JPY could fall a lot further because weak JPY has been the most effective tool to create equity market wealth and spur Japanese demand. Moreover, Citi's Steven Englander notes, Japanese policymakers do not have many other options. If JPY is ticket for the Nikkei to regains ground lost versus other equity markets, USDJPY would have to go into three digits. By implication JPY would have to weaken a lot more. The loss of market share in part reflects long-term structural issues but Japanese governments (like others) are more mindful of incurring the anger of domestic political constituencies by making tough structural reforms than of G20 counterparts by weakening the exchange rate. From a political perspective, the Nikkei-JPY relationship is too much a good thing for Japanese policymakers to give up - but divergences are abundant at the short- and long-end of the JGB curve - and too much of a good thing in this case is a disaster.
If the G20 criticize Japan for currency manipulation, which they probably will, Japan can point out that their equity market poor performance over these last ten years also reflects a major loss of export market share… This has occurred since 2000 and escalated since 2007. In fact, some economists would say that Korea has benefitted greatly on the Yen's strength and this is unfair to the Japanese economy.
South Korean manufacturers Samsung Electronics Co. and Hyundai Motor Co. snatched market share away from Japanese rivals, helped by several years of won weakness and yen strength. But some of those advantages are eroding with the weaker yen. The won has strengthened 27% against the yen since June 1.
The Japanese representatives will also argue that there is undeniable evidence that the yen to dollar exchange rate has contributed to the weakness of the Nikkei and the overall Japanese economy. Couple this with a much more militant Shinzo Abe administration and I think it wouldn't be outside of possibility where we see Japan getting upset at the G20 and strongly protesting actions. Hell, the last time a world wide organization really put the Japanese on the spot for actions was when Japan walked out of the League of Nations on Feb. 24 1933 (Almost 80 years ago today!)
... Hey! Didn't I just read a sentence at the start of this exact blog post that said,
"The last time this happened was in the 1930s and we know what that lead to as currency wars lead to trade wars which lead to shooting wars."
Happy Thanksgiving! May the rest of this year see you and yours healthy and prosperous!
My son and daughter along with two friends (Ko & Takashi) visiting us for turkey in 2010
Yesterday, I posted about how messed up the Japanese economy was in "Japan is Collapsing." The response to that article was amazing. Thank you... Too bad the article contents are true. Interestingly, just two nights ago I had dinner with some high ranking executives from Germany's biggest television network. They were in Japan on a fact-finding mission and had visited several Japanese corporations who told them all sorts of nonsense stories (spin) about Japan. The most ridiculous one was given to them by a spokesman from either Nissan or Docomo (they couldn't recall which company told them - Jet lag and all). The spokesman told them something along the lines of, "The Japanese work so hard because of their samurai ancestors." I was asked by several of the visiting German delegation if this statement was true. I told them it was "...total and complete bullsh*t!" Actually, I've heard this "samurai ancestors" romanticist nonsense before. It's not true at all. Folks, there might be only a handful of people in Japan who have "samurai ancestors." 95% of all Japanese have peasant-class ancestors and the other 5% or so have merchant class ancestory. The samurai were low-class paid killers and "worked" (if you call it that) for money killing people or being body guards. Their only dedication, generally speaking, was to whoever paid them the most. That certainly doesn't translate into long and hard hours sitting at a desk all through the 50s, 60s, 70s and 80s that most Japanese dedicated during the so-called Japanese economic miracle. And a big reason that Japan is messed up today is that she doesn't have the people with the leadership qualities like she used to and her people don't work hard and dedicate the long hours like they used to. For more on that subject please refer to: Why Korea Beats Japan:
"...the biggest problem for Japanese companies versus Korean companies in manufacturing may not be simply issues with design and ease of use, but it has a lot to do with corporate culture in Japan.
Frankly speaking, from what I've seen, Korean companies will continue to beat Japanese companies for the long foreseeable future. There's no way out. Why? Because inside a Korean company, there are no factions fighting for position like what goes on at a Japanese company. Also, Japan doesn't have the leadership it once had; there are no more good leaders, definitely in politics and there is a terrible shortage in business in Japan too.
