Bankruptcies caused by weakening yen set new record in November Japan Times Corporate bankruptcies linked to the yen’s slide hit a new record in November, highlighting the strains on small and midsize companies as Prime Minister Shinzo Abe campaigns for re-election on his deflation-busting economic strategy. Forty-two of the companies that failed in November cited the weakened currency as a contributing cause, bringing total bankruptcies associated with the yen so far this year to 301, almost triple that of the same period in 2013, according to a survey by Teikoku Databank Ltd. It said surging costs of imported food, metals and construction materials are squeezing small companies. The yen broke through 120 per dollar on Thursday in New York for the first time since 2007, as Abe’s handpicked Bank of Japan governor pumps a record amount of funds into the economy to stoke inflation. While some small firms are struggling to pass on higher costs of imported materials to customers, large exporters are reporting higher profits, and the total number of failures is in decline. “The business conditions for small and medium-size companies are severe,” said Norio Miyagawa, an economist at Mizuho Securities Co. “The more the yen weakens, the more the drawbacks will become evident, unless the benefits big companies are seeing spill over to consumption through an increase in wages.” By region, the Kanto area including Tokyo accounted for 11 of the 42 bankruptcies, followed by eight each in the Chubu region around Nagoya and the Kinki region covering Osaka, and five in Hokkaido. In the first 11 months of this year, the number of bankruptcies induced by the weak yen soared 2.7-fold from a year before to 301, including 75 in Tokyo, 39 in Osaka, 36 in Hokkaido and 35 in Aichi. “While imported food and construction material prices have soared on the weakening yen, most small companies have failed to pass these hikes on to their product prices,” a Teikoku Databank official said. As the yen continues to drop, the agency expects such bankruptcies to rise further. Since the Bank of Japan expanded its radical monetary easing program on Oct. 31, the dollar has strengthened by about ¥10.
109-Year Old Glassmaker Driven to Bankruptcy by Abenomics By Keiko Ujikane Dec 5, 2014 1:55 AM ET Eight years ago, Isuzu Glass Co. was held up by Japan’s trade ministry as a star among the nation’s small manufacturers. Today, it’s bankrupt, a victim of the weak yen ushered in by Abenomics. The maker of optical filter glass from the country’s industrial heartland in Osaka was one of a record number of corporate failures last month linked to the slumping currency, according to Teikoku Databank Ltd. Founded in 1905, Isuzu succumbed to a surge in costs of imported raw materials that is pinching many small businesses as Prime Minister Shinzo Abe tries to stoke inflation in the world’s third-biggest economy. Forty-two of the companies that failed in November cited the yen’s drop as a contributor, bringing the total number of bankruptcies associated with the currency this year to 301, almost triple that of the same period in 2013, according to Teikoku Databank. Soaring costs of imported food, metals and construction materials squeezed small companies, it said. “Business conditions for small and medium-sized companies are severe,” said Norio Miyagawa, an economist at Mizuho Securities Co. “The more the yen weakens, the more the drawbacks will become evident, unless the benefits big companies are seeing spill over to consumption through an increase in wages.” While some small firms struggle to pass on higher costs of imported materials to customers, large exporters are reporting higher profits and the total number of corporate failures is in decline. The yen broke through 120 per dollar yesterday for the first time since 2007, as Abe’s handpicked central bank chief pumps a record amount of funds into the economy. It’s lost 28 percent since Abe took office in December 2012 and traded at 120.09 against the dollar at 3:40 p.m. in Tokyo. Customer Requests Isuzu Glass was highlighted by the trade ministry in 2006 as one of 300 “vibrant” small- and medium-sized manufacturers. The employer of about 100 people was pressured by price-cut requests from customers at the same time as raw material costs rose, according to Teikoku Databank. Inoue Industry Co., a supplier of goods for discount retailers, was another casualty of the yen’s decline, declaring bankruptcy after procuring goods from China became more expensive, Teikoku Databank found. About 190 employees of Inoue, based in Fukui prefecture, lost their jobs. Bankruptcies linked to the weak yen, especially of small companies and businesses outside large cities, are likely to continue to increase, Teikoku Databank said. The research company began surveying the link between the yen and bankruptcies in January 2013. Economic Scale The broader trend in corporate failures in Japan is down. The total number of bankruptcies declined 14 percent from a year earlier in October, to 