After continued worries of a soaring currency, Japan saw its yen fall to 76.5 on August 19, after it had recently reached a post World War II record high against the dollar.
The decline came as Finance Minister Yoshihiko Noda announced that he is prepared to take strong action to curb the currency's strength. Since the announcement, the yen has fallen from 79.04 on August 4 to 76.8 today.
Earlier this month, Japan sold its currency with the intention of lowering the yen by intervening with ¥4.6 trillion. This move somewhat eased worries that the strengthening yen would put a strain on domestic job creation and the export market.
Everything appears cheaper abroad, and so Japanese executives are performing a balancing act in order to maintain both competitiveness and profits. Yuji Saito, a foreign exchange market director for Credit Agricole in Tokyo, says: “Currency investors are fully ready for Japan’s intervention.”
According to analysts, in order for any strategies to succeed, the Bank of Japan must be ready to accompany the government with their implementation. Although the BOJ has a policy meeting set for September 6 and 7, it may convene sooner if necessary.
Japan's Companies, Government Form Success Plans
Fear that the yen appreciation is part of a larger problem has surfaced among Japanese industries. Many believe that Japan, like the US, will “hollow out” its manufacturing and technology base. Some Japanese companies are now realizing that by resisting globalization and M&A in foreign markets they risk further injuring business.
According to the Nihon Keizai Shimbun, requests by Japanese companies to local investment banks for overseas acquisitions has increased dramatically. Investment banks are celebrating a “new age” for Japan's overseas M&A, and Thomson-Reuters reports that this year has observed a record 380 Japanese cross-border M&A transactions.
According to the same article, emerging markets appear to be target locations for Japanese acquisitions with the majority being in China, which currently has 69 cases. The US is a close second with 63 cases.
The remaining top five choices for Japanese acquisition this year include South Korea, India and Thailand. According to the Nikkei, 80% of Japanese operating profits come from abroad, demonstrating a significant shift in the way the Japanese do business.
Today Japan's government announced a $100 billion loan fund to help lower their currency. This measure aims to spur corporate spending on overseas resources and acquisitions as well as heavily monitoring the currency market.
Target: Weaker Yen
The government will send foreign reserves to Japan Bank for International Cooperation, and the money will then be used for commercial bank loans to help companies invest abroad. The M&A monetary transactions are intended to weaken the yen.
The government is also aiming to curtail short-term speculation, which officials believe is contributing to the currency's movements. The Bank of Japan has issued a statement of support, stating that it will continue to carefully monitor developments in the foreign exchange market.
This bold government decision comes a week before the ruling party is set to choose a new prime minister. This news coincides with Moody's country downgrade to Aa3. Moody's claims the rating is due to Japan's deficit concerns, a frequent change in leadership, and the debt conjured by the recent disasters.
The country's S&P rating had been downgraded to AA- in January. Government financing of the triple disaster alone cost roughly ¥10 trillion, or $130 billion. Yields on 10-year Japanese bonds have remained steady despite the latest wave of uncertain news.
Key Statistics – Japan's Economy (source: CIA World Factbook)
- Japan ranks 7th in the world for its industrial production growth rate of 16.6%. Its key industries include, but are not limited to, motor vehicle production, electronic equipment, metals, machine tools, ships, and chemicals.
- The market value of Japan's publicly traded shares is roughly $3.5 trillion. Japan is 3rd in the world for its market value.
- Ranking 5th in the world for both exports and imports, Japan exports an estimated $126 billion more than it imports.
- Japan currently holds roughly $2,440 trillion in external debt. Its foreign reserves are second in the world, exceeding $1 trillion in December 2010.