My Samsung friend put it this way,
"At a Korean company everyone is on the same bus and we are all going the same way. At a Japanese company, the leaders have a very difficult time getting everyone pointed in the same direction."
He's absolutely right.
At a Japanese company groups are struggling within, and against each other, to gain power. At Korean companies, I think they feel it is "Korea versus the world!"
When I worked as an executive at a major Japanese TV station subsidiary, I saw a consistent in-fighting between three or four factions for power. When faction "A" would come to power, the other factions seemed to not put in their best effort. In fact, I saw times when the other factions would actually drag their feet and become a hindrance to the efforts of the group in power.
It was infuriating to me as a foreigner who wasn't inside of any group to see people protecting their friends and their position as the number one work priority rather than the success of the company business or the project.
It seems to me that the success of the project would automatically protect one's position. But no! These folks wanted success for sure, but only if their group was the one in power when that success occurred.
I saw this same problem at a Sony subsidiary, another TV network I worked at in the mid 80s ~ early 90s; and you can readily see this same problem in Japanese politics anytime anywhere.
I was, and am still to this day, astounded at the immaturity of some of these people."
I wrote that article at the end of September. It's been only two months but I only see things getting worse. Also the other night, the COO of the German television network told me that he still thought Sony was a great corporation. I told him,
"You do know that Sony lost a billion dollars last year?"
He said nothing and drank his wine. Sorry to burst his balloon.
The agency slapped a speculative rating on each firm, pointing to their weak balance sheets and declining position in the global electronics sector.
Fitch said it cut Panasonic by two notches to BB, while it slashed Sony's rating by three notches to BB-, with both firms given a negative outlook.
"The downgrade reflects Panasonic's weakened competitiveness in its core businesses, particularly in TVs and panels, as well as weak cash generation from operations," Fitch said in a statement.
"It also reflects the agency's view that the company's financial profile is not likely to show a material improvement in the short to medium term."
Fitch also cast doubt on Sony's prospects, saying a "meaningful recovery will be slow, given the company's loss of technology leadership in key products, high competition, weak economic conditions in developed markets and the strong yen".
Panasonic was also downgraded to one level above junk by Moody's earlier this week.
I just wonder what took them so long to downgrade these companies... All they had to do was to go and check out and talk and work with the people I do and they'd have known 5 years ago that Sony was headed for the trash-can. Heck, when Sony unveiled their MP3 player that was to compete with the iPod years ago and called it the "Walkman" you knew they were out of good leadership and good ideas. Look for Sony to be emblematic of the rise and fall of Japan's economic miracle. ------- This morning, I also received a mail from my good friend Mish Shedlock and he wrote that I could reprint his entire blog post about Japan (that I referred to yesterday) in full and I wish to do so here. Mish has the most wonderful insights and I find his blog to be a "Must Read" everyday. I think you should too!
Japan's grand experiment of decades-long QE coupled with Keynesian foolishness is about to take one last gigantic leap forward before it plunges straight off the cliff into a massive currency crisis.
For years, proponents of aggressive monetary policy have offered this unusual piece of advice as a way to end Japan’s deflationary slump and invigorate the economy. Print lots of money, they said. Keep interest rates at zero. Convince the market that Japan will allow inflation for a while.
Japan’s central bankers long scoffed at such recklessness, which they feared would ignite runaway inflation. But now, the bank’s hand could be forced by an unlikely alliance of economists and lawmakers who have argued for Japan to take more monetary action after more than a decade of weak growth and depressed prices.
Championing their cause is the former prime minister Shinzo Abe, who is favored to return to the top job after nationwide elections next month. Otherwise deeply conservative, Mr. Abe surprised even his own supporters by calling for the Bank of Japan to be much bolder in tackling deflation, the damaging fall in prices, profits and wages that has choked Japan’s economy for 15 years.
