The Yen’s Going Up, But Japan Is Going Down
Since when is a soaring currency a bad thing? Since now, actually.
The Japanese Yen is scaring everybody in its homeland, not to mention the rest of the Westernized world. In a meeting with the Group of Seven, Japan’s Finance Minister, Shoichi Nakagawa adamently spoke out against his country’s currency rising to multi-year highs against both the euro and the US dollar.
And the G7 took his word as truth, going so far as to say that the upward trend was a potential negative factor in the “economic and financial stability” of the world across.
They have good reason to be worried too. For itself, Japan is concerned that a rising yen combined with a global slowdown will take a chunk out of Japanese exports, a market they depend on in many ways. And if it slows down too much, Japan is even more likely to suffer the recession that everybody’s trying to avoid.
Part of the reason why their export business is so impressive is because their currency was always relatively weak compared to other country’s. Of course importers like the favorable exchange rates, and so are more likely to buy larger quantities more often. But in the past 3 months, the yen has risen 19% against the dollar, 32% against the euro, 33% against the pound and a whopping 37% against the Brazilian real.
And while it’s busy rising, its competitor the Korean won is down 45%. If you were going to buy products wholesale, which would you choose? Japan is all too aware of your answer.
It’s got to hurt especially right now, since Japan rode high on understandable optimism for a few months as it seemed as if our credit crisis wasn’t going to touch them. They banked on that indication literally and snapped up what they wanted. Nomura Securities bought the highly discounted ragged remains of Lehman Brother’s European and Asian operations, while Mitsubishi UFJ purchased a 21% stake in Morgan Stanley for a discounted $9 billion.
Now though, economists see Japan headed right for a recession unless the yen starts going back down the way it came.
Japanese-based companies have already been doling out the negative news. Canon will reportedly post its first profit decline in a nine year span, and Panasonic will probably follow in Canon’s footsteps. Even king Sony is facing the harsher outlook. If other predictions are true, Toyota is in for a rough ride as well.
http://www.smartprofitsreport.com/archives/2007/euro_vs_dollar409.html
Monday, October 27, 2008 — by Jeannette Di Louie, Assistant Editor of Mt. Vernon Research
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