Analysis: Japan's yen offensive may give Toyota an edge over Hyundai

TOKYO (Reuters) - When Toyota Motor Corp President Akio Toyoda visited northern Japan in July last year and announced a $24 million engine plant expansion, some analysts saw it as evidence of a flawed strategy that put patriotism above profitability.
At the time, Toyota was struggling to rebuild its supply base after the March 2011 earthquake and tsunami and the yen was climbing toward a post-war record high against the dollar.
But the Miyagi Taiwa plant began assembling engines for the small hybrid Aqua, exported as the Prius C, this month with a welcome wind at Toyota's back: a weakening yen and a government-in-waiting determined to drive it lower.
Analysts say a continued slide in the Japanese currency could tip the competitive balance on pricing back in favor of Toyota and away from its toughest and fastest-rising global competitor, Hyundai Motor - a new dynamic that would likely be repeated across other Japanese export industries.
Since early October, the yen has weakened about 8 percent against the dollar and 10 percent against the Korean won. Over the same period, shares in Toyota have jumped by 30 percent as investors reacted to the prospect of higher profitability on cars built in Japan for export, including Lexus luxury models.
"As the yen weakens, that very tight cost structure they have put in place to maximize profitability in an appreciated yen position allows them now to make a lot more profit," said Larry Dominique, an analyst at TrueCar.com and former Nissan executive.
"With the Korean currency appreciating, I would expect that what you would see (for Hyundai) is some of the same issues that the Japanese faced over the past several years."
Whether the strategy of driving down the yen works to slow the "hollowing out" of Japanese manufacturing will be key for Japan's new government under Liberal Democratic Party chief Shinzo Abe, who is pushing for super-easy monetary policy to weaken the yen and lift pressure on exporters like Toyota.
The yen's rise in recent years has hurt Japan's exporters across the board, including industries like electronics and shipbuilding where competition with Korean rivals is also fierce. The number of Japanese factory workers fell 13 percent to about 10.4 million between 2002 and 2011.
But Toyota has been the slowest to abandon production in Japan - a conservative position that would make it the biggest beneficiary if the yen were to drop sharply now.
For his part, Toyoda has showed no signs of budging from a vow to make at least 3 million vehicles a year in Japan. Toyota engineers say the strategy allows them to keep suppliers close and drive innovations at "mother plants" in Japan which can provide guidance on cost-cutting for overseas plants.
By contrast, Nissan under Chief Executive Carlos Ghosn has been aggressively moving production offshore.
Under Ghosn, Nissan shifted production of its "March" subcompact - one of its top-sellers in Japan - to Thailand from Japan and has scrambled to buy more parts made overseas, including South Korea. Just 20 percent of Nissan's global production now originates in Japan, down from 50 percent five years ago. For Honda, Japan accounts for 26 percent of its total production, down from 34 percent in 2007.
For Toyota, the comparable figure is 40 percent, down from 50 percent in 2007.
As a result, Toyota is much more sensitive to the yen exchange rate than its Japanese rivals. Toyota operating profits fall by 35 billion yen for every one-yen drop in the value of the dollar. For Nissan, that comparable figure is 20 billion yen and for Honda 16 billion yen, the companies have said. Gains of the same proportion could be expected from a weakening yen.
"Toyota is the one that is hit the hardest when the yen is high," said Koji Endo, an autos analyst at Advanced Research in Tokyo. "But it is also the one that benefits the most when the yen is low."
'HOW DID HE DO THAT?'
Analysts point to Hyundai's recent success as an example of how a smart manufacturer can use the pricing power of a weak currency to undercut rivals.
A video that went viral at the Frankfurt auto show in 2011 caught Volkswagen Chairman Martin Winterkorn in candid admiration at Hyundai's quality gains. The video, which was widely circulated among auto executives, shows Winterkorn admiring the interior of a Hyundai i30.
Speaking to an entourage, Winterkorn notes that the windshield wipers are hidden from view - as they would be on a more expensive car - and that the steering wheel makes no sound when adjusted. "How did he do that?" Winterkorn asks about Hyundai. Off camera, a VW engineer can be heard to chime in: "We had a solution but it was too expensive."
Similarly, Hyundai has used a weaker won to help target Toyota's luxury Lexus brand. That is similar to what Lexus did to Mercedes and BMW in 1990 when it went from nowhere to become the top-selling U.S. luxury brand. At the time of the Lexus launch, the dollar was trading near 130 yen.
But in recent years, Hyundai has become the value leader. The top-of-the-line Hyundai Equus starts at $67,150 for 2013, an increase of just 1 percent over the previous year.
The sedan built at Hyundai's Ulsan plant also comes packed with features like 19-inch chrome wheels and a massage unit for the VIP seat in the rear as well as for the driver. Hyundai also promises that anyone who buys an Equus will never have to visit a dealer for service. Staff pick up the car at a home or business and replace it on the spot with a loaner.
By contrast, the strong yen forced Toyota to hike the price of the competing Japan-built Lexus LS 460L by 8 percent on the all-wheel-drive model for 2013 to $82,670.
Toyota could take advantage of a weaker yen now to address those pricing gaps and to add features where it has skimped. The Prius C built in Iwate in northern Japan, for example, was designed to be priced about $4,000 below a full-size Prius in the United States, Toyota's largest and most profitable market.
But Consumer Reports panned the hybrid for what it called a cheap-looking plastic interior and bad road noise.
A stronger won now could force tougher choices on Hyundai and its affiliate, Kia Motors , analysts and executives say. In recent years, Hyundai Motor's operating margin averaged 8.1 percent when the won weakened against the yen compared with a leaner 6.5 percent when it was strengthening, according to Thomson Reuters calculations.
A study by researchers at the Korea Automotive Research Institute released this month found South Korean auto exports shrink by 1.2 percent annually with every 1 percent decline in the value of the yen against the won.
"We are agonizing over the firming won," said one Kia executive, who asked not to be named because he was not authorized to speak about strategy.
But for the currency changes to have deep and lasting effects, they would need to be sustained, analysts and executives said. Automakers need four to five years to design a new model and shift suppliers. And in the end, every automaker has the same goal - to neutralize the impact of exchange rates by building more vehicles in the markets where they sell.
At the same time, a weaker yen remains more speculative than real, industry executives caution.
"It is wrong to say the yen is weak," Toyoda said last week. "The yen is still super strong at the current level."