In escalating remarks over the last week, Mr. Abe has said that he will press the Bank of Japan to act on government orders if his Liberal Democratic Party wins the Dec. 16 election and even rewrite Japanese law to reduce the bank’s independence.
In a speech in Tokyo on Thursday, Mr. Abe said he would call for the Bank of Japan to set an inflation target of 2 to 3 percent, far above its current goal of about 1 percent, with an explicit commitment to “unlimited monetary easing” — an open-endedness that has caused jitters among some economists. The bank’s benchmark interest rate should be brought back to zero percent from 0.1 percent, Mr. Abe added.
He went even further over the weekend, saying in the southern city of Kumamoto that he would consider having the bank buy construction bonds directly from the government to finance public works and force money into the economy, according to local news reports. That raises concerns, however, the bank may be called on to bankroll unrestrained spending on more roads and bridges that Japan does not need.
Economists cite several missteps by the central bank that have entrenched Japan’s deflationary mind-set and made consumers and businesses wary that the bank’s policies will stick. In early 1999, as the country’s economic woes deepened, the bank lowered a benchmark interest rate to virtually zero and said it would keep rates at zero until deflationary concerns disappeared. But an economic uptick in mid-2000 caused the bank to raise that rate to 0.25 percent despite protests from the government that the move was premature.
Monetarist Mush
Anyone who thinks an interest rate hike from 0% to .1% or even .25% has much influence on economic growth has "monetarist mush" for brains. Seriously.
The NYT does not name the economists, but I have no doubt they exist. Highly respected (for no reason) Richard Koo is one of them.
I have written about Koo on numerous occasions. From Japan's decade long experiment resulting in public debt of a 1,000,000,000,000,000 yen (a quadrillion yen), Koo reckons Japan failed to defeat deflation because it did not do enough!
Japan is in a crisis alright, and it was entirely self-made, by politicians listening to clueless economists all begging Japan to do something.
One Thing Worse
Central banks are bad enough on their own, but history shows that one thing worse than central banks acting on their own is central banks acting under control of politicians.
Committing to a little inflation will push stock prices higher, while a weaker yen will bolster Japan’s exporters and strengthen corporate balance sheets. Incomes will rise, fueling consumption and raising tax revenue for the government, said Kozo Yamamoto, a lawmaker of Mr. Abe’s Liberal Democratic Party. “Basically, it’s what the Bank of Japan should have been doing for the past 15 years,” he said. “A few percent of inflation is nothing to be worried about.”
US Populist Position
It's not just Japan loaded up with populist fools. The US has its share of them as well.
For example, Ellen Brown wants to end the Fed and put California politicians (state politicians in general) in charge of printing money to support "growth" as well as union causes.
As I have said, the one thing worse than having a Fed in charge of monetary policy is having politicians in charge of monetary printing!
Inflation will not raise consumption. People do not stop buying things just because prices are falling. Computers are proof enough. Prices of computers and electronic goods have been falling for decades, yet every year the volume of merchandise sold reaches skyward.
History suggests people buy things when they need to or want to not just because prices are rising. Government interference and tax breaks can shift demand forward by a few months (for no real economic benefit of course). There is only so much room to store things.
How much food or clothing can you store? Will you buy a coat you do not need, just because prices are going up? US QE Example
Take a look at the US.
QE has put a floor (for now) on asset prices but it has not done a damn thing for wages.
I come in at about the 3:00 mark, but the first few minutes of Lauren are entertaining as usual.
Average Hourly Earnings vs. CPI
Average hourly earnings has been falling for years and lagging CPI inflation since September 2009. Simply put real wages have been declining. Add in increases in state taxes and the average Joe has been hammered pretty badly.
If inflation and QE forces wages and hiring up, then why didn't it?
The fear for Japan should be rising interest rates not deflation. If interest rates rise a mere 2%, interest on the national debt will consume 100% of government revenues.
