Japan business mood improves as auto woes ease but inflation weighs
Ideas:
Business sentiment in Japan, understandably, is usually not as good as in other countries as the Japanese economy seems to remain in a stagnant mood, with GDP growth usually not exceeding 1 percent the past few years, if not for a decade now.
The Toyota group and now other Japanese car companies has/did place a heavy cloud over the one Japanese industry that has, for the most part, led economic growth and might have been the one economic driver in the Japanese economy.
Service companies or nonmanufacturers suffered the most during the pandemic and they probably have yet to make up for lost revenue during the pandemic.
Foreign tourism, while good, in itself can't revive the Japanese hotel industry or the Japanese service industry as there are still too many variables involved such as continued inflation and now a continuous labor shortage in Japan, which seems to be affecting many companies and industries all through Japan.
An economy or market economy is very complex with many different industries or sectors and each have their own challenges related to labor shortages and inflation.
The weak Japanese yen is another challenge for Japanese companies and different sectors, as most likely many companies have to import the materials they need to manufacture products which forces them, most likely to increase prices all along the supply chain.
And then add in the wage increases and each company's profit margins are even further compromised, which makes it even more challenging for companies.
Business sentiment is very much an individual company or individual sector situation, as again, different sectors have different experiences with all of the variables that can affect a company in Japan. No sector is exactly the same and add in supply and demand challenges it becomes even more challenging.
Companies for a very long time either refused or felt it was not good to pass-on their costs to the next in the supply chain including the final customer.
But as inflation has continued and the weak Japanese yen has continue companies eventually had to say enough is enough and now need to pass-on their costs to those in their supply chain including the final customer.
The auto scandal is going to affect the Japanese car companies for long time, at least Japanese car companies are going to be watched very carefully if they do the same thing or stick to ethical standards of conduct.
Will sales in Japan decease or will the Japanese public/consumers ignore the scandal and continue to buy Japanese cars. And the same with foreign consumers, as most likely they have even heard about the scandal and will continue to buy Japanese cars.
There is always weak demand in Japan as consumers have been hit with continued inflation the past few years. And then add in weak wage increases over the years and wages have not kept up with inflation, and in reality Japanese households or consumers are constantly losing extra income to spend in the Japanese economy.
The Japanese car industry is one of the few industries that has remained as an economic driver for the Japanese economy the last few decades, and even thought there was as serious scandal, Japanese car makers know their future is still good but as long as the begin to invest in EV cars and hybrid cars which consumers now want.
Sentiment among Japanese retailers, never seems to be where is should be, as Japanese households have been hit with inflation challenges consistently the last few years, and now add in wage challenges.
And related to wage increases, 70 percent of Japanese workers don't work for large Japanese companies and if they work for small and midsize companies, most likely, they didn't get a wage increase anything close to what the large company workers got.
The Japanese yen will continue to be a challenge for the Japanese economy, Japanese businesses, and Japanese households which means everything will seem more expensive.
Yes, a weak yen is a boom for Japanese exporters as they can get more for their products in countries such as the US.
So even though the weak Japanese yen is good for exporters its not so good for Japanese importers or the Japanese domestic economy, Japanese businesses in Japan, and Japanese households.
So what does the Bank of Japan do in trying to balance the needs of Japanese exporters and the needs of the Japanese domestic economy?
Japanese hotel and restaurant operators should be optimistic as the number of foreign visitors continues to increase, as Japan is headed for a record breaking year, and as the Japanese yen remains weak, it gives more purchasing power to foreign tourists who can spend more.
Weak Japanese demand, seems to always be the main variable affecting the growth of the Japanese economy, and of course along with continued inflation, weak wage increases, and the continued weak Japanese yen, consumer demand will continue to remain weak for sometime.
Capital spending is like a chicken and egg situation. Do companies wait for the Japanese economy to get much better or improve or do they invest with the idea it will help the Japanese economy improve?
The Japanese economy is a huge economy and even though it might not see a lot of consistent growth even at 1 percent or even 0.5 percent growth is still a lot for the Japanese economy.
Manufacturers have reason to be optimistic as not all is negative in the Japanese economy, as again, it depends on the sector or industry in Japan.
The Bank of Japan, looking at all the data, maybe decide that the Japanese economy, again, is just too fragile at this time for any key interest rate increases, which can place a lot of stress on individual businesses and Japanese households too.
Increased price and the weak Japanese yen are variables that the Bank of Japan has to look at. For example which variable does the Bank of Japan think is most important, the weak Japanese yen which helps Japanese exporters or the same weak Japanese yen and the Japanese domestic economy and Japanese importers and prices?
And yes, weak consumer demand is something that needs to be considered. If the Bank of Japan does increase the key rate, usually consumer demand is decreased, as prices could increase in the Japanese economy, and as consumer demand is already weak, it could get even weaker, which will then cause retailor sentiment to get even worse.
The normal strategy, for most central banks globally, is to increase the key rate to try and reduce inflation, and with that consumer demand will decrease and then maybe inflation will eventually begin to decrease.
But, unfortunately, Japan is a unique situation with already weak consumer demand or consumer spending and if the Bank of Japan does, again, increase the key rate, it could cause consumer demand and consumer spending to get even worse that what it already is in Japan at this time.
The US was somewhat successful in decreasing inflation but it took a long time, but the Japanese economy, while a stable economy, is not as robust as the US economy, which has the ability to bounce back very quickly, but the same can't be said about the Japanese economy as it doesn't seem to have the same bounce back affect that the US economy has.
Have a nice day and be safe!
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