business

Japanese companies go on spending spree abroad

31 Comments
By Antoni Slodkowski

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31 Comments
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This is why Japanese corporations need that tax cut and all the govt and BOJ stimulus.

So they can pour more of their money overseas, to provide more investment and jobs for the Chinese, Americans and others. At least the tax cut is compensated by consumers at home, who are being forced to pay higher prices for everything thanks to....shifting of the burden onto them.

Gotta love the policies of Japan's "nationalist" administration.

10 ( +13 / -3 )

NIce! Public debt and taxes have increased and the value of our savings have decreased through monetary expansion just to funnel capital to huge corporation that invest overseas and not domestically, thus doing nothing to support falling wages. It's also likely losses on these investments will be used as tax write-offs and profits earned will find their way to tax havens, which won't help boost government revenues. If this is not a condemnation of Abenomics, what is?

7 ( +10 / -3 )

So this is how Abenomics really works.

I thought it was meant to stimulate growth in Japan, not growth in Australia and other countries..

5 ( +7 / -2 )

Capitalism 101. Money chases higher returns and for Japanese companies that is not here unfortunately. Abe's policies are pure corporate welfare resulting in higher taxes on working people and the further erosion of the domestic economy. Income equality in Japan is soaring under Abe. For the 1% that is great. For the rest, tighten that belt a little more.

10 ( +10 / -0 )

Given the official policy of currency devaluation, excessive government spending, coupled with promises of deregulation that never come to fruition, no one should be surprised when Japanese capital gets with the program and heads to more attractive business environments offshore.

4 ( +5 / -1 )

With shrinking prospects at home and the threat of further yen weakness, Japanese companies are rushing to buy overseas and seem willing to pay top dollar,

Yup, just as predicted. All QE has done for Japan is lower the value of the yen, which has helped export-oriented firms somewhat, but actually cost the domestic economy and consumers, since now prices for all imports are up substantially. And now, even domestic-oriented companies like Japan Post are having to pay "top dollar" for companies overseas, just to keep from shrinking along with the Japanese population. Fine if you've got $5.0 billion to spend like Japan Post, but what about the typical, small domestic-focused company, which make up the vast majority of firms in Japan?

1 ( +3 / -2 )

I guess most people here dont know how business and economic works. It is easy to complain about the situation when you dont understand it. Instead of first critizing and complaining, one should do some self-education. Just a tip..Japan has always been invest a lot abroad. Anyone in the business will tell you that it is right and best things to do in their situation. Why, you ask? Well, that is for you to find out. If you are lazy, I`ll tell you if you ask. Investing a lot abroad does not mean less in your home country. No, I am not defending or taking side. I am here to tell you how it works.

-12 ( +1 / -13 )

This is the same as what they did during the 70's and 80's during the bubble period and look how that worked out 20 years later. Japan has a very strange understanding of what globalisation actually means. It doesn't just mean exporting Japanese goods and buying up international companies. They have to let foreign companies into Japan and make it easier for them to do so. They also have to give up their price fixing practices and join the TPP to encourage spending within Japan. The Toll Holdongs company has been losing money and decreasing in size for over twenty years in Australia. They have just a bought a white elephant.

5 ( +6 / -1 )

no one should be surprised when Japanese capital gets with the program and heads to more attractive business environments offshore

Ummm, Japanese capital does NOT head offshore. Japanese corporations exchange their yen in the foreign exchange market for foreign currencies, which they then play around with in those foreign countries. Somebody else now has the yen, which continues to be in Japan, and likely still stuck in the financial system as dead money doing nothing. Which is of course the whole cause of their problem in the first place.

-1 ( +1 / -2 )

Japanese companies go on spending spree abroad

...and up until yesterday they were selling overseas assets and feeling proud of current account surplus due to weak yen.

-2 ( +0 / -2 )

Japanese capital does NOT head offshore. Japanese corporations exchange their yen in the foreign exchange market for foreign currencies, which they then play around with in those foreign countries.

You have given a pretty decent description of Japanese capital heading offshore. "Play around" in this case meaning, investing in foreign ventures... with capital... they don't get to do so for free.

Somebody else now has the yen, which continues to be in Japan,

... for what that yen is worth, yes. The yen like other currencies has no absolute value, it's a free floating currency, a store of value.

If lots of yen is sold, the available supply of yen goes up, and thus goes down in value. This is part of the masterful Abenomics plan. Once the yen is thoroughly devalued, someone, somewhere is sure to see some value in doing business in Japan, and then Japan will come roaring back. The Abenomics plan appears to be to destroy Japan in order for it to be able to recover. As opposed to reforming Japan to make it attractive, cutting out the destruction step in the middle...

But that is the way they do things in Japan. Meiji revolution. WWII. It takes a big bang to make change happen here. We're about due.

4 ( +4 / -0 )

I think some of the expert commenters here on JT need to realise a very basic economic reality;

'Investing' is the purchase of an 'Asset', not a 'Liability'. Investing abroad, is the purchase of foreign assets, which will yield a return relatively independent of the economic situation in the country purchasing said assets. Meaning, Japan will benefit from the foreign economies, even if their own is not doing so well. This is junior economics 101, and makes perfect sense.

