How Abenomics Fails: Japanese Firms Choose Salvaged Computer Parts Over Investment
By Tyler Durden
The fact that Abenomics has been a miserable failure has been well established, and even the IMF felt the need to get involved and tell Japan what it should do next. One of the IMF's recommendations to the BOJ was for the inflation target to be scrapped entirely.
To wit:
The Bank of Japan in February introduced a negative interest rate in part to support domestic demand. However, in the event that the IMF's suggestions will not be implemented, Japan will lack growth and therefore would need a longer time to get its fiscal books in order. In that scenario, the IMF called on the bank to scrap its time frame for achieving its 2% inflation target, which the BOJ now sets at somewhere in fiscal 2017.
Inflation in Japan has now turned down again, and household inflation expectations have declined as well.
While we touched on one reason for Japan's inflation headwind, namely that China has been and will continue to export deflation as the yuan is devalued, there is also another reason of course, which is that businesses aren't spending.
As Goldman notes, FY'2016 business capex plans are the weakest in years.
FY2016 capex plans weakest in recent years:
The FY2016 capex plan (all companies, all industries) calls for +0.4% yoy, an upward revision from the March survey (-4.8%). The Tankan capex plan tends to be particularly conservative in the March survey after which it is usually raised gradually through to year-end. Even so, it is the weakest plan in the past
several years. We see a strong downside risk to capex, with the outlook for FY2016 recurring profits (all companies, all industries) calling for a drop of 7.2% and uncertainty growing with regards to domestic and external demand.
One of the most interesting examples of business sentiment on capital spending is that major Japanese manufacturers are buying salvaged computer parts from a small business owner instead of spending the money to upgrade. Those who picture Japanese manufacturing production lines as being on the cutting edge of the newest technology have the wrong impression.
Operating from a hilltop warehouse in the backwoods of Japan's Izu peninsula, Tomoharu Iguchi makes a living by scavenging parts from long obsolete computers and selling them to businesses. Not just a few businesses, as the Financial Times reports, Iguchi's customer base is a nationwide, 1,000 strong list of Japanese companies that includes major railway operators, auto-parts giants, drugmakers, retailers, and hundreds of small manufacturers.
As the FT explains
Operating from a flimsy hilltop warehouse in the backwoods of Japan’s Izu peninsula, Tomoharu Iguchi is a highly successful technology cannibal. His existence is one of the country’s darker secrets: a necessary strut in a corporate edifice defined by decades of deflation.
For those who picture Japanese production lines at the bleeding-edge of modernity, Mr Iguchi’s business of disembowelling, scavenging and supplying parts from long obsolete computers, seems improbable. His stockroom — a precariously stacked jumble of grimy monitors, half-gutted ’90s-era PCs and spaghetti knots of yellowed keyboard and …read more
Source: How Abenomics Fails: Japanese Firms Choose Salvaged Computer Parts Over Investment
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