The Bank of Japan has been the only major central bank not to raise interest rates over the past two years despite above target inflation. It’s contributed to a significant depreciation in the yen against the dollar over time that has become a boon for Japan’s large exporters.
“Most of the big Japanese companies are net exporters, so a weak yen is beneficial,” Rakesh Kochhar, Senior Vice President – Treasury and Sales Finance, Nissan Motor Co tells Treasury Today, speaking from the firm’s Yokohama offices. “We have all benefitted from a weak yen, as net exporters it’s good for us.”
And even though a weak yen inflates costs because products’ commodity inputs are priced in dollars, companies are profiting enough to offset added costs. “For every car you export you get more yen for the dollar, so even though you have an inflated cost structure, you are still making more money.”
Still, Kochhar is concerned the embattled yen (it has strengthened a tad in recent days on a belief US interest rates have peaked) isn’t a good thing for the currency or corporate Japan in the long-term.
It may make exports more competitive, but it hurts households and retailers and makes it difficult for firms to plan ahead. “The ¥150 level is excessive,” he warns. “Japan is a developed economy and a 25% deprecation in a year and half that hasn’t been seen in any other currencies like the euro, RMB or Indian Rupee is worrying. If you look at the last 12-18 months, the yen has been the worst performing Asian currency and the level of depreciation is not good for the stability of the currency.”
It is also feeding into inflation. Japan imports all its energy needs and many foods, and Kochhar notes the higher cost of imports is starting to have an impact on wage growth. “Because of the weak yen, inflation is running at 5-6%.”
And in a vicious circle, investment flows out of yen are increasing its depreciation. “It is attractive to invest in dollars and euros, but if you invest in the yen, you get zero return.”
Although importers tend to hedge their currency risk, Kochhar notes many are now feeling the pinch. “Companies that are just importers are facing a huge challenge because their costs have gone up – and this is also feeding into inflation.”
As a net exporter, hedging 100% of dollar yen exposure is not treasury strategy at Nissan. However, Kochhar ensured recent debt issuance in dollars and euros was hedged. In 2020 the company issued US$7bn and €3bn in bonds at a time dollar yen was around ¥110. “We hedged 100% of foreign debt issuance,” he says. “Can you imagine if we hadn’t hedged? We could have been looking at losses of ¥300-400bn. We have a treasury policy that when we borrow debt in a foreign currency, we hedge 100% – we think this is a prudent policy for any large corporation.”
