability ``to gain the trust of the people'' for stepping down. Abe, 53, resigned after his approval rating fell to below 30 percent.

Cabinet Resignations

The LDP's loss of the upper house to the DPJ in July 2007 followed the discovery that the government misplaced more than 50 million pension records, the resignation of four ministers and the suicide of another minister under investigation for corruption.

Fukuda, the first prime minister whose father also held the position, beat former Foreign Minister Taro Aso in the LDP's party vote for the leadership. He had served as cabinet chief for former prime ministers Koizumi and Yoshiro Mori.

He also worked as a secretary to his father, Takeo Fukuda, who served as premier from 1976 to 1978 after working for Cosmo Oil Co. for 17 years.

Fukuda, when he assembled his first cabinet in September, said he wanted to ``revive'' the LDP by transforming it into a political party that ``firmly implements policies.''

After DPJ leader Ichiro Ozawa refused to back Japan's refueling missions, the opposition party blocked Fukuda's first two candidates to lead the central bank, leaving the post vacant for three weeks.

Bank of Japan Bickering

The bickering over who would lead the Bank of Japan came as other central banks around the world were struggling to coordinate on a plan to control surging credit costs that threatened to derail global growth.

``The LDP has had no leadership, and is in the process of disintegrating,'' Gerald Curtis, a political science professor at Columbia University, said before Fukuda's statement today. ``Japan is a political basket case.''

The short terms of Abe and Fukuda contrasted that of Koizumi, who left office after five-and-half years, the third- longest tenure since World War II. When he was elected, Japan was in deflation and fighting recession. Koizumi cut government spending and pushed banks to write off bad loans. He broke with tradition by naming cabinet members without consulting party leaders.

When lawmakers in 2005 rejected legislation to sell the state-run postal system, Koizumi dissolved the lower house and expelled 37 party members who voted against the plan. He won a new election five weeks later.

ECB May Keep Rates at 7-Year High as Recession Looms (Update1)

Sept. 1 (Bloomberg) -- The European Central Bank will probably keep interest rates at a seven-year high this week, and may even threaten to raise them, at the risk of prolonging the economic slump.

All but one of 47 economists surveyed by Bloomberg News predict the Frankfurt-based central bank will leave the benchmark rate at 4.25 percent on Sept. 4 and only five expect a cut this year, even after the region's economy contracted in the second quarter.

``Rates at this level are certainly not helping the economy and there is a risk of a recession, but the ECB wants to address the problem of inflation first,'' said Stephane Deo, chief European Economist at UBS AG in London. ``Only when inflation returns to more comfortable levels will it consider easing policy.''

Policy makers Axel Weber and Lucas Papademos said last week the ECB remains focused on inflation risks and may need to lift rates again if they intensify. Executive Board members Lorenzo Bini Smaghi and Juergen Stark also stepped up their inflation- fighting rhetoric, just days before they meet to decide on rates.

``The comments were a wake-up call to the markets, which had gotten ahead of themselves in light of dire economic data,'' said Ulrich Katz, a Munich-based portfolio manager at Pacific Investment Management Co. which has over $800 billion under management. Investors ``assumed the ECB would soften its inflation-fighting stance. Well, it clearly hasn't.''

Rate-Cut Bets

Some investors started betting on a rate cut by early next year after ECB President Jean-Claude Trichet said on Aug. 7 that economic growth would be ``particularly weak'' through the third quarter. Last week, a rate reduction was fully priced in by May, Eonia swap contracts showed. The yield jumped back up to 4.13 percent after Weber and Papademos spoke.

``The discussion about declining rates in Europe is premature,'' Weber said in an interview published Aug. 27. ``I don't expect inflation to come down necessarily just with weaker growth. Inflation is still the No. 1 worry for central bankers in the euro region.''

The ECB raised rates in July to prevent a wage-price spiral after inflation accelerated to 4 percent, twice its 2 percent limit. Since then, data showed Europe's economy contracted 0.2 percent in the second quarter and economic confidence has plunged. At the same time, a 20 percent drop in oil prices has slowed inflation to 3.8 percent.

`Wrong to Hike'

``The ECB is defending its July rate increase,'' said Laurent Bilke, an economist at Lehman Brothers International in London who used to work as a forecaster at the ECB. ``To admit two months after a rate increase that inflation pressures are easing would mean they were wrong to hike. The bank is confronted with a recession and will start to cut in January.''

Trichet will on Sept. 4 unveil new economic forecasts that are likely to revise down the growth assessment and ratchet up the outlook for inflation, said Elga Bartsch, an economist at Morgan Stanley in London.