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Treasury unveils plan to buy time under debt ceiling

 The Treasury on Wednesday announced the first of a series of measures that should push back the day when the government will exceed its legal borrowing authority as imposed by Congress by around two months.
Without any action, Treasury said the government is set to reach its $16.4 trillion debt ceiling on December 31.
The government is facing a crunch on the debt ceiling because the issue has become ensnarled in talks to avoid some $600 billion in tax hikes and spending cuts due to begin in early January. Failing to raise the debt ceiling could cause the government to default on its debt.
To cut government spending and delay bumping up against the debt ceiling, the Treasury will suspend issuance of state and local government series securities -- known as "slugs" -- beginning on December 28.
Investments in a government employee pension fund will also be suspended, along with some other measures, although Treasury did not give dates for when these other measures will begin.
"These extraordinary measures ... can create approximately $200 billion in headroom under the debt limit," Treasury Secretary Timothy Geithner wrote in a letter to congressional leaders.
Normally, these measures would buy the Treasury about two months time before hitting the debt ceiling, Geithner said in the letter. But a series of planned tax hikes and spending cuts due to take effect in early January could give Treasury further time if they take effect as scheduled, he said.
"Treasury will provide more guidance regarding the expected duration of these measures when the policy outlook becomes clearer," he said.
The instruments known as slugs are special low-interest Treasury securities offered to state and local governments to temporarily invest proceeds from municipal bond sales. They have been suspended several times over the last 20 years to avoid hitting the debt ceiling.
Many analysts believe the measures available to the Treasury can stave that date off into late February.
The U.S. Congress typically authorizes government borrowing in a two-stage process, first drafting plans to spend more than it raises in tax revenues. Every few years, it raises a limit on government borrowing to accommodate annual deficits, a process that this year has become ensnared by the contentious budget talks in Washington.