When that happens a currency crisis awaits. I have long stated a currency crisis would happen far sooner in Japan than the US, and I believe we are about to find that out soon enough.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Read more at Mish's Global Economic Trend Analysis: http://globaleconomicanalysis.blogspot.jp/2012/11/doorsteps-of-currency-crisis-economic.html
I was at my son's school the other day and got into a conversation with a friend who is a very high ranking executive at Samsung corporation. His son and my son are in the same class again this year and so it was very nice to see him again. He is chief of their Japan operations and we had a interesting talk. During that talk, we came to the subject of how Samsung is dominating the market in flat screen TVs and moving that direction in hand held computers and cellphones.
In August of this year, the Wall Street Journal ran this article entitled, "How Japan Lost its Electronics Crown" Sony, Sharp and Panasonic combined to lose about $20 billion in the
past fiscal year. That is a contrast with the glory days of the late
1970s and early 1980s, when Japan started to dominate the world of
consumer electronics. As the Japanese economy surged, the electronics
conglomerates ruled the market for memory chips, color TVs, and
videocassette recorders, while their research labs gave birth to gadgets
that would define an era: the Walkman, CD and DVD players.
Or how about this interesting tidbit from Marmot Hole a blog about Korea:
Samsung Now Bigger Than Nine of Japan’s Major Electronics Companies And you thought Samsung was big enough already since it accounted for more than a fifth of Korea’s GDP. The Wall Street Journal reports that Samsung Electronics’ operating profit, at $3.14 billion, is more than two times larger than the combined operating profit of nine of Japan’s largest consumer electronic companies. Samsung now has a $7.4 billion war chest to spend on growth and R&D where many of the Japanese companies are at an operating loss (Sony) or in huge debt (Hitachi). These articles touch on some very important points, like value of yen and style issues, but both my Samsung friend and I agree that the biggest problem for Japanese companies versus Korean companies in manufacturing may not be simply issues with design and ease of use, but it has a lot to do with corporate culture in Japan.
Frankly speaking, from what I've seen, Korean companies will continue to beat Japanese companies for the long foreseeable future. There's no way out. Why? Because inside a Korean company, there are no factions fighting for position like what goes on at a Japanese company. Also, Japan doesn't have the leadership it once had; there are no more good leaders, definitely in politics and there is a terrible shortage in business in Japan too.
My Samsung friend put it this way,
"At a Korean company everyone is on the same bus and we are all going the same way. At a Japanese company, the leaders have a very difficult time getting everyone pointed in the same direction."
He's absolutely right.
At a Japanese company groups are struggling within, and against each other, to gain power. At Korean companies, I think they feel it is "Korea versus the world!"
When I worked as an executive at a major Japanese TV station subsidiary, I saw a consistent in-fighting between three or four factions for power. When faction "A" would come to power, the other factions seemed to not put in their best effort. In fact, I saw times when the other factions would actually drag their feet and become a hindrance to the efforts of the group in power. It was infuriating to me as a foreigner who wasn't inside of any group to see people protecting their friends and their position as the number one work priority rather than the success of the company business or the project.
It seems to me that the success of the project would automatically protect one's position. But no! These folks wanted success for sure, but only if their group was the one in power when that success occurred. I saw this same problem at a Sony subsidiary, another TV network I worked at in the mid 80s ~ early 90s; and you can readily see this same problem in Japanese politics anytime anywhere. I was, and am still to this day, astounded at the immaturity of some of these people. As an aside, at my son's school festival, the Korean families always run their "Korea booth" featuring delicacies from their home. It's a wonderful time for all. I was chairman of the PTA committee one year and was able to witness first hand how the Korean team worked. It surprised me that the ladies worked in the exact same pecking order as their husbands had at work; the wife of the highest ranking executive was the boss of the Korean booth; wives of second tier executives were second in-charge, and so on. There seemed to be no friction; just total teamwork. Everyone was certainly facing the same way and the boss of the Korea Booth proudly told me, "We are striving to sell the most food and give the biggest donation of any country to the school and charity!" She was dead serious about it too.
