WHAT would the people of a nation heavily reliant on exports think when their currency appreciates nearly 20% against the primary global reserve currency due to factors outside their control? The following are the thoughts of newspaperman Tamura Hideo in an excerpt from a post on his blog.
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With the rise in the yen, companies are cutting export prices to maintain export volume. A look at the statistical data shows that export prices for September had fallen 6.7% from those of two years ago. In contrast, prices for imports have risen by 14.3% due to the soaring cost of energy resources. The yen has appreciated by 19% against the American dollar during this period.
Though export prices have to be raised to compensate for the combination of yen appreciation and higher import costs, they are instead being reduced. The big companies are of course squeezing personnel costs and reducing the unit procurement prices from SMBEs, microenterprises, and parts and materials manufacturers. Many of those involved are being forced to make sacrifices and losing the income they normally should have received. In 2010, the aggregate value of Japan’s exports was about 64 trillion yen. In this writer’s view, at least 10 trillion yen of private sector income — an amount corresponding to more than the 5% consumption tax — was sent overseas as a gift.
According to statistics for the international balance of accounts, Japan’s overseas investment balance (the difference resulting from subtracting investment income taken out of the country from investment income from overseas) was JPY 11.7022 trillion last year, and JPY 7.2764 trillion in the first half of this year. Both of those totals are more than double the trade surplus. For that reason, some people think Japan has become a mature creditor nation in the manner of the British Empire more than a century ago. That is a serious misconception.
Japan’s overseas investments are rising every year, but the earnings from those investments, such as dividends and interest, have continued to fall from a peak of JPY 23.5 trillion yen in 2007. That’s because the instant the earnings from dollars or other local currencies are put on the books in Japan, they have been shrunk by the amount of yen appreciation.
Japan’s net overseas assets as of the end of June were more than JPY 260.3780 trillion — the highest in the world. The fruit from that overseas investment would seem to be a reliable source of income, but that is reduced by the high yen.
If the exchange rate levels had remained the same as in 2007, the overseas net assets at the end of 2010 would have been more than JPY 100 trillion higher than the JPY 251 trillion as shown in Finance Ministry statistics. Investment income would have risen by about 40%.
When Great Britain in the days of the empire was on the gold standard, its colony in India was on the silver standard. When the liabilities for imports from India skyrocketed, the British wrote off those liabilities by causing the value of silver to rise against that of gold. The British liabilities to India were paid off in government-issued securities, and fees were earned when these securities were traded in the London market.
Today’s Japan, which is unable to compete in its own currency, is dependent upon the Empire of the Dollar. The country it resembles is not the Great Britain of more than a century ago, but India.
(end translation)
On background: 5 October, from Bloomberg.
Japan’s three biggest banks received a combined $43 billion credit line from the government to help finance domestic companies’ overseas takeovers as businesses seek to counter the strong yen…
…The yen, which has gained against the dollar as a haven amid concerns the European debt crisis will worsen, traded at 76.73 per dollar as of 3:57 p.m. in Tokyo.
Katsunori Nagayasu, head of the Japanese Bankers Association, said last month that persistent gains in the yen might push companies to shift production and research abroad to control currency-related costs.
Japanese companies have announced overseas takeovers totaling $56.7 billion so far this year, the highest in three years, according to data compiled by Bloomberg.
The Bank of Japan sold off yen yesterday to push the yen back to roughly 79 to the dollar from 75 to the dollar, but few people in Japan expect that to last.
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