In a BOJ report released just before the recent elections, Japanese manufacturers expressed declining confidence to a “near three-year” low just following news of the economy shrinking from July to September of this year. This came despite the fact that the same manufacturers plan to boost capital spending by 6.8% year on year through March. Continue reading
Perhaps as a sign of China’s declining economic picture, Japan now stands to bump China off its top spot as the top foreign holder of U.S. debt. Japan is trying to soften the blow it has been taking as the strong yen continues to increase in value against the dollar, according to the WSJ. Continue reading
The Christian Science Monitor outlined newly-elected PM Shinzo Abe’s plans to put pressure on the BOJ to engage in even stronger monetary easing than the previously announced goal of 1% inflation. Along with this new effort, the new government hopes to initiate an unprecedented amount of economic stimulus spending, to the tune of some $119 billion. Continue reading
I found this blog post outlining Suzuki’s plans to exit the US auto market after 27 years of selling cars here. The Japanese auto maker plans to use a Chapter 11 bankruptcy filing to “effectively call it quits on American car sales,” while continuing to sell motorbikes, ATVs, and boats in the US. The blog cites poor sales and unfavorable exchange rates as the reasoning behind the exit. The Reuters article the blog references states that “Suzuki models did not catch on in the US and the company suffered from a lack of investment in new vehicles. It also struggled from the strong yen that makes it more expensive to export products from Japan.”
I think this is the exact problem that the Japanese auto makers are facing that the professor outlined in his comment on the “More Bad News for Japan’s Auto Industry” post. Suzuki sold the most cars it has ever sold in the US only six years ago at 100,000 vehicles. While this was not at all a large share of the market (0.6% of total auto sales that year), it was a 23.4% improvement and represented a peak for Suzuki. That was the year the company redesigned one of its signature models–the Grand Vitara–and introduced two brand new models –the SX4 and XL7–all to much fanfare and acclaim.
Despite this, Suzuki “grew complacent” as the professor says and fell behind after years of producing boring and limited model choices at the same time the traditional Japanese giants were turning out new and innovative models such as the Prius. It’s too bad, my Dad’s second car was a Suzuki.
I found some remarks made by Ambassador Shin Bong-kil, Secretary-General of the Trilateral Cooperation Secretariat, regarding signs of growing unity and shared responsibility in East Asia despite increasing tensions between China, South Korea, and Japan. In the remarks, which were made during a roundtable discussion at the Center for Strategic and International Studies in early September, the Ambassador claimed that the “deepening economic ties and booming people-to-people exchanges are driving the three countries towards a greater integration than ever before.” Specifically, he pointed to a recent agreement between the three countries to discuss the “Trilateral Free Trade Agreement (FTA)” which he equated to an East Asian version of NAFTA as evidence of this dynamic. In addition, he cited the overwhelming amount of aid from China and South Korea to Japan in the wake of the 3/11 earthquake as evidence of deepening ties.
However, these remarks were made well before the anti-Japanese riots in China and the ROC, as well as the increase of Chinese maritime presence in the Senkaku/Diaoyu Islands. While the Ambassador did mention the dispute between China and Japan (as they stood at the time) in the remarks, it was only in a passing reference and he provided little to no explanation as to why this serious disagreement would not impede any progress on such an economic union.
While the economic ties between Japan and China in particular have become a huge source of revenue for both countries–China is Japan’s biggest trading partner, Japan is China’s third–that trend has shown signs of decline recently. According to recently released economic data (cited in the New York Times), Japanese trade has decreased by 1.4% in the past 8 months after an increase of 14.3% last year. According the the NYT article, Japanese officials blamed both the global economy but also “concerns over political issues.” Officials added that growth of investment from Japan to China has slowed to 16% growth in the most recent 8 months, with the same period last year showing a 50% growth. This news comes despite Japan’s “near-total reliance” upon China for rare earth minerals, as “Japanese companies seek out countries with even cheaper work forces and less-touchy diplomatic relations.”
Despite the incredible volume of trade and dependence China and Japan share with one another, it does not appear to be enough to smooth over these “concerns over political issues,” nor is it a situations that many Chinese citizens support, as protests in China have exposed a segment of the population that does not appreciate the amount of trade done with Japan. Still, both countries seem to need the other for the near future, as both economies are very fragile, still weathering a tenuous global recovery.
The Bank of Japan’s efforts to encourage price increases across the Japanese economy have failed to produce the desired results. The ‘goal’ of a 1% increase in the CPI in Japan is now appearing to be a far more long-term expectation than originally desired by the Japanese government as the try to shake the economy out of nearly ’20 years of deflationary pressure.’ As the BOJ considers the purchase of 10 trillion yen in additional assets as a form of easing, officials at the Bank have blamed the downgraded inflation expectations on the appearance of fresh negative issues such as slowing production levels in China as its economy finally begins to feel the full impact of the global recession. This all plays out in the context of a stronger yen acting as a ‘brake’ on exports, a crucial segment of the Japanese economy (WSJ link below).
The problem of deflation in the Japanese economy is hardly a new one, as shown by the BOJ’s own statistics (link below). Since 2006, the CPI (Laspeyres chain index less fresh food) in Japan has only reached positive numbers five times, and then only for a brief six to seven month spurt only for gains to be almost wiped out by dips of equal weight in the opposite direction. The most extreme instance took place in 2008 when the CPI increased by 1% to 2% over the year to be followed by a 2.5% drop the very next fiscal year. The impact of a stronger yen on Japan’s already depressed exports to China (see ‘More Bad News for Japan’s Auto Industry’ blog entry) could be very negative.
In addition to all of this, the poor numbers have revealed a ‘rare display’ of intense division between the BOJ and the Japanese government as officials criticize the Bank for not being clear enough on its inflationary goals. The government itself is also in a state of disharmony, as Prime Minister Noda’s administration may be ‘left without cash as soon as next month’ as a legislative stalemate in the Diet holds up progress on an economic stimulus package (see Bloomberg link below).