AP Exclusive: Japan nuke holdout resolved to stay (AP)

TOMIOKA, Japan – Vines creep across Tomioka's empty streets, its prim gardens overgrown with waist-high weeds and meadow flowers. Dead cows rot where they were left to starve in their pens. Chicken coops writhe with maggots, a sickening stench hanging in the air.

This once-thriving community of 16,000 people now has a population of one.

In this nuclear no-man's land poisoned by radiation from a disaster-battered power plant, rice farmer Naoto Matsumura refuses to leave despite government orders. He says he has thought about the possibility of getting cancer but prefers to stay — with a skinny dog named Aki his constant companion.

Nearly six months after Japan's catastrophic earthquake and tsunami, the 53-year-old believes he is the only inhabitant left in this town sandwiched between the doomed Fukushima Dai-ichi nuclear power station to the north and another sprawling nuclear plant to the south.

"If I give up and leave, it's all over," he told The Associated Press. "It's my responsibility to stay. And it is my right to be here."

Matsumura is an anomaly in a country where defiance of the government is rare and social consensus counts above everything else. Yet, Matsumura's quiet civil disobedience speaks loudly of the dilemma facing the more than 100,000 silent "nuclear refugees" who were displaced by the March 11 disaster.

Tokyo was quick to establish evacuation zones around the plant but has been slow to settle the refugees. A government order forbids them from going back to their homes in a half dozen towns around Fukushima Dai-ichi that were declared off-limits after the tsunami-stricken nuclear plant started spewing radioactivity.

"We are already being forgotten," said Matsumura, a leathery but clean-cut man with the sturdy build of a farmer. "The rest of the country has moved on. They don't want to think about us."

Tomioka's city hall has been moved to a safer city in Fukushima prefecture, where thousands of its residents live in makeshift shelters. Thousands more have scattered across the country.

The town itself is sealed behind police barriers, which hide the heart of the nuclear no-go zone, an area that is officially too dangerous for human habitation.

Officers are sent into Tomioka each day to search for burglars or violators of the keep-out order. By law, anyone caught inside the zone can be detained and fined.

But authorities mostly turn a blind eye to Matsumura, though he says he has been confronted by the police a few times. If there are other holdouts, they have escaped detection.

"Some people stayed behind, some stayed with me in my house," he said. "But the last one left a few weeks ago. He asked me to take care of his cats."

Tomioka official Tomio Midorikawa, who is in charge of the town's living and environment division, said the last resident was persuaded to leave in early August — the same time Matsumura claims his neighbor left. He was not aware of Matsumura.

Without electricity or running water, Matsumura fires up a pair of old generators each night and draws his water from a local well. He eats mostly canned foods, or fish that he catches himself in a nearby river. He said that once or twice a month, he makes his way to a city outside the zone in his mini pickup truck to stock up on supplies and gas.

He has taken it upon himself to tend to the town's abandoned cats and dogs, including the wolflike Aki.

"I've gone to Tokyo a couple of times to tell the politicians why I'm here," he said. "I tell them that it was an outrage how the cows were left to die, and how important it is for someone to tend to the family graves. They don't seem to hear me. They just tell me I shouldn't be here to begin with."

Matsumura said he did leave once, but the ensuing experience only strengthened his desire to return.

"I drove to a relative's house thinking I would stay there," he said. "But she wouldn't let me in the door, she was too afraid I was contaminated. Then I went to an evacuation center, but it was full. That was enough to convince me to come home."

The tsunami disaster left nearly 21,000 people dead or missing and touched off fires, explosions and meltdowns at the Fukushima nuclear plant. The amount of radioactive cesium released into the environment since has been estimated to be equal to 168 Hiroshimas, making it the worst atomic disaster since Chernobyl.

No one — including Matsumura — is suggesting the exclusion zone be lifted altogether. The connection between radiation and cancer or other health problems is well established, and experts agree it could be decades until the nuclear zone is safe. Some point to the example of Chernobyl, which 25 years later is still mostly void of human life.

"The contaminants will be there for decades, centuries, millennia," said Timothy Mousseau, a biologist with the University of South Carolina who has studied Chernobyl for more than a decade and recently returned from a preliminary research trip to Fukushima.

Even so, local authorities are increasingly frustrated with the lack of progress toward resolving the nuclear Diaspora.

Tamotsu Baba, the mayor of Namie, a partially evacuated town near Tomioka, said in an interview it was reasonable at first for Tokyo to establish a geometric ring extending outward from the center of the plant. But he believes data collected since should be used to fine-tune the exclusion area to reflect the actual amounts of contamination.