``If you only have one needle in the compass, which in the ECB's case is inflation, then you'll have to toughen your language,'' Bartsch said. The ECB is more likely to raise rates than cut them, she said.

In June, ECB staff projected growth would slow to about 1.8 percent this year and 1.5 percent in 2009 from 2.7 percent in 2007. Inflation was forecast to average 3.4 percent this year and 2.4 percent in 2009.

`Too High'

``Inflation is still high, too high,'' Bini Smaghi told Bloomberg Television on Aug. 28. ``We have a 2 percent target and we must bring it back to 2 percent -- below 2 percent,'' he said, adding its only tool to do so is interest rates.

Should inflation risks materialize, ``we'll have to re- examine our monetary-policy stance,'' Weber said. Papademos warned that the emergence of a wage-price spiral would ``require a stronger degree of monetary tightening.''

Wage inflation is accelerating across Europe as workers seek compensation for higher food and energy costs. IG Metall, Germany's biggest union whose wage accords cover 3.2 million workers, will present this year's claim on Sept. 8. It has said it will demand a bigger pay increase than the 6.5 percent it asked for last year.

The ECB is ``throwing down the gauntlet to IG Metall,'' said Natacha Valla, Goldman Sachs' chief French economist who was previously a forecaster at the ECB. The fact that ``a discreet member like Papademos was so explicit about wage growth possibly requiring further tightening shows how central wage negotiations are to the inflation debate.''

Even so, the ECB won't follow through on its threat, said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. Deutsche Bank expects a rate reduction in the first quarter of 2009.

``The ECB won't cut rates before inflation is under control,'' Bielmeier said. ``But with the economy tanking, it won't need to hike again.''

Oil, Gas Fall as Hurricane Gustav Weakens, Easing Damage Fears

Sept. 1 (Bloomberg) -- Crude oil fell to its lowest in more than four months after Hurricane Gustav weakened, easing concern of widespread damage to drilling rigs and refineries.

Gustav has been downgraded to a Category 2 hurricane, the second-weakest of the five strength levels, the National Hurricane Center in Miami said in its latest advisory. Preparations for the storm closed 96 percent of offshore oil production and about 10 percent of U.S. refining capacity.

``The latest forecast shows that while Gustav is perfectly aimed at the heart of U.S. oil and gas production, it's not quite as strong as was initially feared,'' said Mike Wittner, Societe Generale's London-based head of oil research. ``The refining system is not as stretched this time round, compared with Rita and Katrina.''

Crude oil for October delivery fell as much as $4.83, or 4.2 percent, to $110.63 a barrel in electronic trading on the New York Mercantile Exchange, and traded at $111.05 at 3:24 p.m. London time. It earlier rose as much as 2.2 percent to $118.

The contract is at its lowest since April 11, having lost 25 percent from the record of $147.27 a barrel reached on July 11.

Natural gas for October delivery fell 46.6 cents, or 5.9 percent, to $7.477 per million British thermal units at 3:38 p.m. London time.

Gulf Coast refineries have cut at least 1.56 million barrels a day of production, about 9.8 percent of the U.S. total. Gustav, packing winds of 115 miles an hour (240 kilometers an hour) was 75 miles south of New Orleans at 10 a.m. New York, according to the National Hurricane Center.

Workers Evacuated

Still, Gustav is two categories below the peak strength reached by Hurricane Katrina, which sent oil prices to records after wrecking refineries around New Orleans three years ago. Katrina's intensity was greatest over the gulf, where it damaged rigs, platforms and undersea oil and gas pipelines. It then weakened to a Category 3 hurricane before reaching land.

Workers from more than 70 percent of the platforms and rigs in the gulf have been evacuated as Gustav approaches, the U.S. Minerals Management Service said in a statement on its Web site yesterday. About 1.25 million barrels a day of oil and 6.09 billion cubic feet of gas have been shut, or more than 96 percent of offshore oil output and 82 percent of gas production.

The Gulf of Mexico normally produces about 1.3 million barrels of oil and an estimated 7.4 billion cubic feet of gas a day, according to the Minerals Management Service, part of the U.S. Interior Department.

Nymex electronic trading opened early today to allow traders to respond to Gustav. Trades will be recorded as part of the Sept. 2 session because of today's U.S. Labor Day holiday.

Brent crude oil for October settlement was down $2.46, or 2.2 percent at $111.59 barrel on the ICE Futures Europe Exchange.

