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Japan’s Export Debacle: Revenge In China, A Crash In Europe, Offshoring All Around

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Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

One of the pillars of the Japanese economy has been its exports. That pillar has been crumbling for years, but the deterioration this year has progressed at a phenomenal pace. At fault: China and Europe. But beyond the noise, Japanese companies have been investing their valuable yen overseas, and it’s making the deficit structural. An ugly combination.

In November, exports (¥4.98 trillion) dropped 4.1% from last year (customs report), while imports (¥5.94 trillion) rose 0.8%, for a total trade deficit of ¥953.4 billion. Through November, the cumulative trade deficit of ¥6.3 trillion, an all-time record, was 185% higher than during the same period last year! Largely due to a breathtaking collapse in exports to China and Europe.

Exports to China (¥858.7 billion) skidded 14.5%, with construction materials plunging 75% and cars 68%. It was part of China’s well-orchestrated commercial and popular anti-Japanese response to the Senkaku Islands “dispute”—in quotes because Japan insists that there is no “dispute,” the islands being Japanese, period. By getting Chinese consumers and businesses riled up against Japanese brands, the Chinese government has exercised commercial revenge where it hurts Japan the most.

But that hasn’t kept the Japanese from buying Chinese products—an indication of just how much Japan has become dependent on them: imports (¥1,406.2 billion) were 5.8% higher than last year. The total deficit with China reached ¥547.5 billion. Not too long ago, Japan had a trade surplus with China.

Enthusiasm among Japanese businesses established in China has tapered off though: only 52.3% are now considering expanding operations in China over the next two years, a nosedive from 66.7% last year, according to a new survey. But 42% are planning on maintaining the status quo, up from 29%. And 5.7% would cut back operations, a smidgen above last year. No massive exodus. Just less enthusiasm for expansion. The last time that happened was in 2008 during the financial crisis; not a good omen. Cited reason: the tightening Chinese economy and the changing business environment, along with the impact of the Senkaku Islands imbroglio. The most serious managerial problem for Japanese companies in China? Rising wages!

While Japanese exports to China were awful, exports to Europe were catastrophic. It didn’t have anything to do with a temporary “dispute” of any kind, but with the real economy in Europe. If trade is any indication—and it is—economic activity in Europe is going downhill faster than other measures are leading us to believe.

Exports to Europe fell to ¥501.6 billion, down 20% from November 2011! Even to economic stalwart Germany, exports fell 14.1%; to France, which is getting deeper and deeper into trouble, they plummeted 25.5%, to Italy 29.3%, to Sweden 32.8%, to the UK (!) 34.4%.... That these countries have cut back their purchases to such an extraordinary extent is bad news for Japan—and an abysmal indicator for Europe.

However, exports to the US rose 5.3% to ¥933.8 billion, while imports from the US (indeed, there are still some!) fell 5.5% to ¥453.8 billion, for a trade surplus of ¥453.8 billion, a 19.8% jump. The Japanese are thanking their deities and spirits right now that American consumers are borrowing themselves into a hole again. 

Beyond the screeching noise in China and Europe? Japan’s export debacle is becoming structural as companies have invested heavily overseas—and hugely so in China—to manufacture directly in their markets, rather than in Japan. US companies have perfected offshoring years ago. Japanese companies are perfecting it now. And the strong yen is making it more efficient still.

Unperturbed by reality, or rather high on the whiff of unlimited money-printing by the Bank of Japan and boundless deficit spending by the new government, the Nikkei rallied and broke through the 10,000 mark for the first time since April [for the turf war between the BoJ and the MoF, read....  Japan’s NO EXIT Strategy].

There was hope too. The hope that fiscal irresponsibility driven to the extreme and central bank printing operations also driven to the extreme would slam the yen so that it might catch up in the race, instigated by the Fed, to the bottom.

