♪ welcome to "asia biz forecast," i'm shery ahn. a plan to end the european debt crisis finally became a reality last week. after ten hours of overnight negotiations, eu leaders agreed thursday on a comprehensive scheme to write down greek debt and present the crisis from spreading. the plan has three main pillars. first private banks will be asked to write down greek debt

by 50%, compared with a 21% cut agreed in july. the european banks will have to raise about $147 billion of extra capital by the end of next june. that will require about 70 banks to raise their core capital ratios to 9% after the write down of sovereign debt to deal with the deal with the current crisis, as well as guard against possible financial shocks in the future. the plan will reinforce the european financial stability facility bailout fund, which will form a special investment vehicle to be funded by private and public investors. this could bolster the fund's war chest to about $1.4 trillion, from the current $623 billion. >> tonight opens the door to an appropriate agree of voluntary involvement with private-sector investors will which allow work to proceed. we are determined to conclude

this by the end of this year. >> meanwhile, eu leaders have already started seeking investment from outside the euro zone. european financial stability facility's ceo klaus regling visited beijing on friday and asked for china's help in expanding the scope of the fund. but the meeting did not result in any concrete measures. >> no conclusion, certainly today during our visit. what i know is that china must invest every month because the country currently has a surplus. >> at a news conference, chinese vice finance minister noted that his country is already investing in the fund and wants to know more details about the plan to bolster it.

>> ongoing uncertainty in europe and a a sluggish u.s. economy are fueling concerns about the japanese economy about battling the effects of a strong yen. last week, japan's central bank said it will expand its asset purchase program in an effort to stimulate the economy and rein in the run-away currency. >> at a policy meeting on thursday, the bank of japan decided to boost asset purchase program by about $66 billion, to roughly $720 billion. the bank said that will help it buy more long-term japanese government bonds. speculation that the u.s. federal reserve may take

additional measures to ease monetary policy is spurring moves to sell dollars and buy yen. japanese business leaders are concerned about the yen's historic surge. >> translator: the level of the yen far exceeds what japanese manufacturers can deal with. we may have to think about moving our production overseas if the yen remains at the current level. >> translator: the yen's rise used to feel like a body blow, but now it's more like an upper cut. >> translator: many people think electronics makers will stop producing in japan entirely if the dollar falls below the 75-yen mark, which is probably the final barrier. >> the bank of japan has pumped large amounts of funds into the market since the onset of the global financial crisis three years ago.

but the sluggish economy is making businesses cautious about investing. funds are not being used effectively, and there's a money glut as few firms want to borrow. >> translator: it's not that the boj's efforts to ease monetary policy were lacking. but that there is a limit to what such policies can do. to change foreign exchange rates. it's hard to believe that the additional measures will prove effective. >> this is more of a dollar issue and less of a yen issue. i think they could slow the appreciation of the yen down, but i don't think they're going to turn it around.

>> the yen hit post-war high of 75.32 against the dollar in early asian trading on monday. to put the brakes on the yen's rise, japanese authorities intervened in the market mid monday morning, for the third time this year. as of 5:00 p.m. monday, the japanese currency was trading at 78.80 against the dollar in tokyo. for further insight i'm joined by teizo taya, professor at a university college of business, a former member of the bank of japan's policy board. welcome to the program. professor, we've been seeing that the yen's rise seems to be coming mostly from factors in the u.s. and europe. not so much because of what's going on in japan. so against this backdrop, do you think the latest intervention will have any lasting effect? >> well if an intervention was carried out on an implicit understanding with other

countries, its impact may last for some time. but if it's not, then the impact is not going to last for long. but one important factor behind the decision today by the japanese authorities is the fact that a monetary policy meeting is scheduled to be held tomorrow and the day after tomorrow in the united states. >> so they were worried there, that the federal reserve may ease monetary policy. do you think they will do that? >> well, i think they may. ease further, leading to an increase in capitol from the united states and a weakening of the dollar. >> and it seems that what is going on in the u.s. after the mortgage crisis, as well as what's going on in europe with the banking crisis resemble as lot the situation that japan went through in the 19 90s. >> yes, i think in a sense the u.s. economy is following japan's path. and initially they thought they might have thought that quick policy response may be able to

