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Japan Companies to Keep Up Foreign M&A Even After Yen Drop: JBIC

JBIC Governor Hiroshi Watanabe
Hiroshi Watanabe, governor of the Japan Bank for International Cooperation (JBIC). Photographer Junko Kimura/Bloomberg

Jan. 17 (Bloomberg) -- Japanese companies will brave the yen’s drop to a five-year low against the dollar and invest in foreign businesses to seek growth overseas, said a former top currency official.

The dollar around 100 yen isn’t expensive for Japanese businesses that need to make overseas acquisitions as they seek to expand in foreign markets and diversify their operations, Hiroshi Watanabe, governor of Japan Bank for International Cooperation, said in a Jan. 15 interview.

“I don’t get a sense that a weak yen is damping merger-and-acquisition activities. At the root is the fact that developing overseas business operations remains a lifeline for Japanese companies,” Watanabe said. Foreign-exchange rates are “irrelevant” to their need to tap overseas growth and diversify, he said.

Suntory Holdings Ltd.’s purchase of whiskey maker Beam Inc. for $16 billion including debt showed Japanese companies remain on the hunt for foreign targets after the value of Japan’s outbound M&A deals tumbled to about $46 billion last year from $113.5 billion in 2012, according to data compiled by Bloomberg News. The flow of money out of Japan adds downward pressure on the yen, helping exporters as the country deals with a current-account deficit that expanded to a record in November.

The yen was mostly unchanged at 104.33 per dollar at 1:17 p.m. in Tokyo, after touching a five-year low of 105.44 on Jan. 2. The Japanese currency has weakened about 28 percent from a record high of 75.35 on Oct. 31 2011, pressured by Prime Minister Shinzo Abe’s reflationary policies and unprecedented easing by the Bank of Japan.

Gas Fields

“Each country’s economic conditions will determine where and when the dollar/yen settles between 110-130 yen in the long run,” Watanabe said.

Watanabe, who was in charge of foreign exchange policy at the Ministry of Finance from 2004 to 2007, said demand for long-term financing for business centers and production facilities overseas will likely grow.

As Japan needs to diversify its energy supply, Watanabe said he saw investment opportunities for Japanese companies in gas fields in Australia and in shale gas in the U.S.

Japan’s foreign direct investment, which includes mergers and acquisitions, reached 11.5 trillion yen ($110 billion) in the 11-month period through November, approaching the record 13.2 trillion yen in 2008, according to finance ministry data. The figure, which reflects when transactions are made, exceeded 9.78 trillion yen for 2012.

Japan’s current-account deficit widened to a record 592.8 billion yen in November as the weak yen pushed up the cost of energy imports, finance ministry data showed this week.

The government-owned JBIC provides financial support for projects that promote overseas development and procurement of resources for Japan.

To contact the reporters on this story: Chikako Mogi in Tokyo at cmogi@bloomberg.net; Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net; Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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