Japan Jan.- March Economic Contraction: Updated June 11, 2024.

 

Japan Jan.-March economic contraction revised to annualized real 1.8%

Article Source:  https://mainichi.jp/english/articles/20240610/p2g/00m/0bu/009000c

Ideas:

While a economic contraction is not good, a 1.8 percent decrease is not that bad, but at the time, the Japanese economy seems, still, to be stuck in a deflation or stagnation situation.

Of course 1.8 should be better but for the Japanese economy it seems it one quarter of positive growth and then one or two quarter of negative growth. The Japanese economy can't make up its mind what it wants to do.

Domestic demand, in the Japanese economy is never where it should be for many reasons, and of course inflation and the weak Japanese yen might be the main reasons.

It seems the Toyota situation has now expanded to other car companies besides just the Toyota group companies.

Of course there might have always been this idea that Toyota was the/a model Japanese company, but now we see that its not like that at all, as the safety rigging situation has exposed Toyota and many other Japanese car companies too.

An annualized estimation is if an economy stay exactly the same, which of course an economy never stays the same as its always increasing and decreasing in many different sectors at the same time.

The average Japanese citizen of course probably didn't even feel or know the Japanese economy decreased 0.5 percent or even 0.45 percent, as they are just focused on their daily lives and not that interested in what some economists might be saying.

There are times, the media and some economists, and the financial markets get too caught up in the quarterly results instead of focusing on the big picture or even one year results.

Of course this the result of the financial markets placing too much emphasis on quarterly results forcing companies to do the same thing, and abandoning their 5 year plans.

 Capital investment might be in the margin of error as 0.8 percent or even 0.4 percent is not that much of a decrease, and again, whomever, focuses too much on trivial matters, such as quarterly results and not focusing on yearly results.

And the same with private consumption or consumer spending as a 0.7 decrease, again, might be in the margin of error, but instead of focusing on quarterly results look at yearly results to see what is really happening.

At the same time, most likely private consumption or consumer spending is not going to be much different for a quarter or a year as consumer spending in the Japanese economy just never reaches its fullest potential due to, these day, inflation and the weak yen.

And yes, as noticed consumer spending or private consumption has now declined for four consecutive quarters or for over a year, again, due to the weak yen and continued inflation.

GDP is made up of consumer spending, business investment, government spending, and net exports, meaning exports minus imports.

The Japanese government, or whomever,  always likes to use the phrase "recovering moderately," as a way to not scare the financial markets. 

So just what might be the weakness in the Japanese economy? Is it consumer spending, most likely, is it capital spending, most likely, is it government spending, probably not, and is it exports minus imports? 

If we consider exports alone, exports seem to be fairly strong, while imports is different story with a weak Japanese yen, its causes import prices to increase.

Consumer sentiment is always a major variable in any economy. If consumers feel good they spend a lot if they don't feel good they don't spend much.

Japanese companies might be willing to invest but most likely labor shortages are keeping many companies from investing at this time.

If there labor shortages are a challenge for Japanese companies, just what related to labor shortages is the main challenge? Is it finding the needed workers to run the equipment for example, or is it just an overall worker shortage?

There always seems to be uncertainty in the Japanese economy, these day, so it nothing really new, but, to be fair, every economy has its share of uncertainty about the future.

But the Toyota group situation is a real challenge and its now affecting many Japanese car companies, and it could turn into a major challenge for Japanese car companies.

Or it might not, as maybe, globally, it might not have a big of an affect on global sales in the future.

The tax cut will help, but will it be enough, but of course something is better than nothing, as inflation continues on in Japan.

And yes, it might take until August for the wage increases to have a full affect and then it might not as maybe inflation will continue.

And remember, not all Japanese workers will get a good wage increases and some will get smaller wage increases and some will get larger wage increases.

So private consumption or consumer spending, for the time being, is not going to be where it should be, and, again, even when the wage increases start to take a real affect, consumer spending still might not be that great.

So there, maybe globally, we begin to see the affects of the Toyota auto scandal, and again, its not just Toyota, as many Japanese car companies seems to be involved too.

The 5.1 percent decrease in exports, might not be related to sales, but Japanese car companies voluntarily suspending production of some Japanese car models.

Foreign tourism in Japan, might be the only real bright spot in the Japanese economy at this time, as the weak Japanese yen gives more purchasing power to foreign tourists.

At the same time,  some Japanese areas, or popular tourists areas, might be reaching a breaking point, as some local Japanese are getting upset with the behavior of foreign tourists and how they are behaving in Japan.

