Weak Japanese Yen:

 https://mainichi.jp/english/articles/20211021/p2g/00m/0bu/021000c

Article:

TOKYO (Kyodo) -- A weak yen typically serves as a boon to the export-driven Japanese economy. But when combined with surging crude oil and raw material prices, it leaves the economy facing a double-whammy that is set to crimp the economic recovery from the pandemic.

The yen's recent slip to a nearly four-year low against the U.S. dollar coupled with a surge in U.S. oil prices to a seven-year high threatens to cut into household spending even as it still feels the impact of COVID-19.

The combination is also set to make even more apparent the divergence between companies that have enjoyed a recovery from the pandemic fallout and those that have not, economists say.

Ideas:

An economy is a very complex system and what might be a positive from one part of the economy might be a negative for another part of the economy.

Even before the pandemic the Japanese economy and society, some parts always do better than other parts of the economy.

 But unfortunately the pandemic has increased the differences between different parts or sectors or industries that are doing better compared those sectors or industries or even those in society that aren't.

A week yen is usually very good for exporters and they can receive more for the products they ship overseas. A strong yen usually favor importers as they have to pay less for what they receive overseas.

So now there are competing economic action taking place in the Japanese economy. While exporters might feel good about the weak yen, they probably don't feel good about an increase in oil prices and raw material prices, which means their costs are now increasing.

So whatever benefit they receive from the weak yen they might lose some or part of that because of increased costs due to energy prices and  raw material prices.

And so its very possible now they might try to pass on their increased costs to those along the chain which means its possible it could eventually reach the regular consumer in the economy, which means it could reduce or limit consumer spending just after the Japanese government reduced the emergency measures.

And of course there are the importers, who don't usually like a weak yen, which means they now have to pay for the products they receive from overseas, and add in the increase in energy and raw material prices and it is definitely a major problem for importers, who again might try to pass on their increased cost to those next in the chain and again might reach the regular consumer eventually.

Article:

The yen's weakening raises prices of imported products such as oil, putting Japan at serious risk at a time when the resource-scarce county saw import prices rising at the fastest pace in four decades last month.

Wholesale prices have also been gaining sharply, testing the tolerance of Japanese companies that have opted to absorb higher costs rather than pass them on to consumers. Some food and gasoline prices are already beginning to tick up to put pressure on consumer spending.

"The weak yen may not be wholly negative for companies but it is of little benefit for households when wages aren't rising much," said Shunsuke Kobayashi, chief economist at Mizuho Securities Co.

Ideas:

Just at the Japanese government measures have been greatly reduced the idea was/is the economy will be eventually get back to the pre-pandemic level. 

But unfortunately what is happening now might limit or delay the Japanese economy from getting back back to the pre-pandemic level.

Consumer spending has always been a major challenge for the Japanese government and the Bank of Japan as Kuroda and others in the BOJ keep trying to increase consumer spending and get the overall inflation rate to the 2.0 level, without much success.

And now with an increase in energy prices and raw material prices, and then add in a weak yen, tip the balance of power in the Japanese economy to now where Japanese companies and especially importer have no choice but to pass on their increased cost.

Japanese companies recently have been reluctant to pass on the costs as they are all to aware how Japanese consumers and other along the supply chain line are to increases in prices. But now they might not have choice if the energy and raw material prices keep increasing.

Yes of course if wages in Japan are not increasing that means consumers in Japan now have even less disposable income or extra income to spend in the economy, which further decreases consumer spending.

The Bank of Japan and Kuroda have been trying since 2014 to get companies to increase the wages of their employees, as they are for the most part, just sitting on huge cash deposits in the banks, for were before the pandemic.

One of the strategies of the Bank of Japan, as an incentive to get companies to use the money they have in the banks, was to implement a negative interest rate policy to get companies to use their money in the Japanese economy buy increasing the wages of their employees.

As employees get increases in their wages they might be feel better about their wages and might begin to use more of what they have by spending more, thus increasing consumer spending, and as demand increased in the economy, inflation might begin to move toward the 2.0 level that the BOJ has been trying to get to since 2014 or even earlier.

Article:

"The situation would be different if the trickle-down effect was working," Kobayashi said in reference to growth in corporate profits translating into higher wages for workers.

The Japanese currency has fallen by nearly 4 yen against the dollar since early October when Fumio Kishida became Japan's new prime minister with a pledge to ensure growth and redistribution.

As the Federal Reserve is expected to wind down crisis-mode stimulus, long-term U.S. Treasury yields have been on an uptrend, leading the U.S. currency to rise sharply against the yen.

With ample liquidity injected via monetary easing by major central banks, surging crude oil prices are also driving the yen's fall as analysts say selling currencies of energy-scarce nations such as Japan has gained momentum.

