The Endgame: Japan Inc. Seeks Salvation Overseas

Wolf Richter's picture

Wolf Richter

Japanese companies spent $70 billion on acquisitions overseas in 2011—a record. Healthcare was the largest sector, $20.6 billion. Armed with a ferociously strong yen, they’re trying to escape the pressures at home. After the Fukushima disaster, one nuclear power plant after another has been taken off line for maintenance. And they stay off line. Now, only four of the 54 are still operating. Fossil fuel plants cannot keep up with demand during peak periods, and electricity rationing—a Third-World phenomenon—has become part of corporate life. Companies also face a stagnant economy and a dwindling working-age population.

And so they seek their fortunes overseas. For example, Sumitomo Mitsui Financial Group and Sumitomo Corp. are acquiring the aircraft leasing business of bailed-out Royal Bank of Scotland for $7.3 billion. But even smaller companies, including many that had not ventured abroad before, are jumping into the fray. For example, Takara Tomy Group acquired US toymaker RC2, and Toyo Seikan bought US based Stolle Machinery.

In addition, Japanese multinationals are expanding their existing production capacity overseas. On the forefront are the automakers. Mired in stagnation, high costs, and energy challenges at home, they’re now shifting production to plants overseas. Most recently, it was Honda and Nissan with investments in China, Mexico, and, yes, the US to produce cars for local and export markets. And one of them is outright exciting. Read.... Manufacturing Supercars in America.

Electronics makers are also struggling in Japan. Last year was particularly rough: the March 11 earthquake and tsunami, Thailand's historic floods that shut down whole segments of the components industry, the strong yen, a hesitating global economy, and shrinking consumer demand at home. And then, in the fourth quarter, TV sales cratered.

Japanese TV makers, known for innovative products and advanced technologies, got clobbered by competitors from Korea and other Asian countries. Sharp Corp. forecast a loss of ¥290 billion for its current fiscal year. Unit sales skidded 38%. It will shift production from TVs to small and midsize LCD panels for smartphones and tablets. Panasonic sang a similar song last Friday when it tried to explain its losses in its TV and semiconductor businesses. It had already announced in October that it would stop production at two of its plants in Japan. Sony, after an eight-year losing spree in its TV business, remains focused on it, incoming CEO Kazuo Hirai announced on Thursday. And he'd miraculously turn it around through unspecified cost cutting measures.

But there are consequences. Shifting investment and production to locations overseas contributed to the first annual trade deficit in more than 30 years—just when Japan can least afford it: national debt will surpass one quadrillion yen by March 2013, the end of the next fiscal year, the Ministry of Finance announced in January. About $14 trillion. A breathtaking 240% of GDP. By comparison, Greece’s debt is a paltry 160% of GDP.

The forecast is based on the budget that the cabinet approved on Christmas Eve when it hoped that no one would pay attention, apparently. After excluding two acknowledged accounting shenanigans, the deficit jumps to a horrid ¥54.4 trillion. The government will have to borrow 56.2% of every yen it spends in 2012, a record even for Japan. But the government has an ingenious solution: a miracle. For more on that vertigo-inducing debacle, read... The Endgame: Japan Makes A Move.

The other solution is a consumption tax hike from the current 5% to 8% by April 2014 and to 10% by October 2015. To make it more palatable, government officials have gone on roadshows. The revenues would be used to stabilize the tottering social security system and reinforce the welfare system, they claimed—rather than for corporate subsidies or for the bailout of TEPCO, owner of the Fukushima nuke. But sales taxes hit low-income workers the hardest. And according to recent polls, 79.5% of the Japanese are opposed to them.

Once it starts, it’s never enough. On Saturday, Prime Minister Yoshihiko Noda said that the consumption tax could be raised even beyond the 10% currently proposed. So the trend is clear.

Meanwhile, life goes on in its own manner. A convoy of 20 supercars was speeding down the Chugoku Expressway, entered a left-hand bend at 90–100 mph, though the posted speed limit was 50 mph. The highway was wet. And the rest was very expensive.... Superlative Supercar Pileup (incl. video).

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flattrader's picture

Endgame is right...It is just a matter of time which may come sooner rather than later.

Those fault lines immediately west and south of the islands have become very active.  I don't see how they expect to stabilize anything.

If one or more of those reactors go recritical or the #4 fuel pool collapses, they and us are in a world of hurt.

Daiichi has 10-24x more active and spent fuel on site than Chernobyl depending on who is doing the counting.

