Industrial Output Gains as Stronger Yen Fails to Discourage Investment
Aug. 31 (Bloomberg) -- Yasuhiro Matsumoto, a senior credit analyst at Shinsei Securities Co. in Tokyo, talks about the impact of a strong yen on the Japanese economy. Japan’s industrial production unexpectedly advanced in July, evidence that the yen’s climb to a 15-year high has yet to discourage companies from increasing output. Matsumoto also discusses the currency's impact on Japan's automakers. Matsumoto speaks with Rishaad Salamat on Bloomberg Television. (Source: Bloomberg)
Aug. 30 (Bloomberg) -- Frederic Neumann, a Hong Kong-based economist at HSBC Holdings Plc, talks about the Bank of Japan's expansion of its bank-loan program and its implications for the yen and the nation's economy. The BOJ will boost the amount of funds in the facility by 10 trillion yen ($116 billion) to a total of 30 trillion, the bank said in a statement after an emergency meeting in Tokyo. Neumann also discusses Federal Reserve monetary policy. He talks with Linzie Janis on Bloomberg Television's "Global Connection." (Source: Bloomberg)
Japan’s industrial production and retail sales recouped losses in July, rebounds that weren’t strong enough to dispel investor concern that the nation’s expansion is slowing.
Factory output rose 0.3 percent from June, the Trade Ministry said in Tokyo today, after declining 1.1 percent in June. Retail sales advanced for a second month on a seasonally adjusted basis, extending a rebound after dropping at the fastest pace in five years in May.
The Nikkei 225 Stock Average fell for the first time in four days as smaller-than-estimated growth in personal incomes in the U.S. heightened concern the global recovery may stall. Policy stimulus pledged by the Bank of Japan and Prime Minister Naoto Kan yesterday may not be enough to bolster growth in an economy threatened by a currency near a 15-year high.
“Investors are still disappointed with the measures that came out of the BOJ and government yesterday,” said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG in Tokyo and a former BOJ official. “Japan may face greater downside risks in September or October as the global slowdown becomes more apparent.”
The median estimate of 27 economists surveyed by Bloomberg News was for production to decline 0.2 percent. From a year earlier, retail sales gained 3.9 percent, the seventh monthly advance. Wages rose 1.3 percent from a year earlier, a separate report from the Labor Ministry showed today.
Nikkei Slides
The Nikkei fell 2.6 percent today to 8,912.33 at the morning close of trading and the yen traded at 84.46 from 84.60 before the reports were released.
The central bank bolstered a credit program yesterday and Kan pledged 920 billion yen ($11 billion) in fresh stimulus to help protect the economy from slower growth and fallout from an appreciating currency.
“Even if we see better-than-expected Japanese economic data, stock and currency markets are focusing on the U.S. and China,” said Norio Miyagawa, senior economist at Mizuho Securities Research and Consulting Co. in Tokyo. “There’s no change in the fact that the future of Japan’s economy depends on overseas demand.”
Consumer demand at home has also been propped up by the hotter-than-usual summer, according to economist Azusa Kato at BNP Paribas in Tokyo. Convenience-store operator Lawson Inc. said sales at existing stores rose 0.4 percent in July after declining the previous month, driven by sales of ice cream and beverages.
Heat Boosts Sales
July’s temperature in the Kanto region, which includes Tokyo, was 2 degrees Celsius higher than the historical average, according to the Meteorological Agency.
Economists said companies will start cutting output as demand slows amid slower expansions in China and the U.S., Japan’s largest export destinations. The yen’s advance to its highest level since 1995 against the dollar is threatening earnings of companies from Toyota Motor Corp. to Sony Corp. Japan’s export-fueled rebound is losing steam after gross domestic product expanded at the slowest pace in three quarters.
Government reports this month showed that exports grew at the slowest pace this year in July and machinery orders rose less than economists forecast.
The BOJ will boost the amount of funds in its facility by 10 trillion yen to 30 trillion, the bank said yesterday. Governor Masaaki Shirakawa said in a press briefing that he is ready to take more action if necessary, and cited risks to the bank’s view that the economy will remain on a recovery track.
Currency Climbs
Japan’s currency has climbed against all of its 16 major counterparts in the past month as concern the global recovery will falter boosted demand for the yen as a refuge. Kan said on Aug. 27 that the government is “ready when necessary to take bold measures” in the currency market.
“The headwinds of a stronger yen and slower foreign demand are blowing,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “Companies’ output for foreign demand may slow, weighing on overall production.”
Every one-yen gain in the Japanese currency against the dollar reduces Toyota’s annual operating profit by 30 billion yen, according to the world’s biggest carmaker. Sony, which generates more than 70 percent of revenue outside of Japan, says it loses about 2 billion yen of annual operating profit for each yen gain against the U.S. currency.
Kan unveiled an economic plan yesterday that includes extending incentive programs to buy energy-saving electronic appliances and housing, measures to help graduates to find jobs, and support for small and midsized businesses affected by the yen’s gain. Some of the government’s incentives programs were scheduled to expire this year.
“The recovery in production is running out of steam as exports to Asia are slowing and the effects of the government incentives are waning,” said Naoki Tsuchiyama, a market economist at Mizuho Securities Co. in Tokyo.
To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
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