hollowing-out

S1190016Ogino Takahiro

hollowing-out

Japanese exports aren't as strong as you might think, despite the sharp drop in the yen's value. over the past year, showing how a “hollowing-out” of the industrial base has made it hard to kick-start growth through a weaker currency.

monetary easing

Aggressive monetary easing by the Bank of Japan over the past year has lead to a sharp decline in the yen against its major counterparts. This, in turn has increased the value of exports, which jumped 15.3% in December from the same month a year earlier. Yet actual export volumes have been largely static, as companies have opted to keep overseas prices unchanged to increase profi ts instead of trying to expand market share. Meanwhile, imports have surged, rising 24.7% in December from a year earlier.

Japanese manufacturers 1

Making the problem more diffi cult, Japanese manufacturers have moved much of their production overseas in recent years to insulate themselves from exchange-rate risks and poor domestic demand as the population shrinks and ages.

Japanese manufacturers 2

Leading home-electronics maker now relies on overseas factories to produce all of its televisions and 96% of its home appliances. Kenwood produces 90% of its car navigation systems abroad, and makes about 70% of its tires overseas.

apanese manufacturers 1

The yen has fallen by roughly 20% since Prime Minister Shinzo Abe took offi ce in late 2012 on program of aggressive monetary easing, recouping some of its losses in the past few days.

apanese manufacturers 2

But economists say the fall probably isn’t enough to bring manufacturers home if they have already built factories, hired workers and established supply chains overseas.

production shift

The production shift really picked up after the yen’s 50% jump against the dollar between 2007 to 2011, weighing heavily on the bottom lines of Japanese fi rms. Rises in the yen reduce the value of overseas profi ts when converted into the home currency.

Japanese car makers

Japanese car makers expect to increase foreign production to 42% this fi scal year ending March, from 39.4% in the preceding year, according to a survey released in November by the Japan Bank for International Cooperation. Manufactures of electronic parts and machinery expect a rise to 44.9% from 43.3%.

Problem 1

In an economy traditionally driven by manufacturing, such industrial hollowing-out is worrisome. If Japan can’t profit through international trade, it becomes harder to finance its huge public debt, economists say.

Problem 2

Over the shorter-term, without a pickup in exports it will be more difficult for the economy to ride out an increase in the domestic sales tax scheduled for April.

reference

http://blogs.wsj.com/japanrealtime/2014/02/04/japans-hollowing-out-means-weaker-yen-not-helping-much/

http://online.wsj.com/article/BT-CO-20140129-702202.html

http://www5.cao.go.jp/zenbun/wp-e/wp-je02/wp-je02-00301.html