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I’ve just resigned from a global Japanese company. Over the years I’ve been completely baffled by their terrible business decisions, but I have a thought about

by dade_ 4y ago

I’ve just resigned from a global Japanese company. Over the years I’ve been completely baffled by their terrible business decisions, but I have a thought about what is going on. This is zero hedge quality stuff here, so don’t make investing decisions, but I am interested if anyone else sees this. The yen keeps dropping/collapsing as the Bank of Japan keeps their interest rates extremely low (made possible by the government of Japan buying their banks bonds, now owner of over 50%, which is insane, but anyway) they need foreign demand for their currency. So they print yen for their corporations, who go on international buying sprees. The profits from these companies are generally settled in USD, but really any foreign currency will do. The effect is that they are printing yen at no charge, their global corps pay virtually no interest, but even the most boneheaded executive can generate a foreign currency profit for head office that requires converting foreign currency into yen. Of course they destroy these companies through incompetence, so they keep buying more. These companies are ridiculously complex with hundreds (possibly thousands) of commercial entities globally so they are probably impossible for anyone to understand, but my gut tells me this is a massive ponzi scheme that will explode the moment the Japanese central bank raises their interest rate. Anyway, it is a lot of work sorting out what is going on, and I now think the poor financial & business governance is a feature that helps keep the masquerade going.

