Japan's foreign forays recall bubble economy
By Hiroshi Hiyama, AFPTOKYO -- The US$5 billion buyout of a British media group last week was the latest in a line of huge foreign acquisitions by Japanese firms reminiscent of their heady overseas adventures during the bubble economy.
July 16, 2012, 11:57 am TWN
The announcement Thursday by the country's top advertising agency Dentsu that it would pay 3.16 billion pounds for Aegis came after figures showed Japan Inc. signed a record 262 overseas deals in the first six months of the year.
The buying spree, worth 3.49 trillion yen (US$44 billion), topped the previous first-half record of 247 deals worth 1.16 trillion yen in 1990, in the final dizzying phase of Japan's intoxicating asset bubble, according to Tokyo-based advisory company Recof.
But, say analysts, this time it is different.
Then, Japanese manufacturers faced a stock market near all-time highs at home and were looking for something — anything — to put their money into, rushing headlong over a cliff when the bubble popped and the Nikkei plunged.
Now the Tokyo stock exchange is a chastened place — the index stands at little over a fifth of its historical peak.
But firms right across a more diversified economy are selectively looking for growth in foreign markets, in a bid to escape Japan's financial doldrums where weak demand, falling prices, and high labor costs are sapping profits.
They are also wallowing in cash, with the yen worth around 50 percent more than it was five years ago.
“For non-manufacturers, this is an excellent time to expand into foreign markets by taking advantage of a high yen,” said Shinichiro Kobayashi, senior economist at Mitsubishi UFJ Research and Consulting.
“For manufacturers, it gives great opportunities to take their production bases overseas,” he said. “You have to assume the yen's strength is here to stay.”
The safe haven Japanese unit, now hovering around 79 to the dollar, has benefited from global economic uncertainty in the last few years, as investors have dumped the euro and the greenback.
It stood at 88 to the dollar two years ago and 122 five years back, but is now sharply higher.
Exporters, the main engine of growth for Japan, have been badly squeezed by the rocketing currency, with overseas consumers baulking at rising price tags.