Japan executives urge FX stability after yen intervention lifts currency 5%

Japanese executives are increasingly warning that currency swings and a persistently weak yen pose risks to the economy, after a joint Japan-U.S. intervention lifted the currency about 5 percent from a 40-year low near 164 to the dollar in July.

"Problems affecting the entire Japanese economy affect us too," Kenichiro Fujimoto, chief financial officer at Mitsubishi Electric, said in an interview last week. "A weak yen does not necessarily mean all is well."

Higher costs for energy, materials and food weigh on domestic demand, threatening Japan's gradual emergence from decades of deflation. "While a weaker yen has real advantages for exports, Japanese companies import almost all their raw materials," said Norihiko Ishiguro, chairman of the Japan External Trade Organization (JETRO). "At a certain exchange rate costs actually increase, so we can't say exporters always win from a weak yen."

Sharp currency moves also upend earnings forecasts and complicate investment decisions for companies with global operations, even when a weaker yen ultimately lifts their bottom line. Mitsui & Co booked record first-quarter earnings this week, buoyed by the weak yen that boosted overseas income, yet its chief financial officer Makoto Tanaka said, "More than anything I'd like the market to stabilise and volatility to come down."

Exporters feel the strain

The intervention, conducted jointly with the U.S. Treasury, marked a rare coordinated effort to support the yen after it sank to its weakest level in four decades. The move lifted the currency by around 5 percent, but executives caution the relief may be short-lived without a shift in the Bank of Japan's monetary stance.

"We're really feeling the impact of very high volatility and will revise our current assumed rate of 150 yen to the dollar as necessary," said Yoshihiro Shimazu, chief financial officer at Mitsubishi Corp, the trading house that competes with Mitsui.

A JETRO survey published in March found a rate of 120-124 yen to the dollar was the most desirable exchange-rate range, selected by nearly a fifth of companies. Only 11 percent of firms preferred a rate above 150 yen to the dollar.

Waning hopes for a stronger yen

Yet optimism that the yen will recover to those levels is fading. "Considering Japan's fundamentals and that the trade balance isn't recovering, perhaps we won't see a rate of 120 to 130 yen to the dollar again," Mitsubishi Electric's Fujimoto said.

The comments show the tension at the heart of Japan's currency dilemma: a weaker yen boosts the competitiveness of exporters and inflates the value of overseas income, but it raises the cost of the energy, food and raw materials that Japan imports almost entirely. For an economy that has spent decades fighting deflation, the pass-through to domestic prices cuts both ways.

Japan's reliance on imported energy and food makes it unusually exposed to currency swings. The yen's slide has pushed up the cost of everything from crude oil to wheat, feeding into consumer prices at a time when the central bank has been trying to nurture a durable recovery from deflation. For households, the weaker currency erodes purchasing power even as wages begin to climb, complicating the Bank of Japan's goal of achieving sustained inflation.

The joint intervention signals that policymakers view the yen's slide as a risk to the recovery, and executives' warnings suggest further action may be needed if volatility persists. With the Bank of Japan's policy path still uncertain and the trade balance slow to recover, currency markets are likely to remain a focal point for Japan's corporate sector through the rest of the year.

This article is for informational purposes only and does not constitute investment advice.