794 cases, a 15th straight monthly drop, Teikoku Databank said. Further data for November bankruptcies will be released next week. Japan’s economy is about 1.7 percent bigger than when Abe took office in December 2012, measured by annualized gross domestic product data through September. Abe’s bid to accelerate growth stumbled mid-year, when an April increase in the sales tax triggered two straight quarters of contraction, marking Japan’s fourth recession since 2008. The higher prices of imports have helped spur inflation. Consumer prices excluding fresh food -- the BOJ’s main gauge -- increased 2.9 percent in October from a year earlier, a 0.9 percent gain when stripping out the effects of the sales-tax hike and a 17th straight increase. Living Costs Rising costs of living have pinched households that have seen wages trailing consumer prices. Cash earnings rose 0.5 percent in October from a year earlier. The nation’s biggest opposition party, the Democratic Party of Japan, is calling for a flexible policy stance by the central bank that takes into account people’s livelihoods. BOJ Governor Haruhiko Kuroda on Nov. 25 said that the weak yen tends to boost exports and spur profits for global Japanese companies while also weighing on small companies and households. He indicated that he thought the effects overall were still positive for Japan’s economy. Finance Minister Taro Aso showed concern about the pace of the yen’s drop, saying on Nov. 21 that the currency was falling too fast, as it raced to its biggest monthly decline since the start of 2013. The government will take measures to combat the effects of the yen’s decline and continue to pay close attention to moves in the currency, Deputy Chief Cabinet Secretary Hiroshige Seko said today.
Sorry but I disagree on this with you. Guess why airlines put so much emphasis on hedging oil/kerosene prices months/years in advance? Because there is directional as well as currency risk as with anyone who imports or exports from/to market with non-domestic currencies. And to be sure, every economic conditions will leave behind winners and losers. Inflation? Gold investors profit. Deflation, those who wait to delay purchases benefit. Higher import prices? Lower import prices, .....the list goes on. You can't blame every bankruptcy on politics and economic conditions. So far most Japan corporates have not been overly hurt by the exchange rate dynamics. Again, who suffers most is consumers at the end of the chain, because most every company will pass on prices increases, not in perfectly elastic fashion but surely at some point later. I actually very much welcome the current exchange rate developments. I do not think they are good for Japan but for me personally: I earn US dollar based income (more or less because I pretty much instantaneously convert non-USD based income instantaneously) and plan to retire in Japan. I exited my whole yen based savings at low 9x.xx levels after the financial crisis and before leaving Japan and intend to return at some point at which I am very sure to be able to convert back at >150.xx levels. It all comes down to your contingency plans and how you hedge yourself against risks. That glassmaker had it coming to them, you can't argue that their treasury department had no idea at what breakeven fx rates they would start getting into trouble.
Abenomics Revised Down Again Economists expected Japan's third quarter GDP would drop 0.1%. The preliminary forecast was -0.4%. Japan just announced capital spending was even worse than reported. Compared to last last quarter, the estimate now is -0.5%. For those who prefer looking at annualized numbers, Japan's third-quarter GDP revised down to annualized 1.9 percent contraction. Japan's economy shrank an annualized 1.9 percent in July-September from the previous quarter, worse than a preliminary 1.6 percent contraction as capital expenditure fell more than initially estimated, revised government data showed on Monday. On a quarter-on-quarter basis, the economy shrank 0.5 percent in the third quarter, against a preliminary reading of a 0.4 percent drop, the Cabinet Office data showed. The result compared with a median market forecast for a 0.1 percent contraction. Capital expenditure fell 0.4 percent from the previous quarter, more than a preliminary 0.2 percent decline. Expect more printing: As everyone knows, if at first you don't succeed, do even more of what didn't work. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
The air is out of Japan Inc. simple reason: Exciting new cars come from Tesla, BMW, Mercedes, Audi,...Exciting electronics are pumped out by Apple and Samsung, exciting .....(fill in the blanks) nowadays are originating from Word Japan-ex. Japan is not shaping trends anymore. Even in Hong Kong nobody gives a damn about Japanese fashion, music, mangas, or what have you anymore, right now Korean cultural export are in high demand. Tells you everything why Japan has to re-invent itself unless it wants to become the deserted kid on the block.
