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Technology Stocks : Novell (NOVL) dirt cheap, good buy?
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To: Don Earl who wrote (22689)6/15/1998 3:05:00 PM
From: Paul Fiondella   of 42771
 
(Off Topic) JAPAN INC. As an investment

"Since Japan has an extremely low unemployment rate and exports a great deal to the US, it seems to me that a higher exchange rate on the yen would tend to make a lot of their companies more profitable."

Export oriented companies in Japan such as Sony have done well relative to the Japanese domestically oriented companies. But Japan also exports to Asia and those exports are off.

"If a company exports a car to the US for US$ and pays their employees in yen, wouldn't they be looking at an effective 20% cut in payroll expenses from earlier in the year?"

Actually they have to carry extra workers since effective demand is off. Both the Japanese domestic and the Asian export economies are in a recession or worse. If they are able to maintain their US $$$ prices they do get a currency transaction boost.

"Imported raw materials would be more expensive, but there should be a balancing factor between the two."

Well commodities are where the deflation is. Oil prices are sliding as are most raw materials prices dueto the enormous lack of demand caused by the Asian crisis.

"I may have my wires crossed but it seems to be that the current situation should be causing inflation in Japan rather than deflation. Wouldn't prices tend to go up and put pressure on wages?"

With raw materials prices going down and the other Asian currencies depreciating against both the Yen and the $$$, and with effective demand in JApan going down (remember that Rubin wants Japan to stimulate consumer demand) prices are being reduced to attract buyers. This shows up in the profit squeeze underway amongst Japanese companies.

Japan hasn't suffered greatly yet from the depreciating YEN, although it might at 160-180. Unemployment is increasing in Japan. The pressure on wages is also to the downside as exports decline to Asia from Japan, they need less employees for life. keep in mind that unlike the US, the average Japanese family has in excess of $100K in savings and can better weather an economic downturn.

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"I'm almost thinking I should pick up some stock in Japanese car companies, although that's so far outside my experience, I'm not sure if it makes sense."

You might search the London Financial Times or FEER for investment in Asia opportunities, but last I saw traders were remarking upon the bad bet that many US funds made in not contemplating the latest Asian downturn and investing too early.
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