Japan’s ambitious new monetary policy could soon claim its first victim: Microsoft’s (NASDAQ:MSFT) latest console, the Xbox One.
The retail prices of Microsoft and Sony’s (NYSE: SNE) newest consoles were unveiled on Monday. The Xbox One will start at $499, while the Playstation 4 will be priced $100 less.
For video game consoles that will feature many of the same games, a 20% difference in price is a fairly big deal, and it could entice the majority of gamers to go with Sony’s machine instead of Microsoft’s.
Japan’s new monetary policy
Since his election last December, Japanese Prime Minister Shinzo Abe has pushed aggressively to expand his country’s monetary policy. The Bank of Japan has set an explicit inflation target, and has undertaken aggressive quantitative easing measures.
The net effect of all this has to be weakening the yen.
Over the last six months, Japan’s currency has weakened significantly against its US counterpart. The dollar-yen exchange rate fell from 80 last November to 103 last month. It has corrected somewhat, but still sits near 100.
Incidentally, that 20% move corresponds directly to the 20% difference in price between the Xbox One and PlayStation 4. Of course, the devices aren't exactly the same -- they use slightly different components. But Sony’s latest console is actually said to have more powerful hardware than Microsoft’s.
It doesn't seem like much of a stretch to assume that the weaker yen could have played a role in Sony’s decision to undercut Microsoft.
Will the Xbox One fail?
The Xbox One has already faced immense backlash from the gaming community. Specifically, users are turned off by Microsoft’s confusing used-games policy and Internet connection requirement. Add a $100 price difference, and a large swath of Microsoft devotees could be making the switch to Sony.
Of course, that’s far from guaranteed. The Xbox One packs a number of features Sony’s PlayStation 4 lacks. Microsoft has invested heavily in the Xbox One’s home entertainment abilities: it offers users the ability to control their cable box using their voice, for example.
Microsoft has also put a lot of emphasis on its cloud gaming servers. These servers should allow game developers the ability to push the Xbox One’s capabilities by shifting some of the processing workload to the cloud.
At this point, it’s still too early to declare the next Xbox a dud. But if it does fail, that $100 could be a major factor.
Japanese stocks have done well
Along with a weaker yen, Japan’s Nikkei 225 stock index has also benefited from the government’s new policies. Although it’s down 20% from its high, the Nikkei had rallied over 60% in just six months.
Many investors were likely assuming that a weak yen would benefit Japanese companies -- many of which are exporters. The ability of Sony to undercut Microsoft is proof that notion isn't completely wrong.
But Sony is not the only company that stands to benefit. Japan’s automakers, like Toyota(NYSE: TM), could be well positioned. As with Sony, Toyota could look to undercut its American and European rivals.
When he was CEO of General Motors in 2003, Richard Wagoner complained about the value of the yen, which was then trading around 120 to 1.
DoubleLine’s Jeff Gundlach, famed for the performance of his massive bond fund, has said that the yen is poised to fall to as much as 200 to 1. If Toyota was doing well at 120, how much better could it do at 200?
The weak yen should continue to benefit Japanese exporters
As long as the yen stays weak, it should benefit Japan’s numerous exporters like Sony and Toyota. The companies can opt to pocket the yen, or undercut their competitors -- as Sony appears to have done to Microsoft.
While Japanese stocks as a whole may have gotten ahead of themselves, a weaker yen can have a real, meaningful impact on Japan’s exporters.
It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In a new premium report on Microsoft, a Motley Fool analyst explains that while the opportunity is huge, so are the challenges. The report includes regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.
http://beta.fool.com/joekurtz/2013/06/11/japans-government-is-helping-sony-win-the-console/36872/
