Currency markets around the world are experiencing extreme fluctuations as governments try to stabilize their own economies. The Japanese economy is a prime example of this. The Japanese government denies that it is trying to keep the yen low compared to other currencies, but in reality, the Bank of Japan is in a massive easing program to boost economic growth.
This has caused the yen to weaken very abruptly in recent months. Big traditional manufacturers have strong political ties, and believe that a weak yen could increase Japanese exports. This may be true 30 years ago, but nowadays, Japanese firms need to compete on price and gain back technological advantages over competitors.
The Bank of Japan has seen the yen depreciate by more than 30% during 2013 through its vast monetary easing policy. Companies who rely on exports are profiting with a weaker yen, and have enjoyed record profits. The stock market is off and running with huge advances, and financial companies that include major banks and security firms are also reporting record profits, and plan on paying out performance bonuses.
All seems good; however once you peel back the onion, you can see a problem with the trade balance. Imports in Japan increased remarkably during 2013, recording the largest trade deficit at more than ten trillion yen. They import most of the raw materials needed in manufacturing including crude oil. Many Japanese manufacturers, especially electronics companies, shifted manufacturing to low-labor cost countries in the Far East. Now, the majority of consumer electronics products are produced overseas. These companies closed domestic plants, making it to difficult to return manufacturing to Japan. Now, these companies pay more yen for imported products.
The Japanese government is very optimistic with its comments about a rebounding economy and an economic expansion throughout the country. It also commented that a strong Japanese economy will secure their leadership in the global market. It shies away from negative reports about the economy. Domestic production for consumer electronics continues to decrease, and there is really no sign of an upswing in the near future.
One of my business associates is a financial analyst and commented that recent yen depreciation should be viewed as big yen discount sale. More than a trillion dollars in Japan was lost to make $10 billion dollar for few Japanese companies.
Dominique K. Numakura, This email address is being protected from spambots. You need JavaScript enabled to view it.
DKN Research, www.dknresearchllc.com
DKN Research Newsletter #1404, February 9, 2014 (English Edition)
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Headlines of the week (Contact This email address is being protected from spambots. You need JavaScript enabled to view it. for further information.)
1. AIST codeveloped a fine-line circuit technology using a hybrid material of monolayer carbon nanotube and copper. It makes current capacity hundred times larger compared to metal copper circuits.
2. Taiyo Yuden developed a cavity-generation process for embedded component multilayer circuit boards, calling it “EOMIN”.
3. Nippon Electric Glass decided to found a new subsidiary in China for manufacturing glass substrates used in thin display panels.
4. NEDO codeveloped a thin-film transistor circuit generated by printing organic materials.
5. Seiko Instruments commercialized a coin-type lithium secondary battery “MS920T” available at high operating temperatures (85C).
6. Kaneka acquired a technical license of organic EL device from Universal Display in the US.
7. Murata developed a 3D AMR (Anisotropic Magneto Resistance) sensor available for 360 degrees.
8. Taiyo Yuden rolled out a multilayer ceramic capacitor with metal frame for tablet and notebook PCs. It reduces voice vibration phenomena significantly.
9. Panasonic will spin out its semiconductor business and sell packaging subsidiaries in Singapore and Malaysia to UTAC Manufacturing Service in Hong Kong.
10. Hitachi announced the foundation of a new company, “Healthcare Group,” to organize its medical and healthcare divisions.
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