There goes that "Korea against the world!" again.
Several weeks ago, well before it had "only" 100 million views, I posted the video about Korean sensation PSY on a video countdown well before it exploded on the consciousness of Americans and the Japanese. At that time the video had about three times more views than the entire population of South Korea! I was astounded!
Nevertheless, after posting the video, some small minded people came out and made silly comments like, "Oh, he's just copying the Japanese." Or, a week ago or so, after the song because popular in the USA, I saw an article on Yahoo (America) that said, "Will PSY be a one-hit wonder?"
Yeah, I wish I could be even a 1/100th of a one-hit hit wonder.
My video would then still have over 3 million views!
What the heck! The guy sings in Korean! Probably he will be a one-hit wonder in the USA. But so what? The guy's video, "Gangnam Style" has, as of this moment, 319,052,309 views! That's the most viewed video in history! That more than twice the views of Justin Beiber's "Boyfriend." PSY might possibly be one of the biggest stars in Korea, possibly Asia, in all of history.
Not bad for a guy who "copies" stuff or is a "one hit wonder," eh?
Why are people so jealous of these Korean success stories? I am happy and pleased to see guys like PSY and companies like Samsung doing so well. Competition is healthy and competition makes us all up the quality of our game. Those who chatter and grouse only show their immaturity and lack of self-reflection and professionalism.... We need to learn from them because, well, as they say, "the best revenge is success" and it seems the Koreans are doing quite nicely thank you.
I really hate to say this because I am half-Japanese, but, sometimes I think MacArthur was right when he said, "Japan is a nation of twelve-year-olds."
If the Japanese don't snap out of it and get with the program and start all dedicating their efforts to the success of the project, rather than protection of their position, they're going to become a nation of very poor twelve-year-olds.
Our debt situation is past fixable state. The March 11 disaster of Tohoku has put the entire country in a situation whereby we are set to turn off all our nuclear power plants in the summer of 2012 (good timing while oil prices have passed $100 a barrel and the saber rattling gets louder near Iran)... The Japanese public, in their usual confused state, as well as the decrepit Japanese political class are even entertaining the idea of shutting the power plants off permanently. This entire mess has lead to a situation whereby Japanese electrical power companies have stated that they want to raise the power costs to manufacturers. Zerohedge writes in: A New Beginning in Japan: Glimmers of False Hope:
TEPCO, the bailed out owner of the Fukushima nuclear power plant, is trying to shove rate increases of 17% down the throats of its commercial customers—while rationing power at the same time.
Japan's biggest makers of phones, televisions and chips say they'll lose about $17 billion this year, about three-quarters of what Samsung Electronics Co will spend on research to lengthen the lead over its competitors.
Sony Corp more than doubled its annual loss forecast for the year ending March 31 as it announced a new chief executive officer, while Panasonic Corp and Sharp Corp predicted the worst losses in their histories. Their combined losses compare with the $22 billion that Samsung, Asia's largest consumer- electronics company, said it will invest in capital expenditures.
These two Japanese giants are going to lose in one year nearly what one Korean competitor will spend merely on R&D? Folks, it doesn't take a genius to figure out what's going to happen to these entities when they are hit with a 17% increase in operating costs. At least three big things will happen. One, the manufacturers will pass on increased costs to you, the consumer, which will ultimately decrease sales for them and increase the cost of living for you. Two, this increase in cost of living will decrease sales and hurt production and profitability further (thereby actually depressing tax revenues for the government in spite of raising taxes). And three, they will move factories overseas where it is cheaper to operate.
This energy problem and the problems Japan faces lay plainly at the feet of the government... Namely government interference with all areas of the economy and public life... An interference that expands daily. If the government didn't get their hands in ruining the economy, Japan could have shaken out all this bad debt we had in the late 80s at the end of the so-called bubble and started building a solid economy... But we didn't. The Japanese government bailed out the banking industry and gave rise to the word, "Zombie Banks." We still have them.
