Is Japan headed towards recession? | Forex Factory

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Is Japan headed towards recession?

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  • Is Japan entering recession?
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  • #1
  • First Post: Mar 8, 2008 11:28pm Mar 8, 2008 11:28pm
Waning demand for exports coupled with a strong JPY and rising commodity prices could be seen as the perfect storm that could bring down an already fragile (export-based) economy in Japan.

1. Is it going to happen, and more importantly to us currency speculators, what might be the implications of that scenario on JPY?

2. It is widely quoted that USD/JPY @ 106.50-60 is the break-even level for Japanese exporters. Now that we are nearing important support at 100.00, well below that level, and not really seeing any reason for the drop to stop, is there anything the Bank of Japan can/should do to avoid recession?

3. If/when the recession begins, will the market release its grip on JPY or will it just continue to buy it as relentlessly since the current insatiable demand for JPY is not really based on economic fundamentals anyway?

4. If the market continues to buy JPY despite a recession, how severe could things get? Imagine USD/JPY @ 80.00 or even lower. It is certainly within the realm of possibility. What might happen to Japan at that point?
  • #2
  • Mar 9, 2008 12:55pm Mar 9, 2008 12:55pm
Quoting fierceman

2. It is widely quoted that USD/JPY @ 106.50-60 is the break-even level for Japanese exporters.
Is it?
Last year I read people quote 114.5 if I remember correctly. Or maybe it was in 2006. These figures seem to always float around. But doesn't both the market as well as currencies always fluctuate?
Also I thought most of the asian tech exports came from any place but Japan for the last 10 years or so? Not that I have any real data sheets on this, but I'd thought that simply by seeing made in Taiwan/China etc instead of Japan plastered all over things might reflect this as well. Then again I don't know how this might still be economically linked up.
Basically what I was saying is where do these 'break even' figures come from and isn't productivity, wage, inflation etc pp just as much or bigger a factor?
Poor ole FX gets the blame
Trust price. Know yourself.
  • #3
  • Mar 9, 2008 7:57pm Mar 9, 2008 7:57pm
great post fierceman! i honestly dont think the BOJ will let the yen appreciate much further, too much havoc is caused for them with a strong yen. they have a history of manipulation and i think we will see more of the same.

as for heading for the big R... GDP is showing no signs of dipping below zero (and certainly not two quarters in a row, which is the actual definition of a recession) at the moment. but if the yen does appreciate more over the coming year then yeah i could see recession on the horizon, but like i said i dont think the BOJ will let that happen. they have the motive and the means to depress the yen, so what would stop them?
Relax and be happy.
  • #4
  • Mar 9, 2008 10:56pm Mar 9, 2008 10:56pm
Quoting merlin
great post fierceman! i honestly dont think the BOJ will let the yen appreciate much further, too much havoc is caused for them with a strong yen. they have a history of manipulation and i think we will see more of the same.

as for heading for the big R... GDP is showing no signs of dipping below zero (and certainly not two quarters in a row, which is the actual definition of a recession) at the moment. but if the yen does appreciate more over the coming year then yeah i could see recession on the horizon, but like i said i dont think the BOJ will let that happen. they have the motive and the means to depress the yen, so what would stop them?
That was exactly my thinking merlin, that's why I posted this now. I think 100.00 would be a good number for the BoJ to defend because of a high likelyhood of other USD/JPY buyers coming into the market at the same point, giving their efforts some wind in their sails (profit taking, short squeezing, actual buying by the market etc.)

On the other hand, I've been seeing Japanese economic data coming out stronger now than when USD/JPY was at 124.00. Is that because of the lagging effect of FX rates or is something else going on?


