Sony and Toyota.
Report on Sony here at Eurogamer:
Sales increased 16.8 per cent year-on-year to 531.5bn yen (£3bn). Sony put this down to an increase in PS4 sales, that old chestnut "favourable impact of foreign exchange rates", and a "significant" increase in network services revenue, which is all those PlayStation Plus accounts and PSN game sales bringing in the cash.
Report on Toyota here at Yahoo/Reuters:
Toyota Motor Corp lifted its operating profit guidance on Wednesday in a widely expected move, as a weaker yen increases the value of sales overseas and makes up for slumping demand at home.What I would submit is that the export firms reduce the price for their products in terms of the import nation's currency first; this is the leading action.
Here, these two Japanese firms originally motivated to do this by a lackluster Japanese domestic business environment due to the domestic austerity policy in Japan; then this leading action results in the adjustment of the exchange rate between the currencies of the two nations in question in the banking systems.
The decisions by the export firms to first lower the prices of their real goods in the import nation's currency terms, ends up increasing total unit sales in the import nation as the goods then represent a better value for the customers in the import nation.
In immediate response, financiers of the trade inventories are then forced make adjustments to their balance sheet compositions due to these price changes by their customers for reasons of both regulatory compliance and to optimize their own business operations.
The result is higher unit sales in the import nation for the export firms accompanied by higher total earnings; and a lower exchange rate for the foreign nation vs. the import nation's currency which (to borrow a phrase from MMT) is the "ratification" of the reduction in the real terms of trade for the export nation via the banking system.
The result is a negative adjustment in the real terms of trade of the export nation, but the export firms and the financiers end up killing it and making a fortune due to this type of adjustment.
11 comments:
Think of strong currency in in these terms. During the crisis Japan did their part. Then Europe & Uk, Now the US. It's selfish cooperation and competition that isn't at all random or disorderly or unpredictable. Its social order and not a simple supply-demand type mathematical equilibrium.
Why not just accept that the weakening of the yen did the trick?
This is the kind of benefit the Greeks could expect if they had a floating currency.
Why not just accept that the electric motor getting warmer increased the output?
Dan, if you hold a Zippo lighter under an electric motor it wont speed up....
I don't understand the analogy Matt. If the exchange rate on a currency changes, the real price of goods priced in that currency changes automatically, even if the sellers don't change their nominal prices.
a negative adjustment in the real terms of trade
OT, but since you mentioned it in passing ..... Japan imports almost all of its raw materials, and applies knowledge to those materials to produce value-added products. When Japan exports a Toyota or a PS4, it does not lose any knowledge. To the contrary, the more knowledge products Japan makes, the more knowledge Japan gains.
If the Toyota was made with iron ore from Australia, then perhaps that is a real cost to Australia. It is not a real cost to Japan.
Dan, labor is a real cost. Japan workers are exporting its productivity rather than using it domestically. That is a real cost to Japan.
However, when what is being exported is either digitally produced or made robotically, then the real cost diminishes significantly.
Although imports are a real benefit to the importer, they come at the cost of embedded labor that may supplant domestic labor leading to increased unemployment and declining capital investment unless this is addressed. So the cost of embedded labor has to be considered against the real benefit of goods received.
I'm examining cause and effect Dan...
iow for a hypo ex-EUR Greece to get the "devaluation" then I assert that Greek exporters (olive oil? pistachios?) are going to have to first lower their prices in Euro terms to potential EZ customers... THEN the currency adjusts due to this change in the real terms which has to come first...
Which may not be perceived as a 100% "benefit" (real terms) to those export product producers in Greece...
iow when we would say "a country can devalue its currency to get more competitive..." imo that is not what is really happening as you virtually never see the govt/CBs do this... that may be a "result" that we can see, but the "cause" is not the govt/CB directly doing this imo...
The firms involved in the trade are the entities that are the cause of the exchange rate adjustments... the banking systems just respond to these changes in the real terms in order to remain within regulatory compliance and the published exchange rates are then seen to move up or down...
rsp,
An other thing Tom is that labor may only be one part of it....
There are also the interests of the shareholders ( ie "the capitalists") we have to also see it from their POV...
iow if the firm lowers the price, then the shareholders real terms are negatively effected also... "poor capitalists"! ;)
....I realize that the well-being of the 1% may not be paramount in your mind.. ;)
but even so if they get the sales volume increase, the firms may "make more money"... but Toyota selling a Camry for $2500 less is not in the ultimate best interests of the shareholders... generally you want to get the highest price possible for your product...
But they have to do what they have to do if the Japan domestic policy shifts to austerity... may have to put product on sale in the US ... if this austerity reverses then they can go back to raising prices to US customers....
rsp,
Matt: What does Greece have to do with Japan? The Greeks use the Euro. It doesn't float and the Greek central bank can't intervene to change the exchange rate the way the Japanese central bank did.
Yes, Greece cannot lower its real export prices and boost it's exports without lowering its nominal prices too, because it doesn't control its exchange rate. But if it did control its exchange rate, it could lower its real prices and while leaving nominal prices where they are. Its exports would surge, and imports would decline, but the prices Greeks charge one another for their domestically produced goods would stay more or less the same. They should get more employment and more output, but for those who are already employed the standard of living might go down as imports become more expensive.
Also, if a country has its own currency, it can do the opposite vis-a-vis some foreign currency, as the Swiss central bank did a couple of weeks ago. It can buy less of the foreign reserve currency, thus letting its own currency appreciate against that currency. That will make its exports more expensive and its imports cheaper, while again domestic prices will be relatively unaffected. There may be be less employment and a drop in output, but the quality of life for those who are employed will go up a bit as imports become cheaper.
When you say, "The firms involved in the trade are the entities that are the cause of the exchange rate adjustments," you are thinking only of free market changes in floating exchange rates that are driven entirely by such factors as real labor costs, productivity and the desire for various kinds of foreign products. But central banks can intervene in those processes in various ways to engineer the exchange rates they want.
So Matt what you are saying is;
1. An exporter nation shifts to austerity.
2. Domestic sales inside the nation drops as a result of austerity.
3. Business try and keep their sales up by decreasing their prices in their foreign markets.
4. banking systems just respond to these changes in the real terms in order to remain within regulatory compliance and the published exchange rates are then seen to move up or down...
Can you give a more detailed description of how number 4 works? I've read this article by Neil Wilson http://www.3spoken.co.uk/2014/08/scottish-independence-myths-how-to-buy.html
I'd love to see how your theory fits into his description of how international trade works.
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