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Stores look to week after Christmas for sales

Bargain-hungry Americans will need to go on a post-Christmas spending binge to salvage this holiday shopping season.
Despite the huge discounts and other incentives that stores offered leading up to Christmas, U.S. holiday sales so far this year have been the weakest since 2008, when the nation was in a deep recession.
So stores now are depending on the days after Christmas to make up lost ground: The final week of December can account for about 15 percent of the month's sales, and the day after Christmas is typically one of the biggest shopping days of the year.
Stores, which don't typically talk about their plans for sales and other promotions during the season, are known for offering discounts of up to 70 percent after the holiday. This year, they're hoping to lure more bargain hunters who held off on shopping because they wanted to get the best deals of the season.
Still, a powerful winter storm, which pounded the nation's midsection on Wednesday and is heading toward the Northeast, could hurt post-Christmas shopping. The storm is bringing high winds and heavy snow that disrupted holiday travel, knocked out power to thousands of homes and were blamed in at least six deaths.
The Macy's location in Herald Square in New York was bustling with shoppers on Wednesday. There were a variety of deals throughout the store: candy dispensers for 70 percent off, various men's clothes were "buy one get one free," belts for 50 percent off, a bin of ties for $9.99.
Ulises Guzman, 30, a social worker, was shopping in the store. He said he waited to shop until the final days before Christmas, knowing that the deals would get better as stores got more desperate. He said he was expecting discounts of at least 50 percent.
The strategy worked. He saw a coat he wanted at Banana Republic for $200 in the days before Christmas but decided to hold off on making a purchase; on Wednesday, he got it for $80.
"I'm not looking at anything that's original price," he said.
Lenox Square Mall in Atlanta was also crowded by midday on Wednesday. Laschonda Pitluck, 18, a student in Atlanta, was shopping after Christmas because she wanted to get the best deals. Last year she spent over $100 on gifts but this year she's keeping it under $50.
Pitluck said she found items for 50 percent off, including a hoodie and jeans for herself at American Eagle and a shirt at Urban Outfitters. She said she would have bought the clothes if they hadn't been 50 percent off.
"I wasn't looking for deals before Christmas," said Pitluck, who also bought boxers for her boyfriend.
The shopping rush after Christmas illustrates just how important holiday sales are. Consumer spending accounts for 70 percent of economic activity, and many retailers can make up to 40 percent of their annual revenue during the two-month holiday shopping period at the end of the year.
So far, holiday sales of electronics, clothing, jewelry and home goods in the two months before Christmas increased 0.7 percent compared with last year, according to the MasterCard Advisors SpendingPulse report that was released on Tuesday. SpendingPulse, which tracks spending, said that's the weakest holiday performance since 2008 when sales dropped sharply, although the company did not know by how much.
The SpendingPulse data, which captures sales from Oct. 28 through Dec. 24 across all payment methods, is the first major snapshot of holiday retail sales. A clearer picture will emerge next week as retailers like Macy's and Target report monthly sales.
In the run-up to Christmas, analysts blamed bad weather for putting a damper on shopping. In late October, Superstorm Sandy battered the Northeast and mid-Atlantic states, which account for 24 percent of U.S. retail sales. That coupled with the presidential election, hurt sales during the first half of November.
Shopping picked up in the second half of November, but then the threat of the country falling off a "fiscal cliff" gained strength, throwing consumers off track once again. Lawmakers have yet to reach a deal that would prevent tax increases and government spending cuts set to take effect at the beginning of 2013. If the cuts and tax hikes kick in and stay in place for months, the Congressional Budget Office says the nation could fall back into recession.
Still, The National Retail Federation, the nation's largest retail trade group, said Wednesday that it's sticking to its forecast for total sales for November and December to be up 4.1 percent to $586.1 billion this year. That's more than a percentage point lower than the growth in each of the past two years, and the smallest increase since 2009 when sales were up just 0.3 percent.
Kathy Grannis, a spokeswoman for the group, noted that the trade group's definition of holiday sales not only includes clothes and electronics, but also food and building supplies.
"Stores have a big week ahead, and it's still too early to know how the holiday season fared, at this point," she said.

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US Treasury to take steps to avoid borrowing limit