UPDATE 2-Japan machinery orders tumble in another blow to economy and PM Abe * Oct core machinery orders -6.4 mth/mth pct vs -2.4 pct f'cast * Data suggests capex, economy slow to recover from recession * Abe, BOJ count on capex to drive sustainable growth (Recasts, adds more quote, details) By Tetsushi Kajimoto TOKYO, Dec 11 (Reuters) - Recession-hit Japan suffered a fresh blow on Thursday as data showed a key gauge of capital spending tumbled in October - a worrying sign for its recovery given that business investment was a big drag on the economy in the third quarter. The machinery order data is a stark reminder of the challenges facing Prime Minister Shinzo Abe, who heads into an election on Sunday seeking a fresh mandate for his economic-revival strategy that critics have panned as a failure. Abe is expected to win the election comfortably, but doubts about his "Abenomics" recipe of aggressive monetary stimulus, fiscal spending and pro-growth reform have sharpened since Japan unexpectedly slipped into a recession in the third quarter. The slump was triggered by a sales tax hike in April, which chilled consumption, while capital expenditure also carved out a big slice off output, sliding a bigger-than-expected 0.4 percent in the third quarter. The 6.4 percent on-month fall in core machinery orders, a highly volatile data series seen as an indicator of capital spending in the coming six to nine months, suggests business investment will struggle to underpin a rebound in the economy. The figure issued by the Cabinet Office was far worse than a 2.4 percent fall forecast by economists in a Reuters poll, and followed a 2.9 percent month-on-month gain in September. "Firms' activity in domestic output is unlikely to gather strength until they get rid of inventory" that piled up after the tax hike, said Kenta Ishizu, economist at Mizuho Securities. "I don't think capital spending will be accelerating ahead. As long as the economy remains weak, companies will continue to revise down their spending plans." The government sees capital spending picking up, though some analysts say sluggish domestic demand after April's sales tax hike will continue to drag on business investment. The Bank of Japan's tankan showed firms' positive stance on investment. But companies have so far been slow to implement their spending plans and remain wary of boosting wages, highlighting the challenges Abe and the BOJ face in nursing the economy to sustainable growth and meeting the central bank's 2 percent inflation goal. Core orders are seen slipping 0.3 percent in the current quarter after bouncing to a 5.6 percent gain in July-September. They would need to grow 3.3 percent each in November and December in order to prevent a quarter-on-quarter decline in the final three months of 2014, a Cabinet Office official said. Abe's strategy to spark durable growth in the world's third-largest economy and cast off 15 years of grinding deflation has had only partial success. The stock market has rallied sharply since Abe came to power in December 2012, while the yen's sharp slump has allowed export companies to reap windfall profits, though very little of these have been ploughed into new investment or wage increases. The BOJ is likely to cut its inflation forecasts next month, making its 2 percent inflation goal look ever more ambitious, just few months after its shock decision on Oct. 31 to expand its already massive asset purchases.
