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Japan's Rebound Brings Opportunities and Challenges


With just over four months since the March 11th devastating earthquake and tsunami, Japan has been seen as a model of deep-rooted economic strength and solid foundations upon which a dramatically rapid recovery has been built (see this Japanese supply chain review from Financial Times).

Amazingly, and understandably with some jealousy likely held from the US and EU, Japan has been able to quickly rebound from severe economic blows levied by the natural disasters followed by the still lingering power supply problems due to the ongoing Fukushima Daiichi  nuclear plant issues. 

With a strong Japanese yen currently, and in light of the problems due to lack of geographic diversity of Japanese companies, a new wave of mergers and acquisitions (M&A) has been heating up (see this report on some Japanese M&A activities).  The strong yen has allowed for greater purchasing power for Japanese companies, and with weakened, mature economies coupled with investment opportunities in expanding, emerging economies, the time is ripe for Japanese business expansion.  This M&A trend is also bi-directional, and Japan has recently been warming to increased Chinese investment in Japan, with Panasonic selling Sanyo to Haier, a Chinese household goods company, for example (see more here from Financial Times).

Japan has also recently experienced a trade surplus for the first time since the natural disasters, albeit a narrow one but well above the forecasted deficit for this period (see this report from Financial Times). What this surplus underscores is the validity in the rebound reports for the Japanese manufacturing and exporting sectors post-disaster.  Coupling this positive domestic economic news with the unveiling of a Y19,000 billion plan for restructuring over the next five years, the forecast is for continued positive momentum in Japan.

This good news, however, poses some problems also.  With the strong yen and the weakened US dollar and Euro, there is a new problem arising, too strong of a yen (see this report from The Wall Street Journal).  As the yen continues to rise to highs, revenue pressure is exerted on Japanese profits which trickles down to a disfavoring of Japanese export goods (too costly after currency exchange), Japanese domestic spending problems arise, and a threat exists to the positive manufacturing momentum, particularly for automotive and semiconductor industries (see this report about Sony, for example).  As a result, there are impending plans for government intervention by Japan to lower the value of the yen on the currency markets.  The yen has risen sharply because it is presently a global currency safe haven from the US dollar and Euro.

Meanwhile, the ongoing sovereign debt and economic uncertainties in the US and EU continue to put pressure on industries, and the wider tech sectors are feeling the downward pressure (see this report on Asian equities from Financial Times).

For Japan, there is consensus that they are on track to continue a V-shaped recovery that will hit the return point in 2012 (see a company example here).  Japanese companies are reinvigorated economically and as they look forward to meet new solar and renewable power plans due to the waning of nuclear reliance, per the Japanese government's plans.  Additionally, Japan is in a good economic and geographic position to gain from supporting the emerging economies' rise (see this latest report on India) which further adds to renewed growth domestically (see, for example, this market report and this company news on solar opportunities; new component (power semis) opportunities emerging here; remarkable rebound by Renesas here; but ongoing trouble for Toshiba due to NAND markets here).

It is still a bit of a bumpy ride for Japan, but all forecasts point to a much more stable, reliable and positive rebound by 2012 than some other mature global economies right now.  Japan has certainly come a very long way in a short amount of time, a testament to the business and government sectors working togethe; particularly the cooperation seen along the extended semiconductor value chain.

Lisa Ann Cairns, Ph.D.
Written on Tuesday, 02 August 2011 13:43 by Lisa Ann Cairns, Ph.D.

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