Yen slides to lowest level in nearly 8 years
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A weak yen used to provide a shot in the arm when Japan's economy depended heavily on exports. With production shifted offshore, the country has moved to an investment-driven growth model. Yet the weak currency still serves as a tail wind for exporters. Heavy machinery maker IHI assumes a rate of 115 yen to the dollar for the year through March 2016. If the yen remains weaker than this, operating profit will likely end up higher than the projected record high of 90 billion yen ($733 million).
But Honda Motor offers a contrast. Exports at the automaker accounted for a measly 3% in fiscal 2014, making currency fluctuations a small matter. Panasonic also has moved manufacturing overseas, particularly for products marketed there, shrinking the impact of foreign exchange rates to less than one-fifth the company's previous level.
"Exports are having a hard time growing in terms of volume, while its effects on capital investment and jobs are weak," said Masaaki Kanno at JPMorgan Securities Japan, referring to the yen's recent slide.
Nonetheless, publicly traded companies here expect combined pretax profit to grow 9% for fiscal 2015 to a second-straight all-time high. A weaker yen may even send profit growth into double digits.
The US Dollar completed a six-month range yesterday to break out to new recovery highs against the Yen, unwinding just about all of the credit crisis devaluation in the process. This remains a consistent trend and a sustained move below ¥120 would be required to begin to question medium-term scope for continued outperformance.
Despite the fact globally oriented export companies had already moved manufacturing overseas the persistent weakness of the Yen should start to reinvigorate the domestic economy and is obviously of benefit to any domestic manufacturing still sited in Japan. The Nikkei-225 cleared the psychological 20,000 level last week. A break in the progression of higher reaction lows, currently near 19,200, would be required to question current scope for continued upside while a sustained move below the trend mean would be needed to question the overall uptrend.
