Concerns mount for Japan Inc as weak Yen reaches 34-year low

Yen hits low: Corporate Japan is starting to question whether the yen's weakness has reached excessive levels.

The yen plummeted to its lowest point in 34 years on Monday, losing approximately a quarter of its value against the robust US Dollar in just over two years.

Traditionally, a weak yen is advantageous for Japan Inc, making exports like cars more affordable overseas and boosting profits when earnings from abroad are repatriated.

Costs spike up

However, this trend has also led to increased expenses for raw materials, food, and fuel, impacting sectors from farming, which relies on imported fertilizers, to small manufacturers dependent on parts from China.

Households, which have seen minimal wage growth for years, are particularly affected. The plight of these households and struggling small businesses may be a better indicator of Japan's still-recovering economy than the benefits enjoyed by exporters like Toyota Motor or the record highs in the stock market.

Small firms struggle

Smaller firms, which employ seven out of every ten workers in Japan, have limited ability to raise selling prices in a competitive market, exacerbating their challenges.

Masakazu Tokura, chairperson of the influential Keidanren business lobby, expressed concerns about the yen being overly weak, suggesting that current currency levels do not accurately reflect Japan's economic strength.

Japanese authorities likely intervened in the market on Monday to stabilise the yen, but its weakness is expected to persist as long as the US Federal Reserve maintains high interest rates.

Tourism impact airlines

While a weak yen attracts more inbound tourists, it also discourages Japanese citizens from travelling abroad due to higher costs, impacting airlines like ANA Holdings and Japan Airlines.

Tadashi Yanai, Japan's wealthiest individual and founder of Fast Retailing, has criticised the weak yen, stating it holds no benefits for a country that imports raw materials globally.

Yen depreciation ramifications

Excessive yen depreciation could have broader economic ramifications, affecting companies like Tokyo Gas and complicating long-term planning due to increased currency volatility.

Japanese automakers tend to be conservative in their currency forecasts to mitigate risks associated with fluctuating exchange rates. Despite the weak yen, they continue to invest in overseas operations, with currency rates playing a minimal role compared to other factors like regulatory changes and political stability.

(With Reuters Inputs)