The Dollar Threatens To Drag Down The Yen
Friday, March 07, 2008SUSIE GHARIB: The dollar continued to fall today against the Japanese yen as turmoil continues in the global financial markets. Japan, the world's second largest economy, could be hit hard if the dollar's slide continues. From Tokyo, Lucy Craft reports.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: When the greenback goes south, it turns up the heat on Japan's economy. And when the dollar dives, as it has done this week, falling to levels against the yen not seen in years, the temperature gets intense for Japan, Inc., which had been thriving in a weak yen climate, says Satoru Ogasawara, an economist with Credit Suisse.
SATORU OGASAWARA, VP, ECONOMICS RESEARCH, CREDIT SUISSE SECURITIES JAPAN: Until now, the Japanese corporation has been benefited from the weaker yen and strong global economy and they (INAUDIBLE) has been increasing for several years.
CRAFT: Other Asian countries feel the pain when the greenback plunges, but currency volatility takes a far bigger toll on Japan than elsewhere in the region.
OGASAWARA: It could hurt the stock market. That could depress the business and consumer sentiment and that will affect consumer spending and business investment later on.
CRAFT: Despite a six-year growth streak, Morgan Stanley economist Robert Feldman says the world's second largest economy has developed a huge Achilles heel; it's over-reliant on exports to fuel growth.
ROBERT FELDMAN, SR. ECONOMIST, MORGAN STANLEY JAPAN: Now until 2006, there wasn't actually all that overwhelming dependence on exports. It was sort of very balanced, export domestic demand story, particularly domestic business investment. But that is now waning and only the exports are left. So that obviously would be another reason that people might be concerned, that a strong yen would weaken that one component of demand growth that remains strong.
CRAFT: And although Japanese companies have moved production offshore and taken other steps to neutralize exchange fluctuation, about half of their exports are still denominated in dollars. Ogasawara says that spells lower earnings when these revenues are exchanged back into yen.
OGASAWARA: Their earning forecast for next coming year will be very severe, so that's why companies are worried about.
CRAFT: Already, big exporters like Toyota and Yamaha, the motorcycle manufacturer, have warned the soaring yen has shaved their profit margins. Currency strategist Masafumi Yamamoto of the Royal Bank of Scotland, says companies will be reining in spending this year.
MASAFUMI YAMAMOTO, FX STRATEGY JAPAN, ROYAL BANK OF SCOTLAND: Volatility of the financial market will make the corporate behavior cautious and that will be a negative for the economy as a whole.
CRAFT: Most analysts discount the possibility of a return to the mid- 1990s, when the dollar sank to a record low of 79 yen. Still, many experts reckon that a weak dollar, around the 100-yen level, will linger this year.
YAMAMOTO: We think that the yen continue to be strong. That means I see room for further appreciation of the yen.
CRAFT: For the last four years, Japanese monetary officials have been sitting on the fence, refraining from market intervention. But analysts say another sudden and steep surge in the value of the yen over the dollar could force the Bank of Japan to step in. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