It would not surprise me, if the Bank of Japan, intentionally increased the Japanese key rate, to move it closer to the US key rate, which would make the Japanese yen, less weak, which eventually might dissuade some foreign tourists to go to Japan as the Japanese yen now is not as weak as before.

Public investment, or government spending is always a key player in economic growth and or used a lot by the Japanese government when consumer spending and business investment is not where they should be.

But these days the Japanese government is somewhat weary, besides the tax cut and other household subsidies, to use public investments too much due to the Japanese government debt to GDP ratio, which is now estimated to the highest in the world.

During or after the second quarter, and after the wage increases maybe begin have some affect then maybe, just maybe the Japanese economy has move out of its stagnation phase and or deflation phase. But that is a lot of wishful thinking at this time.

Have a nice day and be safe!

BOJ View of Regional Economies: Updated April 7, 2024.

 

BOJ cuts view on 7 of 9 regional economies, notes strong wage growth

Article Source:  https://mainichi.jp/english/articles/20240404/p2g/00m/0bu/036000c

Ideas:

Just like a market economy, and different sectors, some better than others, the same with prefectures or states in Japan. Some might be doing better than others, which is normal in any market economy.

Of course private consumptions of consumer spending is normally not as strong in Japan as it is in the US, but the inflation situation has caused less spending than normal for this time of year.

And then add in weak auto production, which is a major economic driver in the Japanese economy. An economic driver is any economic activity that that increase economic growth significantly, and in this case auto production is a strong driver of economic growth.

The weak auto production situation might be related to the Toyota group and Daihatsu and their quality control challenges.

Hokkaido and Shikoku are relatively less strategic when it comes to Japanese companies and the Japanese economy, so there might not have been enough change up or down for them to be included up or down.

Of course the Hokuriku region of course will continue be downgraded due to the earthquake, and it might take some time, maybe a year or more for the region to get back to normal or near normal.

Nonmanufacturers or course are positive about what is happening in the Japanese economy, with hordes of foreign tourists coming to Japan and spending a lot of money, due to the weak Japanese yen, as foreign tourists have more purchasing power.

Manufacturing companies, large and small, are rarely that positive and their focus seems to be related to the global economy and maybe even what is happening in China, as China, at this time, is not where it should be economically.

Weather, warm or cold, of an extreme either way, seems to affect consumer spending, and in this case, a warmer winter reduced spending on winter clothes. Of course major retailers, like Uniqlo plan months if not years ahead, and they sometimes have no way of knowing exactly what the weather might be each summer or each spring.

They can of course make estimates, but based on normal weather expectations, which means maybe many clothing retailers had to have a lot of sales to reduce their winter clothing inventories.

The Toyota group, and Daihatsu which is a small manufacturer of the Toyota group, has had some quality control challenges and maybe even miss-representing it quality control data, and when it was discovered the Toyota group was forced to reduce manufacturing in some of its plants.

The Japanese economy might be recovering overall, but it seems like its constantly it a recovery stage and never seems to get past the recovery label into something better.

The key interest rate hike by the Bank of Japan, was probably not that significant, at this time, as they are not going to increase the rate too much because of possible side effect, which might hurt the Japanese economy.

All companies need to participate in wage increases including small and midsize companies for the Japanese economy to fully get to the 2 percent inflation level, away from inflation related to just companies passing on their costs to the next in the supply chain.

Services is the bright spot in the Japanese economy at this time, which is not usually the case as services were hit had during the pandemic and lost a lot of jobs due to layoffs and businesses closing.

The case might be made, that if Japan was not in a labor shortage situation, maybe some or many companies would not be offering wage increases to attract new or enough workers for their companies.

Core inflation might be in Japan for sometime and private consumption or consumer spending might be somewhat reduced for a while, unless of course many Japanese wage earners begin to spend some or all of the extra wage earnings, but that is not likely as most likely Japanese households will hold onto their extra income and use to pay for the basics such as utilities.

As the Hanami season is now in full bloom, and Golden week, the first week of May, which is week long holiday, their could be a surge in spending, but it remains to be seen if Japanese households will really spend a lot during the Golden Week period.

There is also the idea that once companies do increase wages, they need to pay for the wage hikes and most likely they will increase prices on their products.

And then there is the situation with small companies increasing wages, even though their profit margins might be compromised they might have no choice but to increase wages, to keep up with other companies or competitors in the same sector in terms of securing the best talent possible for their company..

Wage increases might not end the cycle of deflation, but its a good start, And then there is the idea of continued inflation that will replace deflation with price increases due to the wage increases. 

