With world markets in turmoil, investors are flocking to buy the yen, but it is no vote of confidence in Japan’s economy, which faces several quarters of stagnation or recession, analysts say.
It was not so long ago that Asia’s largest economy seemed relatively unscathed by the financial crisis rocking the US and Europe, as Japanese banks snapped up stakes in ailing Wall Street giants.
But after the Nikkei plunged 24 percent in just five days, the worst weekly performance in its 50-year history, Japan has been shaken out of its complacency.
“Japan’s economy is now in recession and internal sources of growth have been exhausted,” RBS Securities analysts said.
“Capital spending is being depressed by declining earnings. Consumption is also feeling the one-two punch of depressed company earnings, which hurt bonuses, and also the impact of falling real wages,” they said.
On Friday the crisis brought down the first Japanese financial institution as Yamato Life Insurance went bust with debts of US$2.7 billion.
YEN UNDER PRESSURE
The stock market plunge has become a vicious circle for Japan, sending the yen soaring which in turn drives shares even lower because of the negative impact of a stronger currency on exporter earnings.
Toyota Motor, for example, loses ¥35 billion (US$350 million) for every ¥1 the dollar goes down, analysts say.
The greenback has lost about ¥8 over the past week alone, falling below ¥100 for the first time in six months as people dumped risky investments funded with cheap Japanese credit.
Upward pressure on the yen is likely to remain, at least until the end of the year, Royal Bank of Scotland forex strategist Masafumi Yamamoto said.
Unless markets respond positively to steps by governments to try to ease the crisis, the US dollar could fall towards its March low of ¥95, he said.
They was no sign of a bottom to the collapsing Tokyo stock market on Friday as the Nikkei plunged 9.62 percent — its biggest one-day loss since “Black Monday” in October 1987.
TOUGH BLOW
The financial turmoil and global economic slowdown is a heavy blow for Japan’s economy, which has relied heavily on exports to drive its recovery from a slump stretching back more than a decade, analysts said.
It is even possible that Japan’s economy will shrink this year as a whole, said Taro Saito, senior economist at NLI Research Institute.
“That was unthinkable a while ago,” he said.
The global economic slowdown is reducing overseas demand for Japanese cars, electronics and other goods. Japanese consumers, too, are likely to think twice about buying that new car or TV given the uncertain outlook for the economy and the jobs markets. Companies are also less likely to make big investments given the outlook.
Japan’s economy suffered its worst contraction in seven years in the second quarter of this year and recent economic data has offered little hope of a recovery any time soon.
Morgan Stanley economists warned Japan faces five consecutive quarters of zero or negative growth, while Japanese companies could suffer two straight years of double-digit profit declines.
LONG RECESSIONS
Recessions here have lasted 16 months on average since the end of World War II but steep cuts in industrial production mean “a more severe recession is inevitable this time,” the economists warned.
Unlike central banks elsewhere in the world, the Bank of Japan (BoJ) has little room to reduce interest rates to pump up the economy. At 0.5 percent, Japanese rates are already the lowest of the major economies.
“We believe that the BoJ can do little in the current crisis other than providing liquidity to the money markets to maintain financial markets stability,” UBS economists said.
“Expectations of a global recession, triggered by the global financial turmoil, should delay the recovery of Japan’s economy,” they said.
STRONG INTEREST: Analysts have pointed to optimism in TSMC’s growth prospects in the artificial intelligence era as the cause of the rising number of shareholders The number of people holding shares of chipmaker Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) hit a new high last week despite a decline in its stock price, the Taiwan Depository and Clearing Corp (TDCC, 台灣集保) said. The number of TSMC shareholders rose to 2.46 million as of Friday, up 75,536 from a week earlier, TDCC data showed. The stock price fell 1.34 percent during the same week to close at NT$1,840 (US$57.55). The decline in TSMC’s share price resulted from volatility in global tech stocks, driven by rising international crude oil prices as the war against Iran continues. Dealers said
PRICE HIKES: The war in the Middle East would not significantly disrupt supply in the short term, but semiconductor companies are facing price surges for materials Taiwan’s semiconductor companies are not facing imminent supply disruptions of essential chemicals or raw materials due to the war in the Middle East, but surges in material costs loom large, industry association SEMI Taiwan said yesterday. The association’s comments came amid growing concerns that supplies of helium and other key raw materials used in semiconductor production could become a choke point after Qatar shut down its liquefied natural gas (LNG) production and helium output earlier this month due to the conflict. Qatar is the second-largest LNG supplier in the world and accounts for about 33 percent of global helium output. Helium is
Taiwan’s natural gas supply remains stable through the end of May, despite rising concerns about potential disruptions to Qatari liquefied natural gas (LNG) supplies due to escalating conflicts in the Middle East, the Ministry of Economic Affairs said yesterday. The ministry in a statement said that Taiwan has completed preparations for natural gas supply and shipping schedules through the end of May. It has also made plans to increase natural gas imports from regions outside the Middle East in June to ensure a stable supply, it added. Taiwan sources natural gas from 14 countries and is not solely dependent on the Middle East,
China is clamping down on fertilizer exports to protect its domestic market, industry sources said, putting an additional strain on global markets that were already grappling with shortages caused by the US-Israeli war on Iran. China is among the largest fertilizer exporters — shipping more than US$13 billion of it last year — and it has a history of controlling exports to keep prices low for farmers. Shipments through the war-blocked Strait of Hormuz account for about one-third of the sea-borne supply. This month, Beijing banned exports of nitrogen-potassium fertilizer blends and certain phosphate varieties, sources said. The ban, which has not
RSS