World News: In Japan, Provocative Case for Staying Nuclear --- Some Say Bombs' Potential as Deterrent Argues for Keeping Power Plants Online

TOKYO -- Many of Japan's political and intellectual leaders remain committed to nuclear power even as Japanese public opinion has turned sharply against it. One argument in favor rarely gets a public airing: Japan needs to maintain its technical ability to make nuclear bombs."I don't think Japan needs to possess nuclear weapons, but it's important to maintain our commercial reactors because it would allow us to produce a nuclear warhead in a short amount of time," Shigeru Ishiba, a former defense minister, said in an interview in a recent edition of Sapio, a right-leaning twice-monthly magazine."It's a tacit nuclear deterrent," added Mr. Ishiba, an influential parliament member.Instead of sparking an outcry, his remarks seem to have stimulated further consideration of their merits. The Yomiuri newspaper, Japan's largest-circulation daily, urged the government to stay the course on nuclear power in an editorial, stressing that the country's stockpile of plutonium "functions diplomatically as a potential nuclear deterrent."Those holding the view appear to remain in the minority. The Japanese government says it is committed to its self-imposed Three Non-Nuclear Principles, a 1967 policy banning the production, possession and presence of nuclear weapons in Japan."We have absolutely no plans to change the existing policy based on the Three Non-Nuclear Principles, so that's the way we'll deal with things going forward," Minister of Defense Yasuo Ichikawa said in an interview last month.Most establishment figures who continue to back nuclear energy stress other reasons for support. Prime Minister Yoshihiko Noda has endorsed keeping atomic power as a part of the country's energy mix, at least for several more decades, until alternative sources are developed. That stems from concern about electricity shortages, which could lead to blackouts and stifle economic growth.Abandoning nuclear power would also increase Japan's dependence on carbon dioxide-producing fossil fuels with volatile prices, according to the conventional wisdom in Kasumigaseki, Tokyo's bureaucratic hub.Recent public-opinion polls show the Japanese public turning against nuclear energy after the March Fukushima Daiichi nuclear accident. But even when support was high for commercial atomic use, surveys have shown the Japanese people were overwhelmingly against introducing nuclear weapons. Japan has long had a "nuclear allergy" due to its status as the only country against which nuclear weapons were used, in 1945 attacks on Hiroshima and Nagasaki.Even though Japan has shown no sign of adopting nuclear weapons, many experts say Tokyo has the necessary raw materials -- thanks to a nuclear-fuel reprocessing program that produces enriched uranium and plutonium -- and the means of delivery in the form of government-subsidized commercial rockets, which they say are technically indistinguishable from ballistic missiles.Security experts point to some recent developments that have highlighted Japan's advanced technology, which could also be used to deliver a warhead. They note that Japan passed a law in 2008 allowing military applications in its outer-space programs, ending a 40-year ban limiting space development to commercial or research programs only.They also cite the Hayabusa government test satellite, which successfully landed on an asteroid before returning to Earth in June 2010. It employed the same type of atmospheric re-entry technology needed to guide ballistic missiles.Hayabusa's success as a civilian program is a point of pride for most Japanese. A big-budget movie currently playing in Japanese theaters, one of three motion pictures featuring the Hayabusa program, showcases the scientists' efforts but makes no mention of any possible military applications.Yet national-security hawks say that aspect is hiding in plain sight. "That's the behind-the-scenes reason Japan decided to develop Hayabusa," says Toshiyuki Shikata, a former lieutenant general in Japan's military. "It sent a quiet message that Japan's ballistic missile capability is credible."

Fed Again Hints at More Stimulus--Gloomy Prediction For the Economy

The Federal Reserve's second-ranking official offered a gloomy assessment of the economy and fresh new hints that the central bank could be moving toward another attempt to revive the economy through securities purchases.Financial-market conditions have deteriorated since the summer, foreign economies are softening, and the threat of a financial shock from Europe is, "particularly worrisome," Janet Yellen, vice chairwoman of the Fed, said in a speech in Denver. Taken together, she noted, there were "significant downside risks" to the economy.

Fed officials have completed two rounds of securities purchases adding $2.3 trillion of mortgage bonds and Treasury debt to the central bank's securities portfolio. They sought to take bonds out of investors' hands and in the process drive down long-term interest rates, hoping to spur spending and investment. A new round of securities purchases, Ms. Yellen said, might be needed.

Her comments come a day after another Fed official, Daniel Tarullo, a governor on the Fed's board, explicitly called for the central bank to strongly consider new purchases of mortgage-backed securities.Ms. Yellen included a subtle suggestion that mortgage securities could be on her shopping list as well.The Fed already owns a large portfolio of long-term Treasury bonds and doesn't want to distort that market too much, she said, meaning it might need to look elsewhere for its next round of bond buying, if one should be needed."Securities purchases across a wide spectrum of maturities might become appropriate if evolving economic conditions called for significantly greater accommodation," she said.

This is sure to be the next battleground on the Fed's policymaking body, which has been divided over whether to take more steps to boost the economy. In other speeches Friday, two Fed dissenters made new arguments against further credit-easing measures.Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, said the central bank has been inconsistent. Inflation picked up this year while unemployment has come down, he noted in a speech in Minneapolis. That calls for less Fed money-pumping.Recent easing moves by the Fed, he said, are "thus inconsistent with the evolution of the economy in 2011."The inconsistency, he added, suggests the Fed has become more tolerant of inflation, weakens its credibility and "could give rise to a damaging increase in inflationary expectations." The Fed is effectively trading off the long-term health of the economy with short-term measures, he said.Ms. Yellen, by contrast, noted that inflation expectations have fallen in recent months and deflation could become a risk.Richard Fisher, president of the Dallas Fed and another recent dissenter, added to the arguments against a new round of central bank easing.In a speech in Dallas he said the most recent effort by the Fed to shift its holdings toward fewer short-term securities and more long-term securities in an effort to bring down long-term interest rates, has "so far been of greater benefit to traders and large monied interests than to job-creating businesses."

