As the Economy Slows, Japan Inc. Keeps On Shopping

Posted by: Ian Rowley on November 17, 2008

It’s official: Japan, the world’s second largest economy, is now in recession. According to figures posted this morning by the Cabinet Office, Japan’s GDP contracted an annualized 0.4% in the quarter ended September 30, after a 3.7% dip in the April-June period. While not a big surprise, the result was worse than many any economists expected and marks Japan’s first recession since 2001. “Whether it is the U.S., China, Europe or Southeast Asia, no region can be counted on [to boost demand for Japanese exports]. The situation is bound to deteriorate further,” Economy Minister Kaoru Yosano told reporters. “The world economy as a whole is undoubtedly worsening.” Economists agree things will likely get worse before they get better, adding that slumping demand for Japanese exports will be compounded by a weaker domestic economy. No wonder the government is spending about $400 billion, including handing out $20 billion in cash, on two stimulus packages to kick-start the economy.

Still, for all the economic woes, much of Japan Inc. continues to see the current turbulence as an opportunity. Two weeks ago my colleague Kenji Hall and I wrote an article looking at this year’s huge outlays on cross-border M&A by Japanese companies. The deal-making shows no signs of slowing. Last week, Mitsubishi Rayon said it would pay $1.6 billion for UK chemical firm Lucite. Today, brewer Kirin announced a $5.2 billion bid for Sydney-based drinks maker Coca Cola Amatil. The bid, which is being made via Kirin’s local subsidiary Lion Nathan,follows Suntory, another drinks maker, splashing $800 million on New Zealand’s Frucor last month. After the Coca Cola Amatil bid came to light its stock surged as much 45%, but a deal may take a while. In a statement to the Australian Stock Exchange, Amatil said the deal wasn’t attractive to its largest shareholder, Coca-Cola which has a 30% holding. The deal, it said, was “not attractive, and that a number of other conditions would need to be satisfied for its support”. What is clear, though, is that more Japanese deals will follow: With the yen riding high, stock valuations low and massive cash reserves, many of Japan’s companies are well-placed to benefit from the global financial turmoil.

Reader Comments

Iris

November 17, 2008 10:51 PM

It's pretty much true indeed. Japanese firms are truely strategic planners.

pine

November 18, 2008 9:34 AM

Japanese firms, unlike their American counterparts who are driven to look short-term by Wall St, take a much longer term view. Hence we see the perseverence of Toyota and Honda in the hybrid and sedan market shines, when Detroit Three "cling" to the old way. (Hey, wasn't it the same Obama who now wants to bail out Detroit?!) For all the hot air from Obama, he's simply doing what Bush/GOP had promised and done, only he wants to do MORE and BIGGER bailouts.

Bob

November 18, 2008 12:54 PM

Unlike two decades ago, when Americans worry about Japan buying up USA, now all Americans worry about is China. This worry is completely misplaced since China must spend decades focusing on developing their own country. Japan, on the other hand, can't develop Japn any further than they already did, Right now is the perfect time they have been oatiently waiting for to conquer the business world, when USA is severely weakened and China must tend to its own population.

James

November 18, 2008 7:19 PM

The world economy needs to be addressed in a comprehensive manner. America needs to take the lead in terms of identifying the opportunities for growth. Our future investments must be researched by our best think tanks for business development. We need strong leadership.

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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