empty
12.04.2022 10:02 PM
Japanese manufacturers are interested in a strong yen

Not so long ago, Japanese manufacturers were interested in the lowest possible price, because in this way they could sell cars and equipment abroad cheaper, getting a higher profit after receiving revenue...

Japanese manufacturers are interested in a strong yen

... but it looks like the era of the cheap yen is coming to an end.

This image is no longer relevant

According to company representatives and economists, after many years of strengthening foreign production and supply chains, Japanese manufacturers are ready to abandon the weak currency.

In fact, the economic damage from the cheap yen has now become much more noticeable, since the recent sale of the national currency sharply raised the cost of goods, which hit the expenses of Japanese households. Among other things, we see how the steady transition to foreign production is slowly changing the dynamics of the third largest economy in the world.

Changes in the manufacturing sector

According to the latest data from the Ministry of Commerce, almost a quarter of the products of Japanese manufacturers are sold abroad. This compares with about 17% a decade ago and less than 15% two decades ago.

According to the Japan Automobile Manufacturers Association, about two-thirds of the cars that arrive annually on behalf of the land of the rising sun are currently manufactured abroad.

Two decades ago, cars made abroad accounted for less than 40% of sales.

Companies are also moving away from the old model of manufacturing and exporting as technology has changed their business. Hitachi Ltd, for example, is becoming more customer-oriented, leaving technology behind.

The inconsistencies of a weak yen – competition of producers' interests

The weakness of the Japanese currency has already led to an increase in the cost of fuel and other goods for domestic producers.

Crucially, it also hits household spending and consumer confidence in the domestic market, which exacerbates losses for the stalled economy.

Nevertheless, a December survey of almost 7,000 companies conducted by Tokyo Shoko Research showed that almost 30% of companies said that a weak yen is a negative factor for their business, and only 5% called it a positive factor. The remaining 65% said that the exchange rate itself had no significant impact - neither negative nor positive.

Those who said that the weak yen was negative on average called the preferred rate around 107 yen per dollar - a level significantly stronger than the 125.75 achieved in the current trading session.

It should be borne in mind that a weak yen increases the cost of acquiring businesses and any assets abroad, although this may not bother many wealthy Japanese firms. At the same time, a weak yen makes Japanese companies a cheaper target for foreign buyers, and this is what manufacturers have been striving for so far.

Immediate prospects

Many manufacturers, including the automotive industry, say that one of the advantages of increasing production in local markets is less sensitivity to currency fluctuations.

Even though there may be concerns about the stability of operations in certain markets, such as China, it is unlikely that the trend to locate factories abroad will change in the near future.

So, Toyota Motor Corp is working to reduce the impact of the yen exchange rate on its revenues, the representative said, without going into details. A company spokesman said that a weak yen is not necessarily seen as an advantage, adding that one disadvantage is the higher cost of raw materials.

But for retailers, the weak yen was painful, as it increases spending, including on energy and food. Budget clothing retailer Shimamura Co Ltd recently announced that it would have to raise the prices of some of its products by an unprecedented (for Japanese) 3-4%.

Official position

Bank of Japan Governor Haruhiko Kuroda has repeatedly stated that while a weak currency may put pressure on households and retail, the benefits to the economy outweigh the disadvantages.

But his view looks increasingly lonely this year as government officials have stepped up their warnings against excessive yen declines.

Some of Kuroda's former colleagues at the Treasury now see the weak yen as a sign of Japan's waning economic power.

Earlier this month, the governor said that the yen's recent movements were "somewhat rapid," which is his strongest warning about currency movements, although he then stressed the benefits of a weaker yen.

So the government keeps its finger on the pulse, but so far, it seems, without a definite opinion on the possible strengthening. Most likely, politicians will act on the situation. And the crisis in developing countries may well become a catalyst for change.

What is the possible framework for strengthening?

So far, this can only be guessed. The yen's rapid fall - it fell more than 5% against the dollar last month, its biggest monthly drop since November 2016 - caught some market participants by surprise.

A former senior Japanese currency diplomat, Eisuke Sakakibara, said in an interview a month ago that the government should intervene in the currency or raise interest rates to protect it if it weakens above 130 points per dollar.

Weakening above 130 "could cause problems," said Sakakibara, known as "Mr. Yen" for orchestrating several currency interventions to soften the yen in the 1990s.

This seems like a logical step. Therefore, when the exchange rate approaches this mark, it makes sense to expect decisive steps by the government, including in the field of monetary policy. Probably, at this key level, we should expect tougher rhetoric and more active actions. Although so far this does not seem to be a very likely scenario.

Egor Danilov,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

Bitcoin bulls and bears engaged in tug-of-war. BTC barely reacts to US inflation

Currently, the flagship cryptocurrency is aiming for new highs, but it is still facing obstacles along the way. The latest challenge comes from the ongoing battle between bulls and bears

Larisa Kolesnikova 16:51 2025-06-16 UTC+2

US Market News Digest for June 16

US equity indices ended Friday's session in the red as escalating tensions between Israel and Iran drove oil prices higher and fueled market uncertainty. The S&P 500 fell by 1.13%

Ekaterina Kiseleva 13:50 2025-06-16 UTC+2

US Market News Digest for June 13

Despite the ongoing S&P 500 rally, investors remain interested in stocks, largely ignoring the mounting risks and instability in the global economy. This confidence is fueled by expectations of further

Ekaterina Kiseleva 12:29 2025-06-13 UTC+2

US Market News Digest for June 12: US stock market closes lower in light of US-China trade deal

US stock markets ended the session lower after the US and China had nailed down the highly anticipated trade deal. Despite the positive news backdrop, investors began to lock

Ekaterina Kiseleva 16:31 2025-06-12 UTC+2

Robinhood drops from the S&P 500 — domino effect hits global markets

Robinhood shares fell after the trading platform was excluded from the S&P 500. Warner Bros. stock declined following the company's announcement of plans to restructure its business. European stocks slid

14:54 2025-06-11 UTC+2

Daily contrasts: Nikkei rises, EUR slips, global markets hold breath ahead of US-China talks

J.M. Smucker declines. The World Bank cuts its 2025 global growth forecast. Nikkei advances, while Wall Street futures and the euro weaken. The dollar shows little movement, and bond markets

14:31 2025-06-11 UTC+2

US Market News Digest for June 11

The US stock market has reached projected levels and now enters a "quiet scouting phase" as investors await the release of key inflation figures. The upcoming data

Ekaterina Kiseleva 13:57 2025-06-11 UTC+2

Contrasts of the day: Nikkei up, euro down, world holds breath ahead of US-China talks

J.M. Smucker falls after pessimistic forecast World Bank cuts global growth forecast for 2025 Nikkei up, Wall Street futures and euro fall Dollar little changed, bonds await CPI and auction

Thomas Frank 07:48 2025-06-11 UTC+2

Rates rise: markets Await CPI, Trump clashes with Musk, Qualcomm acquires Alphawave

The May CPI report is set for release on Wednesday. A budget bill takes center stage amid a public disagreement between Trump and Musk. Alphawave surged following news

14:05 2025-06-10 UTC+2

US Market News Digest for June 10

The S&P 500 and Nasdaq 100 indices posted notable gains, driven by upbeat expectations ahead of the upcoming US-China trade negotiations. Investors are betting on a potential easing of tariffs

Ekaterina Kiseleva 12:52 2025-06-10 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.