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Sharp depreciation of the yen

Japan’s trade-oriented economy will be hit by a stronger yen, but now they worry that a sharp fall in the yen is pushing up the already high cost of importing commodities, squeezing household spending and disrupting corporate business plans.

 

At about 14:00 on October 19, Beijing time, the exchange rate of the yen against the US dollar fell to 1 US dollar against 149.4150 yen, a new low since August 1990.

 

Next, under the expectation that the Fed will continue to raise interest rates sharply, can the yen hold the important psychological mark of 150? At the same time, what impact will the continued depreciation of the yen bring to importers and exporters?

This time is different

The depreciation of the yen has long been regarded as a favorable factor for Japan’s economic exports. However, this round of depreciation of the yen is also accompanied by the rise in commodity prices. The combination of the two has made some Japanese companies and consumers suffer a lot more than before. The view that “the depreciation of the yen is beneficial to Japanese exports” is also becoming more many doubts.

 

“The negative impact or risk we are seeing from the yen’s depreciation is unprecedented,” said Eiji Hashimoto, chairman of the Japan Iron and Steel Industry Association, even as steelmakers and other manufacturers have fallen in the yen in the past. Both have benefited during the period, but the current surge in energy and material costs means “this time is completely different”.

According to the latest survey by the Tokyo Commercial and Industrial Research Corporation, the number of bankruptcy of Japanese companies increased by 6.9% year-on-year from April to September, reaching 3,141, the first increase in three years. The company said that since August, the continued weakening of the yen against the U.S. dollar and other major currencies has led to high raw material prices, which has triggered an increasing number of bankruptcy cases in Japan.

 

“Compared with the epidemic, what worries the Japanese people more is the continuous decline of the yen. Since Japan relies heavily on foreign imports, the most direct impact of the yen’s depreciation is the rise in living costs, such as food, consumer goods, and auto oil prices. This situation is bound to further restrain the domestic consumption’s pull on the Japanese economy.” said Mr. Wu, an analyst who has been engaged in the operation of Japanese small and medium-sized enterprises for many years.

 

As for the most intuitive reaction of the devaluation of the yen in the Japanese market, Mr. Wu gave an example. According to his observation, nowadays, in the consumption of electronic products that are popular among young people, the price of purchasing a brand-name computer with a higher configuration is equivalent to that of a fresh graduate in Japan. The salary of a famous university student for one month, “therefore, some brand mobile phones or high-end electronic products in the Japanese market have a tendency to become luxury goods due to the depreciation of the yen.”

 

Although the 0.9% month-on-month growth of Japan’s gross domestic product (GDP) in the second quarter has shown signs of economic recovery from all walks of life in Japan, data from the Japanese Ministry of Internal Affairs and Communications shows that consumption expenditures in tourism, transportation, etc. in the second quarter data showed significant growth, but The overall effect is not ideal. In the second quarter, the real income of Japanese households decreased by 2% year-on-year, and the actual consumption expenditure decreased by 0.7% year-on-year. Personal consumption, which accounts for 50% of Japan’s GDP, is still far from a full recovery.

 

Shigeto Nagai, chief Japan economist at Oxford Economics, previously said that unless financial markets are convinced that the Fed’s rate hike cycle has peaked and Japan’s inflation outlook is more benign, a weaker yen and pressure on JGB yields will continue.

What impact will it have on Chinese companies?

At present, China has been Japan’s largest trading partner for 14 consecutive years, and Japan is also among China’s top five trading partners. Such close bilateral trade ties are bound to make Chinese export companies that mainly attack the Japanese market affected by the fluctuation of the yen.

 

Mr. Wu pointed out that despite this, some Chinese export companies are also taking active measures to deal with the current accelerated depreciation of the yen, such as adjusting the specifications of export products to Japan from large ones to small ones; analyzing the factors that increase the cost of export products , hedge the impact of the yen exchange rate; accelerate the research and development of new products, increase the number of export orders; adjust the export order plan, select products that can lock in production cost elements, and arrange production in advance.

“Students studying in Japan and Chinese import companies engaged in Sino-Japanese trade have become the main beneficiaries of the current depreciation of the yen,” said Mr. Wu, “especially some Chinese e-commerce platforms have recently increased their imports from Japan. Order.”

 

Previously, Tian Zheng, an associate researcher at the Institute of Japanese Studies of the Chinese Academy of Social Sciences, analyzed, “As the yen continues to depreciate, Chinese companies can buy high-end parts, raw materials and other products from Japan at lower prices, thereby promoting the promotion of China and Japan. The supply chain will carry out further in-depth cooperation and expand the space for Sino-Japanese economic and trade cooperation.”

 

According to Xinhua News Agency, Jin Jianmin, chief digital economist at Fujitsu Global Marketing Headquarters in Japan, said that compared with other countries, Chinese companies’ investment in Japan is still at a relatively backward stage, not as much as in Europe and the United States. It’s an opportunity, and I think Chinese companies will definitely seize it.”

The yen may fall below the 150 mark in the short term

So, where exactly will the yen fall in the foreign exchange market? Mr. Wu said that the Japanese banking industry speculated that the value of the dollar may depreciate to 150 yen, a decline of more than 35% compared with last September.

 

Japan’s largest financial institution, Mitsubishi UFJ Financial Group, believes that under the continued expectations of a strong dollar, the dollar against the yen is very likely to break 150 in the short term.

 

However, for the current accelerated depreciation of the yen, Japanese Finance Minister Shunichi Suzuki reiterated on the 17th that Japan is ready to take “decisive” action against the rapid decline of the yen. “We have been following the movements of the foreign exchange market with a sense of urgency. If speculators or others cause excessive volatility in the foreign exchange market, our position will never change and we will take bold action,” he said. The dollar slipped to 145.90, prompting the Japanese government to intervene in currency markets for the first time in 24 years to support the yen.

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