The U.S. Treasury Department will begin taking steps on Friday to delay hitting the government's $16.4 trillion borrowing limit on Dec. 31.
Treasury Secretary Timothy Geithner said in a letter Wednesday to congressional leaders that the department will use accounting measures to save approximately $200 billion. That could keep the government from reaching the limit for about two months.
The move comes as President Barack Obama and the GOP congressional leadership resume negotiations over how to avoid a series of tax increases and spending cuts, known as the "fiscal cliff," that are scheduled to take effect in the new year.
Obama has sought to include an increase in the borrowing limit in any agreement to avoid the cliff. But Speaker John Boehner and other Republican leaders have demanded concessions in return. The negotiations hit a stalemate last week. Obama and lawmakers are returning to Washington this week to try again.
Geithner says the negotiations over tax and spending policies make it difficult to predict how long he can delay reaching the borrowing limit. The absence of a specific timeframe may be intended to pressure Republicans to allow a debt limit increase in a potential budget deal.
For now, Treasury will take several steps to delay reaching the limit. Geithner said it will stop selling Treasury securities used by state and local governments to support their own sales of tax-exempt bonds. That will keep the department from accumulating more debt.
And the department will stop investing in government retirement funds.
The borrowing limit is the amount of debt the government can pile up. The government accumulates debt two ways: It borrows money from investors by issuing Treasury bonds, and it borrows from itself, mostly from Social Security revenue.
In 2011, Congress raised the limit to nearly $16.4 trillion from $14.3 trillion. Three decades ago, the national debt was $908 billion. But Washington spent more than it took in, and the debt rose steadily — surpassing $1 trillion in 1982, then $5 trillion in 1996. It reached $10 trillion in 2008 as the financial crisis and recession dried up tax revenue and as the government spent more on unemployment benefits and other programs.
In August 2011, the rating agency Standard & Poor's stripped the U.S. government of its prized AAA bond rating because it feared that America's dysfunctional political system couldn't deliver credible plans to reduce the federal government's debt. S&P decried American "political brinksmanship" and concluded that "the differences between political parties have proven to be extraordinarily difficult to bridge."
A year and a half later, the two political parties are still as deadlocked as ever.
Despite S&P's warnings and the political stalemate, investors still want U.S. Treasurys. Given economic turmoil in Europe and uncertainty elsewhere, U.S. government debt and U.S. dollars look like the safest bet around.
That is why the interest rate, or yield, on 10-year Treasury notes has fallen from 2.58 percent on Aug. 5, 2011 to 1.75 percent Wednesday.

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Wall Street drops in thin session, led by retailers

Stocks fell for a third straight day on Wednesday, dragged lower by retail stocks after a report showed consumers spent less in the holiday shopping season than last year.
Trading was light, with volume at a mere 4.01 billion shares traded on the New York Stock Exchange, the Nasdaq and NYSE MKT, well below the daily average so far this year of about 6.48 billion shares. The day's volume was the lightest full day of trading so far in 2012. Many senior traders were still on vacation during this holiday-shortened week and major European markets were closed for the day.
Many investors said concerns about the "fiscal cliff" kept shoppers away from stores, suggesting markets may struggle to gain any ground until that issue is resolved. The CBOE Volatility Index <.vix> or VIX, Wall Street's favorite barometer of investor anxiety, rose 4.46 percent, closing above 19 for the first time since November 7.
A number of 2012's strongest performers advanced, a sign that portfolio managers may be engaging in "window dressing," a practice where market participants buy securities with big gains to improve the appearance of their holdings before presenting the results to clients. Bank of America Corp , which has more than doubled in 2012, added 2.6 percent to $11.54 on Wednesday.
Holiday-related sales rose 0.7 percent from October 28 through December 24, compared with a 2 percent increase last year, according to data from MasterCard Advisors SpendingPulse. The Morgan Stanley retail index <.mvr> skidded 1.8 percent while the SPDR S&P Retail Trust slipped 1.7 percent.
"With the 'fiscal cliff' hanging over our heads, it was hard to convince people to shop, and now it's hard to convince investors that there's any reason to buy going into year-end," said Rick Fier, director of trading at Conifer Securities in New York, which has about $12 billion in assets under administration.
President Barack Obama is due back in Washington early Thursday for a final effort to negotiate a deal with Congress to bridge a series of tax increases and government spending cuts set to begin next week, the so-called "fiscal cliff" many economists worry could push the U.S. economy into recession if it takes effect.
Coach Inc fell 5.9 percent to $54.13 as the S&P 500's biggest decliner, followed by Amazon.com , down 3.9 percent at $248.63, and Abercrombie & Fitch , off 3.5 percent at $45.44. Ralph Lauren Corp , Limited Brands and Gap Inc also ranked among the S&P 500's biggest decliners.
The Dow Jones industrial average <.dji> slipped 24.49 points, or 0.19 percent, to 13,114.59 at the close. The Standard & Poor's 500 Index <.spx> shed 6.83 points, or 0.48 percent, to 1,419.83. The Nasdaq Composite Index <.ixic> dropped 22.44 points, or 0.74 percent, to 2,990.16.
J.C. Penney Co was a notable exception to the weakness in retail stocks, surging 4.4 percent to $20.75 as the S&P 500's biggest gainer. It was followed closely by Bank of America and Genworth Financial , which each gained nearly 3 percent for the day.
"People want to show they own names like these, making them prime 'window dressing' candidates," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York.
"Bank of America keeps going up even though it's overbought and you'd expect a pullback at these levels. No one wanted it when it was under $10 a share, but they want it now."
The S&P 500 has fallen 1.5 percent over the past three sessions, the worst three-day decline since mid-November. The Dow Jones Transportation Average <.djt>, viewed as a proxy for business activity, fell 0.6 percent.
A Republican plan that failed to gain traction last week triggered the S&P 500's recent drop, highlighting the market's sensitivity to headlines centered on the budget talks.
During the last five trading days of the year and the first two of next year, it's possible for a "Santa rally" to occur. Since 1928, the S&P 500 has averaged a gain of 1.8 percent during that period and risen 79 percent of the time, according to data from PrinceRidge.
"While it's unlikely there could be a budget deal at any time, no one wants to get in front of that trade," said Conifer's Fier. "Investors can easily make up for any gains when there's more action in 2013."
Data showed U.S. single-family home prices rose in October, reinforcing the view that the domestic real estate market is improving, as the S&P/Case-Shiller composite index of 20 metropolitan areas gained 0.7 percent in October on a seasonally adjusted basis.
Decliners outnumbered advancers on the New York Stock Exchange by a ratio of about 2 to 1, while on the Nasdaq, more than five stocks fell for every three that rose.

