The smile on Kazuo Hirai’s face shows why the yen’s drop below 100-to-the-dollar is as much a curse for Japan as a blessing.
The Sony Corp. chief executive officer is beaming because his company has produced its first profit in years. Did the troubled giant that redefined consumer electronics with the transistor radio and then the Walkman dream up a new gadget better than Apple Inc.’s iPhone, iPad or iPod? No. Has Sony raised productivity or halted dangerous infighting between departments? Nope. Is the company cutting costs and staff quickly enough to compete in a rapidly changing marketplace? Hardly.
No, Sony’s 43 billion-yen ($422 million) profit for the fiscal year ended March 31 largely grew out of one thing: the yen’s more than 20 percent plunge against the dollar since November. The problem is that the swooning currency -- which has made Sony’s Playstations and Blu-ray players far cheaper for customers abroad -- is taking the onus off Hirai and the rest of Japan Inc. to claw their way back through innovation and improved efficiency.
That’s one of three reasons why Prime Minister Shinzo Abe’s much-hailed success at debasing the yen isn’t the godsend that executives and investors seem to think. The other two: Japan’s growing appetite for energy imports, and the steadily increasing likelihood of a currency war.
Losing Its Way
Perhaps no company is more emblematic of Japan Inc.’s need to reinvent itself than the one Akio Morita and Masaru Ibuka founded amid the rubble of 1946. What many Americans feel about Henry Ford or Steve Jobs, Japanese think of Sony’s founders. Their fabled success was a cornerstone of Japan’s post-World War II resurgence. Then Sony, much like Japan, lost its way. The transition from rapid expansion and ballooning profits to stable growth proved difficult. In the years after Japan’s 1980s asset bubble burst, Sony found itself bloated, sitting on too much debt and devoid of the creative spirit that once revolutionized entire industries. Today, Sony exemplifies Japan’s plight -- pressed on all sides by rising, nimble and low-cost rivals.
Like his predecessor Howard Stringer, Hirai spends much of his time working to streamline the company, and the rest praying for a weaker yen. Now that Abe has delivered the latter, will Hirai forget why Sony became an also-ran compared with rivals such as Samsung Electronics Co. and Apple Inc.? Sony’s problem has never been the yen. The problem is that other than the occasional blockbuster movie, the company no longer makes things that consumers want.
German exporters don’t bellyache about exchange rates; they adapt, innovate and continue to make money. Japan has never learned that lesson -- and it’s not likely to do so this time. There’s a real risk that companies like Sharp Corp. and Nissan Motor Co. will see the weakening yen as an all-clear sign to stop reinventing themselves and thinking up new technologies and products. The moment Japan Inc. collectively does that, “Abenomics” will become more of a threat to the future than a revitalization plan.
Second, Japan is now importing more energy than it has in decades. Ever since the March 2011 earthquake and radiation crisis in Fukushima, there has been a massive public backlash against nuclear power. With all but two of its 54 reactors now offline, resource-starved Japan has to buy more and more oil, coal and gas from overseas.
Earlier this month, Abe brought a 100-strong delegation of Japanese business leaders to Russia, Saudi Arabia, Turkey and the United Arab Emirates to seek out energy bargains. No matter how cheap the deal, though, today’s yen buys a lot less than before.
Higher energy prices passed along to consumers and companies will undermine Abenomics. The government’s fiscal trajectory will grow uglier as it subsidizes rising energy bills. Also, the combination of a weaker yen and growing demand for energy could cause the wrong kind of inflation. Replacing deflation with stagflation isn’t progress in anyone’s book.
Consider the dilemma facing exporters, too. Fujitsu Ltd. plans to raise domestic computer prices as the yen’s drop to a four-and-a-half-year low boosts the cost of importing components. Toshiba Corp. says it may do the same. How are companies like Panasonic Corp. that aggressively moved production to China going to add jobs in Japan to help Abenomics along? It will be enough of a challenge to sell to Japanese, whose purchasing power is waning.
Third, the yen’s weakness is sure to increase global tensions. Trade partners, including Australia, New Zealand, the Philippines, South Korea, Switzerland and Thailand, are scrambling to cap their currencies. What happens when China, already at loggerheads with Japan over a disputed set of islands, joins them?
Japan avoided a formal rebuke from Group of Seven finance chiefs over the weekend. Yet we live in a Group of 20 world, and key members such as China won’t sit idly by as Japan does exactly what the West is warning officials in Beijing not to do. As China’s growth slows, President Xi Jinping may well turn to a weaker yuan to boost exports, happily taking political cover in Abe’s own devaluation efforts.
None of this seems to worry Japan’s corporate chieftains. Consider the reaction of Nissan’s Carlos Ghosn, one of Japan’s most talented CEOs over the last decade, to the yen’s plunge: “The headwinds have been removed, but there are no tailwinds.” Translation: We need a bigger devaluation. Sadly, that’s precisely the kind of complacency that brought Japan Inc. to this pass in the first place.
(William Pesek is a Bloomberg View columnist. The opinions expressed are his own.)
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