"We have invested millions in developing a system to measure radiation," he said. "But it is like the whole thing is being decided by someone behind a desk with a 500 yen ($5) compass."

Further fanning the anger among the displaced, compensation from the government and Tokyo Electric Power Co., the utility that runs the plant, has stalled in a bureaucratic labyrinth.

Before the crisis began, the average annual income in Tomioka was about 3.5 million yen ($35,000).

Matsumura said he has received about 1 million yen ($10,000) in compensation, far less than he would have earned from selling his rice and other produce. TEPCO, reeling financially from the accident, has put off a final decision on further compensation until the plant is stabilized. The money already handed out will be subtracted from the amount it eventually settles on.

Officials say some restrictions may be lifted by the end of the year if the Fukushima reactors are brought to a stable shutdown.

Beyond that, the future remains a mystery.

"There are many tasks ahead before we will be able to return to our town, including decontamination and the rebuilding of our sewage system, roads and infrastructure," Tomioka Mayor Katsuya Endo said in a recent post on the town's website. "But we must maintain our hope, and gradually move forward."

Matsumura now likens himself to the Japanese soldiers who refused to surrender until decades after the end of World War II.

As a heavy rain began to fall, he walked down an overgrown mountain path to his rice paddy. He pulled up a plant by its roots, twisted it between his fingers then tossed it into an irrigation ditch with a resigned sigh.

There will be no cash crop this year. Or maybe ever again.

"It was strange being alone at first, but I am resolved to stay," he said. "I'm getting used to this life."

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Moody's cuts Japan rating, blames politics (Reuters)

TOKYO (Reuters) – Moody's Investors Service cut its rating on Japan's government debt by one notch to Aa3 on Wednesday, blaming a build-up of debt since the 2009 global recession and revolving-door political leadership that has hampered effective economic strategies.

Japan is preparing to elect its sixth leader in five years to replace unpopular Prime Minister Naoto Kan, under fire for his handling of the response to a March tsunami and subsequent radiation crisis at a crippled nuclear power plant.

The downgrade, while not out of the blue, served as another reminder of the debt burdens that nearly all of the world's major advanced economies shoulder, even as policymakers struggle to agree on ways to stimulate sub-par growth without massive new spending.

The United States lost its top-tier AAA rating from Standard & Poor's earlier this month, and Moody's warned in June that it may downgrade Italy as Europe's sovereign debt crisis festers.

Moody's new rating on Japan's debt is three notches below coveted AAA status, which Tokyo lost in 1998, but is still classified as high grade. Japan is now the same level as China, which surpassed it last year to become the world's second-largest economy, and one notch below Italy and Spain.

"Over the past five years, frequent changes in (Japan's) administrations have prevented the government from implementing long-term economic and fiscal strategies into effective and durable policies," Moody's said.

Moody's had warned in May that it might downgrade Japan's Aa2 rating due to heightened concerns about faltering growth prospects and a weak policy response to rein in bulging public debt, already twice the size of its $5 trillion economy.

Finance Minister Yoshihiko Noda, a fiscal conservative who has joined the race to succeed Kan, refrained from direct comment on Moody's downgrade. But he said: "Recent JGB auctions have met favorable demand and I don't see any change in market confidence in JGBs."

Analysts said the downgrade was hardly a surprise and the reaction in financial markets was muted.

"I had expected that the rating cut would have taken place after the election for the leadership of the (ruling) Democratic Party of Japan. But looking at the candidates, there seems to be nobody among them who would seriously tackle financial reform, so that's why Moody's went ahead and cut the rating," said Yuuki Sakurai, CEO and president of Fukoku Capital Management Inc.

The risks of an upgrade and a downgrade are equally balanced but it would take a significant development to get the ratings agency to move in either direction, Tom Byrne, Moody's senior vice president and regional credit officer , told reporters.

An earlier agreement to raise taxes to cover welfare costs was a good start at fiscal consolidation, but the best chance for success is a stable government, Byrne added.

Japan's next leader has a mountain of challenges ahead, from battling a soaring yen and forging a post-nuclear crisis energy policy to rebuilding from the tsunami and reining in public debt, while paying for reconstruction and the bulging costs of an aging society.

The March disasters knocked the economy back into recession, and the strength of an expected rebound later this year is being clouded by weak domestic and global demand and recent gains in the yen, which threaten export competitiveness.

The government on Thursday unveiled steps to help firms cope with the yen's recent rise to record highs, including a $100 billion emergency credit facility aimed at making it easier for Japanese companies to buy foreign firms.

It also said it would ask major financial firms to report on dealers' currency positions for the period to the end of September, an apparent attempt to curb speculation.

