FALLING YEN AND RISING YEARN FOR MARUTI
By Ruma Dubey
Slowly and quietly, just like the Japanese, its currency, the yen, has also been falling 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 falling yen. Since Nov’12, the yen has been falling in value against most other major global currencies. And yesterday, 4th April, yen hit a three-and-half year low, with the dollar rising to as high as 97.20/yen. Though it recovered today, it still seemed to remain under pressure.
The reason? The major monetary easing with the Bank of Japan announced two days ago to tackle its problem of deflation, It plans to double the monetary base over two years through the aggressive purchase of long-term bonds. By doing this it aims to raise the average remaining maturity of its holdings from about 3 to 7 years, keeping downward pressure on yields all along the curve.
This is a part of Japan’s game plan to fight its battle against deflation and promote economic growth. For the third consecutive time its Growth rate fell when in Oct to Dec quarter, it shrunk at an annualized rate of 0.4%. Its interest rate remains in the range of zero to one. In February itself Prime Minister Shinzo Abe was expected to announce fresh growth stimulus to end deflation by increasing money supply, he has probably started printing money big time, and since then the currency has been falling down. And unlike India, where a falling rupee is extremely worrisome, the falling yen is welcomed in Japan while those in EU are grumbling that Japan is manipulating its currency to make its exports look good! Well, you cannot please all!
The falling yen is naturally expected to boost exports, which in turn will give impetus to Japan’s economic growth. It has set itself a target to get from deflation to a 2% inflation, which many say is mighty ambitious. Indeed Japan seems like another world when we seem to be fighting relentlessly to tame inflation and interest rates have never been so high!
And the falling yen, many say is the reason why the Asian markets have been doing so well, as falling yen means a more robust Japan and that lifted sentiments in the region.
Well, all said and done, the ultimate question always in all is – mera kya hoga? So how does India gain from a falling yen? For starters, it means that imports from Japan get cheaper and it is definitely advantage 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 could get a benefit through the loan tenure if the yen appreciates later. Yes, with yen falling, we could hear companies rushing to prepay loans to take advantage and can book forex gains.
Maruti as such has ended the day with a rise of over 7%, the second top gainer on the BSE. Other 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 and not to forget Ranbaxy which is today controlled by Japanese company, Daiichi Sankyo. 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 falling yen, surely means lower import costs.