avoid prolonged recession, prolonged stagnation of the u.s. economy. but so far, they have not been successful. i think large balance sheet adjustments will lead to a weak consumption and a weak investment. and the banking crisis as well. through an accumulation of bad loans. >> how long do you think it will take for the u.s. to -- >> well, it may take four more years. for housing loans to decline to the historical trend. >> and europe situation also resembles a lot what japan went through. >> yes, i think so. it seems to me that european banks receive public money and also european governments, stand to force banks to receive public money. but in japan, you know, the banking crisis was resolved

after public money was forced to be injected. so i think sooner or later, some kind of tax money is needed to clear up the sky. >> and right now in europe, europe's plan, writing down greece's debt, recapitalization of banks, the esf, the fire power, boosting its fire power. what do you think? >> well with regard to this point, you have just mentioned two options are going to be provided to boost the firepower of the facility. one is to compensate losses incurred on the investors who buy bonds of troubled countries. and the other is to set up special investment company to invite outside money. but it seems to me that these options kind of gimmick, trying to minimize the use of hard currency. and sooner or later, hard, more hard money is going to be needed. and northern members of the euro

zone will have to put up more money in order to save the southern members. otherwise the euro system is going to break up. which is i'm afraid, likely. >> you don't think the euro, the euro zone will survive this crisis? >> it's quite difficult. >> professor taya, thank you very much for joining us today. thank you. and this week, we focus on how supply chain disruptions are sending shock waves around the world. back in march, the massive earthquake and tsunami in northeastern japan did much more than damage factories in the region. the disaster also dealt a heavy blow to manufacturers around the world that depend on the steady supply of components from those factories. now, thailand is in a similar fix. massive floods in southeast asia's second-largest economy are disrupting production around

the world. >> renesas has a 40% share for the global market for microcontrollers used in automobiles. before march 11th, few people had heard about the company's main microcontroller factory here in ibaraki prefecture. but it was suddenly in the spotlight when renesas was forced to stop production at the plant that caused car assembly lines around the world to come to a standstill. renesas wasn't alone. similar problems at small factories in areas affected by the quake and tsunami caused component shortages, halting production at larger factories not directly affected by the disaster. big businesses like car makers source components from many suppliers. so they may not always know which parts are made where. >> iwaki plant became nissan's

symbol of swift recovery. >> six months after the disaster, supply chains were restored. and japanese car makers were ready to return to business as usual. but now, they're getting a sense of deja vu, as the flooding in thailand has had a major impact on their factories in that country. over the years, thailand has aggressively wooed foreign manufacturers. as it tries to establish itself as southeast asia's auto production hub. it has a high concentration of auto-related plants, from parts makers to final assembly plants. one japanese automaker affected by the flooding in thailand is nissan. >> if you can keep the immobilization of your plant within a few days, the impact on yourselves is going to be limited. but if it lasts more than a few days, then you're going to start to have impact on the sales. >> and the problem goes beyond

thailand. parts made there are shipped to factories in other southeast asian countries, japan and the united states. the situation has forced toyota motor not only to halt production in thailand, but also to slow down operations in seven other countries. including the united states and japan. it's a similar story in other fields, take computers for example. thailand is the world's second-largest producer of hard disc drives used in pcs. computer makers around the world are starting to feel the pinch. as output of key i.t. components falls due to the floods. japanese electronics giant, toshiba, has not only suspended production of air conditioners in thailand, but has also postponed the introduction of a new model of refrigerator. as it lacks the parts to make them at its chinese plant. >> to talk about the impact of these latest supply chain disruptions in thailand, i have