P5fRxh5kUvp2th 4y ago
Gaijin (foreigner) is considered a rude word, just to put it into perspective.
Nokinside 4y ago
It seems like your narrative does not match the fact. Current account surplus has been the problem for Japan, not deficit. There has been recent change starting March 2022 has depreciated recently, but it only makes Japanese exports more competitive. Japan's massive public debt is internal in domestic currency.
xiphias2 4y ago
While you are right, the special thing in our credit based financial system in the 21st century is that this is happening on a global scale and all major currencies do it (USD, CNY, EUR, JPY). Countries with smaller currencies are even more corrupt of course. While credit based financial system is a ponzi scheme, it has the huge advantage in trading of transfering digitally, which was not possible for any debit based financial system before Bitcoin.
- JumpCrisscross 4y ago
  > this is happening on a global scale and all major currencies do it (USD, CNY, EUR, JPY) This is nonsense. Mathematically. OP argues Japanese companies print “a foreign currency profit for head office that requires converting foreign currency into” a falling local currency. That can’t simultaneously be true of the U.S. dollar and Japanese yen. If one currency is falling the other is rising.
  - nostrademons 4y ago
    It works if you zoom out a level. If all fiat currencies are printing massively and holding nominal rates near zero (and real rates negative), then the value of all currencies relative to goods and services will fall. Owning anything which produces goods and services, at any price, becomes a good bet. You can run this mathematically with a discounted cash flow analysis. Plug in a negative discount rate to any positive series of cash flows. The sum becomes infinite, i.e. under conditions of negative real interest rates, the fair market value for any cash-flowing asset is infinite. This is pretty close to the conditions that exist in most developed economies today, and this is why you see these outlandish valuations for assets. You're seeing the beginnings of a worldwide currency crisis. Most of us who grew up in the developed world over the last 80 years are used to our money being worth something; when this no longer holds, counterintuitive behavior results.
    - JumpCrisscross 4y ago
      > then the value of all currencies relative to goods and services will fall. Owning anything which produces goods and services, at any price, becomes a good bet You’re describing inflation. OP describes accounting trickery around currency conversion. In the short run, yes, inflation boosts revenue. This is well known and why equities are a decent inflation hedge. Decent because in the medium term, as in months, inflation raises producer costs. (Supply-side inflationary pressure, what we saw in the early recovery, raises producers’ prices before consumers’.) > a negative discount rate Inflation doesn’t cause negative discount rates. Also, negative discount rates don’t produce infinite valuations. DCF is a chained present-value calculation. $100 in 5 years discounted at -4% is worth $123 today [1]. (This is how inflation compounds.) That bet, however, requires not only negative rates today, but assurance of that being the case for the next five years. If you’re getting infinities, you’re using a simplified model which assumes r > 0. > seeing the beginnings of a worldwide currency crisis This doesn’t make sense. Fundamentally. Currency crises are a relative phenomenon. You can posit some other crisis, like a worldwide collapse of governments, the sort gold bugs and now crypto peddlers have pitched for centuries. But there is no more evidence of that now than there was in the 19th century. [1] 100 / (1 -4%) ^ 5
spaceman_2020 4y ago
A friend who worked at a major Japanese bank said that its pretty much an unsaid rule that they won’t promote any non-Japanese after a certain level. Can’t see that being good for any business if you constrain outside talent like that.
- thematrixturtle 4y ago
  This applies to most all major Japanese companies. There have been two notable cases of non-Japanese execs rising to CEO, Carlos Ghosn of Nissan and Michael Woodford of Olympus, and both ended up as cautionary tales of what happens when you refuse to be just a pliable figurehead and try to effect real change.
  - makeitdouble 4y ago
    > non-Japanese execs rising to CEO To note, naturalized South East asians do raise to CEO. Son Masayoshi is of Korean ancestry for instance. When you say “non Japanese” I suppose you mean “westerner that doesn’t naturalize”. Which makes me realize, I genuinely don’t know how many US CEOs have kept a foreign nationality while helming a huge company in the US. I’d assume not a lot.
    - jcagalawan 4y ago
      > Son Masayoshi is of Korean ancestry for instance. Korea is East Asian. Southeast Asia consists of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.
    - thematrixturtle 4y ago
      Masayoshi Son is 3rd-generation Korean-Japanese. For all practical purposes he's Japanese, and he naturalized in 1990.
    - fomine3 4y ago
      Son is just a founder. Nothing weird to be a CEO. It's hard to find other asian examples except some industry (for example, pachinko for historical reasons).
onlyrealcuzzo 4y ago
> but my gut tells me this is a massive ponzi scheme that will explode the moment the Japanese central bank raises their interest rate. What makes you think the BoJ will ever reverse this trend (long term)? Japan has had negative real interest rates for 31 years...
- dade_ 4y ago
  I am pointing out one of the many side effects of this policy. 31 years and they still haven’t figured out a way forward. We are all in the same mess, Japan’s situation is just ahead of us. I think their situation is our future. A stagnant economy of zombie companies, a government & central bank playing endless games to avoid collapse and crisis. They will keep this going as long as possible. I hope they do, it would be an instruction manual for us all, but each decade that passes dims my hope.
  - JumpCrisscross 4y ago
    > We are all in the same mess, Japan’s situation is just ahead of us We are in opposite situations. Japan has been fighting deflation for decades. The U.S. deployed massive stimulus to fight deflation and is now raising rates and cutting the budget deficit to fight the resulting inflation.
    - orwin 4y ago
      By the way, i think the ECB reaction is better than the Fed, for the second time in less than 3 years. Maybe the Fed will end up being right this time around but it feels like they are once again acting out of tempo. Maybe being late/inefficient at first with COVID made them react too much now? They might be right still, but the Fed acting as scared as the BoE is a bad look for confidence.
phpisthebest 4y ago
>>massive ponzi scheme I am pretty sure that is the case for almost all the economies of the world that are based on fiat currency combined with debt fueled growth. Which is pretty much all of them. At some point this dangerous game of musical chairs of sovereign debt will end, and it will be bad for all of humanity
- orwin 4y ago
  But no. Money is just a way invented to distribute production that human society invented. Debt is a mercantile, then capitalist tool to push toward creating productive assets (see venitian shipowners or textile factories before the industrial revolution). It now have new use with the banking system, but obligations are still basically the same. Also, while i would rather we don't use debt, it's not at all fueling growth. Growth is fueled by energy use (productivity increase is marginal at best), and growth create liquidity needs, which is either resolved by money printing or by debt. So it's backward.
- fny 4y ago
  We've been here before many times in history. Some debt gets repaid, some is inflated away, some defaults. The real crisis won't be in developed countries because whether you like it or not, you need to borrow and spend in their fiat to do business and EVERYONE wants to do business in developed countries. The crisis will be in emerging markets where no one will be willing to lend if rates hit 5% in the US.
- skywal_l 4y ago
  This is the case for any economy which relies on the easy extraction of cheap but ultimately finite energy/resources. Debt is a human constraints that could be erased by a the stroke of a pen. Sure with political consequences, but civilization have endured these kind of consequences before. Debt have been erased, new currencies erected. Once you run out of oil though... You can't legislate for tractors to run on good will to feed the planet. I am way more worried of actual physical constraints and the consequences of reaching them (ecosystem collapse, political extremism, wars) than our self imposed idiotic economic models.

