Yen’s sustained weakness frustrates even Japanese exporters

Japan’s companies are expressing unusual discomfort with the weak yen, just as the country’s government appears to be stepping in to prop up its tumbling currency.

The yen briefly crossed the 160 to the dollar level earlier this week. It has since gained to 156.22 yen after suspected intervention. 

Traditionally, exporters welcome a weaker yen as it boosts income from exports paid for in dollars and other foreign currencies. Companies that mostly rely on the domestic market or depend heavily on imports suffer from higher costs. But the currency’s sustained decline has made planning difficult for all firms.  

“The benefits of a weaker yen are less obvious than in the past,” said Canon Inc.’s Senior Managing Director Minoru Asada on April 24. The company gets about 78% of its revenue from overseas. “This is an extremely rare situation”

The airline industry straddles both worlds. Imported fuel must be paid for in dollars and fewer Japanese are traveling abroad while at the same time inbound travel to Japan is booming.

ANA Holdings Inc. president Koji Shibata said the company is generating substantial foreign currency revenue from international cargo and passenger flights, but pointed out that the rising price of airline tickets, including fuel surcharges, and the declining purchasing power of the weak yen are detrimental to travelers from Japan. At rival Japan Airlines Co., president Mitsuko Tottori said she is “quite concerned” that young people will abandon overseas travel. 

“There is a large negative psychological impact,” said Shibata, adding that he would welcome a rate of 125 yen to the dollar. 

In a survey of major Japanese companies conducted by Bloomberg News to coincide with the earnings season, export-oriented companies voiced concerns about the yen’s current level. 

Murata Manufacturing Co., which gets about 90% of its total sales from abroad, said that while the yen’s depreciation has a “positive effect on short-term earnings,” it does not want to see the yen decline too rapidly because it believes that an excessively weak yen could affect the entire supply chain.

Suzuki Motor Corp., which earns nearly 75% of its consolidated sales overseas, including in India, said that an exchange rate of more than 150 yen to the dollar is positive for its business, but once the currency weakens beyond 155 yen, the advantages are harder to perceive.  

Companies are also hedging to protect themselves from the currency’s swings. 

Cosmetics maker Shiseido Co. said that it is preparing for fluctuations by adjusting the ratio of risk hedges while monitoring market prices, and that it is responding to the recent depreciation of the yen by increasing the hedge ratio above the normal level. 

Japan Tobacco Inc. said that in principle, it hedges 100% of foreign currency-denominated receivables and payables in the short term. It  also hedges future cash flows in the range of 25-90%. The company is also promoting “natural hedging,” in which it procures raw materials and manufactures locally in the local currency and matches the currency of payment with the currency of income.

Canon Inc. has been recording losses on foreign currency-denominated borrowings from overseas group companies as “non-operating expenses” due to the yen’s depreciation. 

In the survey, some companies said they were caught off guard by the yen’s depreciation. Mitsubishi Heavy Industries Ltd. had assumed that the yen would move temporarily higher due to the Bank of Japan’s ending negative interest rates. While a weaker yen is positive for short-term earnings, excessive weakness indicates a relative decline in the Japanese economy, the company said.

A weaker currency also makes overseas acquisitions more expensive, undermining a strategy of companies looking to grow abroad to counterbalance Japan’s demographical decline. The weak yen makes overseas M&A more difficult and a return to a stronger yen would be desirable, according to Takeshi Hashimoto, president of shipping line Mitsui OSK Lines Ltd.  

That sentiment was echoed by the Japan’s richest man, Fast Retailing Co. President Tadashi Yanai. His company, the parent of clothing retailer Uniqlo, benefited from the yen, booking a foreign exchange gain of 16.5 billion yen in the first half of the company’s fiscal year. Still, the overall impact of a weaker currency would hurt the country as a whole. 

The weak yen “is not good for Japan,” said Yanai.