in the studio, koji endo, senior analyst at advanced research japan, and shigeki honda of a research institute and consulting. welcome both to the program. mr. endo, let me start with you. i understand you're just back from a meeting at honda motor, one of the manufacturers most badly affected by the floods in thailand. >> yes. >> anything new? >> actually, it was very interesting. because honda people, even honda people didn't really know exactly what's going on. because again, the industrial area has been evacuated. and they did not have any time, not yet to look around the detail and exactly what's really in the water and under water and what's really not damaged or not damaged. although things have to be, have to be examined, probably in the next few weeks, as soon as the water receded. so at this point, they just have kind of guestimated what's really has to be done. i would say obviously the

problem is going to be very, very serious. >> we've seen some extraordinary footage out of thailand. factories completely submerged. what happens to the machinery? can those factories be restarted? >> generally speaking, probably no. although the robots assembly lines, all the things that are going to be probably under the water for more than a month. which means that much, most of those facilities are going to be probably rusted. so as far as their production line itself is concerned, either totally replaced, or at least the majority has to be replaced. but again, it's yet to be seen. >> that's a huge loss. and mr. honda, i guess from your perspective, if those companies had business continuity plan, the impact from the floods could have been mitigated. in may when we had you after the march 11th disaster here in japan, you told us not a lot of businesses had those contingency measures in place. has anything changed since then? >> now a days, more and more

companies are understand the importance of business contingency plan. they are required to minimize the business interruption to recover as soon as they, when they encounter the disaster like thai floods. actually we conducted the business survey of all listed companies in japan of more than 3,000 last month. and asked about their views on business contingency plans. very interesting remark from that survey. is that companies who are now at work on business contingency plans have increased because of the earthquake in march this year. and also, as a result, the percentage of the company who do not have contingency plan has decreased by 10%, to around 30%, compared with the survey which we did last year. >> mr. honda, in the survey was done on japanese businesses. but for a business continuity

plan to have the proper effect, especially when supply chains are linked globally, the businesses have to have their overseas partners agree to contingency measures as well. >> that's right. many companies find difficulties in their supply chains, such as shortage of raw materials, parts, electricity and so on. so now they have realized that their business continuity plan cannot be completed without the participation of their business partners. because of the ongoing flood in thailand, more and more companies will ask their business partners to have a bcp. right now, majority of the companies think that their subsidiaries and affiliates vial a contingency business plan. but the number of companies is really rather limited, that is around 10% to 20%, depending on the countries. so i think now is the time for us to establish more supply

chain-conscious business continuity plan for both domestic and overseas operations. >> and mr. endo, before we wrap up, can you give us a general estimate of how much the thai floods will cost the japanese auto industry? >> well, obviously again, it really depends how long this situation will last. but let's say the japanese car industry in thailand. the production volume is rapidly i would say 200,000 units every month. so far at least most of the car makers have already lost one month of volume production. so we're talking about opportunity losses here. so if we take three months, two months, well, 200,000 units, multiplied by a month and general speaking, the average sticker price is probably 1 million, 1.5 million, so we're talking about possibly $200 billion yen of sales losses every month.

and then at the same time, again, in case of honda again, honda is the only japanese car plant which had this flood situation directly, so most likely the company is which is obviously going to cost millions of money. and then at the same time, probably there is a niche that some of the parts suppliers or maybe even some of the car makers have to relocate. their applications. in order to avoid the possible next flood situation here. so we are really talking about billions of yen at this point. >> mr. endo and mr. honda, thank you very much for joining us today. >> thank you. now for the latest on china and south korea, let's go to julian luk and nemo. first, julian in hong kong, we're seeing signs of a

deflating real estate bubble in china and just as feared, falling prices are starting to have a negative impact. >> that's right, shery. falling property values have sparked protests in cities around china. angry home owners say they pay too much for their properties. and they want their money back. chinese media report that residents in shanghai, beijing and other cities are demanding that their sales contracts be nullified or that they be given partial refunds. they say they paid too much for their homes. some of the protests have turned violent. on october 22nd, protesters invade and damaged a property developer's office in shanghai suburb. the incidents followed an announcement by the developer that it was slashing housing prices by 25%. china's real estate market began

to overheat from late 2009, as speculators invested in residential property. but prices began to drop sharply in august, after the government introduced restrictions on real estate speculation. china's toppling high consumer prices, which had been rising at rates of more than 6%, are now showing signs of easing. the beijing municipal statistics bureau said last week, that the city's september consumer price index was up 6.5% compared to a year ago. that was down .1% from a percentage point from the previous month. the national bureau of statistics released its price survey the same day, showing food price movements in 50 cities between october 11th and 20th. out of 29 items, 18 marked a decline from the previous ten-day period.