by dade_ 4y ago

P5fRxh5kUvp2th 4y ago

Gaijin (foreigner) is considered a rude word, just to put it into perspective.

Nokinside 4y ago

It seems like your narrative does not match the fact. Current account surplus has been the problem for Japan, not deficit. There has been recent change starting March 2022 has depreciated recently, but it only makes Japanese exports more competitive. Japan's massive public debt is internal in domestic currency.

xiphias2 4y ago

While you are right, the special thing in our credit based financial system in the 21st century is that this is happening on a global scale and all major currencies do it (USD, CNY, EUR, JPY). Countries with smaller currencies are even more corrupt of course. While credit based financial system is a ponzi scheme, it has the huge advantage in trading of transfering digitally, which was not possible for any debit based financial system before Bitcoin.

JumpCrisscross 4y ago
> this is happening on a global scale and all major currencies do it (USD, CNY, EUR, JPY) This is nonsense. Mathematically. OP argues Japanese companies print “a foreign currency profit for head office that requires converting foreign currency into” a falling local currency. That can’t simultaneously be true of the U.S. dollar and Japanese yen. If one currency is falling the other is rising.
- nostrademons 4y ago
  It works if you zoom out a level. If all fiat currencies are printing massively and holding nominal rates near zero (and real rates negative), then the value of all currencies relative to goods and services will fall. Owning anything which produces goods and services, at any price, becomes a good bet. You can run this mathematically with a discounted cash flow analysis. Plug in a negative discount rate to any positive series of cash flows. The sum becomes infinite, i.e. under conditions of negative real interest rates, the fair market value for any cash-flowing asset is infinite. This is pretty close to the conditions that exist in most developed economies today, and this is why you see these outlandish valuations for assets. You're seeing the beginnings of a worldwide currency crisis. Most of us who grew up in the developed world over the last 80 years are used to our money being worth something; when this no longer holds, counterintuitive behavior results.
  - JumpCrisscross 4y ago
    > then the value of all currencies relative to goods and services will fall. Owning anything which produces goods and services, at any price, becomes a good bet You’re describing inflation. OP describes accounting trickery around currency conversion. In the short run, yes, inflation boosts revenue. This is well known and why equities are a decent inflation hedge. Decent because in the medium term, as in months, inflation raises producer costs. (Supply-side inflationary pressure, what we saw in the early recovery, raises producers’ prices before consumers’.) > a negative discount rate Inflation doesn’t cause negative discount rates. Also, negative discount rates don’t produce infinite valuations. DCF is a chained present-value calculation. $100 in 5 years discounted at -4% is worth $123 today [1]. (This is how inflation compounds.) That bet, however, requires not only negative rates today, but assurance of that being the case for the next five years. If you’re getting infinities, you’re using a simplified model which assumes r > 0. > seeing the beginnings of a worldwide currency crisis This doesn’t make sense. Fundamentally. Currency crises are a relative phenomenon. You can posit some other crisis, like a worldwide collapse of governments, the sort gold bugs and now crypto peddlers have pitched for centuries. But there is no more evidence of that now than there was in the 19th century. [1] 100 / (1 -4%) ^ 5

spaceman_2020 4y ago

A friend who worked at a major Japanese bank said that its pretty much an unsaid rule that they won’t promote any non-Japanese after a certain level. Can’t see that being good for any business if you constrain outside talent like that.