Ideas:

The Korean government, as an example, has tried to implement a trick-down effect the past four years by putting in law an increase in the minimum wage or living wage for part-time worker, contract workers or low working in low-wage jobs, with the idea as workers now have a better income they might begin to spend more in the economy.

But it hasn't worked as planned. An increase in the minimum wage is/are increased costs for businesses and especially small businesses who are operating on very slim profit margins.

As a result of the increased minimum wage, which has been increased every year the past four years, many or some small businesses have had to reduce the part-time or contact employees they have and or cut the hours those kind of employees. 

For example many convenience stores in Korea, like conbinis in Japan are franchise oriented businesses meaning they might be operated by a husband and wife and a few part-time workers. But because of the minimum increase they might be operating with only the husband and wife.

While not exactly the same as Japan, where many of the mom and pop conbinis can't find part-time workers they too have to operate with the husband and wife only and because they can't find PT workers they might have to cut or shorten the operating hours or the conbinis which the franchisee such Lawson, Family Mart,  Mini Mart and of course 7/11 doesn't like.

And again the idea of the Korean government strategies has been to try to re-distribute wealth in a country that has a huge gini coefficient where there is a large gap between those in big companies and everyone else. But it has mostly been a failure.

So Kishida, while very noble and a good idea might not work unless his cabinet has some very innovative ideas that other countries haven't tried before.

But he could try to see what the Northern European countries have done which might be a good model in how to do it. But even now those countries are beginning to see even wider gaps in inequality.

Article: 

"There is no doubt that rising commodity prices are severe if we look at the structure of the Japanese economy," Kengo Sakurada, chairman of the Japan Association of Corporate Executives, told a recent news conference. "I feel there are strong concerns (in business circles) about competitiveness and higher costs."

With the benchmark West Texas Intermediate crude oil futures topping $83 per barrel, the highest in seven years, the dollar climbed closer to 115 yen, a level it last reached in 2017 during the time of "Abenomics," a policy mix of bold monetary easing and fiscal stimulus implemented under former premier Shinzo Abe.

The dollar is at much higher levels than the average assumed exchange rate of 107.64 yen for the current business year through next March in the Bank of Japan's latest Tankan survey. Leading Japanese exporter Toyota Motor Corp., for example, has set its rate at 105 yen.

Ideas:

So while the pandemic in Japan might be winding down, but not so around the world as other countries, especially in the EU and Germany, now Japan may be facing a new economic crisis, that it has to manage or work its way through.

The Bank of Japan might have a choice but to continue with some bold monetary easing strategies while other countries such as the US are beginning to tighten their monetary strategies.

The latest challenges in the Japanese economy might have the potential to force the economy back into another recession.

As such the Bank of Japan and Kuroda needs to think of some bold strategies to make sure the economy and that there is enough economic activity to keep the Japanese economy from moving back into a recession.

To remain competitive globally and even in Japan Japanese companies might have to keep their prices at the the competitive level despite an increase in costs. If they really do have the huge sums or cash in the banks, as reported many times, then it might be possible to smooth through the current economic and businesses challenges without a serious fallout.

Of course that can't be said for medium or small global manufacturers as they most likely don't have the resources that the large Japanese companies do.

Article:

The current levels may be good news for exporters and companies that do business overseas or have subsidiaries because a weaker yen strengthens the price competitiveness of Japan-made products overseas and inflates profits earned abroad when translated back into the Japanese currency.

But it is a different story for companies that are reliant on imports such as food ingredients and petrochemical products or deal with consumer products, as a further weakening of the yen would exacerbate the pain of hefty costs.

Martin Schulz, chief policy economist at Fujitsu Ltd., said the dollar has been trading "at a comfortable level" for Japanese exporters. But investors are now concerned that a higher dollar above 114 yen will push energy costs too far and squeeze profits at import-driven companies.

Ideas:

An economy is very complex and Japan's economy is no exception, as there are always competing economic challenges in any economy. As such importers and exporters have competing priorities and challenges compared to each other.

While exporters might be feeling good, even though they too might have higher energy costs to run their manufacturing plants such as the car companies they might be trying to rationalize or see because of the weak yen, the extra profits they receive from overseas might offset the increased energy costs needed to run their manufacturing plants.

Of course the situation is much different for importers. Again they are facing a double or even a triple threat of a weak yen, increasing energy and raw material supply costs, and how much of the costs, should they pass on the next in line in the supply chain, and of course eventually reaching the regular consumer.

So the Bank of Japan needs to be aware that the Japanese economy is not just the exporters who bring money in the Japanese current account, but there are many companies if not thousands or even millions that are also part of the Japanese economy and the BOJ needs to find way to help them now during current economic crisis.

The BOJ can take two approaches to the current economic situation. It can take a wait and see approach or a "let the market" fix itself, meaning see if the current economic challenges fix themselves such energy prices in Japan and globally get back to the level that they are a stress for companies and society.