Need moar printing! Remember, when printing doesn't work, it's because is wasn't large enough! Japan inflation slows and output slips, keep BOJ under pressure (Reuters) - Japanese annual core consumer inflation slowed for a fourth straight month in November due largely to sliding oil prices, highlighting the challenges the central bank faces in achieving its 2 percent inflation target. Factory output unexpectedly fell and real wages marked the steepest drop in five years, underscoring the fragility of the recovery and dealing a blow to premier Shinzo Abe's stimulus policies aimed at pulling the economy out of stagnation. The core consumer price index (CPI), which excludes volatile fresh food but includes oil products, rose 2.7 percent in November from a year earlier, matching a median market forecast, government data showed on Friday. Stripping out the effects of a sales tax hike in April, core consumer inflation was 0.7 percent, slowing from 0.9 percent in October and far below the Bank of Japan's 2 percent target. "While the economy is recovering, falling oil prices and slowing inflation will force the BOJ to ease policy further at some point next year," said Hiroshi Watanabe, senior economist at SMBC Nikko Securities. In a worrying sign for the central bank, inflation-linked government bond prices JP00190083=MUFG slumped over the past several weeks as investors' inflation expectations hit their lowest since Haruhiko Kuroda became BOJ governor in March 2013. Japan's economy slipped into recession in the wake of April's tax hike, though analysts expect growth to rebound in the current quarter as exports and output pick up. Factory output slid 0.6 percent in November after two straight months of gains, largely the effect of big-ticket items such as computer chip-making equipment and boilers boosting October output and confounding market expectations of a 0.8 percent rise. In a glimmer of hope, however, manufacturers surveyed by the government expect output to rise 3.2 percent in December and increase 5.7 percent in January. Economics Minister Akira Amari told reporters the drop in November was likely a temporary blip, given the sharp increase projected for coming months. Kuroda stressed last week that Japan was on track to hit the price goal, shrugging off speculation that a recent plunge in oil prices would weigh on consumer prices and force him to ease policy again early next year. But many analysts remain doubtful that the BOJ can meet its pledge of accelerating inflation to 2 percent in the next fiscal year, beginning in April 2015. Reflecting the recovery, job availability hit a 22-year high and the number of part-time workers exceeded 20 million for the first time since relevant data became available in 1984. But companies remained reluctant to increase wages, a bad sign for consumption. Household spending fell 2.5 percent in the year to November, against a market forecast for a 3.8 percent drop.
Though decades late, Japan, under Abe, is finally moving in the right direction. The main difficulty, will be similar to that experienced by the U.S. There will be the entrenched interests that resist the necessary reforms. They will cling to outmoded economic theories long since shown not to work. Interference from the uncooperative opposition will keep the recession cure from acting as rapidly and effectively as it otherwise might have. In particular, there will be the usual shrill cries that the county's youth will be saddled with unconscionable debt, which it won't be if the country borrows from its own citizens. Some still believe that in recessions, when government revenues fall, the government should reduce spending!; just the opposite of what is really needed. (Even Hayek eventually came around to accepting that government expenditure should not be cut back in a recession, but he continued to be blind to the necessity of greatly increasing spending.) Of course when QE is used to inject money into the economy without putting pressure on interest rates, the relative value of the currency declines. This is far preferable to borrowing heavily without the Central Bank as a ready buyer of bonds, because if that's done interest rates will rise, and that can push a country already in a severe recession into a full fledged depression. In the example of the recent "great recession" in the U.S., the Central Bank bought not only Treasuries, but also mortgaged backed securities. One could argue that it might have been better to leave the temporarily illiquid securities with the banks and instead increase the banks' equity. But in any case the handling of the crisis by the Central Bank and Treasury was masterful, though they can be fairly criticized for having a hand in creating the crisis in the first place!
Your post is so full of errors I hardly know where to start: * The situation in Japan is anything like the situation the US was ever in. The two cultures, economies, and societies are on the extreme opposite of the spectrum. Japan is suffering from a lack of innovation, entrepreneurial spirit, a rapidly aging society (while the US is working hard to stem the inflow of young that want to make the US their economic as well as life home). * Japanese politics is hardly at all suffering form opposition. The ruling LDP has an absolute majority in both houses even before the snap election. Yet nothing good is coming out of any of the chambers. No change no structural reforms. Hence your point on interference from any uncooporate opposition is moot. Abe enjoys broad support yet he does not undertake any structural reforms whatsoever. * That the country's youth is saddled with unmanageable debt is a fact not a point made by any "shrill cries". Japan is ruled by big corp and a voter based that is 60+ years old. Hence all the pension reforms and other reforms are benefitting the old and burdening the young, those that actually need the most support and less taxes. The income tax base is incredibly high, possibly the highest in all of Asia. Hard to imagine as young entrepreneur to wanting to make Japan my base for any business