"We are watching more carefully than before whether there is any speculative activity in the market. We won't exclude any options and will take decisive action when necessary," Noda told a news conference to announce the government measures.

Noda's chances of winning an August 29 ruling party leadership race to pick Kan's successor dimmed this week after former Foreign Minister Seiji Maehara, who says beating deflation should be the top priority, reversed course and decided to run.

TAX HIKES AND TIMING

Most of the seven DPJ candidates eyeing the top job agree Japan must eventually raise its 5 percent sales tax to help fund the ballooning social welfare costs of its fast-aging society.

Only Noda, however, favors raising other taxes soon to fund reconstruction of Japan's tsunami-devastated northeast region, and even he has been toning down that stance lately.

"While most people in the market believe Maehara is very likely to win the election, a swift policy response on debt problems is unlikely to come out soon," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

Moody's said Japan needed to achieve 3 percent nominal growth in its gross domestic product to get the deficit under control and that a government plan to double the 5 percent sales tax by mid-decades was not bold enough.

"That's not enough. The government knows that as well," Byrne told Reuters.

The yen barely moved on the downgrade news, trading at around 76.7 to the dollar, while 10-year JGB futures were up 0.08 point at 142.63 at the end of the morning session after initially dipping into negative territory. Japanese stocks fell about 1 percent.

Moody's said the outlook for Japan's credit rating was now stable given the "undiminished home bias of Japanese investors and their preference for government bonds, which allows the government's fiscal deficits to be funded at the lowest nominal rates globally".

Byrne told Reuters that as a rule, the rating was not expected to change for 12 to 18 months.

The downgrade brings Moody's rating for Japan into line with rival agency Standard & Poor's, which cut Japan's rating in January to AA minus, the fourth-highest on its scale.

Moody's downgrade of Japan was its first since 2002, when it reduced the rating to A2, six notches from the top. It had upgraded Japan three times since then, with the last upgrade as recent as May 2009.

Persistent deflation and slow growth has shackled Japan's economy for years, reducing tax revenues available to the government, which has grown to rely on debt issuance to finance a large part of its budget.

(Additional reporting by Wayne Cole in Sydney and Nathan Layne, Chikafumi Hodo and Tetsushi Kajimoto in Tokyo; Writing by Linda Sieg; Editing by Kim Coghill)

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Britain, Japan warn of disaster if no U.S. debt deal (Reuters)

LONDON/TOKYO (Reuters) – British and Japanese officials warned Sunday of disastrous consequences for the global economy if last-minute talks among lawmakers in Washington failed to agree on raising the U.S. borrowing limit and averting a debt default.

Governments across the world fear that because of the key role of the U.S. dollar in global banking and trading systems, there could be severe instability when Asian financial markets reopen Monday if a U.S. debt deal is not in sight by then.

In Washington, Senate Minority Leader Mitch McConnell, the top Senate Republican who is playing a key role in the debt talks, said "we're very close" to a $3 trillion deal that would raise the debt ceiling while cutting the U.S. budget deficit.

But a senior White House official warned that an agreement was "not there yet."

"If they get this one wrong and there's a default -- we don't expect that, we think that they will sort this out -- but if that were to happen, it has consequences for every family and every business in this country and all across the world," said Danny Alexander, Chief Secretary to the British Treasury.

"I think in the end the politicians on Capitol Hill can see that the precipice they are looking over is one that they are going to step back from," Alexander told BBC television.

"But it is something that would have a big effect on the global financial system and on the global economy, where the United States is one of our major trading partners, that could have really big implications for the United Kingdom."

In Tokyo, sources familiar with Japan's international and monetary affairs said they were increasingly concerned that markets might be too optimistic about prospects for a lasting solution to the crisis.

Japanese officials still hope Washington can strike a deal and if that proves impossible, will give priority to interest payments to international holders of U.S. Treasury debt to limit the immediate market impact, the sources said.

But Tokyo's concern is that if the crisis drags on without a clear and long-term solution, markets may be thrown into turmoil in the same way that they suffered when U.S. investment bank Lehman Brothers collapsed in September 2008.

"If there is a default, the impact on global markets will be huge," said one of the sources, who declined to be named because of the sensitivity of the matter.

Another Japanese source said, "Nobody thought Washington would let Lehman collapse. But look what happened."

U.S. lawmakers have set themselves a Tuesday deadline to reach agreement and the U.S. Treasury has said it will run out of borrowing room on that day, although analysts think the government may have enough cash to keep servicing its debt and paying its bills through the middle of this month.