thematrixturtle 4y ago
This applies to most all major Japanese companies. There have been two notable cases of non-Japanese execs rising to CEO, Carlos Ghosn of Nissan and Michael Woodford of Olympus, and both ended up as cautionary tales of what happens when you refuse to be just a pliable figurehead and try to effect real change.
- makeitdouble 4y ago
  > non-Japanese execs rising to CEO To note, naturalized South East asians do raise to CEO. Son Masayoshi is of Korean ancestry for instance. When you say “non Japanese” I suppose you mean “westerner that doesn’t naturalize”. Which makes me realize, I genuinely don’t know how many US CEOs have kept a foreign nationality while helming a huge company in the US. I’d assume not a lot.
  - jcagalawan 4y ago
    > Son Masayoshi is of Korean ancestry for instance. Korea is East Asian. Southeast Asia consists of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.
  - thematrixturtle 4y ago
    Masayoshi Son is 3rd-generation Korean-Japanese. For all practical purposes he's Japanese, and he naturalized in 1990.
  - fomine3 4y ago
    Son is just a founder. Nothing weird to be a CEO. It's hard to find other asian examples except some industry (for example, pachinko for historical reasons).

onlyrealcuzzo 4y ago

> but my gut tells me this is a massive ponzi scheme that will explode the moment the Japanese central bank raises their interest rate. What makes you think the BoJ will ever reverse this trend (long term)? Japan has had negative real interest rates for 31 years...

dade_ 4y ago
I am pointing out one of the many side effects of this policy. 31 years and they still haven’t figured out a way forward. We are all in the same mess, Japan’s situation is just ahead of us. I think their situation is our future. A stagnant economy of zombie companies, a government & central bank playing endless games to avoid collapse and crisis. They will keep this going as long as possible. I hope they do, it would be an instruction manual for us all, but each decade that passes dims my hope.
- JumpCrisscross 4y ago
  > We are all in the same mess, Japan’s situation is just ahead of us We are in opposite situations. Japan has been fighting deflation for decades. The U.S. deployed massive stimulus to fight deflation and is now raising rates and cutting the budget deficit to fight the resulting inflation.
  - orwin 4y ago
    By the way, i think the ECB reaction is better than the Fed, for the second time in less than 3 years. Maybe the Fed will end up being right this time around but it feels like they are once again acting out of tempo. Maybe being late/inefficient at first with COVID made them react too much now? They might be right still, but the Fed acting as scared as the BoE is a bad look for confidence.

phpisthebest 4y ago

>>massive ponzi scheme I am pretty sure that is the case for almost all the economies of the world that are based on fiat currency combined with debt fueled growth. Which is pretty much all of them. At some point this dangerous game of musical chairs of sovereign debt will end, and it will be bad for all of humanity

orwin 4y ago
But no. Money is just a way invented to distribute production that human society invented. Debt is a mercantile, then capitalist tool to push toward creating productive assets (see venitian shipowners or textile factories before the industrial revolution). It now have new use with the banking system, but obligations are still basically the same. Also, while i would rather we don't use debt, it's not at all fueling growth. Growth is fueled by energy use (productivity increase is marginal at best), and growth create liquidity needs, which is either resolved by money printing or by debt. So it's backward.
fny 4y ago
We've been here before many times in history. Some debt gets repaid, some is inflated away, some defaults. The real crisis won't be in developed countries because whether you like it or not, you need to borrow and spend in their fiat to do business and EVERYONE wants to do business in developed countries. The crisis will be in emerging markets where no one will be willing to lend if rates hit 5% in the US.
skywal_l 4y ago
This is the case for any economy which relies on the easy extraction of cheap but ultimately finite energy/resources. Debt is a human constraints that could be erased by a the stroke of a pen. Sure with political consequences, but civilization have endured these kind of consequences before. Debt have been erased, new currencies erected. Once you run out of oil though... You can't legislate for tractors to run on good will to feed the planet. I am way more worried of actual physical constraints and the consequences of reaching them (ecosystem collapse, political extremism, wars) than our self imposed idiotic economic models.