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Afghan bomber attacks near major US base; no dead

A vehicle apparently driven by a suicide bomber exploded at the gate of a major U.S. military base in eastern Afghanistan on Wednesday, with initial reports indicating some Afghans were injured but no one was killed, a NATO command spokesman said. The Taliban claimed responsibility for the attack.
The vehicle, probably with a suicide bomber inside, exploded at the gate of Camp Chapman, located adjacent to the airport near the provincial capital of Khost, which borders Pakistan, coalition spokesman U.S. Army Maj. Martyn Crighton said. He called it an "unsuccessful attack."
Earlier, Afghan Police Gen. Abdul Qayum Baqizai said the attack was directed at a NATO convoy traveling to the airport.
Taliban spokesman Zabihullah Mujahid said in an email that the bomber targeted Afghan police manning the gate and Afghans working for the Americans entering the base. He claimed high casualties were inflicted.
NATO operates with more than 100,000 troops in the country, including some 66,000 American forces. It is handing most combat operations over to the Afghans in preparation for a pullout from Afghanistan in 2014. Militant groups, including the Taliban, rarely face NATO troops head-on and rely mainly on roadside bombs and suicide attacks.
NATO forces and foreign civilians have also been increasingly attacked by rogue Afghan military and police, eroding trust between the allies.
On Tuesday, the Interior Ministry said a policewoman who killed an American contractor in Kabul a day earlier was a native Iranian who came to Afghanistan and displayed "unstable behavior" but had no known links to militants.
The policewoman, identified as Sgt. Nargas, shot 49-year-old Joseph Griffin, of Mansfield, Georgia, on Monday, in the first such shooting by a woman in the spate of insider attacks. Nargas walked into a heavily-guarded compound in the heart of Kabul, confronted Griffin and gunned him down with a single pistol bullet.
The U.S-based security firm DynCorp International said on its website that Griffin was a U.S. military veteran who earlier worked with law enforcement agencies in the United States. In Kabul, he was under contract to the NATO military command to advise the Afghan police force.
The ministry spokesman, Sediq Sediqi, told a news conference that Nargas, who uses one name like many in the country, was born in Tehran, where she married an Afghan. She moved to the country 10 years ago, after her husband obtained fake documents enabling her to live and work there.
A mother of four in her early 30s, she joined the police five years ago, held various positions and had a clean record, he said. Sediqi produced an Iranian passport that he said was found at her home.
No militant group has claimed responsibility for the killing.
Chief investigator of the case, Police Gen. Mohammad Zahir said that during interrogation, the policewoman said she had plans to kill either the Kabul governor, city police chief or Zahir himself, but when she realized that penetrating the last security cordons to reach them would be too difficult, she saw "a foreigner" and turned her weapon on him.
There have been 60 insider attacks this year against foreign military and civilian personnel, compared to 21 in 2011. This surge presents another looming security issue as NATO prepares to pull out almost all of its forces by 2014, putting the war against the Taliban and other militant groups largely in the hands of the Afghans.
More than 50 Afghan members of the government's security forces also have died this year in attacks by their own colleagues. The Taliban claims such incidents reflect a growing popular opposition to the foreign military presence and the Kabul government.

