Japan: sees record drop in exports

[Sapiens]

http://news.bbc.co.uk/2/hi/business/7794888.stm

Japan: sees record drop in exports

Japan posted a trade deficit of $2.5bn (£1.7bn) in November as exports fell at their fastest-ever rate, the ministry of finance has said.

Exports were down 26.7% from a year earlier, the ministry said, as a strong yen and the global economic downturn blunt demand for Japanese goods.

Japan typically runs a trade surplus due to strong demand for its products.

Japanese media are speculating that car maker Toyota may be about to announce its first operating loss in 71 years.

Output slashed

Japanese exports fell sharply to all areas but those to the US were worst-hit, plunging 33.8% - also a record drop.

Shipments to the European Union were down 30.8% while those to China fell 24.5%, the biggest fall since 1995, said Reuters news agency.

Exports to the rest of Asia declined 26.7%.

Imports were also down - 14.4% overall - due in part to lower oil prices.

Car makers such as Honda and Toyota have cut their output and their profit forecasts in an effort to cope with the decline in demand.

Toyota is due to announce its next profit forecast on Monday.

Some Japanese media have been speculating that the firm could be about to announce its first operating loss in 71 years. Other media say it may post a small profit.

Japan's economy - the world's second-largest after the US - has slipped into its first recession in seven years after two quarters of negative growth in a row.

The government has forecast zero growth in the year ending March 2010.

No more zombie banks!

[c1ue]

Re: Japan: sees record drop in exports

As I noted in my trip report: 50% drop in exports in 6 months.

Halfway there...

[The Outback Oracle]

Re: Japan: sees record drop in exports

c1ue et al (all the cluey blokes!)

What is likely to be the effect of a major decline in Japan's surplus (and possibly even a deficit)?
Now I can see the US is likely to be running much less of a deficit. So that's quite a few dollars not leaving the US. At the same time there are a lot of dollars now not going to be coming in from Japan.
More importantly the direction of the dollars alters. It is now not automatically flowing into Treasuries etc so will there be an immediate effect on liquidity? I can see that dollars retained in the US will add to money there, but I'd guess the effect will be much slower to become apparent.

In Australia's case Japan is a huge source of our financing of our CAD and debt. I'm thinking this turnaround might have massive consequences here. If the flow of Japanese money here ceases (reverses) we're in deep doo-doo. Well we always were, but this might just be the catalyst for a major dislocation.
I hope I have made enough sense to ask the question in a way you can understand!
Cheers

[c1ue]

Re: Japan: sees record drop in exports

Outback,

One consequence I suspect you are seeing already: the individual Japanese are taking advantage of their suddenly strong currency to rush out and buy stuff outside Japan.

Another consequence will be a next stage in moving manufacturing out of Japan - if this present strong trend doesn't reverse in 6 months.

In the meantime, it is very possible that a massive drop in currency account surplus will force the government to finally inflate and reduce the massive savings of the populace as well as reduce relative value of massive public debt.

Why? Because with a sharply reduced currency account surplus - or even a switch to a currency account debt - the inflation is going to start anyway as Japan is going to have to start selling yen to buy foreign commodities and service existing debt.

Which they will be doing anyway to weaken the yen.

Interesting times!

[The Outback Oracle]

Re: Japan: sees record drop in exports

C1ue, yes i see what you are saying there, although trying to reach conclusions about anything seems currently beyond me. I was more interested in how the decreased flow of Yen effects our Economies.
I am really trying to get a handle on our position here in Aus. We have relied very heavily on Japanese savers to keep lending us money so we could consume in the manner to which we have become accustomed. If they run less of a suprplus or a deficit, there is going to be less money for them to be able to lend us or to buy assets here.
For the US, so the Japanese now buy heaps of US Treasuries. As I understand it, they are a major player in keeping the whole system alive. So, if the US Govt doesn't get an automatic feed from Japan (and the ME and China) won't they have to raise interest rates in the US in order to mop up the necessary money they need?
Or am i totally confused ( I feel I am :confused

[GRG55]

