The headline says nothing but good news for Toyota, and by extension the viability of Abenomics. The Japanese carmaker is boosting its guidance for this year in terms of both revenues and profits. And it is all a sham, as this Financial Times article makes clear in very short order.

First, the “good”…

“Toyota has raised its full-year profit expectations after the weaker yen and stronger US sales pushed up interim net profit.”

…immediately followed by reality.

“However, the Japanese manufacturer reported a year-on-year drop in the number of vehicles sold in the six months to September 30, as intensifying competition in southeast Asia and sluggish European demand weighed on volumes.” [emphasis added]

More revenue, but fewer cars sold. All that changed was the unit of measurement, the yen devalued. No additional activity has been created, no reason to hire more workers or increase wage rates. It really is just an illusion.

But here is where it really all breaks down. The problem with this appeal to currency distortion or inflation as an economic tonic goes beyond the weakness of misconception. Instead of creating a virtuous circle of economic beneficence, as companies are expected to view this currency-driven expansion of revenue favorably and commit to real risk (expanding production volumes and then capacity), the opposite actually occurs.

Companies, unlike economists, are not fooled by this revenue conversion. Instead they respond to threats of inflation and currency instability exactly as Toyota openly proclaims in the same article.

“Nobuyori Kodaira, Toyota executive vice-president, partly attributed the upgrades to the impact of the weak yen, but added: ‘We will make further efforts to reduce costs . . . so we will be less susceptible to currency volatility.’”

More revenue, more profits and still Toyota promises to reduce costs (via wages and less hiring) as they sell fewer cars. The monetary illusion is not a neutral proposition; it is a malignancy on business, transferred into economic dysfunction via exactly this kind of behavioral response.

How much more evidence do they need? It’s easy for economists to chalk this up as an anecdote, but this Toyota narrative matches the empirical measure of both economies far closer than the official, mainstream deception. Every member of the FOMC and governing committee of the BoJ needs to listen closely to what Toyota is saying, and more importantly doing. There are no mysterious “headwinds”, only monetary interference.


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