What Does the Japanese Yen Mean for US Importers?

Authors: Lisa Reisman, MetalMiner CEO and Don Hauser, MetalMiner VP of Business Solutions

The Japanese yen has experienced a significant decline in value against major currencies, particularly the US dollar, over the past few years and especially since the beginning of last year (the currency hasn’t been this low since the early 1990’s). This trend is driven by a combination of factors, including the Bank of Japan's maintenance of an ultra-loose monetary policy, with interest rates near zero, despite the US Federal Reserve's aggressive rate hikes. As a result, investors are selling the yen and seeking higher-yielding assets, contributing to the currency's weakening.

So what could go wrong?

The problems are myriad. Besides inflation, a lower currency can also yield a higher debt burden, (Japan is after all one of the most indebted nations in the world), economic stagnation (and of course higher import costs etc) stagnant domestic consumption. Japan serves as an example of what not to do. Moreover, their demographics only worsen the problem.

Additionally, the yen's status as a "safe haven" currency has diminished, as investors have become less risk-averse in the current economic environment. The implications of the yen's decline have both positive and (mostly) negative effects on the Japanese economy. On the one hand, the depreciation has boosted the profits of Japanese exporters, such as Nippon Steel and JFE, by making their products more competitive in global markets. On the other hand, the weaker yen has increased the cost of imports, putting pressure on Japanese consumers and businesses that rely on imported materials and goods. The combination of a weaker yen and rising commodity prices of the past couple of weeks has put pressure on profit margins.

Though not a black swan, market anomalies can create market distortions. But for those that import Japanese material or just concluded negotiations for the 2024 fiscal year, you probably saw great contract numbers, particularly if those negotiations concluded prior to April.

Source: xe.com