Re: Japan: sees record drop in exports

C1ue, yes i see what you are saying there, although trying to reach conclusions about anything seems currently beyond me. I was more interested in how the decreased flow of Yen effects our Economies.
I am really trying to get a handle on our position here in Aus. We have relied very heavily on Japanese savers to keep lending us money so we could consume in the manner to which we have become accustomed. If they run less of a suprplus or a deficit, there is going to be less money for them to be able to lend us or to buy assets here.
For the US, so the Japanese now buy heaps of US Treasuries. As I understand it, they are a major player in keeping the whole system alive. So, if the US Govt doesn't get an automatic feed from Japan (and the ME and China) won't they have to raise interest rates in the US in order to mop up the necessary money they need?
Or am i totally confused ( I feel I am :confused

Australia would appear to have a mini-version of the same problem the USA has, compounded by the fact that the Aussie $ is not the world's reserve currency. Mrs Watanabe, if she didn't cash in her chips promptly, has taken quite a beating on the Aussie/Yen exchange since about mid-2007.

As for the US government, it would appear that there is still ample appetite to shower money down upon it, as the recent auctions of Treasuries show more demand than supply, despite the apparently absurd yields.

[c1ue]

Re: Japan: sees record drop in exports

Outback,

Well, one effect is going to be a continuation of deleveraging.

The carry trade - AUS and NZ were both beneficiaries of this: borrow yen and buy AUS and NZ bonds.

But what I was referring to was not the Mrs. Watanabe playing currency, it was Mr. Japanese Oligarch running out and buying factories, machinery, land, etc.

Quite a different story.

I'd watch to see if there are issues with AUS and NZ being able to continue existing policies to see which way things will swing.

[Sharky]

Re: Japan: sees record drop in exports

Exports were down 26.7% from a year earlier, the ministry said, as a strong yen and the global economic downturn blunt demand for Japanese goods.

But isn't the yen down something like 25% vs. the US dollar? Measured in US dollar terms, I'm not sure the decline is all that much or that demand has been "blunted" to the extent implied.

[D-Mack]

Re: Japan: sees record drop in exports

But isn't the yen down something like 25% vs. the US dollar? Measured in US dollar terms, I'm not sure the decline is all that much or that demand has been "blunted" to the extent implied.

I don't know if it's going to fall to 50, but some think it will

Japan Should Scrap U.S. Debt; Dollar May Plummet, Mikuni Says


By Stanley White and Shigeki Nozawa

Dec. 24 (Bloomberg) -- Japan should write-off its holdings of Treasuries because the U.S. government will struggle to finance increasing debt levels needed to dig the economy out of recession, said Akio Mikuni, president of credit ratings agency Mikuni & Co.

The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy, Mikuni said. Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow elsewhere, Mikuni said.

“It’s difficult for the U.S. to borrow its way out of this problem,” Mikuni, 69, said in an interview with Bloomberg Television broadcast today. “Japan can help by extending debt cancellations.”

The U.S. budget deficit may swell to at least $1 trillion this fiscal year as policy makers flood the country with $8.5 trillion through 23 different programs to combat the worst recession since the Great Depression. Japan is the world’s second-biggest foreign holder of Treasuries after China.

The U.S. government needs to spend on infrastructure to maintain job creation as it will take a long time for banks to recover from $1 trillion in credit-market losses worldwide, Mikuni said. The U.S. also needs to launch public works projects as the Federal Reserve’s interest rate cut to a range of zero to 0.25 percent on Dec. 16. won’t stimulate consumer spending because households are paying down debt, he said.

...

http://www.bloomberg.com/apps/news?p...4Lc&refer=home

[c1ue]

Re: Japan: sees record drop in exports

But isn't the yen down something like 25% vs. the US dollar? Measured in US dollar terms, I'm not sure the decline is all that much or that demand has been "blunted" to the extent implied.

Yes, but note when the fall occurred: it was well into the middle of Q4.

In reality the government statistics derive an average value for the yen vs. dollar for quarterly statistics; thus the fall in yen has NOT YET been fully reflected in trade numbers.