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8 dead in Christmas Day fires, riot in Philippines

Angry residents beat a man to death and threw rocks at firefighters after a shantytown fire left thousands of people homeless, and another Christmas Day blaze in the Philippine capital left seven people dead, officials said Wednesday.
A resident was beaten to death by his neighbors after shouting that he started Tuesday's shantytown fire in suburban San Juan city, Senior Fire Officer Domingo Cabog said.
The man was reportedly drunk and was not responsible for the fire. Cabog said the fire started in a house where children were playing with lighted candles.
Some 5,000 people were left homeless and 13 people were hurt in the shantytown. The injured included two firefighters and a volunteer hit by rocks that were thrown by residents who were impatient and tried to grab fire hoses to save their own shanties, Cabog said.
As firefighters struggled to penetrate the narrow alleys, one of them was mauled by a mob and rescued by a police officer, Cabog said. Two fire trucks also were damaged in the violence.
"It's Christmas and many of the men in the neighborhood were drunk," Cabog said, adding that some residents brandished knives.
The homeless were given shelter at a gymnasium and in tents near a basketball court. Police were investigating the beating death but no one was immediately arrested Wednesday.
In Quezon City, another of the 16 cities that make up metropolitan Manila, a predawn fire Tuesday killed a veterinarian and six household members who were trapped inside a house, said arson investigator Rosendo Cabillan. The blaze was suspected to be triggered by an overloaded electrical circuit, he said.

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Three Afghans dead in new blast at U.S. base in Afghan east

A suicide bomber killed three people in an attack on a U.S. base in Afghanistan on Wednesday, the same base that is believed to be used by the CIA and which a suicide bomber attacked three years ago killing seven CIA employees.
The Afghan Taliban claimed responsibility for the attack in the eastern town of Khost, saying they had sent a suicide bomber driving a van packed with explosives to the base.
"The target was those who serve Americans at that base," said Taliban spokesman Zabihullah Mujahid.
Afghanistan's NATO-led force said the bomber did not get into the base nor breach its perimeter. Police said the three dead were Afghans who were outside the base, which is beside a military airport.
The al Qaeda-linked Haqqani network, widely regarded as the most dangerous U.S. foe in Afghanistan, is active in Khost province, which is on the Pakistani border.
After more than a decade of war, Taliban insurgents are still able to strike strategic military targets, and launch high-profile attacks in the capital, Kabul, and elsewhere.
Three years ago, an al Qaeda-linked Jordanian double-agent killed seven CIA employees and a Jordanian intelligence officer in a suicide bombing at the same base in Khost, known as Forward Operating Base Chapman.
It was the second deadliest attack in CIA history.
Afghan police official General Abdul Qasim Baqizoy, the Khost police chief, said no CIA agents were hurt on Wednesday.
Afghan authorities are scrambling to improve security across the country before the U.S. combat mission ends in 2014.
Besides pressure from the Taliban, U.S.-led NATO forces also face a rising number of so-called insider attacks, in which Afghan forces turn their weapons on Western troops they are supposed to be working with.
On Monday, an Afghan policewoman killed a U.S. police adviser at the Kabul police headquarters, raising troubling questions about the direction of the war.
It appeared to be the first time that a woman member of Afghanistan's security forces carried out such an attack.
On Tuesday, Afghan officials said the woman has an Iranian passport and moved to Afghanistan 10 years ago. There was no suggestion that Iran was involved in the attack on the American.
Officials suspect she may have been recruited by al Qaeda or the Taliban, and had intended to also kill Afghan police officials.

