Vietnam to benefit from new wave of Japanese investment

Japanese Prime Minister Shinzo Abe has issued many new policies from defense to economics. Abenomics, his bold economic policy launched nearly two years ago to rebuild the economy of Japan, could create a war between "the money-making machines" in the world. This article introduces this policy and its impact on Vietnam.

Although Japan has regained growth momentum, the economic policies of Prime Minister Abe continue to be challenged.

Abenomics includes three main pillars: loosening monetary policy, boosting public spending, and deep and wide economic growth policy.

According to the Japanese government, in the second quarter of 2014, Japan’s GDP fell by 7.3%. The real GDP decreased 1.6% in Q3. According to experts, an economy that decreases two consecutive quarters is falling into recession.

An opposite effect of Abenomics is the implications of a cheap yen. According to the Tokyo Shoko Research Research’s research conducted late last year, 48.4% of Japanese companies said they were negatively affected by the consequences of the rapid devaluation of the yen. 22.7% said that they were under both positive and negative impacts. The particularly negative effect cited is the increase in the price of imported goods.

Among the businesses affected by the depreciation of the yen, 80.8% said they were not able to adjust the import price through product prices. When asked about measures to be taken to deal with the depreciation of the yen, 73.2% were pessimistic, saying that they did not have feasible measures.

Another consequence is the trade deficit. It is worth noting that the trade deficit of Japan has lasted for 29 consecutive months, while Japan is a country whose economy relies on exports.

The economist also pointed out that Abe’s policies have not succeeded in increasing income for the people. The average income of households fell in September 2014, marking a decline in 14 consecutive months.

The bad news about the Japanese economy has caused criticism of Abenomics, especially from Jeff Kingston, professor of politics at Temple University in Tokyo, who said bluntly: "Abenomics is a failure".

2015 outlook

In the bleak context of 2014, comments on the outlook of the economy in 2015 of the world's third largest economy were not optimistic.

According to a 2015 survey by the leading business statistic agency of Japan - Teikoku Data Bank - conducted earlier this year, the number of companies optimistic about the prospect for the new year declined, while concerns over the cheap yen rose abnormally.

Specifically, only 13.4% of companies in the survey said that the economy will recover in 2015, nearly half compared to the survey in 2013.

In addition, the pessimistic rate increased from 16.5% of the previous year to 26.8%. The cause of concern is still ... the depreciation of the yen while it is one of the "three arrows" of Abenomics.

According to analysts, the Government of Japan has gone too far in easing monetary policy, causing the yen's exchange rate to drop too much.

In the context of Japan falling into recession, international organizations such as the Organization for Economic Cooperation and Development (OECD), the International Monetary Fund (IMF) and others lowered growth forecasts for the economy.

OECD said the third-largest economy in the world is expected to grow by 0.8% in the 2015 fiscal year, lower than the 1.1% previously announced. IMF also cut growth forecast for the Japanese economy in 2015 to 0.8%, lower than initially expected figure of 1.0%.

Will Vietnam benefit?

According to economic experts, the yen weakness will cause two main disadvantages to emerging countries in the region. There will be less need to import products from Japan, and Japan's exports will have better competitive advantage thanks to cheap prices. The worst affected economies will be South Korea, Taiwan and the Philippines.

However, with Vietnam, the impact can be much less, and could even benefit the country if it know how to take advantage of it.

In 2013, the yen depreciated by 17% against the US dollar, but Vietnam gained a trade surplus of nearly US$2 billion from Japan, with export turnover of US$13.65 billion.

Also in 2014, its exports to Japan reached US$14.70 billion, an increase of 7.7% compared with 2013.

On the other hand, many Vietnamese companies using yen loans also significantly benefit from the rising price of the VND against the yen. It also benefits companies importing raw materials from Japan or those doing business with Japanese partners.

To reduce reliance on the US dollar as well as risks of exchange rate uncertainties, many enterprises of Vietnam and Japan have used the yen for payment. The cheap yen policy has brought about significant profits.

In addition, Japanese companies doing business in Vietnam also benefit by avoiding direct influence from Abenomics.

According to a new survey published by the Japan Trade Promotion Organization (JETRO), 60% of Japanese companies in Vietnam are profitable, and 70% of them are planning to expand business scale. In this context, many Japanese companies will promote foreign investment, and Vietnam can receive a new wave of investment from Japan.

Japan is the largest provider of official development assistance (ODA) for Vietnam. If Vietnam must pay maturing debts in this period, with the current yen exchange rate, Vietnam will save a considerable amount of the national budget.