I've already seen a couple of moron internet analysts who proclaim that everything is fine - it is just a currency adjustment.

The good news? Most of exports occurred already earlier this year as the world shipped out America's Christmas overspending.

The bad news? The massive production and job cuts we're seeing in auto manufacturers in Japan is being reflected all across their export economy.

As Fred/EJ noted, the supply cutoff is proceeding apace, but it won't just be retail stores going out of business. And the price increases for anything Japanese will begin as soon as excess inventory is dumped.

[cobben]

Re: Japan: sees record drop in exports

What US Treasury bubble? From a Japanese point of view they may be bottoming out now.

US Treasuries in yen:

http://stockcharts.com/h-sc/ui?s=$DJ...d=p85941746475

[GRG55]

Re: Japan: sees record drop in exports

Yes, but note when the fall occurred: it was well into the middle of Q4.

In reality the government statistics derive an average value for the yen vs. dollar for quarterly statistics; thus the fall in yen has NOT YET been fully reflected in trade numbers.

I've already seen a couple of moron internet analysts who proclaim that everything is fine - it is just a currency adjustment.

The good news? Most of exports occurred already earlier this year as the world shipped out America's Christmas overspending.

The bad news? The massive production and job cuts we're seeing in auto manufacturers in Japan is being reflected all across their export economy.

As Fred/EJ noted, the supply cutoff is proceeding apace, but it won't just be retail stores going out of business. And the price increases for anything Japanese will begin as soon as excess inventory is dumped.

Although there seems "panic on the streets of Tokyo" all of a sudden, the Yen/US$ exchange has been moving in favour of the Yen since mid-year 2007, as the first global credit seize-up [remember the BNP Paribas hedge fund freeze that is often credited as the trigger?] was just getting underway. Then came the bailouts of German landesbanks, the line-ups that made Northern Rock an international household name...

Seems like just yesterday :p

BNP Paribas freezes funds over subprime plunge
Bloomberg News, Reuters

Published: August 9, 2007

PARIS: BNP Paribas, the biggest listed bank in France, froze €1.6 billion, or $2.2 billion, worth of funds Thursday, citing U.S. subprime mortgage sector problems...

[c1ue]

Re: Japan: sees record drop in exports

GRG,

The yen regularly swings 10% against the dollar.

The important rate - however - is the base at which the Japanese companies set their yen/dollar ratios.

Historically it has been 105 - 110 yen/dollar; above is great, below is bad.

While there was some cyclical swing in the summer, it was the recent move well below 100, then well below 95 which indicated to many in Japan that something was different this time.

As the XXX-illionaire told me in the last trip - "This is the second time in my life I've seen yen 95/dollar" - and he's off in Korea as we speak making a market in closed down factory machinery.

Not sure if the strategy will work - but if reindustrialization does happen as an American then yes it will.

[GRG55]

Re: Japan: sees record drop in exports

GRG,

The yen regularly swings 10% against the dollar.

The important rate - however - is the base at which the Japanese companies set their yen/dollar ratios.

Historically it has been 105 - 110 yen/dollar; above is great, below is bad.

While there was some cyclical swing in the summer, it was the recent move well below 100, then well below 95 which indicated to many in Japan that something was different this time.

As the XXX-illionaire told me in the last trip - "This is the second time in my life I've seen yen 95/dollar" - and he's off in Korea as we speak making a market in closed down factory machinery.

Not sure if the strategy will work - but if reindustrialization does happen as an American then yes it will.

Canadian businesses are similar. They've had decades with a US$ exchange rate below 80 cents. When the Loonie went over par to the US$ [eventually getting to $1.10] earlier this year the howls of pain were heard all across the country. Now that the Loonie is back in the 80 cent comfort zone [after the deepest, fastest exchange rate adjustment in history against the US$] everyone is happier.

For now.

[Starving Steve]

Re: Japan: sees record drop in exports

I am not happy with the beaver buck exchange rate nor the policies followed by the Bank of Canada. I think things are run terribly in Canada. The cheap dollar policy is driving-away investment and rewarding incompetent companies such as GM.