Japan earthquakes 2011 Visualization map (2012-01-01)

Keep an eye on for updates.

Salah's picture

Japan will have a bloody military coup and dispose of the corrupt & feckless politicos and bureaucrats.  Afterwards, they will ditch Article 9 of their US-imposed, post WWII constitution and begin "reforming their culture" away from all-capitalism-all-the-time, towards a more pure shinto based perspective, under the watchful, quality-controlling eye of a samurai patrimony.

The nature of family life will be reformed for more of an expansive, meaningful existence (and more kids, and more space). This will be done in ways that reassure freaked-out Koreans, Chinese, and Americans.  Japanese gangsters will have to emigrate to other Asian counties quickly.  To give meaning to their existence, the samurai will embark on major space programs, after having first put local bully-boys like North Korea, and maybe Russia, on notice....there's a new management paradigm in Nippon.

lincolnsteffens's picture

I think you can apply what you have said by removing "Japan" and inserting a country of your choice. There is going to be a whole lot of returning to more traditional, pre-tech age ways and in some countries pre-automated production line manufacturing age. The human mind can only handle so much information, change in society, economic disruption before it seeks a more placid and simplified existence. May you live in uninteresting times will be the new goal.

flattrader's picture

Well, they might want to get a move on...and maybe manage that nuclear clean-up before they head into space.

That #4 spent fuel pool doesn't look so good.

falak pema's picture

Its time some Japanese hot shots moved to Spain and Portugal and Greece; win-win all round. We would be buying Hondas made in Portugal and listening to walkmen made in Greece, and using playstations made in Spain; and they would have a roof over their heads and be eating non contaminated olives and oranges.

BlackVoid's picture

The yen is too strong anyway, the BOJ should just PRINT the deficits.

No problem whatsoever. ;)

bushwarcrime's picture

Time to devalue the Yen bigtime, but how?

BigInJapan's picture

Asian Union, mofos!

The Yen would cease to exist and these dummies are, well dumb enough to try it. 

Think Hatoyama got a meeting with the top of the Chinese heap AFTER leaving the Prime Minister's office because he's cute?

mendolover's picture

The insanity of us all.

non_anon's picture

reminds me of the 80's before the bubble burst

JustACitizen's picture

Don't give it a second thought. I am sure that their 1% ers are doing fine.

What does it say when a society even gives up on reproduction?

r00t61's picture

Read up on Japan's "Lost Generations" to better understand why they don't want to get married, why they don't want families, why they don't want children.  It's not just men.  It's women, too.  The "Parasite Single" phenomenon.

In a nutshell, they have no faith, no confidence in the social contract currently being offered by Japanese mainstream society: i.e., be unendingly loyal to a Japanese mega-corporate kaibatsu, and in return, you will have a nice life, with a decent house and a superficially perfect family, plus lifetime employment. 

This sort of thing worked well enough in the early postwar years, but even Japan has been forced to outsource its labor in the globalization era.  This in turn means that a whole swell of workers who thought they had lifetime employment suddenly find themselves fired.  These are generally the middle managers - men in their fifties who believed in the social contract, but now have been cut loose.  You think age discrimination in the US is bad?  Try being a fifty-ish year-old man in Japan whose resume reads: "Worked for Sony for 25 years.  Got laid off."  They can't get hired, not even for the equivalent of a greeter at Walmart.  The dishonor shames them, and some commit suicide.  The children of these workers see what has happened to their fathers, and they say, "That's not for me."

Instead, Japanese young people take low-paid, menial labor jobs, sometimes in the black market, and live with their parents into their thirties and forties.  These are the 99%'ers, of course; the 1% will continue to go to the University of Tokyo and get a cush job with Sony or Mitsubishi upon graduation.  Regardless, they want to have nothing to do with the mainstream system.

This is obviously a double whammy for the Japanese government.  Not only is the current workforce rapidly aging and becoming retirement/pension eligible, but the future workforce is opting out of the traditional system, killing tax receipts.  Unless Japan figures out a way to run 500% deficits in the medium future, a lot of these retirees are going to find that the money the government "owes" them isn't going to be there, or just as terrible, it will have been inflated away to oblivion.

jm's picture

Perhaps they should emigrate with the corporations to a better locale.  Probably learn to love it.

jonjon831983's picture

That it's too difficult and time consuming when one must focus on earning enough to live the lifestyle.

It's sorta like how things are here in North America I guess, but x 10.


Best population control seems to be wealth... or at least trying to be wealthy.