Thomas White Global Investing
Japan
Japan Stamp
September 24, 2010
A Postcard from the Asia Pacific
Japan: A Rising Yen Means Good For Some

Japanese yen

The Japanese yen reached a 15-year high against the dollar before sliding down after the Bank of Japan’s intervention.

Japan’s recent dramatic intervention in the currency markets took analysts, economists, policymakers and politicians around the world by surprise. It was a desperate act from a struggling country that views the rising yen as a road block on the long, long road back from recovery. The last time the Bank of Japan had intervened in such a drastic manner was back in 2004 when the yen was around 109 to the dollar. A strong yen makes Japanese exports costlier overseas, eating into profits, and draining a vital contributor to the country’s flagging gross domestic product. But like so many things, there is a flip side to the story.

The strength of the yen has made buying abroad cheaper for the Japanese. And what they are buying are companies. Statistics in a recent New York Times article show that Japanese firms have spent as much as $27 billion shopping for companies on foreign shores this year alone. It was back in the 1980s that Japanese companies went on a shopping spree, buying American companies. Flush with cash, from Sony to Dainippon, the frenetic buying cast fears of a global conglomeration of Japanese companies who would rule the world. That didn’t happen.

This time, taking advantage of the yen’s rise, Japanese companies which can afford it are looking for bargains. Take for example, Japanese mobile giant, Nippon Telegraph and Telephone Corporation, which in July bought Johannesburg-listed Dimension Data for $3.2 billion. Its subsidiary, NTT Data, bought South Indian-based Intelligence Inc. for $200 million. NTT Data also has a 26% stake in Tata Teleservices in India, and has been aggressive in marketing its DoCoMo range of mobile services. And then Seven & I Holdings made an offer of $40 a share for U.S. retailer Casey’s General Stores. The Japanese-held company, which operates the 7-Eleven convenience stores has more than 6,000 outlets in the U.S. alone, has long since tried to diversify its business outside Japan’s often stagnating markets. Add to that Rakuten, touted as Japanese’s biggest online retailer, which bought California-based Buy.com for $250 million. Rakuten had earlier in 2005 acquired a New York business called Linkshare. Then we have Softbank, a telecommunications and media giant, which acquired Ustream in February. Is the Japanese sun rising all over again?

The Bank of Japan’s actions prompted criticism, calling for Japan to rework its export-dependent model. But it is clear that a clearly frazzled Prime Minister Naoto Kan wants the economy to thrive through these difficult times – and if it be the old model, so be it. The yen’s unexpected dominance has resulted in some unexpected benefits, but can it last? Or rather, will it be allowed to last? For as long as it does though, some companies will continue to do their shopping. Make hay while the yen rises may well be their motto.

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