Japan-Sustainability issues
Japan looks like a sick guy in his 40s. With its economic power ranked 4th in the world, hit hard by the earthquake and nuclear power station fiasco, he cannot fully flex his muscles. Again, putting everything else equal, what is the key drivers of Japan’s economic activity? And what are the opportunities we see in investing in Japan?
Basic of Japan’s economics
Let’s look at the constitute of Japan’s economy: GDP of Japan by expenditure approach: mainly fueled by the private sector consumption (67% of its GDP), of which led by Housing, electricity and water usage, then by Food and non-alcoholic beverages, thirdly by Transportation (except other goods and services). In short, you will find that it’s highly sensitive to the commodity prices with the oil price as the primary source. The precious black gold is now supporting the transportation of foods, as well as those building materials and steels used in the housing, electricity and water. Energy and commodity is key. It is no wonder Japan has always having such a hard stance towards the ownership of Diaoyu island within the East-China Sea, an oil rich area.
Source: http://www.stat.go.jp
Asset price bubble
Many people attributed Japan’s recession as the popping of Asset bubble and massive outflow of capital due to its rapid liberalization of capital account, during the 1980s. Think about it: if Japan has the fundamental to sustain its asset price, how would it possible for a country haunted by an asset bubble for more than a decade ago. If the country has the good investment opportunities, it is reasonable for the foreign investors to benefit from its rebound and gradually pull Japan out of it.
Lost ground to China
I cannot resist the idea that Japan has lost ground in its inexpensive mass market segment. When reading the economic data of Japan back from 1980s to now, the only difference in the economy was that rising of “Made in China”. Given that the worlds’ composite of the consumption market did not change much, mainly by the American and Euro market, the only possible explanation of weakening Japan’s corporate performance was losing out to China. It’s indeed a myth that Japan is advancing its value chain to become a high tech and quality producers. But think about Japan’s average education level: most of the population did not receive university education and an aging population. What else you can produce with this heavy burden of non-high tech population? Yet you can keep the elite being very productive, you cannot hide the fact that you have a struggling middle and lower class.
Pressure from Commodity Price
Secondly, with its heavy reliance on commodity import and high sensitivity to raw materials, corporate of Japan is also experiencing an erosion of profit to the rising raw materials costs. With the development of the emerging economics like BRICs, and SE Asia countries, the thirst of these economy, coupled with the instability of the middle east in the last decade, jet up the commodity price to its ceiling. Poor Japan was squeezed.
What is good in Japan ( and US, what?)
Given the structural issue of Japan, the only stable revenue I could see was from the transportation-primarily shipping sectors. What you can do when you rely so much on imported commodity and up-coming demand for earthquake rebuild?
My second would also be a good news for US: People often associates Japan’s decade long recession with US. However, given that US does not have the same resource (in terms of Energy and commodity, and human resources) issues as Japan, I have my faith in the US’s revival!
Fed Watch
Japan-Transportation hopes
Japan-Sustainability issues
Japan looks like a sick guy in his 40s. With its economic power ranked 4th in the world, hit hard by the earthquake and nuclear power station fiasco, he cannot fully flex his muscles. Again, putting everything else equal, what is the key drivers of Japan’s economic activity? And what are the opportunities we see in investing in Japan?
Basic of Japan’s economics
Let’s look at the constitute of Japan’s economy: GDP of Japan by expenditure approach: mainly fueled by the private sector consumption (67% of its GDP), of which led by Housing, electricity and water usage, then by Food and non-alcoholic beverages, thirdly by Transportation (except other goods and services). In short, you will find that it’s highly sensitive to the commodity prices with the oil price as the primary source. The precious black gold is now supporting the transportation of foods, as well as those building materials and steels used in the housing, electricity and water. Energy and commodity is key. It is no wonder Japan has always having such a hard stance towards the ownership of Diaoyu island within the East-China Sea, an oil rich area.
Source: http://www.stat.go.jp
Asset price bubble
Many people attributed Japan’s recession as the popping of Asset bubble and massive outflow of capital due to its rapid liberalization of capital account, during the 1980s. Think about it: if Japan has the fundamental to sustain its asset price, how would it possible for a country haunted by an asset bubble for more than a decade ago. If the country has the good investment opportunities, it is reasonable for the foreign investors to benefit from its rebound and gradually pull Japan out of it.
Lost ground to China
I cannot resist the idea that Japan has lost ground in its inexpensive mass market segment. When reading the economic data of Japan back from 1980s to now, the only difference in the economy was that rising of “Made in China”. Given that the worlds’ composite of the consumption market did not change much, mainly by the American and Euro market, the only possible explanation of weakening Japan’s corporate performance was losing out to China. It’s indeed a myth that Japan is advancing its value chain to become a high tech and quality producers. But think about Japan’s average education level: most of the population did not receive university education and an aging population. What else you can produce with this heavy burden of non-high tech population? Yet you can keep the elite being very productive, you cannot hide the fact that you have a struggling middle and lower class.
Pressure from Commodity Price
Secondly, with its heavy reliance on commodity import and high sensitivity to raw materials, corporate of Japan is also experiencing an erosion of profit to the rising raw materials costs. With the development of the emerging economics like BRICs, and SE Asia countries, the thirst of these economy, coupled with the instability of the middle east in the last decade, jet up the commodity price to its ceiling. Poor Japan was squeezed.
What is good in Japan ( and US, what?)
Given the structural issue of Japan, the only stable revenue I could see was from the transportation-primarily shipping sectors. What you can do when you rely so much on imported commodity and up-coming demand for earthquake rebuild?
My second would also be a good news for US: People often associates Japan’s decade long recession with US. However, given that US does not have the same resource (in terms of Energy and commodity, and human resources) issues as Japan, I have my faith in the US’s revival!
About APAC-ian
APAC-ian is an analyst on the ground of Asia, he contributed through data-driven analysis. Loyal to the facts.