Japan and the delay to pre-tsunami production capability

Japan continues to struggle with hindered production capabilities which have become a serious issue in the recovering economy. The break in the supply chain that has had knock on effects all over the world, especially in the US, is a concern for business that have traditionally adhered to the ‘just in time’ method of manufacturing where the concept was to avoid tying up capital in parts and components waiting to be used to produce the end product. The method, which its self is an export of Japan, has kept the supply chain lean and has enabled capital to be invested and used elsewhere as wastage was kept down to a minimum. Since the Tsunami, the JIT method has now worked against these businesses as inventories run out and production grinds down to a slow pace as business wait in anticipation for manufacturing to increase back to full production.

The power shortage is also a factor as factories have had to stagnate their production and factories are closing down towards the end of the working week and opening on a weekend in an attempt to even out the power usage across the grid and take the strain off of the dilapidated power supply. Many power stations are not online with only 30% of the nuclear power stations actually powering the country after the Tsunami disaster has either disabled them or they are going through a maintained period.

The rebuilding effort of the worst effected areas may provide a much need respite in that the boost to the economy could help start turning things around for the ailing nation, however the government has been criticized for not pushing through the rebuilding effort quickly enough.

This has led to a slump in exports for Japan and has produced a trade deficit of 463 billion yen. The country has posted a production reduction of over 15% and exports have fallen by 12.5%. This could lead to a side effect in that the yen may actually become weaker as less currency needs to be acquired if the world market is not buying as many Japanese products. If the yen does depreciate then this could lead to an accelerated boost in exports once the countries production capabilities are back to pre-tsunami levels. Many Japanese companies are posting backlogs of orders which will also accelerate recovery. However this may also create a situation which may make the yen stronger than before as demand for the yen surges after a rush for Japanese produce that are back on the shelves.

Looking at the technical analysis of the yen against the GBP, EUR and USD, the yen seems to be trading sideways in equilibrium until the fundamentals push the pairs in a direction.

The USD/ JPY has long targets to 81.086, 82.968 and 87.077 and short targets to 78.285 and 72.710 based on key support and resistance targets.

The EUR/ JPY is trading with key buying and selling levels at 114.615, 115.228 and 116.454 to the upside and 113.849, 112.224 and 109.589 to the downside.

The GBP/ JPY has long targets to 128.953, 130.458 and 131.211 to the upside and 1127.651, 126.435 and 124.583 based on key support and resistance levels as well as fibonacci projections.

Please see the attached chart below....