Japan's Strong Yen Problem
By Coco Masters/Tokyo Friday, Mar. 14, 2008
In Japan, foreigners learn soon enough that a one-yen coin floats on water (or beer), a perfect analogy for the last few years of the dollar's strength against Japanese currency. Now, however, the yen is sinking to the bottom of the glass as the dollar has becomes featherweight. On Thursday it slipped to 99.7 yen, the lowest it has been since November 1995. Following suit on Friday, Tokyo stocks plummeted to their lowest levels since August 2005. Just a few months ago, the rate was 113 to the dollar.
Economists are quick to point out that a weak dollar doesn't necessarily mean a strong yen. The exchange rate of the yen to other currencies — such as the euro — still shows depreciation. But the dollar-yen pair heavily weights consumer sentiment and the stock market, says Takahide Kiuchi, chief economist at Nomura Securities, and the rate right now has an overall negative affect.
The weak dollar dumps cold water on some of Japan's largest corporations and exporters, since a higher yen value makes exports from the likes of Sony and Sharp to Toyota and Honda less competitive. On Thursday, Toyota Motor Corp. president Katsuaki Watanabe said that his company will need to maintain profit growth, since it forecast record profit for this fiscal year when the dollar was about 113 yen. For every yen the dollar drops, Toyota's operating profit falls 2%.
Meanwhile, Japanese consumers are faced with a mixed bag. The slight appreciation of the currency helps in capping the rising cost of food and fuel, which have both become concerns due to price inflation. But because dollar-based profits from overseas will drop, corporations could cut back on capital investment and employment, which will have a spillover effect on households. "The negatives outweigh the positives," says Masafumi Yamamoto, head of foreign exchange strategy for Japan at...