Japan economic weekly

While the yen shows no signs of ending its ongoing decline in value, the Japanese government has yet to come up with a clear policy response to the currency's depreciation. When the yen is appreciating, there tends to be a groundswell of opinion toward preventing a strengthening in value, but the public's reaction to yen depreciation tends to be more muted and therefore unlikely to trigger a policy response. Although the adverse direct impact on the economy from yen depreciation in the form of higher import prices appears limited at present, we think the authorities should make a policy commitment on forex stability to alleviate the risk of any sudden appreciation in the yen in the future. In our view, forex market intervention would be a more appropriate response than tightening monetary policy, which we think would have negative repercussions for the Japanese economy.

ArcelorMittal and Nippon Steel to share technology

On 13 July, the Nikkei reported ArcelorMittal and Nippon Steel [5401] are to reinforce their business ties. According to the article, they have agreed to a new technological alliance under which they will supply each other with automotive steel sheet in Asia and Europe. Nippon Steel will apparently supply ArcelorMittal with technology for products to be used at European plants of Japanese automakers. ArcelorMittal will apparently provide technology to the Japanese steelmaker for products to be used at European automakers' Asian facilities. ArcelorMittal apparently sought to adopt Nippon Steel's steel production technology in other business areas besides Asia and Europe. However, the two seem likely to forge a technology licensing agreement separately for each region. The move would enable the Japanese steelmaker to avoid outflows of production technology and we think such a development would be in line with Nippon Steel's strategy.

Nikkei reports JFE Holdings' affiliate supplied low-intensity steel materials for use in elevators to Fujitec [6406]

On 13 July, the Nikkei reported that JFE Shoji Kenzai Hanbai, a subsidiary of JFE Shoji in which JFE Holdings' steel manufacturing unit JFE Steel holds 38.5% stake, has been supplying low-intensity steel materials for use in elevators to Fujitec. As a result, Fujitec's elevators failed to meet building standards, necessitating emergency repair works. JFE Shoji Kenzai Hanbai said that the transaction transpired in agreement with Fujitec. Potential costs JFE Shoji Kenzai Hanbai could incur for repair works remain unclear at the current stage. If we assume that related cost at JFE Shoji Kenzai Hanbai will be roughly Y50bn, JFE Holdings' recurring and net profits could be reduced by 4% and 6%, respectively. We thus think that the impact of the news on JFE's earnings will be marginal.