venture whatsoever. * Since when will a debt issue not be a debt issue if debt is bought only by domestic lenders? Makes zero sense. The Japanese government will equally be downgraded to junk status if it cannot manage to reign in its atrocious spending habits. With every downgrade unrealized losses grow larger in pension accounts and investments by anyone holding JGBs whether domestic or foreign. And if a lender holds to maturity that only means that the government needs to roll over its debt. Nothing of that means a single yen is paid down in its cumulative debt. * So what do you call the German model? A failure? The country that reigns absolute export champion relative to its size. A country that has lower debt to gdp level than most other large industrialized economies. A country that saved and did not ridiculous spent even during the long period of reconstruction after the reunification. And please, PLEASE, do not explain Germany's success away with a artificially weak currency. This idea has already been disproven so many uncountable times. In the long term why Germany is successful is because its people work hard, its people SAVE, its government does not atrociously spent, its commercial interests invest intelligently. A healthy dose of fear about inflation is very important. Some Americans can laugh as much about German inflation angst as they want but fact remains that Germany is currently maybe the most balanced, most comfortable place on earth to live, work, and die in for the broadest possible number of people. How did that American capitalist model work for the masses? Most Americans are knee deep in debt, can hardly breathe. A huge amount of people cannot afford health care, cannot even afford car insurance, cannot afford food (or what do you call the absurd dependence on food stamps by a large percentage of the population?). All that for the benefit of a very small number of bright and deserving entrepreneurs, wealth-passing old family clans, and a Jewish "mafia" that only benefits itself and its close-knit circles. 2014 rightly will go down in history as the year of INEQUALITY. You see what happens if a country spends more even during bad times: Look at Japanese debt levels and the result on its economy, look at what happened in Spain and Greece even long before the European crisis. Greece and Spain never managed to control their burdensome debt levels and spent in good and bad times and that is what got them close to the brink of default. In every normal world those countries by now would be back to cave life if it was not for Scandinavia, Germany, and Holland to have saved them from absolute disaster. Or look at Latin America. How did that spending spree work out for Brazil and Argentina even during bad times? They are sliding from bankruptcy to bankruptcy. * Regarding interest rates you are looking at the results of QE way too prematurely. You will see that the US and many other economies such as the UK will be so badly fighting hyper inflation in the coming years and decades. That will be the time when Americans will again be reminded that paper money and paper wealth means nothing similarly when before Volker interests in the US shot up to 19% and inflation was incredibly high. Good luck to your QE admiration then. * Lol, the handling of the crisis was masterful? Please. Have you even read a single Fed meeting script during the crisis? Nobody had the slightest inkling what they were doing or up against. And some of the decisions originated from selfish interests (do I need to remind you of Lehman-hate vs Goldman-love by any of the Goldman alumni in government, Fed, and regulators? ). You must be dreaming if you consider how decisions were made was masterful. It was a panic move and printing money of course will have a short term beneficial effect. But you are (hopefully jokingly) omitting the second part of the story that has not even yet played out. Maybe you are too young to see all those developments in perspective, to grasp the bigger picture. But I can assure you that your Japan analysis is pretty dead wrong.
I appreciate your valuable opinion and will take it under consideration. You know far more about the Japanese situation than I. I seldom talk politics with my Japanese friend. The one place where I think you may not be right is in the nature of Japan's debt and the idea that Japan's youth will be saddled with debt. Public debt is different from private debt, and whether the debt is internal or external is another important factor. I think it is correct to say that when you borrow from your own citizens there is no burden for future generations. There is a transfer from the taxpayer to the bond holder and a reverse transfer from the bond holder to the tax payer. Perhaps more about that later. I will have to think about this more. I do consider the handling of the financial crisis as masterful. On that we can disagree. I do not claim that every decision was the best possible, but in total the handling of a difficult situation was, as I said, masterful! The only criticism I have is that the government did not spend enough in the quite the right places. I have predicted that the Europeans will eventually be forced to follow in the footsteps of the U.S. Fed, and well they should. So far the Germans have opposed Draghi's efforts to push more in the direction followed by the Fed. This is a mistake by the Germans. If Draghi is not permitted his version of QE, recovery from recession in the PIGS will be long and arduous. Soros said in Frankfurt that the German's should agree to a Euro Bond or leave the EU. I am in total agreement with this sentiment. There will be some inflation but none of the hyper inflation that concerns you. Yellen is perfectly capable of managing the money supply going forward. She will be just as skilled in shrinking the balance sheet as Bernanke was in expanding it. She is a very good choice as Fed Chair. Do not be afraid, the U.S. economy is in good hands as far as the Fed and Treasury go. Danger lurks in the Congress however. Sadly the Fed can do little about that.