Kan's Stimulus Plan May Fail to Offset Impact of Rising Yen
Naoto Kan, Japan's prime minister. Photographer: Tomohiro Ohsumi/Bloomberg
Aug. 31 (Bloomberg) -- Thomas Harr, Singapore-based Asia foreign-exchange strategy head at Standard Chartered Plc, talks about Japan's attempts to stem gains in the yen. Bank of Japan Governor Masaaki Shirakawa and his board expanded a bank-loan program by 10 trillion yen ($118 billion) after an emergency meeting yesterday in the wake of the yen reaching a 15-year high. Harr also discusses the outlook for the Japanese and U.S. economies. He speaks with Linzie Janis on Bloomberg Television's "Global Connection." (Source: Bloomberg)
Aug. 30 (Bloomberg) -- Sean Callow, a senior foreign-exchange strategist in Sydney at Westpac Banking Corp., talks about the outlook for the yen. The yen pared its loss against the dollar on speculation the Bank of Japan’s decision to introduce more credit-easing measures won’t be enough to weaken the Japanese currency from near a 15-year high. Callow talks with Linzie Janis on Bloomberg Television's "Global Connection." (Source: Bloomberg)
Aug. 30 (Bloomberg) -- Naomi Fink, a Japan strategist at Bank of Tokyo-Mitsubishi UFJ Ltd., talks about the value of the yen. The Bank of Japan held an emergency board meeting today as the yen’s surge to a 15-year high forces policy makers to find ways to support the nation’s slowing expansion. Fink speaks from Tokyo with Rishaad Salamat on Bloomberg Television. (Source: Bloomberg)
Japanese Prime Minister Naoto Kan’s economic stimulus plan may fail to support the nation’s economic expansion as the yen’s surge to a 15-year high forces exporters to move production abroad.
Stimulus measures should be coupled with effective steps to weaken the yen, Katsuichi Shimizu, a managing director at Canon Inc., the world’s biggest camera maker, said in Tokyo yesterday. The government should also heed calls from the Keidanren, Japan’s biggest business lobby, to stimulate investment by cutting corporate taxes, said Naoki Iizuka, a senior economist at Mizuho Securities Co. in Tokyo.
“Japan will hollow out otherwise, as Japanese companies have enough cash to shift their production abroad to reduce the impact from currency fluctuations,” Iizuka said. “The package won’t be enough to spur the economy, and it will only work to help halt the further slide.”
The government will spend 920 billion yen ($10.9 billion) on the stimulus package, Kan said yesterday, adding that the details will be completed by Sept. 10. The yen rose against the dollar after the Bank of Japan’s expanded a bank loan program by 10 trillion yen, falling short of expectations it would unveil more steps, such as buying Japanese government debt, to support the economic recovery.
Exporter Profits
The stronger yen erodes profit at exporters, which have led Japan’s recovery from last year’s global recession.
“It’s dragging down companies like Canon that rely on orders from outside Japan,” said Shimizu, whose Tokyo-based company got 78 percent of sales outside the country last year.
The yen traded at 84.13 per dollar at 7:41 a.m. in London from 84.62 in New York yesterday. It has strengthened 2.7 percent against the greenback since July 31.
The Nikkei 225 Stock Average fell to the lowest level since April 2009. The benchmark dropped 3.6 percent to 8824.06 today, extending its decline to 16 percent this year.
Japan’s trade ministry conducted a survey of 200 companies of all sectors and sizes regarding the impact from a stronger yen between Aug. 11 and Aug. 24. Should the yen stay at 85 per dollar, 39 percent of manufacturers will move factories and development centers abroad, and 61 percent said they will expand overseas production, according to the poll, released Aug. 27.
Nissan, Panasonic
Nissan Motor Co., Japan’s third-largest automaker, began selling a Thai-made March compact car in July to counter the rising yen. Panasonic Corp., the maker of Viera televisions, said Aug. 20 it will move part of its plasma display panel production to Shanghai.
“The number one priority is to curb the strengthening yen,” Toshiyuki Shiga, chief operating officer of Nissan, said yesterday. “We hope that the government measures will lead to growth in employment.”
Japanese automakers already plan to produce fewer cars in the coming months as government subsidies for fuel-efficient cars will end in September.
“We are not sure we can expect much more support,” said Takumi Oue, a spokesman for the Japan Automobile Manufacturers Association. “We understand that there are budget constraints.”
Lower domestic production will threaten the survival of subcontractors like Kato-Kenma Co., a grinding processing company in Tokyo, the company’s president Yoshihiro Kato said.
“If large manufacturers move outside Japan, we will lose our jobs and it will be a matter of life and death,” Kato said in an interview on Aug. 27. “We want the government to think about the yen.”
Tax Changes
Mizuho’s Iizuka said the government should provide tax breaks on capital spending in Japan for the next two years and cut corporate taxes by 5 percent a year for two years after the capital spending program expires.
The Keidanren business lobby asked the government to lower corporate taxes by at least 5 percent at a hearing on tax reform for next fiscal year, Yoshiharu Obata, a senior manager of the group’s business infrastructure bureau, said Aug. 3.
Japan’s corporate tax rate was about 40 percent as of January, compared with 25 percent in China and 24 percent in South Korea, according to Japan’s finance ministry.
“The government should step into areas regarded as taboo, including reforming corporate taxes,” said Eisuke Nagatomo, president of consultant En-Associates Co. and an affiliate professor at Waseda University Graduate School in Tokyo. “We need measures to create new value by thinking outside the box.”
To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net
Rate this Page