What is more concerning though, is the fact that his is happening enough to notice a trend, meaning that the Japanese businesses are predicting that things are not looking good in the short to mid-term here, and are hedging abroad to prepare for the worst.

2 ( +3 / -1 )

If you want to see how little the yen buys these days, just look at Mytenyen's comment.

3 ( +3 / -0 )

Would it be possible for a country to tell all its citizens for one year to invest their money in foreign currency based indexes, then the following year devalue the country's currency as much as possible, the suddenly everyone would be richer with foreign dividends or capital gains being paid at a better conversion rate. In fact, that is what happened with the weakening yen, suddenly anyone with dollar based shares gained a third or so on their portfolio, just because of the yen weakiening. I hope they do that again, just before i retire, and boost my portfolio by 30% or so. I think most of the politicians are at retirement age in Japan anyway,I'm sure they made a nice tidy increase on their non-yen based retirement funds. In fact, they should do that with the national pension funds, just by a Vanguard S&P 500 index fund with the pension funds, then devalue the currency b 50% or so and live off that. Then we can get by with 40% of the population being retired in 2060.

i'm sure there is something wrong with my simplistic idea, but sounds plausable to me.

0 ( +1 / -1 )

Japanese companies have a terrible record of investing overseas. At least when they buy foreign comapnies. they have done rather better in building manufacturing facilities in the US and EU to circumvent trade restrictions. although typically those facilities also circumvent local labour laws.

0 ( +0 / -0 )

Some very good comments above, especially: warispeace, zurcronium, Harboe, Kaerimashita ...

-1 ( +0 / -1 )

@Harboe; haha, yeah I think that would work. If you can get everyone to agree to stick to the plan...

The main problem with investing overseas, is that if (when) the tides change, there is very little the government can do to influence the foreign economy, so the risk is relatively higher. Like any decent investor, the key lies in diversification of the portfolio, however, which says to me that either this article is a bit sensationalist, and in fact there has not really been anything like the boosted spree it cites and that things are continuing as usual, or the economic professionals of Japan have lost their minds and ignored everything they have learned about basic economics. My money is on the former.

0 ( +1 / -1 )

Investing' is the purchase of an 'Asset', not a 'Liability'. Investing abroad, is the purchase of foreign assets, which will yield a return relatively independent of the economic situation in the country purchasing said assets.

Disagreed, It is always safe to believe and treat any overseas investment as a 'Liability.'

-3 ( +1 / -4 )

some14some; all investment carries risk. As I explained just above, there is more inherent risk in overseas investment. This does not change the purpose of investment, however, and that is to purchase an asset.

I feel you are arguing for the sake of arguing! Haha.

0 ( +1 / -1 )

And it's official. Abe has shot Japan in the collective foot. His master plan of devaluing the yen to support export company growth and increase inflation was with the assumption that companies would just turn all that extra cash they made into increased wages (i.e., loss of profit). But it turns out the companies in question actually understand elementary economics, and so they have invested profits to expand, in this case to the benefit of wage earners abroad. Meanwhile, we pay more taxes, things cost more, and our wages on the international market are about half of what they were two years ago. Abenomics = Epic fail

6 ( +7 / -1 )

Mike Critchley; I like the cut of your jibe, that man! Spot on.

How they thought it was going to end in any other way than this, I have no idea.

Oh hang, yes I do. They are idiots.

1 ( +3 / -2 )

To be honest, if you think about it, it's not so bad investing overseas. It's not bad for any country, and it's not bad for Japan either, specially if you consider what happened after 3/11 disaster. Japan is a highly disaster prone country, so they have to be sure to keep efficent their supply chains also when a major disaster hits. All the world was influenced by the disruption of the supply chains in Japan because of the tsunami. Japan was rather fast to fix their problems, but you should know that also in your American iphones and Korean/Chinese tv there are Japanese parts. This is the globalization. Many Japanese companies invested a lot overseas also because of that experience. It would be better if Japanese companies were able to keep the jobs mainly in Japan, but they learned how this can be dangerous in a country where you have a rather big earthquake almost on a daily basis. Try don't be always so negative about everything Japan does. Maybe sometimes they are not wrong. Also the current demographic condition could have its good reasons. It's not a good thing in the first place for a small country like this being overpopulated, also in case of disaster. Less it's better, in some cases. In future Japan could lose its status of super economic power, but to become more similar to countries like Finland or Sweden. I don't think this is wrong. It's more natural for China, India and the States being a super economic power, not for a small country like Japan, with poor natural resources and a small territory. What Japan made (being the second/third economic power for so many years) is already more than enough, and someway incredible, but with which human cost? His people were and are, in general, too stressed. They need a quieter style of life.

0 ( +1 / -1 )

A lot of misconceptions here. Yes, it would be great for Japan if Japanese companies invested here more, ie CapEx. Thing is, what Japan sells to the world, tends to be large manufactured good, such as cars, power generators, and heavy machinery. Many products must at least be partially built abroad. Hitachi just moved it's rail HQ to the UK. Why? Because in order to win contracts, one must promise production the country. Such as Rail, or power generation.

