i_godzuki

The new Honda Insight, lambasted by Clarkson on Sunday in the ST, is the best selling car in Japan, the first time for a hybrid. Toyota's new Prius has 80,000 preorders in Japan, a record. The point is more, though, that they cut production by more than sales fell in the first quarter, reduced inventories and can now gradually increase output.

This quarter growth may return in Japan. The 1st quarter, awful as it sounds, involved a lot of giant companies stalling production to cut inventories after they were caught out at the end of last year. For instance, carmakers like Toyota, Honda, Nissan and so on were closing factories for days on end. Now, while output is still depressed, they're gradually increasing production again. On top of that, the last quarter was made worse by government dithering over stimulus. The measures are now passed, though, and will start to filter through. Even more important, as China and the U.S start to bottom out, or throw money at stuff, Japan stands to benefit. I think the full year GDP estimate is about -6% or so. Bad, but not the end of the world.

I don't know if anyone mentioned this yet, but the Japan analysis in that article is embarrassingly poor. The rise and recent fall of the Japanese yen has nothing to do with measures by the Japanese government, save its dreadful performance. The yen shot up last year was part carry trade unwinding and part Japan's daft status as a safe haven. It became one of those silly self-fulfilling trends until everyone realised it was silly and since then the yen has come back to downturn to earth. Meanwhile, each time risk premium perceptions fall, the yen weakens a bit more and vice versa. That chap at the Telegraph has form on Japan. About a year ago he wrote a scaremongering and quite wrongheaded piece about Japanese banks hiding subrprime losses based on the suggestion that they hid stuff when Japan's bubble burst. ALl he would have had to do would have checked with any bank analyst in Tokyo to know that it was nonsense. Oh, and anyone who thinks Japan "failed" to deal with its crisis in the 1990s might want to check out Richard Koo's book, which offers an alternative perspective.

In autos, all the Japanese carmakers cut production in Jan and Feb faster than the market falls. The upshot is that inventories are approaching normal levels again. Starting next month, production is expected to increase compared to the Jan-March period, but will still be way down on a year ago--so it's more about being less bad than anywhere approaching healthy. . At Mazda, for example, I read that they had been shutting its Japan plants on Fridays on top of bans on overtime. From next month, they'll reopen two Fridays a month and go to five-day weeks by the summer.

Where in that story does it say Toyota is asking the government for money? It just says carmakers.

I thought it only had one UK factory, in Derbyshire? I heard on the radio they're looking at ways to find new savings, which sounds very Toyota. I'd be shocked if they closed it permanently--with the pound so weak that plant could be quite useful if any when European demand stabilizes.

Not really. Investors are criticising Japan's exporters for making too much in Japan and not outsourcing enough. Canon, for instance, makes over half of its products by value in Japan as does Sony. Incidentally, most big Japanese electronics makers had been opening new plants in Japan, especially battery plants. What they have been doing is using more Asia made parts in their products but that's not the same thing. I'd argue the problem with Japanese electronics brands is there are too many of them and they make too much. Panasonic, for instance, still makes bicycles (some of them are bloody good ones, mind) as does Sanyo. I don't get Sony, though. It's as if they don't know what they want to be. It's the same with cars. Toyota makes about half of its cars in Japan (in normal times). One of the reasons Toyota have tapped the family scion as the next President is believed to be because he will have the backing to make tough decisions such as closing domestic factories. On a different theme, today's export number is terrible but it's made worse because the automakers have massive cut production between Jan and March to clear inventories. For instance, they have had lots of non-production days. After April production, while still far off full capacity, is expected to rise a bit. Also, January is occasionally a trade deficit month even in better times, I think,. I guess this is because factories always close down for a week over New Year.

They haven't had a 20 year recession. Until the recent recession slowdown Japan had its longest unbroken economic expansion since World War Two. Just because there was no housing boom it doesn't mean they were in recession. Their problem now is they are too dependent on exports and in two key sectors.

I'm not sure all of these are bad things. Reasonable hotels, cheap restaurants (but often with decent food and good service) sound good to me. Lift attendants predate the recession--it's more a function of Japan's obsession with customer service. Agree about the baton wavers, though.

I'm a bit closer in: Shimokitazawa.

I really doubt this. While China is undoubtedly going to make better and better cars, it still has a long way to go. In particular, environment technologies are likely to define the car industry which should give Japan an edge for quite a while longer, especially as they also lead in the all-important area of batteries. (BYD Auto&'s new hybrid is interesting, mind). Incidentally, I live on the Odakyu-sen (well, near it).

When swapping into pounds, though, you have to bear in mind that the pound has halved against the yen in the last year or so. In Aug 2007, it would have been 111k, 175.5k and 275.5k.

I own and live in a house in Tokyo, bought in 2006. No one really thinks about house prices here because the house depreciates quickly, partly because they usually get completely rebuilt every 30 years or so. Hence the focus on land prices. In my case, I bought it because (a) after 16 years of declines, prices seem to be bottoming out. Since then they rose a bit and are now falling. ( because I could get a fixed rate mortgage for 20 years at 3%. And © because the rent of my previous place which was just over half the size was 80% of my mortgage repayment. That doesn't take into account that renters have to pay a 13th month of rent every two years, while home owners get a tax rebate each year. In my case, the rebate so far has equal to six weeks worth of mortgage repayment. Renting also includes paying about six months rent up front, much of which is lost for ever. In other words, if you don't expect appreciation but want more space for your money, buying in Japan can make sense. That said the recent appartment mini-boom was quite daft.

