Japan’s manufacturing giants are accelerating moves overseas in search of more dynamic economies, despite two years of massive government stimulus.
Abenomics has had a big impact on asset prices but the real economy has been slower to respond.
It’s not for want of trying: since April 2013, the Bank of Japan has unleashed ¥80 trillion ($670 billion) of annual monetary easing, pushing the yen to its weakest level on a real effective exchange rate since exchange rates began floating in 1973 [see page 34].
But manufacturing has changed: instead of dusting off idle domestic plants, Japanese companies have simply shifted production abroad, closer to consumers too young to have equated the phrase ‘Made in Japan’ with superior quality.
The lack of employment and wage growth undermines the genuine achievements of Prime Minister Shinzo Abe’s agenda, such as the 43% rise in the Nikkei 225 stock index over the past two years. A surging equities market boosts consumer confidence and encourages investors, notably Japanese institutions, to add risk to their portfolios – at home and abroad. Increased portfolio investment into the rest of Asia reached ¥3.4 trillion as of end 2013.
But then who’s left to keep buying government bonds as the government continues its borrowing binge? Just the government itself – a situation that it will escape only with vastly greater levels of growth, consumer spending and inflation than Abenomics can muster. The finance ministry’s insistence on raising consumption taxes to plug the widening fiscal hole has only made matters worse. It’s a lose-lose scenario.
It’s important, however, to separate macro challenges from individual company stories. The sharp rise in foreign direct investment since 2012 is testament to decisions in some boardrooms to not be satisfied with staying at home and let profits wither.
Our cover story analyses the record pace of foreign acquisitions by Japanese companies so far this year and identifies likely successes [page 16]. Our annual Japan Awards also highlight those companies and their advisors showing the most finesse at cutting deals and making investments overseas [page 23].
M&A is only the high-profile tip of outbound flows. Last year Japan signed a deal to double direct investment in India to ¥3.5 trillion ($34 billion) within five years for such projects as infrastructure and clean energy.
Japan’s banks are also lending more overseas as domestic demand remains sluggish. The Bank of International Settlements data shows ¥263.5 billion of banks loans poured into Asia ex-Japan as of December 2013.
The government is set to unveil a new fiscal strategy in the summer of 2015. Abenomics must do more than just inflate asset markets. It needs to find a way to help Japan Inc succeed domestically as well as abroad.
About FinanceAsia Magazine
Established in 1996, FinanceAsia is the leading publisher of financial news in the Asia-Pacific region. Our combination of print and online products provide the latest news, analysis and insight into Asia’s financial markets.
Published monthly from our office in Hong Kong, FinanceAsia magazine provides our readers with the latest financial trends, interviews, features and investigative reports. The publication has a readership of key decision-makers at corporations, governments, investment and commercial banks, institutional investors, asset managers, brokers, traders and financial intermediaries.
Our regular sections include:
We look at the key data behind a topical theme in Asian finance, showcased with an array of graphs and tables.
A monthly opinion column from the FinanceAsia editorial team. We provide our thoughts on a topic making the headlines.
Deal of the Month
Our regular two-page spread with its signature artwork and in-depth analysis examines the equity, debt or M&A deal that we feel has had the biggest impact on the Asian capital markets that month.
For company CEOs and CFOs, what investors think is a critical concern, and in this column we help them understand just this. Each month we speak to a Chief Investment Officer of a top fund and outline their views on corporate governance, what stocks they like and where they expect to generate the best returns.
A monthly opinion piece from a respected author or commentator on Asian business, finance or economics.
People on the Move
Here we summarise the key hires, fires and moves at the region’s banks, highlighting at least one major move each month.
We examine the major primary markets deals of the month and comment on the quality of the debt or equity transaction and the secondary market performance.
The Arts of Finance
A light-hearted look at investment opportunities surrounding the arts business in Asia.