By Atsuko Fukase
TOKYO—The yen is touching 15-year highs, which is good news for a host of Japanese companies heading abroad on spending sprees.
The value of foreign deals struck by Japanese buyers this year has nearly doubled to $21.77 billion from $11.77 billion, according to research firm Dealogic. The number of deals also has risen, to 291 from 244.
The strong yen is pinching Japanese exporters and threatening to derail the nation's economic comeback. But the stronger currency is good incentive for acquisitive Japanese companies, giving them greater buying power and smoothing the way for more international deals as companies look to escape the slow growth and aging population they face at home.
"We love the strong yen. Sorry to other Japanese companies, but we really, really like the strong yen," said Hiroshi Mikitani , chief executive of online retailer Rakuten Inc., which reached a deal to acquire U.S. online retailer Buy.com for $250 million in May and French Internet marketplace PriceMinister SA for €200 million, or $255 million at current rates, in June.
The tally of acquisitions still trails figures for 2008, when by this time that year corporate Japan had announced $40.8 billion in deals. Still, Japanese companies are flush with cash and can acquire local businesses to fuel growth more quickly than building their own businesses abroad, executives say. Acquisitions of companies with strong domestic demand, such as retail and food sectors, are particularly attractive.
Among other deals struck in recent weeks, Nippon Telegraph & Telephone Corp. reached a deal to buy Dimension Data Holdings PLC of South Africa for $3.1 billion, making it Japan's biggest deal yet in Africa. Kirin Holdings /zigman2/quotes/201605850/delayed JP:2503 +2.87% Co. in July agreed to acquire a stake in Singaporean brewer Fraser & Neave Ltd. for nearly $1 billion and JFE Holdings /zigman2/quotes/204336633/delayed JP:5411 +1.46% Inc. agreed to acquire a minority stake in India's JSW Steel Ltd. for more than $1 billion. In March, Japan's Astellas Pharma /zigman2/quotes/205432752/delayed JP:4503 +1.81% Inc. purchased OSI Pharmaceuticals Inc. of Melville, NY, for about $4 billion in the biggest deal of this year to date.
The latest binge isn't on the scale of Japan's prior U.S. spending sprees, which sometimes met with strong resistance. In the late 1980s, Bridgestone /zigman2/quotes/205589013/delayed JP:5108 -0.33% Corp., a tire maker, acquired Firestone Tire & Rubber Co. and Mitsubishi Estate /zigman2/quotes/208910776/delayed JP:8802 +1.41% took control of New York's Rockefeller Center. Sony Corp. bought Columbia Pictures Industries Inc. for about $4.2 billion. And in 1990, Matsushita Electric Industrial Co., now Panasonic Corp., spent $6.1 billion for MCA. After a long recession in the country, Japanese companies again went shopping abroad before the financial crisis. In 2000, Toshiba /zigman2/quotes/205628942/delayed JP:6502 +2.07% Corp. bought Westinghouse Electric. And in 2006 Japan Tobacco /zigman2/quotes/208255672/delayed JP:2914 +0.11% Inc. acquired Gallaher Group PLC for 2.2 trillion yen ($25 billion).
Japan's recent deal activity, which hasn't stirred similar controversies, has been especially strong in the developing world in such countries as India, with the value of deals struck there rising 56% in the first half of the year to $5.47 billion from a year earlier.
"After a slowdown during the uncertainty of the global financial crisis, renewed confidence in the economic recovery is prompting Japanese firms to resume deployment of their accumulated cash piles on strategically compelling outbound acquisitions," says Steven Thomas , co-head of mergers and acquisitions for UBS Securities Japan.
A strong yen makes Japan's exports—a cornerstone of the domestic economy—less competitive overseas. So the currency's appreciation threatens Japan's string of recent quarterly economic growth reports. Japan on Monday reported a disappointing 0.4% annualized growth rate for the quarter ended in June.
That continued to put pressure on policy makers on Friday, when a group of more than 100 lawmakers from Japan's ruling Democratic Party of Japan urged Tokyo and the central bank to take "immediate and extensive action" to rein in its strength.
Though it isn't clear how seriously policy makers will listen to the group, whose influence over policy decisions appears limited, the statement underscores the level of concern among Japanese politicians over the yen's recent advance as well as criticism that the government and Bank of Japan aren't doing as much as they can to combat economic stagnation.
A strong yen isn't welcomed only by acquisitive Japanese companies. The same factors pushing the yen up also are pushing Japanese interest rates down, reducing the government's borrowing costs at a time when its massive public debt is under scrutiny. A strong yen also gives consumers greater purchasing power, especially for imported goods, though deflation fears could work against that trend and keep customers on the fence as they wait for prices to fall further.
Many of the recent deals likely would have been done regardless of currency markets, but the stronger yen helps. Japanese companies also have deep wallets, thanks in part to a reluctance to spend during the global financial crisis. According to preliminary flow-of-funds data for the quarter ended in March from Japan's central bank, the outstanding balance of cash and deposits for Japanese private-sector businesses excluding the finance and insurance sector totaled 202.71 trillion yen, or about $2.35 trillion.
That is the highest since 1997, when the central bank started disclosing figures by quarter, and an increase of 3.1% from the three months ended in December.
Much of the recent deal making is focused on emerging markets, where outside of the resources sector Japanese companies have been less active than U.S. and European peers.
"The U.S. was once the most important market in Japanese outbound cross-boarder deals, but now [buying a U.S. firm] is just one of many options given that the importance of the emerging countries has enormously increased" said Koichiro Doi , executive director of investment banking at J.P. Morgan Chase & Co.
In the first half of this year, the number of foreign acquisitions by Japanese businesses totaled 245, according to Dealogic.
Japanese nonlife insurer NKSJ Holdings /zigman2/quotes/201620552/delayed JP:8630 +0.88% is purchasing a majority stake of Turkey's Fiba Sigorta Anonim Sirketi for 28.1 billion yen. Sompo Japan President Kengo Sakurada said in an interview in June that the company will continue hunting for small deals mostly in emerging countries, aiming to spend about 200 billion yen in the next three years. Mr. Sakurada said investing in several regions would help the company diversify risk.
In June, another property-and-casualty insurer, MS&AD Insurance Group Holdings /zigman2/quotes/203653851/delayed JP:8725 +0.84% Inc., agreed to buy a 30% stake in Hong Leong Assurance Bhd. in Malaysia for about 25.4 billion yen. SBI Holdings /zigman2/quotes/200067066/delayed JP:8473 -0.98% Inc., a Tokyo financial services provider, acquired about 10% stake in Sri Lanka's Commercial Bank of Ceylon PLC to expand its business in South Asia.
Takashi Nakamichi and Daisuke Wakabayashi contributed to this article.
Write to Atsuko Fukase at firstname.lastname@example.org