Apologies, it's late here and I just got back from drinks with a chap from Mitsubishi UFJ, who seemed bullish (about 2010!). The merger in 2003 was between Sumitomo and Wakashio Bank. Apparently, it wiped out a lot of stock losses (I don't know the details, though)/

To be fair to BusinessWeek (not sure why). they had a cover story warning about toxic mortgages (the ARM stuff) a good six months or more before subprime broke. Edit: in fact, it was one year before in Sept. 2006: See here

Interesting stuff, although those yields are from 1992 not today. As you can see here yields today are far smaller than ten or 15 years ago. On the hidden losses, according to this Nikkei story, SMFG is the weakest of the three mega banks and its breakeven point for stockholdings is 7,500 with MUFG and Mizuho at slightly above 8,000. Today, the Nikkei closed just above 8,000. I don't know anything about the pko stuff so can't really comment on that so that might not be robust enough. Of course, Japan's banks today are very different from the ones of a decade ago. SMFG, for instance, wiped out a lot of its stock holding losses when it merged in 2003.

No one disagrees about the government debt problem, but how do you work it it's a problem of the banking system? When Koizumi was in power, one of the things his team instructed was that the Japanese banks slash their bad debt ratios, which they did. This followed the government taking stakes in banks directly and making loans, which in most cases (at least for the big banks) were repaid in full a couple of years ago. Since then they've been quietly accumulating capital to the point where they normally generate too much and have been looking for deals overseas. That led to Mizuho investing in Barclays (hmm!) and Mitsubishi UFJ buying a big chunk of Morgan Stanley and acquiring the stock it didn't own in Union Bank of California. However, what they didn't do, was shed all the stakes they had in companies. After all, crossholdings remain common in Japan--not least as a means of avoiding takeovers. So far, during the current crisis, no major Japanese bank has received been bailed out or sought funding due to bad debts. But when the Nikkei plunged below 10,000 it started to get pretty hairy for all those equity holdings. Now, what the government does with its debt is a huge problem, given its 170% of GDP. However, by the time Britain's through the current bout of bailout fever, who knows where it will be--but without the personal savings. Japan's problem right now isn't indebtedness--it's the world's second biggest creditor nation--but how to cope with the collapse in global demand. Those stimulus packages in the U.S. and China (Japan's number one trade partner) can't come fast enough. Finally, where do you get those 5%-6% yields in Japan? According to this yields on ten year bonds are about 1.9%. In real terms, even if deflation comes back, that's not so high. It could be I'm looking at the wrong thing, though.

Presumably from reserves--it's only $11 billion. Japan's govt debt already is huge, but we knew that already. It's one reason why the govt has been slow to add more fiscal stimulus, although I think the political problems, such as the DPJ controlling the Upper House and PM Aso having a 19% rating, are a bigger factor. Japan's companies have spent the last decade cutting debt and building up cash. Of course, that won't last for ever, but there is no debt problem right now. There's a bloody big external (and internal) demand problem, mind.

Why does this suggest there is a debt bubble? The problem is that Japan's banks still own a lot of stocks. As the stock market has plunged, they have to re-value these stocks, which means they post losses when they book their results and have a reduced ability to lend. Hence the BOJ stepping in. It's not a debt issue, or am I missing something?

Japan is considered safe because its banks largely avoided subprime and other toxic assets. Of the mega banks, only Mizuho had big subprime write downs (about $6bn) On top of that, Japanese companies, while hurting, have relatively low debt levels and plenty of cash. And there was no housing bubble in Japan. The other reason is the reversal of the carry trade. The money borrowed in yen, has to be repatriated. Given the yen is up about 30% against the dollar in the last year, and has doubled in value against the pound in 18 months, maybe it's the latest bubble....

If i had pounds I wouldn't be buying yen now. This week the yen reached a record high against the pound. Perhaps more important, many Japan watchers have been saying if the yen gets to 85 to the dollar, the BOJ will step in. It's 88 now. Of course, it might not work, but on balance it's tough to see the yen getting a lot stronger in a hurry.

Yes, so far Japan has shed 85,000 temporary workers. Doubtless it will get worse before it gets better. On other hand, it has a stable financial system and companies with low debt levels and plenty of cash. Looking on the bright side, Britain is now 50% cheaper than a year and a half ago for Japanese tourists...

Of course, it already almost did against the yen. The pound peaked against the yen at about 250 around June 2007. Today, it's at 130 so just five more yen to go...

Japan still relies on the U.S. for a lot of its export sales, but it's far less than it used to be. China is now Japan's biggest trade partner, for instance. Meanwhile, last week I was in Indonesia and about 90% of car sales there, I was told, are Japanese. It certainly seemed that way--everyone seemed to be in a Toyota, Suzuki or Honda. Those that didn't have cars were riding Japanese motorbikes. Also, while there have been a lot of layoffs in Japan, it needs putting in perspective. Nearly all the lay offs have been temporary workers. That's tough for them but if and when things get really bad regular employees will go too. So far, unemployment has increased from 3.7% to 3.9%. Overseas, cash rich Japanese companies are spending big on M&A, which I think doubled this year for outbound deals from Japan. That said, it's pretty clear the news from Tokyo will get worse before it gets better.

Actually, they worked pretty well in Japan last time. It was just a shame it took them years to do it in the first place. However, when they got repaid, the government made a rather large profit. That said, this time around it seems unnecessary given Japan's banks are in relatively good condition having not gotten into the subprime makarky (with some exceptions).