“Paradox” is what the New York Times called France’s ability to attract more foreign investment than any country other than China and the US. A paradox because it shouldn’t happen. Foreign companies should be scared off by labor laws, tax rates, the cost of labor, and the threat of nationalizations. Turns out, multinational corporations pay practically no income taxes in France. And it has reached the boiling point. Read.... A Revolt Against Corporate Welfare Programs For Multinationals In France.

 

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Thu, 12/20/2012 - 08:42 | 3082047 IamtheREALmario
IamtheREALmario's picture

Remember when Europeans were business geniuses, then the US, then Japan and now China. Apparently business genius is created by one's ability to exploit labor and arbitrage its value.

Thu, 12/20/2012 - 07:33 | 3082005 egoist
egoist's picture

I kind of like the sound of a thousand billion, rather than a trillion. But I don't know if a million billion or a billion million sounds better for a quadrillion.

Thu, 12/20/2012 - 08:09 | 3082017 Winston Churchill
Winston Churchill's picture

Lets go back to the English definition of a billion,

A million million.

Will make the debt problems SOUND much more manageable.

Thu, 12/20/2012 - 06:46 | 3081968 ptolemy_newit
ptolemy_newit's picture

Japan shpuld marry the Philippines

problem solved

 

Thu, 12/20/2012 - 03:53 | 3081831 Element
Element's picture

Electricity ... costs up, supply down.

Thu, 12/20/2012 - 06:37 | 3081939 falak pema
falak pema's picture

whence the move by new Jap government to reinstall nuclear!

Thu, 12/20/2012 - 03:06 | 3081802 delivered
delivered's picture

A decade ago, the actions being undertaken by CB's would be unthinkable. Direct and outright monitazation of all forms of debt. Today, its perfectably acceptable as the BOJ, ECB, and the FED are all doing it in plain site with nobody giving it a second thought. Why waste the time and effort to clear the debt through varous channels, primary dealers, etc. Just print away, play Santa Claus for a while, and pray the Grinch does not steal Christmas anytime soon.

As stated in the lead to all of the old Star Trek episodes, "Space, the final frontier, to boldly go where no man has gone before" (or something to this effect). And here we are with the CB's. Printing money, the final frontier (or at least last ditch effort to reflate the economy and asset values), to boldly go to a place unthinkable a decade ago. Wow, has it really come to this that in the end, the only option available to solve the soverign debt crisis is simply to print currency to buy debt. Japan's there, Europe is there, and so is the US. 

So coming to a store near you, hyperinflation which will soon replace the local currency (e.g., a US dollar) with the new currency, US Treasuries Bills. What's the difference, neither are secured by an asset/collateral, neither pay any return, both are easily printable, and both are easily exchangable. The only difference I can see is the sheepie use the USD  to suppor their meager existence while TPTB use the USTB.

Only the term FUBAR can even come close to explaining this situation.

Thu, 12/20/2012 - 01:51 | 3081736 are we there yet
are we there yet's picture

Fukashema is still exporting.

Thu, 12/20/2012 - 01:09 | 3081681 steve from virginia
steve from virginia's picture

 

So ... Japan has roughly debt 300% of GDP and more debt being offered by the BoJ ... the MoF willing to borrow ...

 

The only questions are how long can the so-called Japanese economy be supported by the one remaining lender? What happens when that single lender fails? The end of monetary policy heaves into view ...

 

Can Japan stumble along for another six months? How about a year? Something is going to break (if it hasn't already ...)

Thu, 12/20/2012 - 04:00 | 3081835 AnAnonymous
AnAnonymous's picture

Since the Yen is nested in the USD, the failure of the lender of last resort will happen around the depletion of resources time.

It gives time and when it happens, people will have other issues to concern themselves with than wondering what their CB has been doing.

'Americanism' all the way...

