To safeguard incomes, Thai exporters advised to use forward contracts to deal with weaker yen
The Department of International Trade Promotion (DITP) has advised Thai exporters to adjust their contracts and buy forward to deal with continuing depreciation of the yen to safeguard export incomes this year.
The Japanese government is pursuing a policy of weakening the yen in an effort to revitalise its sluggish economy and tackle deflation. Thai exports to Japan, therefore, face the prospect of lower incomes because of the double whammy of a strengthening baht and a weakening yen.
DITP director-general Srirat Rastapana said exporters that mainly trade with Japan needed to make urgent adjustments, as the yen would continue its depreciation against the US dollar, while the baht does the opposite.
According to a report by the Thai Trade Centre in Tokyo, industries that will be hit hard by the yen's depreciation include rubber, sugar, steel and ore, as they are commodities that can be provided by other countries besides Thailand, and Japanese importers could switch to cheaper suppliers.
Some processed goods will also be affected, but those that are unique and value-added will still find demand in the Japanese market.
Heavy industries including automobiles and electrical appliances, which are mainly invested in by Japanese companies, will see a small impact from the yen's depreciation, since such companies have many subsidiaries and widely disseminate orders to other countries.
To relieve the impact from the yen's depreciation, the department suggested that Thai exporters buy forward contracts with commercial banks.
Srirat said that in the long run, Thai exporters and manufacturers should expand investment to neighbouring countries such as to Myanmar and Vietnam so that they can reduce their manufacturing costs. Thai enterprises should also add more value to their products so that they can adjust their prices and avoid impacts from unstable currencies.
In cases where Thai exporters trade in US dollar terms with Japanese buyers, they should negotiate new prices after their existing contracts end. Such products as shrimp, chicken and beverages, which are normally exported in big lots, are often traded in US dollar terms.
Those Thai exporters that trade in yen terms, mostly food manufacturers, could face big losses as they get lower returns. The DITP suggested that such exporters bargain to increase their prices to compensate.
Those Thai exporters that trade in baht terms should not suffer serious foreign-exchange impacts. However, Japanese importers that have themselves been affected by the yen's depreciation may bargain with Thai traders for reduced prices.