Why The BOJ's Yen-Trashing Has Backfired: Bankruptcies Soaring Among Importers

Last week, Zero Hedge first showed a chart so simple, even a Krugman could get it: at this point (and really ever since USDJPY 110 and higher), any incremental Yen devaluation is destructive for the Japanese economy, leading to an unprecedented surge in corporate bankruptcies and, ultimately, economic depression. 

The obvious logic here led even the Keynesian studs at Goldman to declare that "Further yen depreciation could be a net burden." Unfortunately for Abe and Kuroda, halting the Yen devaluation here would be suicide, as Japan now needs its currency to devalue every single day to mask the fact of the underlying economic devastation, or else the Japanese people may (and should) vote Abe out, which would lead to a prompt end to Abenomics, an epic collapse in the Nikkei, and put thousands of weak-Yen chasing Mrs. Watanabes in margin call purgatory.

Sadly, that will not happen. We say "sadly" because an end end to Abenomics, which is really Krugmanomics now, is the only thing that could save Japan now. And just to prove that, here is Japan Times confirming what we said, with a report that "Corporate bankruptcies linked to the yen’s slide hit a new record in November, highlighting the strains on small and midsize companies as Prime Minister Shinzo Abe campaigns for re-election on his deflation-busting economic strategy."

Forty-two of the companies that failed in November cited the weakened currency as a contributing cause, bringing total bankruptcies associated with the yen so far this year to 301, almost triple that of the same period in 2013, according to a survey by Teikoku Databank Ltd.

It said surging costs of imported food, metals and construction materials are squeezing small companies.

 

The yen broke through 120 per dollar on Thursday in New York for the first time since 2007, as Abe’s handpicked Bank of Japan governor pumps a record amount of funds into the economy to stoke inflation.

...

 

"The business conditions for small and medium-size companies are severe,” said Norio Miyagawa, an economist at Mizuho Securities Co. “The more the yen weakens, the more the drawbacks will become evident, unless the benefits big companies are seeing spill over to consumption through an increase in wages.”

 

By region, the Kanto area including Tokyo accounted for 11 of the 42 bankruptcies, followed by eight each in the Chubu region around Nagoya and the Kinki region covering Osaka, and five in Hokkaido.

 

In the first 11 months of this year, the number of bankruptcies induced by the weak yen soared 2.7-fold from a year before to 301, including 75 in Tokyo, 39 in Osaka, 36 in Hokkaido and 35 in Aichi.

 

“While imported food and construction material prices have soared on the weakening yen, most small companies have failed to pass these hikes on to their product prices,” a Teikoku Databank official said.

 

As the yen continues to drop, the agency expects such bankruptcies to rise further. Since the Bank of Japan expanded its radical monetary easing program on Oct. 31, the dollar has strengthened by about ¥10."

Not enough? Here is some more from Bloomberg:

Eight years ago, Isuzu Glass Co. was held up by Japan’s trade ministry as a star among the nation’s small manufacturers. Today, it’s bankrupt, a victim of the weak yen ushered in by Abenomics.

 

The maker of optical filter glass from the country’s industrial heartland in Osaka was one of a record number of corporate failures last month linked to the slumping currency, according to Teikoku Databank Ltd. Founded in 1905, Isuzu succumbed to a surge in costs of imported raw materials that is pinching many small businesses as Prime Minister Shinzo Abe tries to stoke inflation in the world’s third-biggest economy.

 

Forty-two of the companies that failed in November cited the yen’s drop as a contributor, bringing the total number of bankruptcies associated with the currency this year to 301, almost triple that of the same period in 2013, according to Teikoku Databank. Soaring costs of imported food, metals and construction materials squeezed small companies, it said.

 

“Business conditions for small and medium-sized companies are severe,” said Norio Miyagawa, an economist at Mizuho Securities Co. “The more the yen weakens, the more the drawbacks will become evident, unless the benefits big companies are seeing spill over to consumption through an increase in wages.”

They won't, because the "big companies" realize one thing: the endgame of Keynesian economic devastation in Japan has arrived, and it is so simple a Keynesian caveman can do it.

http://www.zerohedge.com/news/2014-12-05/crashing-yen-leads-record-number-japanese-bankruptcies

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