Terrie's Take: Who Wants a Weak Yen? Who Want to Eat J-Goat? Who Wants Translation?
Terrie’s Take is a selection of Japan-centric news collected and collated by long-time resident and media business professional Terrie Lloyd. AkihabaraNews is pleased to present Terrie’s learned perspective; we all could use another take on the news - here’s Terrie’s:
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Terrie’s Take on February 23, 2014
- Who Does Well with a Weak Yen?
- Free translation service translations made public
- Japan Post buys Toll Holdings
- Delicious goats too tempting for trainees
- Cool Japan does translation, subtitling
- Survey confirms gender-based wage discrimination
Who Does Well with a Weak Yen?
Back in November 2012, just before Abe was elected Prime Minister, an analyst with the European asset management firm, Pictet, confidently opined that the depreciation of the yen up to that date had probably run its course, and that the currency would stabilize at JPY82=US$1.00. Now, 18 months later, he no doubt regrets having made that call...!
Instead, with the US dollar now at around 119 yen, it seems that it has a good chance of softening even further. In the last 26 months the currency has depreciated a stupendous 53% from the pre-Abe high of 78 yen. We remember the days when a 30% currency change over 2 years was considered dramatic and destabilizing, and yet here we are at more than 50% and mostly we sit back and complain about how things are getting more expensive. Thankfully there is a global oil glut, otherwise, lives for ordinary Japanese could be significantly worse.
And we have to laugh when people like Finance Minister Taro Aso blithely say things like, "Monetary easing is aimed at pulling Japan out of deflation quickly. It is not accurate at all to criticize (us) for manipulating currencies." With a 53% devaluation in the yen but annual year-on-year inflation of just 2.4% (and over the last 9 months, just 1%), either the Finance Ministry is incompetent in figuring out what drives inflation or the nation just got very lucky being able to halve the value of its currency while barely stimulating prices.
And we certainly don't think the Finance Ministry is incompetent.
In forcing the yen down, no doubt the government was thinking to prime the country's export engine and rebuild company profits so as to increase the tax base. The problem has been that exports only amount to about 16% of Japan's GDP and many companies have already moved off-shore, so the net benefit of the cheaper yen has been muted. Those companies who are in the service sector or who rely on imported materials/products but don't export again are suffering. Sure enough, Teikoku Databank announced back in November last year that bankruptcies with liabilities of at least JPY10m were up 120% in October, and 180% in the first 9 months of 2014.
Darwin's law at work.
The winners at present are those companies who have a vertically integrated set of processes -- where, for example, black iron sand that arrives in ship cargo holds can be transformed into cars without having to send interim processes and components off-shore again. This means that manufacturers who have kept their vertical stacks in Japan, such as Toyota, are benefiting hugely. Another example is Japan Display, an amalgam of LCD units from Sony, Toshiba, and Hitachi, which is apparently in discussions with Apple to build a massive new JPY200bn plant in Ishikawa-ken, to keep up with booming demand for high-grade mobile displays.
But there are other beneficiaries of a weaker yen. An obvious one that we cover frequently is inbound tourism, where foreign tourists are apparently spending about JPY2trn (US$16bn) annually. Remember, this number doesn't include employment and other flow-on spending in the tourism sector. So, given that Japan's GDP is about JPY588trn (US$4.9trn), inbound tourists are spending their way to about 0.4% of the GDP. Once you factor in the flow-on effects, inbound travel is creating more like 1% of GDP -- and this number will probably double in the next five years.
Another big beneficiary of the lower yen is real estate -- of any kind. Foreign commercial real estate purchases hit JPY977.7bn in 2014, the highest in the last 11 years, and up 80% over the previous record investment year, 2007. Purchases of office buildings in downtown areas led the way in terms of value, but there was also strong demand for hotels, holiday homes, and residential real estate. As a comparison on office rent, for a Tokyo baseline of JPY100, an equivalent property in Hong Kong would cost JPY165.6 and in London JPY146. Office vacancies are now at a 6-year low of around 5.5%.
You don't normally think of primary produce as a big export earner for Japan, and until now nor has it been. However, funds are starting to flow within the agriculture and fishing sectors for projects that will help bump Japan's exports up towards the PM's goal of JPY1trn by 2020. In the first 9 months of 2014 exports were JPY336bn, an increase of 9% over the same period in 2013, so maybe things are finally starting to move. At first there was concern that the high cost of fuel would scuttle plans for fishing in particular, and there were reports of boats remaining tied up at shore because the cost of diesel made each foray a money-losing proposition. However, the recent fall in oil prices seems to have removed that hurdle, for now anyway.