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Japan's Abe gets second term, to tap allies for cabinet

The lower house of Japan's parliament approved Shinzo Abe as prime minister on Wednesday, giving the hawkish lawmaker a second chance at the top job as the country battles deflation and confronts a rising China.
Abe, 58, has promised aggressive monetary easing by the Bank of Japan and big fiscal spending by the debt-laden government to slay deflation and weaken the yen to make Japanese exports more competitive.
The grandson of a former prime minister, Abe has staged a stunning comeback five years after abruptly resigning as premier in the wake of a one-year term troubled partly by scandals in his cabinet and public outrage over lost pension records.
His Liberal Democratic Party (LDP) surged back to power in this month's election, three years after a crushing defeat at the hands of the novice Democratic Party of Japan.
"I want to learn from the experience of my previous administration, including the setbacks, and aim for a stable government," Abe told reporters before the lower house voted him in as Japan's seventh prime minister in six years.
Abe looks set to pick a cabinet of close allies leavened by some LDP rivals to fend off the criticism of cronyism that dogged his first administration. The line-up will be announced around 0700 GMT.
Japanese media have said Abe will name former prime minister Taro Aso, 72, as finance minister, ex-trade and industry minister Akira Amari as minister in charge of a new economic revival headquarters and policy veteran Toshimitsu Motegi as trade minister. Motegi will also be tasked with formulating energy policy in the aftermath of the Fukushima nuclear disaster last year.
Loyal Abe backer Yoshihide Suga is expected to become chief cabinet secretary, a key post combining the job of top government spokesman with responsibility for coordinating among ministries.
Others who share Abe's agenda to revise the pacifist constitution and rewrite Japan's wartime history with a less apologetic tone have also been floated for posts.
"These are really LDP right-wingers and close friends of Abe," said Sophia University professor Koichi Nakano. "It really doesn't look very fresh at all."
CHINA TIES, JULY ELECTION
The yen has weakened about 9.8 percent against the dollar since Abe was elected LDP leader in September. On Wednesday, it hit a 20-month low of 85.38 yen against the greenback on expectations of aggressive monetary policy easing.
Abe has threatened to revise a law guaranteeing the Bank of Japan's (BOJ) independence if it refuses to set a 2 percent inflation target.
BOJ minutes released on Wednesday showed the central bank was already pondering policy options in November, concerned about looming risks to the economy. The BOJ stood pat at its November rate review meeting but eased this month in response to intensifying pressure from Abe.
Abe also promised during the election campaign to take a tough stance in territorial rows with China and South Korea over separate chains of tiny islands, while placing priority on strengthening Japan's alliance with the United States.
Japanese media said Abe would appoint two low-profile officials to the foreign and defense portfolios.
Itsunori Onodera, 52, who was senior vice foreign minister in Abe's first cabinet, will become defense minister while Fumio Kishida, 55, a former state minister for issues related to Okinawa island - host to the bulk of U.S. forces in Japan - will be appointed to the top diplomatic post, the reports said.
Abe, who hails from a wealthy political family, made his first overseas visit to China to repair chilly ties when he took office in 2006, but has said his first trip this time will be to the United States.
He may, however, put contentious issues that could upset key trade partner China and fellow-U.S. ally South Korea on the backburner to concentrate on boosting the economy, now in its fourth recession since 2000, ahead of an election for parliament's upper house in July.
The LDP and its small ally, the New Komeito party, won a two-thirds majority in the 480-seat lower house in the December 16 election. That allows the lower house to enact bills rejected by the upper house, where the LDP-led block lacks a majority.
But the process is cumbersome, so the LDP is keen to win a majority in the upper house to end the parliamentary deadlock that has plagued successive governments since 2007.
"The LDP is still under the critical eyes of the public. We need to earn their trust by get things done one by one," Abe told party lawmakers ahead of the lower house vote.
"First on the agenda is economic recovery, beating deflation and correcting a firm yen and getting the economy back on the growth path. If we don't pursue this target, an upper house election next year will be a tough one for us.

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Shinzo Abe elected as Japan's prime minister

The lower house of Parliament has named conservative Shinzo Abe (shin-zoh ah-bay) as Japan's new prime minister. The rise of Abe, whose nationalist positions have in the past angered Japan's neighbors, ends more than three years at the helm for the left-leaning Democratic Party of Japan and brings back the conservative, pro-big business Liberal Democratic Party that governed for most of the post-World War II era. Abe, who was also prime minister in 2006-2007, led the LDP to victory in parliamentary elections Dec. 16. He was to name his Cabinet later Wednesday after a vote in Parliament's upper house, where his party is weaker. But the lower house has the final say.

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