WSJ: Fed is Poised For More Easing

Federal Reserve officials are starting to build a case for a new program of buying mortgage-backed securities to boost the ailing economy, though they appear unlikely to move swiftly.

The idea would be to target any new efforts by the central bank at the parts of the economy that are most severely impeding a recovery -- the housing and mortgage markets -- by working to push down mortgage rates.

Lower mortgage rates, in turn, could encourage more home buying and mortgage-refinancing, and help the economy by freeing up cash for consumers to spend on other goods and services. Mortgage rates are already very low, but some Fed officials believe they might be pushed lower. Moreover, Fed officials believe their past purchase programs helped to lift stock markets, by driving investors from low-risk investments toward riskier investments.

The Fed discussions occur amid broader efforts in the government to find ways to revive housing markets and stir refinancing.

"I believe we should move back up toward the top of the list of options the large-scale purchase of additional mortgage-backed securities," Federal Reserve governor Dan Tarullo said in a speech Thursday at Columbia University.

A new Fed mortgage-bond-buying program isn't a certainty. If inflation doesn't recede as many officials expect, or if the economy picks up with surprising vigor on its own, such a program might not win broad support inside the Fed.

The most recent economic data have looked a touch stronger. In a report Thursday, for instance, the Labor Department said the number of people filing claims for unemployment insurance edged down last week.

The Fed next meets on Nov. 1 and 2. Any step toward mortgage purchases would surely face fierce opposition internally from Fed officials who believe the central bank has done all it can to revive the economy and should avoid new measures.

Three officials -- Dallas Fed President Richard Fisher, Minneapolis Fed President Narayana Kocherlakota and Philadelphia Fed President Charles Plosser -- dissented from central bank decisions on the two most recent easing steps, in part because of worries the measures could ultimately create too much inflation.

The Fed also faces political opposition -- notably among Republicans -- to more securities purchases, known by many as "quantitative easing." Texas Gov. Rick Perry in August said more Fed money-pumping before the election would be "almost . . . treasonous."

But supporters of mortgage-bond purchases are emerging ahead of the November meeting to state their case.

In his speech Thursday, Mr. Tarullo argued that there was a need and "ample room" for additional measures by the Fed to spur more spending and investment, and that the risk of inflation is limited. And he said housing was where the Fed should direct its attention.

"Housing continues to hang like an albatross around the necks of homeowners and the economy as a whole, with millions of underwater mortgages, a staggering inventory of foreclosed homes, and depressed levels of sales," he said.

Mr. Tarullo's comments are notable in part because he doesn't typically venture into discussions of the economy. Mr. Tarullo is a lawyer and has focused mostly on bank regulation in his tenure as one of five governors on the Fed's Washington based board, which he joined in early 2009 after being appointed by President Barack Obama. He has worked closely with Fed Chairman Ben Bernanke bank regulatory issues, but this was his first major policy address on the economy and it put him firmly in a camp of activists at the central bank who want the Fed to do more to spur growth.

This group has become more vocal in recent months. Others have spoken out favorably about mortgage purchases recently. In an interview with The Wall Street Journal Wednesday, Boston Fed President Eric Rosengren said mortgage purchases should be on the table if the Fed needs to act again.

Mr. Bernanke hasn't spoken out recently on mortgage purchases. In testimony to Congress earlier this month, he pointed to the housing sector as a driver of past recoveries that is missing this time. In August, he called broadly for "good, proactive" housing policies from the government.

From 2009 through March 2010, the Fed purchased $1.25 trillion worth of mortgage-backed securities in a program that Mr. Bernanke believes played an important role in healing distressed financial markets during the crisis. The Fed halted the program as it appeared the recovery was gathering steam.

At their meeting in September, Fed officials announced a modest shift in favor of mortgages. Until that meeting, the Fed had been trying to steer its overall $2.6 trillion securities portfolio away from mortgage debt and toward Treasury debt.

Some Fed officials believe the central bank shouldn't be favoring one sector of the economy -- housing -- over others, and thus shouldn't be in mortgage securities at all. In September, the Fed said it would halt its gradual move away from mortgages and instead would keep its holdings of mortgage-backed securities steady. The Fed holds $867 billion of mortgage backed securities and an additional $108 billion of the debt of government-owned mortgage giants Fannie Mae and Freddie Mac, which it is reinvesting in mortgage backed securities when it matures.

There are some practical reasons why a step toward mortgage purchases, if it happens, might not happen right away. In a parallel track to discussions about securities purchases, Mr. Bernanke is pushing the central bank toward more clearly and explicitly communicating to the public how the Fed reacts to changes in inflation and unemployment. Officials might want to refrain from new bond-buying measures until that communication strategy is worked out.

Mortgage rates haven't fallen as much as yields on U.S. government debt this year. Yields on 10-year Treasury notes have fallen from 3.34% at the beginning of the year to 2.16%, a 1.18 percentage point decline. Mortgage rates haven't fallen as much. Rates on 30-year mortgages, for example, have fallen from 4.77% to 4.11%, a 0.66 percentage point decline, according to Freddie Mac.