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Weak yen a help for Japan, but headache elsewhere

Wednesday - 5/22/2013, 3:18pm  ET

In this Dec. 20, 2012 photo, trucks for export park at a port in Yokohama, west of Tokyo. A steady decline in the yen is proving a godsend for exporters such as Toyota and has won solid support from Japan’s main trading partners, who are betting the impact on their own currencies will be offset by gains from a recovery in the world’s third-largest economy. (AP Photo/Koji Sasahara)

AP Business Writer

TOKYO (AP) -- A steady fall in the value of the yen is proving a godsend for exporters such as Toyota. The cheaper yen is making their products more affordable overseas.

Japan's trading partners are generally pleased, too, even though the lower yen makes their exports relatively more expensive. As many see it, other nations -- from China to Britain to the United States -- stand to benefit from a more vibrant Japanese economy, the world's third-largest.

Then there are entrepreneurs like Thamonwan Thawornthaweewong. They have a more sour view. Thamonwan sells imported goods in Japan, like Angry Bird fish balls, squid rings and other products. The lower yen makes such goods cost more in Japan.

"It's affecting us because Japanese customers need to pay more," she says.

Even Japanese policymakers who favor a cheaper yen to help energize Japan's long-stagnant economy wonder if the currency's fall could go too far.

The yen slipped past 100 to the U.S. dollar this month. It's hovering near 102 yen per dollar -- more than 20 percent weaker relative to the dollar and the euro than it was six months ago.

Gyrations in exchange rates can erode business confidence and investment. The yen's decline has also raised the risk of a currency war in which nations manipulate their currencies' values as economic weapons.

News of weaker-than-expected growth in Thailand in the first quarter of the year, for example, intensified pressure on its central bank to curb the rise of its currency, the baht. If other countries countered by devaluing their own currencies, any benefit Japan has enjoyed could be reversed. Though the Bank of Thailand hasn't intervened, Tokyo can't expect its trading partners to hold out indefinitely for an eventual payoff from a Japanese economic rebound.

Japanese officials say their goal isn't to devalue the yen. Rather, they say the currency's slide is a byproduct of the economic stimulus policies embraced this year by Prime Minister Shinzo Abe's administration. Under Abe's direction, Japan has embarked on an aggressive campaign to lift consumer prices, encourage borrowing and spending and improve Japan's economic competitiveness -- a program dubbed "Abenomics."

As part of that effort, Japan's central bank is flooding its financial system with money -- action that has helped shrink the value of the yen.

The Abenomics blend of fiscal and monetary stimulus and pledges of reforms helped boost Japan's economic growth to an annual pace of 3.5 percent in the January-March quarter.

As the yen's value has sunk, travel budgets of tourists from Thailand and elsewhere have been stretching further. Yet for Thamonwan, whose company earns about a tenth of its sales in Japan, it's a headache. Some Japanese aren't willing to pay for higher-priced imports.

"We are now seeing a slight decline in orders from Japan," she says.

Particularly in Asia, Japan's frequent trading partners could lose a competitive edge because their goods now cost more relative to Japan's. China's, the world's second-largest economy after the United States, is among them.

Yet China is "not particularly worried," about the weaker yen, says Kenneth S. Courtis, an investment banker and former Goldman Sachs vice chairman. Courtis pointed out that a lower-valued yen reduces the cost of factory equipment and oil imported from Japan.

A separate challenge for Japan is that economies throughout the world are struggling, and many consumers aren't inclined to spend more -- even for lower-priced Japanese goods. In Europe, for example, the euro alliance is in the midst of its longest-ever recession. Many economists warn of a lost decade ahead for the eurozone similar to the one Japan endured.

And the U.S. economy, the world's largest, is thought to be growing at a subpar annual rate of about 2 percent in the current April-June quarter. Growth has been slowed by a still-weak job market and across-the-board government spending cuts that began taking effect March 1.

What's more, Courtis notes that "the last time there was such an aggressive currency devaluation like the yen's, it blew up Asia," referring to the Asian financial bust of the late 1990s. That crisis erupted after diminished confidence in Thailand's economy forced the country to devalue its currency.

To some extent, Australia's "billabong bonds" as its government debt is dubbed, have replaced Japan's government bonds as a haven for global investors now that the Bank of Japan is soaking up 70 percent of Tokyo's bond sales.

Australia's central bank this month cut its key interest rate by a quarter percentage point to a record low 2.75 percent. The goal is to boost growth and counter damage from a strengthening Australian dollar.

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