Quoting SeekingLight
Last year I read people quote 114.5 if I remember correctly. Or maybe it was in 2006. These figures seem to always float around. But doesn't both the market as well as currencies always fluctuate?
Also I thought most of the asian tech exports came from any place but Japan for the last 10 years or so? Not that I have any real data sheets on this, but I'd thought that simply by seeing made in Taiwan/China etc instead of Japan plastered all over things might reflect this as well. Then again I don't know how this might still be economically linked up.
Basically what I was saying is where do these 'break even' figures come from and isn't productivity, wage, inflation etc pp just as much or bigger a factor?
Poor ole FX gets the blame
The break even figures may have changed form 114.50 precisely because of changes in productivity, wage inflation etc. Also, USD/JPY is not the only currency pair that Japanese exporters deal in. JPY's rise against EUR and others has not been as dramatic so their exports to those areas are not likely to suffer as much.

As far as increased competition from other Asian exporters (China, Taiwan etc.) IMHO that is one of the main reasons why Japan has been unable to muster much economic growth even during times of strong global growth and a weak JPY over the past decade(s). Japan is no longer the place where the West goes to make its products cheaper and better. China has increasingly been taking over that role - first with low end products, and now more and more with high end products. Even Japanese companies are shifting production to China. It may be some time before China can build its own Toyotas and PlayStations, but a lot of Japanese business has already gone to China and there is no question that Japan is feeling it.
  • #5
  • Mar 9, 2008 11:26pm Mar 9, 2008 11:26pm
Quote
As far as increased competition from other Asian exporters (China, Taiwan etc.) IMHO that is one of the main reasons why Japan has been unable to muster much economic growth even during times of strong global growth and a weak JPY over the past decade(s). Japan is no longer the place where the West goes to make its products cheaper and better. China has increasingly been taking over that role - first with low end products, and now more and more with high end products. Even Japanese companies are shifting production to China. It may be some time before China can build its own Toyotas and PlayStations, but a lot of Japanese business has already gone to China and there is no question that Japan is feeling it.

This I think is a huge player in the entire game we see before us. The fact that even Japan (our "Asian connection") outsources it's production to other countries like China.
Never underestimate the powers of the Force.
  • #6
  • Mar 10, 2008 4:14am Mar 10, 2008 4:14am
This might be relevant to our interests
http://bloomberg.com/apps/news?pid=2...NYI&refer=home

Also as I understand it China has a rampantly raging inflation which it must combat sooner rather than later and the Yuan and Yen are closely linked from what I gather - so the conclusion would be a target well below 100 again perhaps?

We can't stay in place forever and with a faltering USD on the majors, how is the carry going to unwind in this next stock market crash step? That's my current personal big question...we're already at THE boundary on UJ and imagine how many people must have their stops below the big number due to the supposed unbreakable nature.
Trust price. Know yourself.
  • #7
  • Mar 10, 2008 8:14am Mar 10, 2008 8:14am
The answer to the question is YES. But what country isn't.
  • #8
  • Mar 10, 2008 12:40pm Mar 10, 2008 12:40pm
Quoting SunTrader
The answer to the question is YES. But what country isn't.
we are all headed toward our grave...when we will get there is the question
Relax and be happy.
  • #9
  • Mar 10, 2008 12:47pm Mar 10, 2008 12:47pm
Quoting SeekingLight
This might be relevant to our interests
http://bloomberg.com/apps/news?pid=2...YI&refer=home.
great article! made our little thread here look like childs play LOL.

Quote
exchange traders are confident that the Bank of Japan won't intervene in the currency market, paving the way for the yen to extend its biggest rally since 2000.
i found the proof of this statement a bit weak from the boj comments in the article. sounds like a bunch of lip service to me. unless fukui's replacement has a totally different stance on market intervention (which is yet to be seen), we are in for more of the same i believe.
Relax and be happy.
  • #10
  • Mar 10, 2008 1:29pm Mar 10, 2008 1:29pm
Quoting merlin
we are all headed toward our grave...when we will get there is the question
Sheriff Bart: "A man drinks like that, and he don't eat, he is going to die"
Deputy Jim: "When" ?

from Blazing Saddles.
  • #11
  • Edited Mar 11, 2008 6:35am Mar 10, 2008 11:54pm | Edited Mar 11, 2008 6:35am
The strongest arguments probably come towards the end of the article:

Quoting <br /> Toshihiko Fukui
A stronger yen will ``ease any negative effect from rising costs of crude oil and commodities...
This, according to Paul Chertkow of Bank of Tokyo-Mitsubishi UFJ, applies mostly to "small to medium size corporations". Chertkow, BTW, sees USD/JPY going to 90.00 and then possibly 80.00...

