Yen slide likely bad news

Economy May 11, 2013 00:00

By The Nation, Bloomberg

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Thai exports to Japan could suffer more from the weakening yen, which yesterday dropped past the 100-per-dollar support level for the first time in four years.


The yen now is poised to weaken even further versus the US dollar after breaking the 100 barrier. Driven by improved US economic figures and Tokyo’s aggressive monetary easing, which aims to revive Japan’s sluggish economy, the yen is also weakening against other currencies, including the baht, making Thai exports to Japan more expensive.

The Thai currency has so far this year gained 17.5 per cent against the Japanese unit, to 29.4 per 100 yen yesterday from 35.65 at the end of last year. In April, Thailand’s exports to Japan were down 0.9 per cent year on year.

Japan now consumes about 10 per cent of Thailand’s exports.

A recent survey of 250 participants at a Japanese Chamber of Commerce event in February, showed that 45 per cent regarded the impact of the weak yen as favourable and 27 per cent as unfavourable. Most of them were more concerned over the appreciation of the baht against the dollar, as Thailand is now the production base for exports to other destinations, not just Japan.

The weakening yen has brought good news for Japan-based automotive and electronics companies.

On Thursday, the Bank of Korea cut interest rates, following the lead of policy-makers in Australia, Europe and India this month, as strength in the won and weakness in the yen dim the outlook for South Korea’s exports. The won’s 24-per-cent jump against the yen in six months is hampering Korean exporters of autos and electronics and aiding their Japanese rivals.

Japan said the yen’s fall signalled that Prime Minister Shinzo Abe’s policy mix of increased public spending and aggressive monetary easing, dubbed "Abenomics", was proving successful. Kick-starting the economy has been Abe’s top priority since he took office late last year.

The yen’s breach of 100 against the dollar in US trading yesterday paved the way for Japan to emerge from an unprecedented and largely uninterrupted five-year stretch where the currency’s appreciation beyond that level roiled exporters and their ability to sell cars and televisions overseas.

The yen last traded at 100 four years ago. While its return to that level may usher in an era in which Toyota and Japan’s other carmakers are no longer shackled by the currency, they now face tougher competition than five years ago.

"Japanese auto-makers used to enjoy great advantages over Korean, US and even German carmakers in many markets, but the rivals have been catching up quickly and the gap is at a minimum now," said Yuuki Sakurai, president of Fukoku Capital Management. "It’s really not going to be that simple this time."

One hundred is not a magic number and, by historical standards, the yen remains strong. Still, 100 is an important technical marker because it represents a so-called 50-per-cent Fibonacci retracement between its high of 75.35 in 2011 and a decade low of 124.14 in 2007.

Against the US dollar, the yen has fallen 13 per cent this year, the worst performance out of 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The British pound is the second-worst performer, with a 2.5-per-cent slide.

The euro increased 1.9 per cent, while the Canadian dollar climbed 1.4 per cent.

The yen will decline to 105 per dollar by the end of the year, according to the median of more than 50 economist estimates compiled by Bloomberg.

The Japanese currency will pass through support at 101.69 per dollar before completing a so-called triangle pattern in the range from 103.32 to 104, according to Bank of America Corp. A fall to 104 would be the yen’s lowest level since October 2008. A triangle pattern is formed when upper and lower trend lines intersect. Bank of America has a year-end forecast of 105.

"As we’ve broken out from the triangle, it’s a resumption of a larger bull trend and should have enough energy that we get a run up to the 103 or 104 area," MacNeil Curry, chief rates and currencies technical strategist in New York at Bank of America, told Bloomberg. "You tend to see very strong moves transpire at the end of a triangle pattern."