Thu, 12/20/2012 - 00:28 | 3081615 magpie
magpie's picture

What actually happens to the ADB when Japan hyperinflates

Wed, 12/19/2012 - 23:51 | 3081532 Stuck on Zero
Stuck on Zero's picture

What I get out of all of this is that Americans will end up screwed.  The Japanese will dump their products in the U.S. and continue to destroy what's left of U.S. industry and make out okay.  If you don't believe this compare Japanese unemployment against U.S. unemployment (5.4% vs. ~18%).

 

Wed, 12/19/2012 - 23:58 | 3081549 suteibu
suteibu's picture

Right.  Japan's official unemployment is 4.2% if you believe that bullshit propaganda.

Thu, 12/20/2012 - 10:15 | 3082356 BigInJapan
BigInJapan's picture

Exactomundo.
That doesn't count the fact that everybody here is fucking retired and sucking on the national tit.

Wed, 12/19/2012 - 23:36 | 3081495 DavosSherman
DavosSherman's picture

One Sentence: Japan will be the first country to hyperinflate, bringing all the other countries down like England did in the 1930s when she went off gold.

Dude, you need to practice Tweets, 140 characters or less.

Thu, 12/20/2012 - 04:12 | 3081837 AnAnonymous
AnAnonymous's picture

It is a fact that for 'americans' everything is situational.

Okay, the depletion of resources is a cultural made event, born from 'american' conceptions.

But 'americans' still prefer to push forward CB policy when it comes to their hyperinflation thing instead of focusing on the main cause which is their successful endeavour in depleting resources.

Every person will go through inflation events, no matter what the policy of their ECB. Debtless people just like indebted people will go through that event.

The 'american' fantasy: 'Americans' are a special breed in humanity as they can overcome the environment, contrary to other people who are constrained by the environment. This leads to infinite growth and the environment can never be overconsumed so no amount of debt is too big enough to be ever paid back.

The reality: 'Americans' are a special breed in humanity as they assume to consumption properties it has not. The more consumption there is, the more one will get to consume. 'Americans' have made of consumption an end and a means, a means to consume more and an end as consumption should be for the sake of consuming.
'Americans' consume the environment much faster than anyone else.
'Americans' know no other cure for the ailments of 'americanism' than more 'americanism'

An overconsumption problem is to be cured with even more consumption.

Every 'american' nation knows this and all of them know that they have no other solution than trying to keep consuming as much as possible.

As such, every move by their central banks and the successes of must be assessed on the ground of providing or maintaining more consumption.

If they lead to less consumption, it is a failure.

If they manage to keep consumption afloat, this is a success.

Thu, 12/20/2012 - 08:30 | 3082032 Ralph Spoilsport
Ralph Spoilsport's picture

Alternate translation:

American conceptual situationalism born from fantasmagorical environmentalism assume to comsumptional properties. This is crux of crispy biscuit of indebtinationalism of american citizenism.

If lead to less consumptionalism, it is failureism.

If managing to float consumptionalism, this is success by ailment of citizenism all we know this as so no too big it has not blobbing up.

Thu, 12/20/2012 - 09:30 | 3082134 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

If managing to float consumptionalism, this is success by ailment of citizenism all we know this as so no too big it has not blobbing up.

Ah, bestness.

Pragmaticalizationistic explainings make much the clearly.

Thu, 12/20/2012 - 05:16 | 3081890 TheFourthStooge-ing
TheFourthStooge-ing's picture

AnAnonymous said:

The reality: 'Americans' are a special breed in humanity as they assume to consumption properties it has not. The more consumption there is, the more one will get to consume. 'Americans' have made of consumption an end and a means, a means to consume more and an end as consumption should be for the sake of consuming.

That is a crazy beanstalk you are now climbing, Simple Jack.

Fe fi fo fum, I smell Chinese citizenism.

Problem of Japan is Diaoyurrhea, uncontrollable due to stubborn refusal to admit easy remedy of Maopectate.

The reality: AnAnonymous is a special breed in humanity as he is consumed by confusion properties it has not.

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