LONDON: Japanese exporters hoping for a further slide in the value of the Japanese yen against the dollar could not have asked for more from policymakers’ comments this week.
With the yen still trading broadly weaker against the dollar, Japanese exporters seem to be taking the view that there is no reason to buy yen today when it will be cheaper tomorrow.
Banks who would normally expect to see Japanese exporters selling dollars for yen, when the Japanese currency slides as quickly as seen recently, have noted that those exporters have been noticeably less active than might have been expected.
Even though a successful defense of barrier options at 94.50 yen has capped the dollar’s rise so far on Tuesday, there has purportedly been a relative dearth of strong selling of greenbacks by Japanese exporters.
Why would they sell? Even if their budget rates have been raised to 85.00 yen, there is no rush to sell dollars, especially as there is market talk of increased demand for greenbacks from Japanese importers in the 92.00-50 yen area.
Japanese exporters can afford to wait and see how the price action develops. Even if they ultimately decide to leave a trailing stop and sell dollars at 92.00 yen, that is still a comfortable 7 yen above their budget rate.
With an apparent paucity of dollar sellers in the 94.50-90 yen area, a break of that 94.50 level could prompt the market to aim at even bigger option barriers said to be at 95.00 yen, giving Japanese exporters even more comfort.
Japan’s exporters will also feel their positions affirmed by the messages from various policymakers this week. On Monday, US Treasury Undersecretary for International Affairs Lael Brainard said the United States supports Japan’s efforts to reinvigorate growth and end deflation.
If that was not enough, the Group of Seven wealthy countries reaffirmed on Tuesday their “longstanding commitment to market determined exchange rates.” The G7 added that fiscal and monetary policies must be used to meet domestic policy objectives and not to target exchange rates. That has essentially pre-empted any critical statement from the G20 meeting later this week.
The G7 stance is telling as even if Japan’s policies may have led to a weakening of the yen, Tokyo has certainly not intervened to drive the Japanese currency lower.
The yen’s slide has been market-determined and therefore Japanese exporters might expect that to continue, in its current form, unopposed by G7 policymakers.
Japanese Economics Minister Akira Amari perhaps gave an important clue to a important target the government wants to achieve with the policies which have led to a weaker yen.
“It will be important to show our mettle and see the Nikkei reach the 13,000 mark by the end of the fiscal year,” he said recently.
Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own.
As the rise in the Japanese stock market index has gone hand-in-glove with the weaker yen, the inference will not have been lost on Japanese exporters: they might reasonably expect more yen weakness as the March 31 fiscal year end approaches.
It is another reason to hold back from selling dollars.
Asian Development Bank President Haruhiko Kuroda, a leading candidate to take over as governor at the Bank of Japan next month, said on Monday that an appropriate time frame for the central bank to hit its new 2 percent inflation rate target would be about two years.
That is a pretty aggressive timeframe given that Japan has been wrestling with deflation for well over a decade, and the implications for monetary policy from a Kuroda-led BOJ would not have been lost on Japan’s exporters.
More radical monetary easing might, in the eyes of Japanese exporters, translate into more yen weakness, and thus support the argument that there is no immediate need to sell dollars for yen to hedge overseas receivables.
Japanese exporters can afford to hold fire and see if the yen weakens further.