What is especially good about fishing is that it is not limited by land area, and with the recent acceleration of fish farming, high-value inventory is starting to appear in the markets. We were amazed when we heard that Japan will shortly start selling farmed Amberjack in Vietnam -- almost a coals-to-Newcastle scenario. Farmed Tuna is another strong opportunity, and now that Kinki University has cracked raising farmed tuna from eggs of captive parents, they are already breeding and selling fish to restaurants in the USA. Japan has a massive 4.4m km2 of territorial waters, the 8th largest Exclusive Economic Zone (EEZ) in the world, and so they are not going to be running out of space to put those fish farms any time soon.
Do we believe that the yen weakening will go too far and there will be a confidence crisis by investors? Possibly. But it's more likely that the nation's employers will adjust and we will see exports and inbound spending leap as a result. If the general population has to suffer in the meantime, that is nothing new, and if any population is willing to suffer for the general good, it's the Japanese. We think the bigger threat is a currency war by Japan's neighbors. Some of these countries (think Korea, Indonesia, Vietnam, and Thailand -- and, of course China) are really starting to feel the effects of the weak yen, and they are likely to take aggressive and potentially destabilizing currency weakening actions of their own as a result. This will not only stymie Japanese efforts but also likely cause trade friction which could become nationalistic in nature.
Free translation service translations made public
As The New Yorker's Peter Steiner once pointed out, one of the problems of the internet is that no one knows if you are a dog. http://bit.ly/1JxWm9M. Such was the case when a Chinese software developer created a free translation service that has become popular in Japan, and which company and government employees were using to translate internal documents. Unfortunately for those users, their translations were then stored in viewable web pages, meaning that even sensitive documents were available for anyone to see. As a result, the government's cyber security organization, NISC, will ban government employees from using free translation sites in the future. (Source: TT commentary from the-japan-news.com, Feb 20, 2015) - http://bit.ly/1FJzFN0
Japan Post buys Toll Holdings
Japan Post has announced that it will buy out Australian logistics company Toll Holdings, for around US$5.1bn. The high price is about 11 times expected FY2014 earnings and a 49% premium over the company's current stock price. It does make sense, however, when you look at the stampede of logistics firms wanting to grab e-commerce shipments business. The Toll acquisition will give Japan Post access to Toll's global footprint of 55 countries and significantly improve the company's ability to compete. Coincidentally, a second Japan-focused logistics acquisition happened on the same day, when Kintetsu World Express bought out Singapore-based APL Logistics, for US$1.2bn. Clearly logistics companies servicing e-commerce giants are on the move. (Source: TT commentary from nytimes.com, Feb 18, 2015) - http://nyti.ms/1wbXuKE
Delicious goats too tempting for trainees
It may not be front page news, but it appears that one of the downsides of not paying Asian "trainees" enough to work in Japan's factories is that they are always hungry. Not only is this inconvenient, in the case of two Vietnamese trainees, it was fatal for two goats eating parkland grass for a research project. Apparently the two young men, who are now in custody and who face two-year prison terms, were caught after killing and eating the goats for a birthday party. The two are awaiting sentencing now. (Source: thanhniennews.com, Feb 21, 2015) - http://bit.ly/1Ggdj3d
Cool Japan does translation, subtitling
From ramen shops to translation companies -- Cool Japan has an interesting take on its mission to spread Japanese culture through innovators around the world. Imagica Robot Holdings, previously a company related to Kodak in Japan and one of Japan's largest video post-production companies, has co-invested with Cool Japan and Sumitomo, to buy out a Los Angeles translation, subtitling, and dubbing company called SDI. The three partners paid a staggering US$160m for the privately owned company. Imagica will hold 50.1% of SDI, but it appears that they will leave the existing management to continue running the business. SDI has 1,000 employees spread across 37 countries. Clients include Sony, Warner, Paramount, Fox, Netflix, Hulu, and Google -- in other words a who's who in digital content. (Source: TT commentary from variety.com, Feb 19, 2015) - http://bit.ly/1vVPis8
Survey confirms gender-based wage discrimination
The health ministry published its annual Basic Survey on Wage Structure and confirms yet again that the wage gap between men and women is significant and efforts to achieve parity are moving at a glacial pace. Female wage earners made an average JPY238,000/month, compared to JPY329,600 for males, putting the women on average at 72.2% of men. This was actually the highest wage for women since data was first compiled in 1976. The survey also shows that while the average monthly salary increased 1.3% in 2014, to JPY299,600, the increase was well behind the 2014 average inflation rate of 2.7%. ***Ed: No wonder consumers are keeping their purses closed.** (Source: TT commentary from wsj.com, Feb 20, 2015) - http://on.wsj.com/1AhkM16
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That was Terrie's Take - what about yours? Let us know down below!