Spot exchange rate for Japan

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FORECASTING THE YEN RATE
Central Global Economic Outlook
We continue to forecast a gradual slowdown in global economic growth over the next two years. We expect growth of 4.9% in 2004 to fall to 4.2% in 2005 and 3.8% in 2006. In terms of the advanced economies (UK, US, Europe and Japan), we continue to expect aggregate growth of 3.2%, 2.6% and 2.3% over the same three-year period.

There is little evidence pointing to a sustained upswing in global core inflation. We continue to expect that core inflation will reach a peak next year before edging lower in the latter part of 2006 in response to slower economic growth. In particular, we forecast the average of UK, European, Japanese and US core inflation to be 1.5% in 2004, 1.7% in 2005 and 1.8% in 2006. Meanwhile, headline inflation is expected to fall back as year-on-year changes in energy prices become more benign.

Interest Rates and Bond Markets
We continue to forecast the Fed Funds rate will rise to 4.0% in 12 months, which is marginaly lower than is currently priced into the futures market. We continue to expect UK base rates to remain at the current level of 4.75% before easing to 4.5% in the final quarter of this year. We still anticipate the European Central Bank will keep interest rates on hold at 2% before raising them to 2.25% in the fourth quarter of this year. Meanwhile, in Japan a first upwards move in spring next year looks plausible.

On a 12-month view we continue to target the following levels for 10-year government bond yields: US at 4.4% - in line with end-February levels; UK at 4.75% - in line with end-February levels; Eurozone at 3.8% or 10bps higher than end- February levels; and Japan at 1.7% (+25bp). This view translates into low positive local currency returns on a 12-month view, with the exception of Japan where we are forecasting a small negative return.

In February the US dollar fell 0.9% in Bank of England trade-weighted terms. Looking over the next 12 months, the US dollar remains undervalued against sterling and the euro. We expect it to rally as foreign direct investment is attracted back to the US, interest rates rise and the current account deficit shows signs of improvement. Over the coming year, we forecast the dollar will strengthen to US$1.18 against the euro and US$1.65 against sterling. We forecast the dollar/yen rate to be at ¥107 in 12 months time.

RISKS IN DOING BUSINESS IN JAPAN

Business in Japan. Why can it be so very difficult?

Japan was never a western colony - and that is not a coincidence, but largely due to Japanese people's strong will and traditional abilities. Some (not all) western companies find it difficult to succeed in Japan. Reasons are:
§ Japanese customers can be very demanding, and often have quit different tastes and needs than Western customers. Therefore in many cases western companies must redesign or redevelop products in order to succeed with Japanese customers. Examples where this is the case range from baby napkins, to tooth brushes, cars and mobile phones.
§ Because of Japan's size, substantial investments are necessary, and therefore the inherent risks are also large: you either win big, or lose big.
§ Japan has many very strong local companies. As an example, eBay lost in Japan against local competition and withdrew from Japan. Japanese companies also will not usually welcome a new competitor, but develop strategies to compete hard against new entrants. You must be prepared for such competition with very thorough market research and strategy development. If you do not thoroughly understand your competition in Japan, you have little chance to win. In order to win in Japan you must understand and must be prepared and able and willing to compete with local competition.
§ Management methods and the actual managers at headquarters in US and EU have certainly won many achievements in the US and Europe and elsewhere. In many cases, however, Western managers and Western management teams are ill prepared to succeed in Japan. In many cases, drastic changes in thinking and manaagement methods and personell changes at headquarters would be necessary to succeed in Japan. However, there are not many Western companies, which act on this knowledge.
There is a whole range of well-known mistakes foreign companies have been making over the years. Don't make any of these well known mistakes!
Much of it is common sense. However, you also need to study a lot of facts about Japan, and customs. You will find that some assumptions you made are wrong! You'll also find (surprise, surprise...) that not everybody (Japanese and foreigners) tells you everything they know.
Some "well known mistakes" lie in the organization of your own company!
Sometimes problems in a Japanese subsidiary are best solved by changing responsibilities in the main office at home! We would be delighted to discuss such issues with you and work on a solution using our large range of experience.
A big "No-No":
The biggest "no-no" is not to do proper preparation, or to start without a strategy. You can assume that normally your Japanese partners will do their preparations and they will have a big ...