Great Alaska Shoot Out

This editorial appeared in the Wall St. Journal on August, 25, 2006:

Alaska is among the most Republican states in the country, and maybe that explains why incumbent Governor Frank Murkowski finished third in Tuesday's GOP primary, with a mere 19% of the vote. We're hard-pressed to remember an incumbent anytime, anywhere receiving that small a share of the vote, and it's a warning to office holders everywhere about the sour public mood.

Mr. Murkowski is unpopular for a variety of local reasons, but most of them have to do with the kind of incumbent arrogance that has afflicted too many Washington Republicans. The Governor -- who spent 22 years in the Senate before running in Juneau -- made headlines for lobbying the legislature for a private jet because he said his prop plane wasn't speedy enough. When the legislature said no, Mr. Murkowski grabbed $2 million from the department of public security to buy one anyway and used it for campaign and personal trips. Now he'll be flying commercial.

Meanwhile, his pet $20 billion pipeline to transport natural gas to the lower 48 states was tainted by reports of sweetheart deals negotiated with energy companies. The pipeline will help the state's economy, but the cost in government subsidies is enormous. Voters also had a sour taste from the Governor's decision to name his daughter Lisa to the U.S. Senate seat that he gave up in 2002. She won election in her own right by a surprisingly narrow margin in 2004.

The candidate who defeated Mr. Murkowski this week is Sarah Palin, a former small town mayor who ran as, well, a real Republican. She hammered the Governor for misspending tax dollars, and for matching state funds to federal spending earmarks for low priority projects (i.e., the bridge to nowhere). Ms. Palin called the outcome a victory against "politics as usual," and will face a tough battle in November against Democrat and well-known former Governor Tony Knowles.

If Republicans are run out of Congress in November, one big reason will be that, like Mr. Murkowski, they have become far more comfortable running the government than reforming it.

Alaska's Congressmen
Are a Bridge to Nowhere

By JOHN FUND
August 16, 2008

King Salmon, Alaska

An albatross Republicans must haul around this year is that voters no longer clearly see them as the party best able to control government spending and taxes. GOP pork-barrel kings such as Sen. Ted Stevens and Rep. Don Young are a big reason. Now allegations of corruption are swirling around both men as they face stiff challenges in Alaska's Aug. 26 Republican primary.

AP

Sen. Ted Stevens speaks to supporters in Alaska, Aug. 4.

Messrs. Stevens and Young have done enormous damage nationally to the Republican brand. They were champions of the infamous "Bridge to Nowhere," a $223 million span to Gravina Island with 50 people on it, that became the butt of late-night comedians. But the jokes have been replaced with anger: Mr. Stevens was indicted last month on seven felony counts of lying about $250,000 in gifts he received from the head of the oil services company VECO, Bill Allen, who was seeking earmarks from the senator. Mr. Young has spent over $1 million in legal fees fighting a federal investigation of his ties to VECO.

Yet both may win nomination from fellow Republicans, in part because of their long incumbency -- decades in Congress -- and because of all the pork they've dragged home. Alaskans have long justified their raids on the U.S. Treasury because the feds have locked up so many of the state's natural resources (the Arctic National Wildlife Refuge being the most famous example). In what some called "compensation," the state made sure it became No. 1 in the nation in pork per person -- $984.85 for each Alaskan in 2005.

Alaska has come to be dominated by welfare-state conservatives. An oil-revenue fund that this year will dish out $2,100 to every resident; now $1,200 in state-issued debit cards is being handed out to help residents pay for higher gas prices.

But voters are voicing dissent. Gov. Sarah Palin swept into office in 2006 by winning a GOP primary over incumbent Frank Murkowski, a former colleague of Messrs. Stevens and Young in Congress. "I want Alaska to be known for more than FBI sting operations," she has declared. Mrs. Palin openly encouraged Sean Parnell, her lieutenant governor, to mount a primary challenge to Mr. Young and has not endorsed Mr. Stevens against his primary challenger, Anchorage banker David Cuddy.

Both challengers talk about the need for a new model of economic development. "We cannot wholly rely on the federal government," Lt. Gov. Parnell says. "Alaska is 50 years old, we've got a surplus. It's time for us to step up and use some of that." Mr. Cuddy is equally adamant. "Earmarks have bred corruption and that should signal it's time to return to constitutional limits on runaway spending." Even former Gov. Wally Hickel, who appointed Mr. Stevens to his seat in 1968, now says "his time is over."

