Concern over Japanese growth as yen rises and China supplants it as world's second largest economy; North Korea criticises "US imperialists" and South Korean "traitors"; US questions Turkey's reliability; Russia bans grain exports; and more

Top of the Agenda: Japan's Growth Weakening

Economic growth in Japan weakened significantly in the last financial quarter (BBC). The country's export-led recovery appears to be wavering as the value of the yen appreciates. Stocks fell in Europe as slower-than-forecast economic growth in Japan heightened concern (Bloomberg) the global recovery is faltering. Analysts say Japan may have to take action to lower the yen's value against other major currencies. Weakening exports are not the only problem. Prime Minister Naoto Kan recently said Japan was "at risk of collapse" under its huge debts.

The news about lagging growth came amid reports that China has supplanted Japan as the world's second-largest economy (NYT). Tokyo said that the country's economy was valued at about $1.28 trillion in the second quarter, slightly below China's $1.33 trillion—and China is expected to continue its lead through the rest of the year. Japan has had the world's second-largest economy for much of the last four decades but China's purchasing power overtook Japan (FT) nearly a decade ago. However, on a per capita basis China remains far behind other large economies.

Analysis:

CFR's Benn Steil and Paul Swartz examine the cost of global imbalances from the perspective of the world's leading holders of foreign exchange reserves, China and Japan.

Background:

The Economist assesses whether Japan's banks will have trouble continuing to support the bond market.

 

PACIFIC RIM: US-South Korea Begin Joint Exercise

The United States and South Korea began their annual joint military exercise intended to ensure the countries' alliance is prepared to respond to potential provocations (CNN). North Korea threatened to "deal a merciless counterblow to the US imperialists" and to South Korean "traitors," in response to the military exercise. In a CFR First Take, CFR's Paul Stares and Scott Snyder say tensions on the Korean peninsula need to be managed carefully so that growing South Korean and US intolerance for Korean belligerence doesn't lead to unintended military escalation. The Washington Post assesses a new player in North Korea's looming change of leadership.

Japan: New Prime Minister Naoto Kan observed the 65th anniversary of the end of World War II by shunning a religious shrine (NYT) linked to Japan's militaristic past and expressing remorse for the suffering the war caused across Asia.

 

ELSEWHERE:

- Obama Warns Turkey on Iran and Israel
- Russian Wheat Export-Ban Begins

 

This is an excerpt of the CFR.org Daily News Brief. The full version is available on CFR.org