The Japanese yen continues to depreciate against other currencies. Last month, the exchange rate between was below 102 yen for one US dollar, now it stands at more than 108 yen/US$.
Two years ago, the exchange stood at 78 yen for one US dollar, translating into a depreciation of more than 35% against the US dollar. The depreciation in the Yen is welcomed by the Japanese government and the economy because more Japanese products can be exported at lower prices.
Lower prices usually translate into more sales, and financial markets reacted quickly to the news. The Nikkei Average of Tokyo Stock Exchange Market has more than doubled in the past two years, and companies that export most of their products are hoping for the same type of increase in market capitalization.
Unfortunately, this is not the case. Once you begin to peel back the layers of this onion, you may begin to weep. The companies that do most of their exporting in Japan are affiliated with the consumer electronics industry. The majority of manufacturing shifted to other countries due to lower labor costs. The exporting segment for consumer electronics did not increase proportionally to the yen’s depreciation, as stated, it actually decreased remarkably compared with the dollar.
Conversely, imports for dollar based products such as oil and natural gas increased due to a spike in consumption. These dollar based imports increased significantly, and the balance of trade has been negative since beginning of 2013. The Japanese government is trying to spin this imbalance of trade by explaining the economy continues to grow and will spread throughout the country. However, manufacturers believe the economy is flat compared with previous years.
The Bank of Japan is ready to infuse the economy with more money if the economy does not show considerable growth. In my opinion, the Japanese government and the Bank of Japan have no good idea how to grow the economy other than increasing the money supply. Unfortunately, the money does not go to the manufacturers directly; it flows through financial markets first, then to construction projects in Japan. It takes a long time and many steps to trickle down to the people on the streets. The truth is that the yen’s depreciation does not strengthen the exporting power for the Japanese electronics industry.
Even scarier is that more than one third of the fortune made in Japan during the past half century (about five trillion in US dollars) was lost through currency depreciation. Japan has lost its buying power, but foreign companies look at Japanese products as a big bargain sale. Let's hope this bargain sale does not turn into a going-out-of-business sale.
Dominique K. Numakura
DKN Research, www.dknresearchllc.com
*For archives of the newsletter, visit www.dknresearchllc.com/DKNRArchive/Newsletter/Newsletter.html
Headlines of the Week
1. Tohoku University (Japan) developed a strong red color fluorescence material induced by blue ray. It could be valuable back light source.
2. Toppan Printing (major printing company in Japan) codeveloped the world smallest IC tag with Murata, a major component supplier in Japan introducing PUF technology.
3. LG Display (major display supplier in Korea) 9/7 Has started the volume production of circular shape plastic OLED applied for LG G Watch R. Diameter: 1.3”. Thickness: 0.6 mm.
4. Toray (major material company in Japan) developed a new heat resistant PPS film (polyphenylenesulfide). It keeps high bond strength under high temperature and high humidity.
5. Taiyo Yuden (major component supplier in Japan) developed an embedded component board technology “EOMIN” for mobile products. Several hundred components including SAW can be in one board.
6. NHK (public broadcasting organization in Japan) 9/11 Has developed a new phosphorescence OLED device for low cost & long life flexible display panels.
7. Hitachi Maxell (major electronic material supplier in Japan) unveiled new wireless charger “mobile VOLTAGE WP-EMBL5000BK” for mobile devices. It satisfies requirements of the Qi standard.
8. JFE Engineering (engineering subsidiary of steel company in Japan) received a project order of a big biomass power generation plant. The 50MW plant will use Palm Kernel Shell as the main fuel.
9. Pioneer agreed to make a business collaboration with Onkyo, major audio manufacturer in Japan for home electronics.
10. Sharp will start sample supply of the MEMS-IGZO display codeveloped with Pixtronics in the U.S. by the end of 2014.
11. Toray developed a new heat resistant photoresist for ion injection process of SiC base transistors. Resolution: < 1 micron.