And maybe the Japanese yen settles down to a more balanced level without a lot of BOJ action.

But the Japanese economy and the current situation might be beyond the point of just let the market/markets fix themselves naturally it might be time for the BOJ to take some kind of action to help importers, if anything can be done at all such as subsidies to companies to reduce their stress relate to the increased cost.

Article:

"Since the economic restart comes later in Japan than in the United States and Europe, the current cost-push from energy and material costs is unlikely to create a significant inflation scare anytime soon," Schulz said.

"The bigger concern on the economy side remains to be the pressure on corporate profits, which can easily turn into a correction of high stock prices."

Heading into the Oct. 31 House of Representatives election, Kishida was apparently alarmed by the rapid rise in crude oil prices, instructing his ministers to take necessary steps, including asking oil-producing nations to increase output.

Ideas:

Again there are always many things going on in an economy at the same time. Unfortunately stock holders and investors are not very patient. Many years ago it was common for Japanese companies to take a long term approach so they weren't as concerned about quarter to quarter results that they have to be today.

That creates a new set of priorities for Japanese companies as they no longer can take a long term approach, which though they might want or need to as the market today is only concerned about today. They don't care about five or ten years down the road. They want to see results now or this quarter.

The increase in output has always been challenging situation and even if oil-producing countries increased their output today doesn't mean Japan or other countries are going to see an immediate change or decrease in prices. It could take several months to see any changes.

Article:

Japan's core consumer price index, a gauge of inflation, was unchanged in August from a year earlier, far from the BOJ's 2 percent target, but is projected to pick up due to higher energy costs.

Economists say the recent surge in crude oil prices and the weaker yen will more than offset the impact of sharply lower mobile phone charges.

Consumers may start to feel the pinch in coming months. Gasoline prices are now at seven-year highs and prices of some imported food items such as flour and beef are rising.

Ideas:

This has been reported before and again maybe Japan's core consumer price index should not include changes in energy costs as they can skew or not provide the correct picture or story about what is going on with consumer prices. 

With energy prices include it might not give the correct picture as it might show an increase in inflation but not real prices that consumers have to pay.

Yes they have to pay for electricity and gas prices for their homes but they should not be included in with the the other things that regular consumers have to pay for.

So while Suga and his government forced or suggested that mobile phone companies lower their prices they charge consumers, the companies will find ways to make sure they keep their profit margins by increasing the prices or fees with other products or services.

In South Korea, for example, related to gas prices, the South Korean government is going to suspend the gas tax to lesson the burden on consumers over the next six months. Of course that means less government revenue but maybe the South Korean government felt it was needed instead of just letting the gas market fix itself and that might not happen in the near future.

The increase in raw material food prices are not good for companies, and again, eventually they might not have a choice and the have to pass on all or part of their increased costs to food manufacturers and then eventually maybe to supermarkets and restaurants and eventually to regular consumers.

And this has been reported before where some restaurants have now had to stop selling some of their menu items and the costs for purchasing them has become too much and they know the customers they have won't buy that item because the price is too high for them.

Article:

These headwinds come as Japan moves toward restoring normalcy to everyday life as the COVID-19 situation stabilizes, though experts warn of another wave.

"If the resumption of economic activity continues, companies may become more willing to pass on higher costs to consumers," said Kobayashi at Mizuho Securities.

Up until now, nonmanufacturers, especially service providers, had been expected to catch up with manufacturers in recovering from the pandemic as the economy emerges from COVID-19 restrictions on people's movement.

"The irony is that the weaker yen has the potential to widen the gap between winners and losers in the corporate sector," Kobayashi said.

Ideas:

Another wave is moving through the US and Europe now despite the opening on of the countries including international travel. And in Korea it looks like its in another wave despite the country reducing emergency measures at almost the same time as Japan.

This writing is late, on Nov. 18, there was  record number of cases in Korea that hasn't been seen since the beginning of the pandemic crisis. But so far the South Korean govt. hasn't signalled a return to any emergency measures

The services sector in Japan might take a long time to recover as its sector is much more complex than the manufacturing sector. The services sector includes anything that involves contact with people, and as such the pandemic effected it a lot.

For example one area of the service sector that might return soon is related to international tourism. When you have over a million international tourists entering Japan each month, that as a lot money moving into Japan and any company or business related to it.

As such JAL and ANA both say they will be in the red the next fiscal year and actually plan to reduce their staff over the next five years, as this is almost not done in Japan. So maybe JAL and ANA feel the pressure from stockholders related to the next fiscal years, instead of taking their usual long term or approach as JAL did to get out of bankruptcy a few years ago.

Yes, unfortunately the gap is going to get bigger in Japan between the so-called winners and the so-called losers.

If Kishida want to lesson the income inequality gap he need some innovative approaches to solve the problem.

Updated on November 18, 2021.

Have nice day and be safe!