Japan's Exporters Confront 'Longing' for Stronger Yen
Sept. 25 (Bloomberg) -- Japan’s exporters are in danger ofbeing left behind by a global trade recovery as the nation’schange in government ushers in a tolerance for exchange-rategains that threaten to erode their profits.
Japanese exports fell 36 percent in August from a yearearlier, the Finance Ministry said yesterday, an 11th straightdecline. The drop was exacerbated by the yen’s 17 percent surgeagainst the dollar in the past year, making Japanese goods moreexpensive abroad and hurting the value of repatriated earnings.
Japan’s currency jumped to a seven-month high last weekafter Finance Minister Hirohisa Fujii, whose Democratic Party ofJapan won elections promising to boost consumers’ purchasingpower, said he didn’t support a “weak yen.” The commentssuggested a change from the Liberal Democratic Party, whichruled for most of the past 55 years supporting the exportersthat led growth.
“You’ve got some romantic longing that maybe a strong yenisn’t such a bad thing,” said Jesper Koll, chief executiveofficer of hedge fund TRJ Tantallon Research Japan. “It’s anice little policy that at the margins increases the purchasingpower of Mr. and Mrs. Watanabe. The problem is that whether youlike it or not, you are a net exporter. A stronger yen will eatfurther into the profitability of corporate Japan.”
The currency’s gains have made it harder for Japaneseexporters such as Panasonic Corp. and Toyota Motor Corp. tocompete with rivals in South Korea. The Korean won hasdepreciated 23 percent versus the dollar in the past two yearsjust as the yen surged 26 percent.
‘See the Damage’
“You can see the damage from the yen if you look atJapanese exports compared to Korean exports,” said RichardJerram, chief economist at Macquarie Securities Ltd. in Tokyo.“Korea’s done much better over the last year and if you look atthe won-yen exchange rate that tells you a lot of the reason.”
Record sales helped Samsung Electronics Co.’s profit climb5.2 percent last quarter, while Panasonic suffered a net loss asrevenue dropped 26 percent. Hyundai Motor Co. has taken marketshare away from Toyota: The South Korean carmaker’s U.S. salesdropped less than 1 percent in the first eight months of theyear, while Toyota’s plunged 29 percent.
“We’re affected by exchange rates, there’s no doubt aboutit,” said Paul Nolasco, a Tokyo-based spokesman at Toyota,which based its earnings estimates on the assumption that theyen will trade at an average of 92 to the dollar in the next sixmonths. The automaker forecasts a 450 billion yen ($5 billion)net loss for the year ending March 2010.
Profit Level
The yen traded at 91.11 per dollar at 11:13 a.m. in NewYork, rising 0.2 percent from late yesterday. That’s strongerthan the 97.33 level that Japan’s exporters say they need toensure a profit, according to a Cabinet Office survey releasedApril 22.
Exports helped lead Japan’s economy to grow for the firsttime in more than a year in the second quarter, ending thecountry’s worst postwar recession.
During the election campaign, the DPJ, led by YukioHatoyama, said a stronger currency would benefit households bymaking imported goods less expensive. The emphasis on consumerscontrasted with the LDP’s focus on corporate interests, analystssaid.
While LDP-led governments didn’t sell the yen in the pastfive years, they had a history of foreign-exchange interventioncombined with support for the U.S.’s “strong-dollar” policy.The Bank of Japan, at the behest of the Ministry of Finance,sold yen and bought dollars on more than 40 days during thefirst quarter of 2004.
‘Underlying Doubt’
“For the previous guys, there was an underlying doubt inthe minds of the market that at some point they wouldintervene,” said Macquarie’s Jerram. “Fujii’s comments suggestthe possibility is less under the DPJ.”
Fujii said yesterday that “in principle, markets -- thecurrency market, the stock market -- are the stronghold of afree economy. I have been questioning the idea of easyintervention.”
Goldman Sachs Group Inc. analysts are among thosepredicting the yen will decline because the Bank of Japan willrefrain from raising interest rates longer than its counterparts,seeking to strengthen the recovery. Goldman Sachs forecasts itwill weaken to 98 per dollar by the year-end.
The yen rose to a seven-month high of 90.13 on Sept. 16after Fujii said he doesn’t support a weak-yen policy. The 77-year-old lawmaker moderated his tone two days later, when hesaid foreign-exchange rates should reflect economic fundamentals.
Japanese Companies
The yen’s strength is already taking a toll on someJapanese companies. Canon Inc., the country’s biggest maker ofoffice equipment, says every 1 yen increase against the dollarwill lower its second-half operating profit by 4.2 billion yen.The company based its profit forecast of 110 billion yen on theassumption the yen would average 95 to the dollar in the lastsix months of the business year.
“There are some factors that are not in our control,”said Richard Berger, a Tokyo-based spokesman at the company.“Changes in the exchange rate can have a serious impact onresults.”
To contact the reporters on this story:Jason Clenfield in Tokyo at jclenfield@bloomberg.net;Toru Fujioka in Tokyo at tfujioka1@bloomberg.net
Last Updated: September 24, 2009 18:37 EDTSource: Bloomberg
