Surging Yen Having Mixed Results in Japan

The Japanese yen has strengthened for two straight days, drawing mixed responses from exporters and importers.

Japanese exporters had expected better performance as their exports to developing nations including China had gradually recovered. The surge in the yen’s value, however, has taken its toll.

Japan’s importers have begun holding “strong yen sales on imported goods. Importers have launched such sales to distribute additional profits to customers while freezing prices on imported goods.

The yen’s sudden surge has dealt a serious blow to Japanese exporters. In this year’s second half, Japanese exporters lowered their predictions for the yen-dollar exchange rate to around 90. With the rate falling to around 80, however, exporters feel helpless.

Since most trading partners are paying Japanese exporters in dollars, the yen’s strengthening has reduced the income earned by Japanese exporters.

Toyota Motor has also lowered its prediction for the yen-dollar rate to 90. Its operating profit declines 30 billion yen (348.5 million U.S. dollars) whenever the rate falls one point per dollar. Based on its adjusted forecast on the yen-dollar rate, Toyota said its operating loss for fiscal 2009 will plummet from 750 billion yen (8.7 billion dollars) to 350 billion yen (4.1 billion dollars). Due to the stronger yen, however, it is unclear whether Toyota can improve its financial performance.

Electronics makers that are heavily dependent on exports have also been hit hard. For Panasonic, whose overseas earnings accounts for half of revenue, a decline of one point in the yen-dollar exchange rate will reduce operating profit two billion yen (23.2 million dollars). For Sony and Sharp, a decline of a point in the exchange rate erodes operating profit by a billion yen (11.6 million dollars).

In an interview with Japanese media, Toshiba President Norio Sasaki said, “If the yen keeps strengthening, even large corporations would face difficulty in running their businesses.”

Nippon Steel Chairman Shoji Muneoka added, “If the government does not introduce policies to prevent the yen from further strengthening, Japan’s economy will be damaged significantly.”

On the other hand, Japan’s importers and travel agencies are offering discounted prices. ABC Mart, a distributor of imported shoes, and wine importers launched “strong yen sales” yesterday. Distributor Ito-Yokado also plans to sell imported goods at discounted prices from next week.

On the Tokyo forex market yesterday, the yen-dollar exchange rate fell to 84.80 per dollar in intra-day trading as yen demand surged shortly after the opening session. The rate slightly recovered in the afternoon.

changkim@donga.com