So a combination of continued inflation and wage increases, which will increase prices on some products, might move the Japanese economy from the deflation stage to the inflation stage in the future.

Have a nice day and be safe! 

Toyota Rigging Scandal: Update May 25, 2024.

 

Data rigging scandals threaten to undermine Toyota's growth drivers

Article Source: https://mainichi.jp/english/articles/20240206/p2g/00m/0bu/033000c

Ideas:
Articles never tell the whole story or the real story about what might have happened. In this case, there might be a sort of romantic idea about Toyota as this model company and when something happens the real story might  be completely unknown, as, normally companies try very hard to keep their image clean.

For example, how does Toyota or those in the Toyota group really treat their employees, and more importantly how do they treat their suppliers? Do they insist on certain prices that might not be good for the suppliers or do they treat their suppliers correctly, not forcing them to accept certain prices, and if they don't they remove them as suppliers.

The Toyota group is a large group of companies, and it might not be easy to make sure all of the companies within the group are doing exactly what the main Toyota company wants and needs.

As with any name-brand company, such as Toyota, the more sales and profits they get the more the stockholders and shareholders expect the same each quarter, which might put extreme pressure on a company to maybe do things they normally wouldn't do, such as cut corners or quality control.

There is no real evidence that Toyota or Daihatsu did anything on purpose as most likely it was just neglect and or having to keep sales and production at a certain level.

Again, with any name-brand company, once something happens its doesn't easily go away for example maybe the Nissan Carlos Gohsn situation.

This shouldn't be a black-mark on Toyota as maybe it was just within the Daihatsu group, to keep up production and sales, as most likely Toyota has nothing really do to with it.

At the same time, not to be too negative, this could be the tip of the iceberg, related to cases of cheating on quality control, as car companies, are under tremendous pressure to keep sales and profits at a certain level.

Again, this doesn't mean the other Japanese car companies did or were doing the same thing with quality control issues, as, again, it might just be one company and what they did and not the entire Japanese car industry.

Globally, these days, all car companies are attempting to do the same thing, with some more and some a little less as all global car companies are now, as always, in a race to produce the latest, newest, and most innovative car possible, that customers want and need.

This might put unheard of pressure on many car companies and their suppliers and affiliates as all chase profits to keep shareholders happy.

No car company can afford any blackmarks or scandals that happened at Toyota and Daihatsu and globally it world is now inter-connected even more and news spread fast globally these days.

Not to say the Toyota didn't know, but as the same time, most times companies always try to deny or hide any facts that might make the company look bad.

Toyota had to know, that someone within the company was creating undue pressure for the Daihatsu group to keep sales up.

Again, Toyota might not be this model/perfect company that they want to be known as, as this latest situation just goes to show how much large companies put put pressure on their smaller affiliates to meet sales and profits targets.

And yes, Toyota might have expected too much or too much within a limited time schedule and the affiliates just couldn't meet the expectations.

No one should blame the affiliates as parent companies, such as Toyota, put too much pressure to meet unrealistic demands to remain number one.

The smaller affiliates were probably under too much pressure and if they didn't meet the targets or demands, the parent group Toyota, move the affiliates out of the main group.

"Might have been delicate" is putting it lightly, as most likely suppliers were reluctant to say anything for fear of not being a suppler in the future, as is the case with many main companies and suppliers.

As with this situation, the relationship between Toyota and its suppliers might been going on for decades and suppliers just had to accept whatever Toyota wanted and needed, without saying anything.

Again, most likely what is happening between Toyota and its suppliers is what is happening with other large Japanese car companies, as the suppliers are afraid to say anything and just accept what the main company wants and needs.

Yes, there should have been more communication, but in reality, suppliers are too afraid to voice their concerns to the main company for fear of losing the main company's business.

For example, if there was a shortage of engineers the supplier should have said something to Toyota, but again, maybe they were afraid to say anything that would make them look not very good to Toyota.

So in this case, Toyota is to blame for the situation and they didn't allow for clear communication and they didn't communicate to the suppliers. whatever they needed they will help.

This situation could in the future hurt Toyota's attempt to hire the best talent needed or possible. High salaries, these days, only go so far, as younger workers are looking for better work life balances, and if a young worker or college graduate knows or hears what is going on with Toyota and it suppliers or affiliates they might think twice about wanting to work for Toyota.

No one wants to work for a company that has constant unrealistic production, sales, or profit targets.

Toyota might continue to get some of the best talent possible, but over time, young workers are going to reject Toyota and maybe even its affiliates as they know Toyota puts too much pressure on it own workers and its affiliates.

Have a nice day and be safe!