Toyota, and most likely other large corporations like Komatsu plan to beat the strong yen "by building more [products] in the markets where they are sold". It remains to be seen whether the capacity is there to actually follow through on this plan, and how quickly that capacity can be added if it is not in fact there. It has been my understanding so far that Japanese corporations have been building up massive capacity IN JAPAN, and not "in the markets where the products are sold". I could be wrong though. We will have to see. Moreover, wouldn't big shifts like that have a negative effect on Japan's tight labour market?
  • #12
  • Edited 12:08pm Mar 11, 2008 11:58am | Edited 12:08pm
Just thinking:

Today's Trade Balance number reflects a strong US economy or it came better because US currency is down? After all weak greenback means cheap coca-cola and the world would have bought a pond of it when they got it cheap.

Which would make the balance better, IMO.

Any ideas?
  • #13
  • Mar 11, 2008 12:49pm Mar 11, 2008 12:49pm
Quoting im7i4z
Just thinking:

Today's Trade Balance number reflects a strong US economy or it came better because US currency is down? After all weak greenback means cheap coca-cola and the world would have bought a pond of it when they got it cheap.

Which would make the balance better, IMO.

Any ideas?
Although I believe Coca Cola is produced locally in most regions of the world, I think I understand what you are saying... In other words, yes, the slightly improved trade balance is most likely due to USD weakness more than anything else.
  • #14
  • Mar 11, 2008 1:44pm Mar 11, 2008 1:44pm
Quoting fierceman
Although I believe Coca Cola is produced locally in most regions of the world, I think I understand what you are saying... In other words, yes, the slightly improved trade balance is most likely due to USD weakness more than anything else.
I was just pulling some rhetoric.
  • #15
  • Mar 11, 2008 4:37pm Mar 11, 2008 4:37pm
Its not always easy to read someone's over the net.
  • #16
  • Mar 11, 2008 4:39pm Mar 11, 2008 4:39pm
Quoting fierceman
The strongest arguments probably come towards the end of the article:
id have to agree with you there. i dont consider fukui's comment "lipservice" because he actually has a point about oil. a weak yen and high commodity prices certainly has the potential to strangle the japanese economy.
Relax and be happy.
  • #17
  • Mar 12, 2008 4:22am Mar 12, 2008 4:22am
Just to add some more BB curve fitting to the equation
(every 10 pip move is worth a headline there)

Yen Rises on Speculation Exporters Buying After Growth Report
http://www.bloomberg.com/apps/news?p...ULM&refer=home
Trust price. Know yourself.
  • #18
  • Mar 12, 2008 8:05am Mar 12, 2008 8:05am
Futures magazine March'08 "Equities hitting the wall in '08"

"A recession in the United States is now considered inevitable with the rest of the world to follow. Already the Bank of England, the Bank of Canada and others are discussing or implementing coordinated reductions in interest rates".
  • #19
  • Mar 13, 2008 3:55pm Mar 13, 2008 3:55pm
Hi,
Couple decades ago,
I know as a matter of fact, that when the property bubble burst,
most of the good papers were extended for an ave of nearly 2 generations.
So the question I wonder, if they can withstand another blow, so soon.
How tight can it get, before this fragile and injured economy, bleed?
I really wonder.

Its my opinion that they are actually in recession all the while.
Only that with international business spread, that they are keeping afloat, all this time. Scary scenario for them, really!

regards
  • #20
  • Mar 15, 2008 7:18am Mar 15, 2008 7:18am
Japan has also been fighting deflation for a while, and a strong yen is not going to help there. The only inklings of inflation have come from the appreciation of commodities (which is not exactly the "desireable" type of inflation) and anyway recently commodities have been closely matched by an appreciating yen. We could definitely see stagnation and deflation play out again in Japan, especially if commodities don't begin to outpace the yen again.
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