After months of defiant forecasts, the yen ended last week with a near-vertical plunge below its belt and a glimmer of more craziness to come. The Japanese authorities have opened their playbook to the page on bogus interventions. A glut of central bank announcements next week should reignite the turmoil.
It might be a tough time to be a forex analyst, but it looks like a brilliant time to be a Japanese robot.
The yen’s sharp fall against the dollar this year has highlighted some pressing questions about Asia’s largest developed economy. Japan is a resource-poor country that imports most of its energy, food, and raw materials; he allowed wages to stagnate for two decades and must now protect a declining and aging population that has largely forgotten the pain of inflation; its companies have moved nearly 40% of their manufacturing capacity overseas since 1995, muddling the question of whether a weak yen is fundamentally good or bad for industry.
But those uncertainties increasingly look like factors that are pushing Japan far more decisively to the brink of its next robotic revolution — an even more heartfelt embrace of automation that could serve as a model (or, if trial and error, warning) for South Korea, China and other economies where labor markets look set to tighten indefinitely.
The simplest argument lies in the exchange rate itself: not the lowest the yen has reached in recent weeks, but the 50-year low at which the real effective exchange rate of the yen (a weighted rate based on exchange adjusted for inflation) stands.
The economics suggests that this cheapness should be a trigger for Japanese companies to bring production back to shore. There is already evidence of such movements: several clothing manufacturers recently said they would bring production of high-end products home due to the weak yen. Japanese companies are jointly investing with Taiwanese chipmaker TSMC in a $7 billion factory in southern Japan that has become a benchmark for relocation in the era of weak yen.
The hurdle facing such plans is the tiny unused capacity of the Japanese labor market. The only way to make such a project work is if it is built to operate with an absolute minimum of human personnel.
In theory at least, this means a boon for industrial automation specialists and producers of industrial robots. The problem, however, is that for now, there are overwhelming signs that most Japanese manufacturers are far from being in relocation mode with robots.
In fact, Japanese manufacturers seem more eager to push even more capacity overseas, as they now view proximity to customers as more critical than yen competitiveness. Days after the United States enacted its Cut Inflation Act last month, Toyota, Panasonic, Honda and other giants collectively announced $20 billion in new US-based factories. Tax incentives established by law encourage others to follow.
But a second, more powerful set of currency-related forces, combined with demographic decline, still point firmly to Japan’s robotic future. As the yen tumbled and the country began to reopen after the pandemic, many noted how cheap Japan (especially its fabulous restaurants) looks like to the outside world.
But while the weak yen, a $12 plate of high-end sushi and a tourist’s delight cast a timely spotlight on Japanese prices, the underlying good market has been brewing for decades – those long decades. of unraised wages and deflation that weighed on the wallets of suppliers and consumers of that first-class lunch.
The problem for Japan, which companies are now clearly foreseeing, is that the permanent wage suppression, combined with a now structurally weak yen, will make it difficult to offset long-term population decline by attracting large-scale immigration.
The the yen doesn’t have much to fall anymore, argues Monex adviser and economist Jesper Koll, before a high-end nurse in Manila won more than an entry-level nurse in Tokyo. For sectors like healthcare and construction, where robots are clearly not ready to take over, the outlook is troubling. Elsewhere, however, the situation portends a golden era of automation.
Last month, Family Mart, Japan’s second-largest convenience store chain, began launching shelving machines who have finally mastered the vital task of ensuring beverage bottle labels are all facing exactly forward. Armed with this skill, the minimum number of human employees in each Family Mart branch can now be halved. The robots are coming.