Alaska's Old Bulls are fighting back. Mr. Young has collected boatloads of cash from out-of-state unions who admire his pork-barrel ways and his support for "card check" legislation, which would permit unions to organize without holding secret ballot elections. His ads tout the claim that Mr. Young does "too much" for Alaska.

Mr. Stevens cites advice from his lawyers in refusing to discuss his indictment beyond claiming it's "not some extreme felony." He will learn this Monday if his Sept. 24 trial will be moved from Washington, D.C., to Alaska and a potentially more friendly jury pool. The odds are strongly against him winning a change of venue, leading many to think he will then seek a postponement of his trial.

Still, even tarnished incumbents can win if challengers divide up the vote against them. That may happen in Alaska, where Mr. Stevens faces not only Mr. Cuddy, but Vic Vickers, who moved back to the state in January after decades in Florida, and who is spending $750,000 of his own money.

Mr. Vickers's long ties with Democrats and unusual policy stands -- he favors withdrawing U.S. troops from both Iraq and Afghanistan -- preclude him from winning the nomination. But he could enable Mr. Stevens to win with a plurality.

Meanwhile, Lt. Gov. Parnell must share anti-incumbent sentiment against Mr. Young with Gabrielle LeDoux, a state legislator who is pumping $350,000 of her own money into the primary.

All of this puts the GOP in a pickle if either incumbent wins. "Anyone who thinks Stevens or Young will be re-elected if they survive their primaries is living in Fantasyland," says Frank Bickford, a government affairs consultant in Anchorage. Indeed, polls show both men trailing their Democratic opponents by double digits -- a remarkable feat, given that Alaska has sent only Republicans to Congress since 1980.

"I tell Republicans to find the courage to take on the old guard," says Dan Fagan, a popular talk-show host and columnist at the Anchorage Daily News. "Don't let the Stevens, Young, Murkowski dynasty intimidate you."

Indeed, it was the power of the purse that Messrs. Stevens and Young wielded for so long that helped entrench the earmark culture among Congressional Republicans. Few dared risk their wrath. When he became chairman of the Appropriations Committee in 1997, Mr. Stevens proclaimed, "I'm a mean, miserable SOB." When his "Bridge to Nowhere" was challenged in 2005, Mr. Stevens warned fellow senators "if we start cutting funding for individual projects, your project may be next."

In the House, GOP Rep. Don Young of Alaska -- the former Transportation Committee chair who stuffed the last highway bill with 6,371 earmarks -- played a similar intimidation game. "Those who bite me will be bitten back," Mr. Young warned Rep. Scott Garrett last year. Mr. Garrett, a New Jersey Republican, had tried to kill a $34 million earmark sponsored by Mr. Young.

The ethically suspect bullies who have represented Alaskans for decades are passing from the scene. Voters now have a choice between electing reform Republicans who want to break that mold or Democrats, who are at least up front about their support for big government.

Japan PM in surprise resignation

Profile: Yasuo Fukuda

Japan's Prime Minister Yasuo Fukuda has announced his resignation during a news conference at his official residence.

The surprise announcement means the 72-year-old is resigning less than a year after he took office.

His government has suffered chronic unpopularity. Lost pension records, a controversial healthcare scheme and a sliding economy have added to his woes.

Mr Fukuda has also been frustrated by the upper house of parliament, which is controlled by the opposition.

"If we are to prioritise the people's livelihoods, there cannot be a political vacuum from political bargaining, or a lapse in policies," said Mr Fukuda.

He told the hastily convened news conference that a new team was needed to implement his party's policies.

Low ratings

Mr Fukuda did not say when his resignation would take effect, adding that the ruling Liberal Democratic Party would hold an internal election to choose his successor.

"I believe there will be an election for the party leader," he said. "The leader will be appointed as the prime minister."

Taro Aso is a former foreign minister and front-runner to succeed Mr Fukuda

Japan's next general election must be held no later than September 2009.

Last month, Mr Fukuda instigated a major cabinet reshuffle in which one of his main political rivals, Taro Aso, assumed the key role of secretary general.

The move was seen as a last-ditch attempt to shore up Mr Fukuda's government and boost its flagging popularity, but it failed to impact low cabinet approval ratings, which had been below 30% for several months.

Mr Aso, 67, went from being foreign minister to becoming party secretary general under Prime Minister Shinzo Abe in August 2007.

However, following Mr Abe's resignation, he left the post and lost the LDP leadership contest to Mr Fukuda soon afterwards.

Known for his conservative views, he has advocated a tough line towards North Korea and rejects changing the law to allow women to ascend the throne.

