Daily Brief: Japan’s Economy Is Getting Smaller, And Its Struggling Manufacturing Sector Needs To Step Up

Daily Brief: Japan’s Economy Is Getting Smaller, And Its Struggling Manufacturing Sector Needs To Step Up

over 2 years ago3 mins

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Data out on Monday showed the Japanese economy shrank yet again last quarter, and its chip-hungry carmakers aren’t exactly helping the country go places.

What does this mean?

Japan’s economy was 0.8% smaller last quarter than it was the quarter before – a much steeper drop-off than the 0.2% economists were expecting. There’s a couple of reasons for that: rising coronavirus cases discouraged shoppers from getting out and about, while supply chain constraints kept factories from firing on all cylinders.

But this isn’t a first – or even a second – for Japan, whose economy has now shrunk for five of the last eight quarters. Now, then, the pressure’s mounting on the country’s new prime minister to get things back on track. His idea: offer households and small businesses cash handouts, in hopes it’ll encourage them to spend more. Still, economists are skeptical: the issue isn’t that the Japanese don’t have money to spend, it’s that they don’t seem particularly fussed about spending it.

Japan GDP
Source: The Wall Street Journal

Why should I care?

The bigger picture: If you can’t buy chips, make chips.

Monday’s data also showed that Japanese factory production slowed down last quarter, as manufacturers like Toyota and Honda continue to wrestle – in a padded thong, presumably – with chip shortages. Good thing, then, that the Japanese government just unveiled plans to expand the country’s chipmaking industry, with the goal of tripling the sector’s revenue by 2030.

For you personally: How about a Japanese vacation?

A newly chip-boosted manufacturing industry could work wonders on Japan’s economic growth and, by extension, its stocks. That, at a time when they’re looking relatively cheap: their forward price-to-earnings ratio – that is, their current value relative to 2022's forecasted profits – is 30% lower than that of US stocks. That might be why Morgan Stanley thinks it’s time you head to the Land of the Rising Sun, recommending over the weekend that you swap your American stocks for Japanese ones.

Morgan Stanley Japan

Keep reading for our next story...

Tyson Foods Reported Better-Than-Expected Earnings As You Pay More For Prime Cuts

Tyson image

Tyson Foods reported better-than-expected earnings on Monday, and investors’ mouths were watering at the prospect of what the world’s second-biggest meat-maker might cook up next.

What does this mean?

Tyson sold 11% less meat last quarter than the same time last year, but don’t sharpen your knives just yet. That was partly down to one fewer week in the quarter compared to 2020, as well as a shortage of factory-floor workers that forced the company to scale back production. And that lower volume was more than offset by rising prices, with the average price of Tyson’s meat products rising by 23% versus the same time last year.

Tyson results
Source: Tyson Foods

That led the company to report better-than-expected results just a week after Brazil’s JBS – the world’s biggest meat company – reported record earnings. Their strategies going forward are very different, mind you: where JBS is looking to beef up its size by buying smaller outfits, Tyson announced a new program aiming to save $1 billion a year by 2024.

Why should I care?

For you personally: Your weekly shop just got pricier.

Tyson isn’t just charging a little bit more: the average prices of Tyson’s beef and pork were 33% and 38% higher respectively than the same time last year. And it’s far from the only company making this decision, with a United Nations report out earlier this month showing that global food prices hit a decade high in October. Those rising food prices come at a time when consumers are already contending with rising costs of other necessities like fuel and housing, and taken together will likely dent people’s spending on life’s non-necessities.

Food prices

The bigger picture: Government meets meat.

This whole situation hasn’t gone unnoticed: the US, for one, said recently that a small group of companies – Tyson and JBS included – hold too much power over setting meat prices. That suggests it might be thinking about breaking those firms up altogether, which might puncture their investors’ currently chipper spirits.

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