Yen slide: Boon or bane

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The new Japanese cabinet led by Prime Minister Shinzo Abe favours a weak yen. Since November, the policy of devaluing the currency has helped him win the election and regain power in the government.

The continual easing of yen after Abe stepped into the government also pushed him into the international lime­light as overseas exports had seen a quick jump shortly over a few months.

Japan’s economy had been suffering from slow down and moving into recession since the early 90s. Since late 1989, Nikkei 225 Average Index fell from all-time-high 38,800 regions and went down to the knees at 7,000 levels during the subprime crisis in late 2008 to early 2009. During the last two decades,

Nikkei was largely trading below 20,000 benchmarks.

As US dollar/Japanese yen recovered from 78 regions since four months ago to current 93 areas, the yen has receded against the dollar to a three year low record. Recently, the Japanese government announced it would spend 10.3 trillion yen (US$12 billion) to drive a recovery starting from the second quarter this year. Many analysts forecast the yen would probably strive to weaken further at 100 levels against US dollar rate while Nikkei 225 might aim for 15,000 by end of 2013.

Technically speaking, the weakening of yen is a right policy of Prime Minister Shinzo Abe. The policy has boosted sales volume among Japanese manufacturers, revive inves­tors’ confidence in stock markets and also aided in repatriat­ing foreign currency profits in stronger value.

However, this may not be the same case to Western economies that have been complaining about the surge of their currencies unfairly against yen.

Last month, US carmakers put up complaints to Presi­dent Obama for suggesting a punishment on Japan as the rapid devaluing yen had endangered the sales of local made automobiles and goods in America.

Group of 20 leaders also met in Moscow and discussed about the effects of yen devaluation. Though western countries expressed concerns of the yen falling and openly disapproved of such intervention, no penalty or disciplinary action was suggested.

Ironically, the European Central Bank and US Federal Reserve had used verbal remarks to distort the euro and dollar values many times for last three years even before the Japan did anything now.

Therefore, we foresee the global currency war may re­new this year. Since no one has the authority to tell others what to do, the big economic countries will all attempt to manipulate their own currency values for favouring their trade ties.

In the broadest aspects, the rapid weakening yen has appreciated other Asian currencies. Trade competitors like Taiwan and South Korean have sunk in disadvantages when most of their parallel goods in electronics, electrical parts, and automotive parts used to have better prices compared with Japanese rivals. Nevertheless, Thailand is an exception to all and has been benefitting from recent Japan’s monetary policy.

Thailand is known as ‘Detroit of Asia’ where Japanese companies such as Canon Inc and Honda Motor Co are the biggest foreign investors. As a hub for Japanese car­makers, Toyota Motor Corp and Nissan Motor Co from Thailand bought 54 per cent of auto components from Japan in 2012.

Thus, the Bank of Thailand should not attempt to stem Thai baht from currency gains. According to Thai govern­ment data, a total of 64 per cent or 348 billion baht (US$11.7 billion) of foreign invested projects were held by Japanese corporations in 2012. As labour costs in Thailand are still relatively cheap, it will be ideal for Thailand to take advan­tage for its strategic geo-locality and economic status to attract more Japanese investments as yen depreciates.

Thus, we expect Thailand to be the most vigorous economy in the heart of Asean countries for these few years as Japan recovers from recession.

Dar Wong is the Principal Consultant of APSRI. The expressions are solely his own. He can be reached at [email protected].