Japanese Economy Shrinks by 30%


Reading time ( words)

The Japanese yen continues to depreciate against other currencies. Last month, the exchange rate was below 102 yen for one U.S. dollar, now it stands at more than 108 yen to one U.S. dollar. Two years ago, the exchange rate stood at 78 yen for one U.S. dollar--this translates to a depreciation of more than 35% against the U.S. dollar.

The depreciation of 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 to more sales so financial markets reacted quickly to the news. The Nikkei Average of the Tokyo Stock Exchange Market has more than doubled in the last 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 has 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 earlier, 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 the beginning of 2013.

The Japanese government is trying to spin this imbalance of trade by explaining that 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. The Japanese government and the Bank of Japan have no 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 long time--and many steps--to trickle down to the people on the streets.

The truth is the yen’s depreciation does not strengthen exporting power for the Japanese electronics industry. What’s even scarier is that more than one-third of the fortune made in Japan during the last half century (about US $5 trillion) was lost through currency depreciation. Japan has lost its buying power, but foreign companies look at Japanese products as a bargain. Lets hope this bargain does not turn into a "going out of business" sale.

Dominique K. Numakura, dnumakura@dknresearch.com
DKN Research, www.dknresearchllc.com

*To view back issues of the newsletter, click here.

Share

Print


Suggested Items

Flying Probe Testing: It’s about Speed and Stability Says MicroCraft

07/06/2018 | Barry Matties, I-Connect007
The I-Connect007 team had the pleasure of meeting with Takayuki Hidehira at the MicroCraft booth at productronica, where they had on display their new eight-probe flying tester, fully equipped with autoloader and new ease-of-use software. Takayuki discusses where flying probe testers currently stand in the market and MicroCraft’s observation of the rise of captive PCB shops in Japan.

Weiner’s World—February 2017

03/02/2017 | Gene Weiner, Weiner International Inc.
IPC APEX EXPO 2017 was the best in five or more years. The 60th annual meeting drew a crowd. The meetings were good. The mood was upbeat. There were reports of new orders from Asia as well as the Americas, and news of increasing business from the show floor. IPC membership was up in all its regions to more than 4,000.

Weiner’s World

03/02/2016 | Gene Weiner, Weiner International Inc.
Gene Weiner discusses PhiChem's upcoming open house event at its global HQ and R&D center in Shanghai during SEMICON China 2016, CPCA 2016 and productronica China 2016. He also focuses on the IPC Ambassador Council's plans to produce an executive forum in conjunction with IPC APEX EXPO 2017, IPC's association with NextFlex, SEMI's launch of the ESiPAT SIG, and much more.



Copyright © 2019 I-Connect007. All rights reserved.