A the economic problems grow inexorably larger as the population ages and the energy problems peak.
Diego.a a regular reader to this blog sends in some very interesting observations on this situation. They basically boil down to, "How in the world could it be that Japan has fallen so far, so fast in just these thirty years?" Of course, I'd have to answer, "...Just look at government interference. The more the government gets involved, the more messed up things get."
Diego.a writes:
Remember the 1980s/1990s when people were Americans were scared of Japanese companies buying up the world?
Losing the War with Japan:
(The description on the video of "Losing the War With Japan" reads as follows:
PBS documentary, which first aired in 1991, titled Losing the War with Japan. It examines Japan's economic challenged to the US, which reached its peak in the late 1980s to early 1990s. A key argument in the documentary centers on the manner in which Japan achieved its economic rise, which was through state-led industrial development based on "predatory capitalism" and America's need to respond in kind. )
Diego.a continues:
Now, thanks to the state, you have blackouts in 21st Century Japan.
Fukushima immune? China bets on 'safer nuclear fuel':
Oh what a difference a few decades make. Seriously, when you consider Diego.a's words, it is appalling that the Japan of the 21st Century has been so ineptly mismanaged that blackouts are going to become a part and parcel of life in this country.
That people still ask, "Why doesn't the government do something?" Just makes me scratch my head. Hasn't the government already done enough to make things worse? We certainly don't want them doing anymore.
If big government were the answer to our problems then the Soviet Union would have been a very successful country. But it wasn't.
We are now witnessing the results of two lost decades, going on three, of government interference in the Japanese economy. It's pretty easy to see how well they've done.
I've written extensively on the fall of television in Japan. In July of 2011, all terrestrial television stations in Japan stopped analogue broadcasting and switched to digital. That cost all the stations 20% of their viewership. Japanese major TV stations were losing money before the switch to digital, how shall they make money when they spent a cumulative $5 billion dollars on the switchover and then lost 20% of their audience?
I can't figure that out no matter the size of my abacus.
While on vacation to Guam the other day, I saw a sign along the road that made me chuckle. In Guam, there are a very many people who are quite a bit overweight... No! Make that quite obese. The sign along the road said,
"You need more fiber in your diet and less cable TV"
Yep. Sitting around and watching TV while munching on chips and junk has seriously fallen out of favor with the active and young crowd.
Another sign that TV viewership is collapsing in Japan is the fact that, after initial fanfare and many years of positive spin on poor sales, Sony has decided to get out of flat TV manufacturing. The sales projections do not make up for poor sales ( and high manufacturing costs) which have lead to wide price dumping across the board.
Sony Corp. sold its stake in the venture with Samsung Electronics Co. to make liquid-crystal displays to the South Korean company after predicting an eighth consecutive year of losses from TVs amid sluggish demand.
Samsung will pay 1.08 trillion won ($935 million) in cash for Sony’s stake in S-LCD Corp., a venture formed in 2004, the Suwon, South Korea-based company said in a statement today. Sony, which invested 1.65 trillion won in the venture, will take a charge of about 66 billion yen ($846 million) in the quarter ending Dec. 31 after the deal, Japan’s biggest consumer- electronics exporter said in its statement.
The stake sale enables Sony Chief Executive Officer Howard Stringer, 69, to shed the responsibility of panel manufacturing amid losses in the TV business, where Samsung is the world’s biggest. To turn around Sony, which has forecast a fourth consecutive annual loss this year, Stringer has teamed up with partners to announce acquisitions worth a combined $8.4 billion in 2011. The purchases are designed to bolster the profitable phones and music divisions and introduced tablet computers to challenge Apple Inc.’s iPad.
Catch that? It doesn't take a rocket scientist to figure out what Sony has figured out: There's no future in TV sales; they're best off investing in the future of hand-held devices... Hand-held devices and tablet computers are generally not used to watch TV.
Tissue Time was a famous Japanese TV show in the mid-80's... No more.
How much clearer could the writing on the wall be?
