Go to contents

Appreciating Yen Could Rattle Global Economy

Posted October. 29, 2008 08:19,   


Japan, the world’s second largest economy, is worried about the potential risks of recession triggered by the sharp rise of its currency on the global market.

Economic experts warn that if Japan, one of the three pillars of the world economy along with the United States and the European Union, slips into recession both in the real and financial economies due to the yen`s rise, another shock could hit the global economy.

The yen yesterday traded at 94 against the dollar, over one point lower than the previous day at the Tokyo Foreign Exchange Market.

The drop came as a result of coordinated intervention decisions made by the financial ministers and central bank presidents of the G7 group of major economies and the rise in the stock prices, but many experts say the yen will further appreciate.

The skyrocketing yen is sapping the sales of Japanese exporters such as Toyota Motor, Canon and Sony. Certain small contractors have stopped production due to the lack of orders. Many Japanese businesses are tightening management, recalling bad memories of two previous recessions triggered by the strong yen.

The rising yen is also affecting large Japanese financial institutions. As the stock prices of exporters plunge, the huge losses of financial institutions are aggravating their financial soundness.

“The concentration of the yen should not undermine the global liquidity,” said Fujio Mitarai, chairman of the Japan Business Federation. “The Japanese government must intervene in the exchange market now.”

Japanese industries are also urging their government to intervene in the forex market given the prospect of weaker sales.

The future is not bright, however. The Japanese daily Nihon Keizai Shimbun asked five experts about the prospects of the yen’s value, and all of them said the yen will rise to 83 to 85 against the dollar.

They say the yen will stop rising only if the global financial turmoil subsides and the sales of investment assets to secure liquidity stop.

The high yen could benefit Korean companies competing with Japan on the world market, but Korea’s trade deficit with Japan is expected to increase. For Korean companies, the majority of whom import parts from Japan, the rising yen could boost exports to Japan but at the same time bring on higher import costs.

In September, when the yen began to rise, Korea’s exports to Japan increased 17 percent year-on-year to 2.3 billion dollars, while its imports from Japan rose 27.3 percent to 5.3 billion dollars. Businesses and financial institutions that borrowed yen on low-interest loans are feeling the pinch due to pressure for repaying their debt.

iam@donga.com jaeyuna@donga.com