|People used to fear Japan not so long ago, but now we have another situation.|
With shrinking prospects at home and the threat of further yen weakness, Japanese companies are rushing to buy overseas and seem willing to pay top dollar, as shown by Japan Post's $5 billion bid for Australia's Toll Holdings (TOL.AX).
Over the long term, Japan's demographics give a bleak prognosis for domestic demand; the population has been falling for a decade and is projected to drop from 127 million to 87 million by 2060, 40 percent of whom will be over 65.
But bankers and analysts say a more immediate impetus to the dash for overseas growth is the fear, in an era of deflationary pressure and huge monetary stimulus from Japan's central bank, that the weak yen will fall still further, making overseas targets more expensive if buyers don't strike now.
All of which demonstrates the counterweight to Prime Minister Shinzo Abe's efforts to kickstart the stagnant economy after decades of deflation and insipid growth.Actually, the unintended effect of all the easy money being unleashed by the Bank of Japan is for firms to spend not at home but abroad:
The value of outbound Japanese acquisitions so far in 2015 is already at $27 billion, nearly half of the $56 billion total for all of last year, Thomson Reuters data show. By contrast, the value of domestic deals has more than halved since 2011, last year hitting a 16-year low of $36 billion [my emphasis].
Remember back in the 1980s when the widespread fear was that Japan was going to buy up the West? Sure the Japanese are again investing large sums of money abroad, but now they are doing so not because of overconfidence in Japan's future prospects but a lack of confidence. Things change, my dear, as flights out of Japan are becoming more crowded than those coming in.
After two years of stimulus from the central bank to boost inflation, consumption and investment, Japanese companies, excluding financials, have amassed record holdings of cash, reaching 233 trillion yen ($1.96 trillion), or 24 percent of their total assets.
Some of that money is now being put to use in overseas acquisitions. "This trend is set to continue," said Kengo Nishiyama, senior strategist at Nomura Securities.