hang seng, vice director of the national development and reform commission said the cpi will rise by 5% or less for the next two months. he added that the series of credit-tightening measures that the chinese government has taken this year appear to be having an effect. and that's our report from hong kong, back to you in tokyo. shery. >> julian, thanks. and now let's go to nemo in seoul. nemo, we hear that the chinese vice premiere was in korea last week, what was on his agenda? >> that's right. during a two-day visit that started on wednesday, he met president lee myung bak, high-ranking government officials and business leaders. in an effort to boost ties between south korea and china. on wednesday, president lee myung bak and chinese vice premiere li signed an agreement to double just above $28 billion, to close to $57 billion this will raise korea's

emergency foreign exchange facility to $450 billion. the following day, saw the chinese vice premiere meet south korean business leaders. he urged south korea to quickly conclude a free trade agreement with china. >> li added he made the same proposal to president lee myung bak on wednesday. but south koreans remain deeply concerned about possible flood of cheap chinese farm and manufacturing imports. if tariffs are lifted. formal talks on a trade pact have yet to start. and that does it from seoul. back to you in tokyo, shery. >> nemo, thanks. and here in japan, $1 billion scandal continues to shake optical equipment maker, olympus.

despite the resignation of its president on wednesday, pressure is mounting on olympus to explain a series of controversial payments to m&a advisers. in a highly unusual move, prime minister yoshihiko noda has told britain's "financial times" that the scandal could hurt japan's reputation as a rules-based market economy. >> translator: olympus strategically studied the acquisition of the companies. based on mid to long-term business plans. >> takayama was named president on wednesday, following the abrupt resignation of his predecessor. in a bid to shore up confidence in the firm. and to take responsibility for a sharp fall in its share price. on thursday, takayama reiterated olympus' denials of any wrongdoing concerning m&a deals.

kikukawa's departure came less than two weeks after he fired then-ceo michael woodford for failing to understand japanese management practices. woodford said he was sacked for challenging what he vibes as excessively high consultancy fees paid in the buy-outs. >> they're so extraordinary, these payments and the way they've been made. i just can't understand how that could have happened unless there was some type of issue behind them in relation to more sinister matters. >> in 2008, olympus bought british medical equipment maker gyrus for some $2 billion. but the japanese firm reportedly paid more than $687 million to investment firms that advised it on the purchase. which some observers say is outrageously high. between 2006 and 2008, olympus

also bought three japanese firms with seemingly little strategic value. for a total of $967 million. olympus wrote down more than three-quarters of their value in the fiscal year ended march 2009. last week, the company said it would establish an independent task force to review past acquisitions. seeking to ease mounting shareholder pressure. the tokyo stock exchange said it is urging olympus to disclose more information about the deals. declining to comment on the scandal, financial services minister, shoziburo jimi said companies should respect shareholders' rights. >> translator: the company needs to disclose more information to show why the payments had to be so large.

>> and in other news around asia, india's central bank raised key interest rate against last week. >> the reserve bank of india said last tuesday that it lifted the rate by .25% point. to 8 .5%, effective immediately. the bank said it expected inflationary pressures to ease by year end, due to stabilizing energy prices and moderating domestic demand. taming inflation and slowing growth remain major concerns for india. the rate hike comes against the backdrop of india's rampant inflation. in september, wholesale prices climbed nearly 10%, year on year. the bank also revised this year's growth forecast downward, to 7.6%. from the initial 8%. largely due to europe's debt crisis. that's all for this week's "asia biz forecast." i'm shery ahn, thank you for watching and see you again next week.

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