Also, Japanese companies are just now recovering from the East Asian Financial crisis and the recent recession. Now, with cash on hand, they are, imho smartly making steps in ensure that they have income come from abroad, by engaging in M&A abroad. As the Japanese market is very mature, ie no growth.

Another point is, for instance http://www.just-drinks.com/news/asahi-group-to-buy-pepsi-cola-indobeverages-in-indonesia_id110760.aspx http://www.wsj.com/articles/SB10001424052970203716204577016743059903710 Asai has been going on a buying spree. purchasing Pepsi bottling franchises in East Asia. This can not be donw domestically, as Ready to serve drinks must be produced in the country of consumption. Same with Mizkan buying Prego in the US. These M&A activities, simply can not be done inside of Japan. Japan is still doing what it does best. Making hard to produce machines, such as bullet train nose cones, car parts, electronics, air plane parts and the such domestically.

Simply being mad and blaming Abenomics is not being intellectually honest

0 ( +3 / -3 )

Toll Holdings Limited shareholders are up for a humongous 51% premium, Japan post paid through the nose for Toll. Pension holders will be crying there eyes out. J Corps are clearly not following the gospel according the Abe san. The trickle down has sprung a leak.

1 ( +1 / -0 )

You have given a pretty decent description of Japanese capital heading offshore. "Play around" in this case meaning, investing in foreign ventures... with capital... they don't get to do so for free.

This is not rocket science, unless you have some reason to try really hard to make it that. They are either spending their foreign earnings on new acquisitions or they are exchanging yen in the foreign EXCHANGE market for foreign currency and using the currency they now have on new acquisitions. That means they have EXCHANGED currency with another party meaning the yen they gave up in the EXCHANGE now has a new owner. It hasn't gone anywhere, it hasn't headed offshore, it hasn't "destroyed Japan". Other than possibly affecting the exchange rate, which is what is supposed to happen in a floating exchange rate system, nothing has happened.

1 ( +2 / -1 )

Strategically to invest abroad is right given the surely and steadily shrinking population. However, usually Japanese firms buy at high, high premiums, white elephants with huge problem integrating into its Japanese culture. This was especially true of "white" countries firms. The 1980s were instructional.

1 ( +1 / -0 )

From Wikipedia:

"Toll Holdings Limited is Australia's largest supply chain company, headquartered in Melbourne, Victoria. The company has operations in road, rail, sea, air and warehousing in 55 countries."

I don't think it's garbage, specially strategically, even though her fincancial situation isn't good. But the companies usually buy other companies that are in a difficult position, otherwise they wouldn't need to be bought in the first place.

0 ( +1 / -1 )

Harboe,

Engineering that successfully would be like pulling off the Great Train Robbery. I think such a move would probably inadvertently result in a massive transfer of wealth of the citizens to pro speculators.

TheInterstat,

The main problem with investing overseas, is that if (when) the tides change, there is very little the government can do to influence the foreign economy, so the risk is relatively higher.

I think that really depends what the government where you are resident is doing. Is it rational to trust the government where you reside more than you trust the government of the place (or places) where you consider investing? It's case-by-case, surely. It's a wonderful thing that it is possible to invest overseas, given that all governments are capable of doing crazy things.

At the end of the day there is a risk-reward trade-off for any investment (including the default position of putting money in the bank), and the make up of the risk of each option differs.

Guy_Jean_Dailleult,

That means they have EXCHANGED currency with another party meaning the yen they gave up in the EXCHANGE now has a new owner. It hasn't gone anywhere, it hasn't headed offshore,

Yes, the currency hasn't gone anywhere. But the capital that was held within that currency has, which is what capital heading offshore means.

You are of course right that 7,000,000,000,000 yen (however many trillions it is) is still "7,000,000,000,000" yen after these transactions, and not a "single yen" less, but it's not the number of zeroes that actually matters.

it hasn't "destroyed Japan". Other than possibly affecting the exchange rate, which is what is supposed to happen in a floating exchange rate system, nothing has happened.

Well, take a look at Venezuela and Argentina. Seeking to devaluing one's currency, as is the main pillar of Abenomics, is not a one-way road to prosperity. That said, at the moment the Japanese government appears to like the yen about where it is, so I expect them to try to engineer things such that the rate stabilises around here, for the time being.

But I don't think they'll be successful in the mid-to-long term, and these companies moving their capital offshore are behaving rationally in that respect.

1 ( +1 / -0 )

The dollar was kept artificially low for so many years, while the Yen and the Euro were absurdly high. I think the things are more balanced now.

-1 ( +1 / -2 )

@Alex80

The US has floated the dollar since 1971. I imagine all your claims about it being artificially low are due to things that any country has the right to do, like print more money.

2 ( +3 / -1 )

I see the day coming when the Japanese will be speaking Chinese and acting as a Chinese vassal state!

0 ( +1 / -1 )

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