Japan does an Apple
companies have capitalized on the earnings boost delivered by the yen’s post-2012 depreciation by aggressive overseas M&A and building up overseas operations as production and distribution bases for foreign markets. Given that Japan’s population is shrinking, it has made sense to move production of its major products— automobiles, electric machinery and electronic equipment— closer to the end market. Japan Inc is also deepening strategic acquisitions as shown by Softbank’s US$32bn purchase of the UK chip designer ARM Holdings.
This trend is having a profound impact on the structure of Japanese business. In 2012 Japanese firms passed the threshold of producing/creating more goods and services outside of the country than inside. That ratio had risen to 58.3% at the end of the 2015 fiscal year, according to an August report by the Japan External Trade Organisation. This data was drawn from the financial statements of 186 Japanese firms (as a technical point, goods produced in Japan for export are calculated as “domestic sales”). The suggestion is that with the offshore production number moving towards 60% of total output, some kind of tipping point has been reached such that a rise in the yen does not threaten Japanese firms’ competitiveness and so market share (yen-based earnings will still face a negative translation effect). The implication is that Japan’s balance of trade will no longer tell us much about corporate earnings.
It is worth noting that a 2014 US Bureau of Economic Statistics report on multinational activity showed Japanese