CHINA

Britain is the third largest foreign holder of U.S. Treasury debt and Japan is the second largest. China is the biggest with well over $1 trillion invested in U.S. Treasuries; about two-thirds of its $3.2 trillion of foreign exchange reserves are estimated to be held in dollar assets.

Saturday the official People's Daily newspaper, the mouthpiece of the Chinese Communist Party, castigated the U.S. handling of the debt crisis in an editorial as "irresponsible" and "immoral."

It said the U.S. democratic system was to blame for the "farce," claiming that "not a single representative has considered the world, and even U.S. national interests are being banished from the mind."

Friday a senior economic policymaker in the euro zone, who declined to be named, told Reuters he was optimistic Washington would solve the problem but expressed surprise and anger that U.S. politicians were "playing chicken" with an issue of such importance for the global economy.

Euro zone leaders are struggling to control sovereign debt crises in several countries in their region, and the U.S. debt problem is making this more difficult by adding to upward pressure on the yields of government bonds in those weak states.

If there is no U.S. debt deal by Monday morning, central banks around the world are expected to stand ready to provide emergency supplies of money to commercial banks in case the banks become too nervous to lend to each other.

Japan's first defense will be to ensure that Japanese financial institutions have a sufficient supply of dollars, the sources in Tokyo indicated.

The Bank of Japan believes Japanese commercial banks have sufficient dollar cushions but will use its dollar swap arrangement with other central banks to prevent a dollar squeeze in case of market turmoil.

In late June, the U.S. Federal Reserve agreed to extend liquidity swap arrangements with other major central banks until August 1, 2012.

The Japanese central bank is also prepared to flood markets with yen through its open market operations in case interbank borrowing costs spike, BOJ officials say.

In Europe, there were minor signs of strain in the money markets last week with some banks becoming unable to take out longer-term dollar loans, but the effect was small since banks still expected Washington would reach a deal.

The European Central Bank already offers unlimited euro loans to banks in some of its money market operations as part of its response to past crises, and it could use that policy to cope with any market problems this week.

A spokesman for the Swiss central bank said, "The Swiss National Bank is ready to react appropriately at any time to market disruptions."

(Writing by Andrew Torchia; Editing by David Cowell)

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Quake jolts northeast Japan, no reports of damage (Reuters)

TOKYO (Reuters) – A strong earthquake jolted on Sunday the same area of northeastern Japan that was hit by a massive quake in March, but there was no sign of further damage along the coast or to the crippled Fukushima nuclear power plant, officials said.

The Japan Meteorological Agency lifted a tsunami alert for the region before noon after initially urging residents in the disaster area to stay clear of the coast.

The U.S. Geological Survey estimated the magnitude of the earthquake at 7.0 and said it had occurred at a depth of 18 km (11 miles) off the northeastern coast of Japan just before 10 am local time.

Four months ago, the same area was hit by a massive earthquake and tsunami that left at least 21,000 dead and missing. The March 11 disaster cut power to the Fukushima power plant and triggered a radiation crisis.

"It started as a small side-way tremble, then it grew gradually stronger," said Nobuyuki Midorikawa, an official at Iwaki City, Fukushima prefecture.

"Having experienced that much devastation in March, this latest earthquake and tsunami alert made me feel we cannot let our guard down against tsunami," Midorikawa said.

Tokyo Electric Power said workers closest to the coast at the Fukushima power plant were briefly evacuated to higher ground before returning to work.

The utility said there was no immediate sign of further damage at the nuclear plant where workers have been struggling to keep an improvised cooling system operating to stabilize the reactors and control radiation. The cooling system was not interrupted by the quake, the company added.

Tokyo Electric said there was also no damage to the massive barge moored just offshore from the Fukushima nuclear power plant that has been used as a temporary storage depot for radiated water for any damage.

The March 11 earthquake that struck off the coast of northeastern Japan had a magnitude of 9.0 and caused a tsunami that caused extensive damage along the coast and measured about 14 meters at the Fukushima nuclear plant.

The resulting loss of power at the Fukushima nuclear plant took out cooling systems and caused fuel in three of the plant's six reactors to melt down. Subsequent hydrogen explosions scattered radioactive debris over a wide area.

About 80,000 nearby residents have been forced to evacuate because of the radiation and Japan's government has come under fire for its handling of the disaster, putting pressure on unpopular Prime Minister Naoto Kan to resign.

One concern has been the strength of the building supporting what remains of the No. 4 reactor at Fukushima, and a Tokyo Electric spokesman said the utility expects that the structure would hold up in an earthquake stronger than the one that struck Sunday.

(Writing by Kevin Krolicki, editing by Miral Fahmy)

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