Total Abenomics Fail Slams Japan Where It Hurts Most

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Nippon Steel & Sumitomo Metal Corporation, headquartered in Tokyo, was formed by merger in 2012 and that instant became the world’s second largest steel producer. Its Nippon Steel & Sumikin Galvanizing plant in Rayong Province, Thailand, began production in late 2013. In August, the company opened a steel plant in Mexico. More plants are being built in India and China to supply automakers. It already has a crankshaft plant in the US. The plant in Thailand is run by the company’s steelworks in Nagoya, Japan, which has fewer engineers today than it had 20 years ago.

This is the same song that has been playing all across Japan. The data has confirmed that investment in Japan by Japanese corporations has been lagging, while they’ve plowed enormous amounts of money into building production facilities overseas – money that the Bank of Japandemonium has been printing and handing out for free. It’s all part of Prime Minister Shinzo Abe’s glorious economic religion, lovingly named after him, that he has been trying to shove down people’s throats. Abenomics was supposed to perform some sort of top-down economic miracle. But the opposite has been happening.

Abenomics apologists have pointed out that these investment decisions had been made before the hapless Japanese had to take the leap of faith with Abenomics. OK, but now these executives are talking about their plans for the future: turns out, they’re scrambling to pour money into Southeast Asia and other parts of the world. And to heck with investing in Japan!

It wasn’t even close. Of these executives, 48% said they’re planning to increase capital investments overseas in fiscal 2014, but only a minuscule 14.8% said they’d do so in Japan.

Alas, for the economy to expand as promised by Abenomics and as predicted by soothsayers, companies would have to invest in Japan and produce in Japan, both for domestic demand and for export. That was the stated purpose of demolishing the yen and reducing the tax burden on Japan Inc.

Instead, Southeast Asia is the most popular destination for Japanese corporate moolah, with 36.4% of the executives planning to increase investments there, up 3.8 percentage points from the last survey in December. Another 17.6% were planning to plow more money into Latin America, up 2.6 points. And 17.5% were eyeing the US for more investment, up 5.3 points. That’s the glorious power of Abenomics.

But within Asia there were some big shifts. Thailand, embroiled in political turmoil, lost some of its cachet among Japanese executives. Now only 37.2% of them plan to increase investments there, down 5 points. And Indonesia dropped 7.1 points to 29.7%. But the Philippines are starting to look rosier.

Then there are China and Vietnam. Japanese companies cut their investments in China from $13.5 billion in 2012 to $6.5 billion in 2013, in part due to the soaring costs of labor, and in part due to the political frictions and bouts of saber-rattling between both countries. According to the Business Times, Japan External Trade Organization (JETRO) found that the cutbacks in Thailand were even more drastic: from $7 billion to $2.5 billion.

But in Vietnam, Japanese capital investments jumped from $169 million in 2010 to $4.5 billion in 2013. Among the 125 new projects were the Nghi Son refinery, a Bridgestone plant, and a Panasonic Industrial Devices facility. Based on JETRO’s surveys of labor markets, Japanese companies paid Vietnamese workers an average wage of $3,000 in 2013, which was more than they paid in Laos, Cambodia, and Myanmar. But it was just one-eighth of the average wage they paid in Singapore and half of the wage they paid in Thailand. So 70% of the Japanese corporations that have already invested in Vietnam are planning to invest more. They’re all looking for that spot where low wages coincide with a skilled workforce, decent infrastructure, and political stability: the ever-elusive greener grass in manufacturing.

In addition to blowing the Bank of Japandemonium’s freshly printed and free money on capital investments overseas, Japanese executives have other exciting foreign adventures in mind: M&A. So 46.6% of the executives admitted that they were actively looking for targets. That’s up 4 percentage points from a year ago. Of them, 71% were looking in the US and Europe, and 52% were looking in the emerging markets.

If – and that’s a big if – it would boost their international competitiveness, they might even look at targets in Japan…. When Japanese companies finally spend money in Japan, it’s not in form of capital investments to increase production, create jobs, and boost wages, which would actually move the economy in the right direction. Heck no! It’s to buy other companies, which leads to consolidations and cost cuts, hence shutdowns of plants, branches, and offices. Abenomics is working its glorious magic at every twist and turn.

Abenomics was to save Japan. But the plan has already gone totally to heck. Not in small increments over the years with minor ups and downs, but in relentless month-to-month leaps whose viciousness surprised even the deep cynic in me. Read….The Madness of Abenomics In One (Crazy) Chart

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