He is also seen as a charismatic figure who is known to love Japanese manga cartoons.

Hurricane Gustav batters US coast

Storm force winds hit New Orleans

Hurricane Gustav has made landfall south-west of New Orleans, battering the US Gulf coast with torrential rain and severe winds.

Although Gustav has been downgraded to a Category Two storm, its winds snapped power cables in New Orleans, which was ravaged by Hurricane Katrina in 2005.

Some 90% of residents have evacuated, and 1.9m people living along the Gulf coast have sought safety inland.

Forecasters have warned of sea surges 14ft (4.2m) above normal.

The eye of the storm came ashore near Cocodrie, Louisiana, packing winds of 110mph (175km/h), the US National Hurricane Center (NHC) said.

The BBC's Kevin Connolly, who is in New Orleans, says in some streets the storm drains are already beginning to choke through the sheer weight of rain.

It is a ghost town, the only sign of any human activity are traffic lights at an intersection flickering from red to green and back again; there are no cars, our correspondent says.

The NCH said Gustav's winds could bring "extremely dangerous" storm surges. Isolated tornadoes are also possible in the area.

Local officials responsible for maintaining New Orleans' flood defences say they are cautiously optimistic that the surges will not overtop the city's levees.

The exodus from the Louisiana coast is said to be the largest evacuation in state history.

Most people have left the city for safety with only 10,000 residents left from a population of 200,000. Tens of thousands are also reported to have left coastal Mississippi, Alabama and south-eastern Texas.

The storm has already claimed the lives of more than 80 people in the Caribbean, causing widespread damage in Haiti, the Dominican Republic and Jamaica over the past week.

In Cuba, the storm brought extensive flooding and some severe damage, but no reports of deaths.

Few remain

Roads out of New Orleans - much of which lies below sea level - were crammed with traffic throughout Sunday, residents heeding the appeal by Louisiana Governor Bobby Jindal to leave the region.

Some got a little bit panicky earlier on, a bit like the opening a door on an aeroplane syndrome, but we're not paying it too much attention Cian Heasley In a bar in New Orleans Staying put despite Gustav Tracking Gustav on the web

A dusk-to-dawn curfew is in force across the city, which is described as being like a ghost town. The 7,000-strong Louisiana National Guard has been mobilised and support requested from other states.

Crime was a major problem in the New Orleans area in the aftermath of Hurricane Katrina, which hit the city three years ago, causing disastrous floods.

The New Orleans Mayor, Ray Nagin, has warned looters will be sent to jail.

Our correspondent says the mood among the city's remaining residents is of hope and fear.

Sandra Taylor, from Lafayette, Indiana, is visiting her daughter, who had a baby nine days ago.

"Where we live it's not in a flood zone, and we're quite sheltered," she said. "There's a few that have battened down, and sealed all the windows and stuff and disappeared. But there's a lot of other neighbours around, so I think we're just going to play the three little pigs - if one house blows away, we'll shift to the next one."

Cian Heasley, who has joined a few other friends at a bar in New Orleans, says he is "waiting out the storm with two generators, a lot of liquor and food".

"We feel quite safe at the moment. There aren't any windows but there are two sturdy doors so we feel secure. We're just drinking and watching TV and staying calm really," he said.

"I think the whole speech about it being the 'mother of all storms' is trying to scare everyone, and force people to leave the city."

Levee worry

Restaurant worker Dustin Goza agreed.

FLASHBACK TO KATRINA Katrina struck US Gulf Coast in August 2005 as a Category Three storm, killing more than 1,800 people New Orleans was 80% flooded after storm surge breached protective levees US Government was blamed for slow, botched response that exacerbated disaster Hundreds of thousands of people were displaced Flashback: Hurricane Katrina

"In some ways it's good that people are being given a chance to prepare but I think it's also an overreaction," he said.

"The rain has been stopping and starting and you can feel the pressure so you know a storm's on its way. It's feeling quite gusty. I've put some tape up in preparation around windows but that's it."

Concern for those facing the hurricane has prompted the Republican party to scale back its national convention where Senator John McCain is due to accept the party's nomination for president at the event in St Paul, Minnesota later this week.

In 2005, three-quarters of New Orleans was flooded by a storm surge that claimed more than 1,800 lives in coastal areas.

All eyes will be on the city's levees, which Category Three storm Katrina swept away under a wall of mud and water.

Out in the Gulf of Mexico, most oil production has been shut down. Three years ago, Hurricanes Katrina and Rita ravaged the region's oil infrastructure and sent oil prices soaring.