TOKYO, Jan 27 (Reuters) - After falling by almost a fifth
since Japanese Prime Minister Shinzo Abe came to power just over
a year ago, the yen is in a sweetspot for the economy.
Companies have roared back with bumper profits as the
currency's slide to five-year lows made exports more competitive
and while import prices, notably for fuel, have climbed,
importers are benefiting too.
But should the yen keep falling, the drawbacks of higher
import prices and possible anger from Washington and other
trading powers could start to outweigh the benefits of a weaker
currency. Those benefits start shifting to drawbacks if the yen
slips to 120-130 per dollar from its current Goldilocks' range
The yen may weaken further as the U.S. Federal Reserve
slowly tightens its dollar-liquidity spigot while expectations
grow that the Bank of Japan will increase its own flood of money
into the economy to offset a sales-tax increase in just over two
months, say Japanese executives, policymakers and investors.
"I don't think many people in Japan want a yen decline to
around 120 or 130 to the dollar," said BOJ economist Nobuyasu
Atago, who is now on a stint at the Japan Center for Economic
Research. "Many companies have already moved production overseas
and may also become hesitant to boost exports for political
Indeed, Japanese firms are not clamouring for a further drop
and they believe the yen's fall has largely run its course, a
new Reuters poll shows. For years, a strong yen had sapped
Japan's export competitiveness and worsened its deflation.
For the past two months, the dollar has traded between 100
yen and its high at the start of the year of 105.44. That is the
peak for the U.S. currency since October 2008 - the early days
of the global financial crisis, when investors began fleeing
risk for the perceived safe haven of the yen.
It ended Friday trading at 102.28, having slipped in recent
days as stock markets fell.
HITTING THE SPOT
Executives at about half the 400 companies in the Reuters
Corporate Survey said they both expect and hope the yen will be
in its current narrow range of 100-105 to the dollar six months
from now, while more than 90 percent predict and want to see the
Japanese currency in a broader 90-110 range. Only 5 percent
wanted the yen to weaken beyond 110 to the dollar.
Even the losers from the weak yen see its broader benefits
"For us the weaker the yen gets, the tougher it gets," said
Yoshiharu Ueki, president of Japan Airlines Co, which
pays for its aircraft and fuel in dollars.
"But it is important for Japan's economy to rebound, so a
level of around 100 yen is necessary" and weakening a bit beyond
105 yen would be better, Ueki told reporters at a new year's
gathering of business leaders. "We can adjust to it as long as
there is stability."
Mitsubishi Heavy Industries Ltd, Japan's leading
heavy-machinery maker and aerospace company, would be "grateful"
for a yen slide to 115-120 to the dollar, said chairman Hideaki
And yet, he said, "I think the yen is balanced at the moment
around the 100-105 yen level. From the viewpoint of both
importers and exporters, a skewed rate is not good. And with the
strong yen reversed, what we need now is stability."
Both China and South Korea - major trading rivals to Japan
which compete in a number of markets such as auto and
electronics - have raised concerns about the slide in the yen in
The United States has welcomed Japan's economic rebound
after Abe came to power 13 months ago promoting a policy mix of
massive BOJ easing and government spending - dubbed Abenomics by
If the yen's fall is the result, rather than the aim, of
these growth policies, Washington seems willing to tolerate a
gentle yen decline - to a point.
"They need to get their domestic economy growing," Treasury
Secretary Jack Lew said this month. But he said, taking
questions at a forum, "their long-term growth can't be rooted in
a strategy that ultimately turns in any way towards reliance on
an unfair advantage because of the exchange rate."
He added, "We continue to analyse it very closely."
Ted Truman, a former senior official at the Treasury
Department and the Fed, said that as long as the Japanese "are
not deliberately acting to push down the yen, I don't think, as
a matter of economics, the United States government would be
But it was possible some U.S. officials suspected that Japan
was "encouraging further depreciation of the yen by winking and
nodding, if not overt actions," said Truman, a senior fellow at
the Peterson Institute for International Economics in
If that is the case, "I'm sure the Treasury is making clear
to the Japanese that if there is any hint of that going on, it
will be a big problem," Truman said. "And we have enough
problems with Japan as it is."
Still, current and former Japanese officials knowledgeable
about currency diplomacy say a yen fall to 110 to the dollar
might not raise the heat on Tokyo - that the threshold might be
more like 120-130 yen.
Treasury and Japanese Finance Ministry officials declined to
comment on their currency conversations.
IMF Deputy Managing Director Naoyuki Shinohara, who was
Japan's top currency official from 2007-09, shrugged off
concerns that the yen's weakness could lead to tensions between
Tokyo and Washington.
"It is clear that what Japan is trying to do now is beat
deflation," he told Reuters in an interview. "There may be some
changes in the way (the U.S. government) communicates due to its
relations with Congress. But I don't feel Japan's weak yen is
seen as a big problem."
Of course, no one can rule out a yen decline that turns into
a plunge. One trigger could be if the markets lose confidence in
Japan's ability to control its debt, especially if the Abe
recovery should derail.
So far, despite having public debt far above 200 percent of
GDP - the heaviest burden in the industrial world - Japan can
still borrow 10-year money at less than 0.7 percent. But Abe has
ramped up government spending to spur recovery, and the BOJ is
gobbling up most of the government's bond sales - practices that
cannot continue forever and could someday unnerve investors.
Japanese government figures show Abe cannot meet a promise
to balance the budget in coming years on the current course, the
first time official figures have confirmed a view already held
by many economists, Reuters reported on Friday.
In the Reuters corporate survey, four out of five companies
expected a euro-style debt crisis in Japan within a decade,
although few fear it is imminent.
"All it might take is a small event to trigger a
catastrophic shift in the perception of Japan," said Neal
Gilbert, market strategist at Gain Capital in Grand Rapids,
"If one of the major rating agencies suddenly downgrades
Japan, citing the potential ineffectiveness of Abenomics,
confidence in the programme could change overnight, and the yen
could bear the brunt of that sea change," he said. "As we've
seen recently in Europe, once the fear train gets rolling, it
takes an incredible amount of effort to bring it to a stop."