EMPIRE OF THE RISING YEN
By Ruma Dubey
Slowly and quietly, just like the Japanese, its currency, the yen, has also been rising against the US dollar for a few days now while we have been looking at the Rupee-dollar scenario and the stock markets. The land of the rising sun seems so far away in the east that we most of the time, do not pay much attention.
The only time when Japan probably comes into focus is when a brand like say, a Hitachi or Toshiba or Sony comes into news or when we read about some Indian companies forming JVs with Japanese companies and more so nowadays with many huge companies taking loans in yen.
Well, the news doing the rounds and shaking up things, causing a major tumble in the currency markets is the rising yen. The Japanese yen strengthened to a one-year high, extending gains after its best week since 2009, as demand for haven assets benefited from a growing unease about the resilience of global growth. The Yen rose against all 16 of its major currency peers.
The Yen has gained 3.5% since last one week, its biggest advance since July 2009 and is now around Rs.115.73/dollar levels.
Earlier, it was part of Japan’s game plan to fight its battle against deflation and promote economic growth by pushing down the value of its Yen. This has not helped it much as this last quarter, the country just narrowly missed falling into recession. Recently, Japan adopted a negative interest rate for accounts held by financial institutions at the central bank, it remains desperate to fight deflation and bring in the much needed inflation.
This run-up on the Yen is once again a ‘safe haven’ reaction – it is considered to be a secure place to invest in, what with expectations of US Fed hiking rates more often and aggressively coming off. Global investors are currently flocking to the yen as they feel it remains significantly undervalued and thus presents a potential to rise further – all this psychosis is a part of same risk aversion factor.
The rising yen is naturally expected to curb its export numbers and this in turn could hurt its economy. The long running issue of moving from deflation to inflation remains. Indeed Japan seems like another world when we seem to be fighting relentlessly to tame inflation and interest rates have never been so high!
Well, all said and done, the ultimate question always in all is – mera kya hoga? So how does India gain/lose from a rising yen? For starters, it means that imports from Japan get more expensive and it could be a disadvantage for those who take a debt in yen as of now. But for those who have already taken a loan, they usually take debt by buying yen on forward as they have to pay interest rates in yen over the next few years through the loan tenure. So they would have got locked at rates of then while today, the yen is much lower. Thus those who lock into a forward yen at current reference rates, stand to gain through the loan tenure as the yen appreciates. Yes, with yen rising, if it continues for long, we could hear companies posting forex losses and some companies defaulting on their Yen loans.
Companies with strong Japanese connection includes – Honda, Suzuki, Nippon, Swaraj Mazda, Sumitomo, .Sona Koyo, Asahi Songwon, Kansai Paints, Munjal Showa, Tayo Rolls, Igarshi Motors, Ricoh India, Ceekay Daikin, Kokuyo Camlin, Asahi India Glass, Lumax, Ucal Fuel, Uken India. L&T has many JVs with Japanese companies and so do many others. These are some of the companies which may or may not benefit but best to keep a close watch on them as a rising yen, surely means higher import costs.