Yen’s Fall Aids Japan, Worries Others
WASHINGTON—The steep drop in the value of Japan’s currency is sending ripples around the world, fostering hope that the third-largest economy will awaken from its long slumber, though stoking fears in some countries that they could suffer.
The sharp depreciation of the yen—around 30% against the U.S. dollar since last September—also is reigniting concern that nations could be drawn into damaging currency wars in which governments engage in tit-for-tat devaluations to gain trade advantages.
Perhaps the nation with most to lose from the yen’s fall is South Korea, as it competes head-to-head with Japan to sell similar products, such as cars and consumer electronics.
“They’re very worried about it,” said Fred Bergsten, senior fellow at the Peterson Institute for International Economics, who spoke with several South Korean economic officials during their president’s visit to Washington last week.
The South Korean auto sector is “highly vulnerable” to Japan’s currency depreciation, according to a study by Deutsche Bank. The report said South Korea’s electronics business should be less affected.
South Korean Finance Minister Hyun Oh-seok has singled out the weakening yen as a problem for Korean exports, while the Bank of Korea cited the yen’s decline as one of the factors behind its decision to cut interest rates last week. Korean auto stocks have fallen sharply in recent days as investors fret over companies’ falling competitiveness.
Other nations aren’t as affected by Japan’s currency moves. Germany sells many of the same goods as Japan. But outside of luxury cars, those products don’t target precisely the same market segments.
“We’re not competing with Japanese producers,” said Franz-Georg von Busse, managing director of Lemken GmbH & Co. KG, who says his agricultural machines tend to be larger, with higher technical standards than those of Japanese competitors.
The falling yen may have other effects. The U.S. Congress is considering Japan’s entry into talks to create a giant Asian-Pacific free-trade bloc, which U.S. auto makers oppose. A weaker yen may make it politically harder for Congress to sign off on a deal, potentially delaying a key facet of the Obama administration’s trade agenda.
“The fall in the yen’s value “results in fewer American exports and jobs and is a further reason why Japan should not be included in the Trans-Pacific Partnership,” the American Automotive Policy Council, which represents the Big Three Detroit auto makers, said Thursday.
The Japanese currency is weakening on aggressive efforts by the government of Prime Minister Shinzo Abe to restart a moribund economy via looser money and other major policy changes. The yen weakened to 100 to the dollar Thursday, crossing a psychological barrier for the first time in four years.
The dollar continued to rally beyond the 100-yen mark early Monday, buoyed by bets that the U.S. Federal Reserve would be the first to dial back stimulus measures.
Japan’s latest data suggest the medicine is working. Figures last week showed Japanese banks are boosting lending, and profits are up at big Japanese companies, such as Toyota Motor Corp. and Sony Corp. The country’s current-account surplus was also the largest in a year, suggesting the softer yen may be bolstering exports.
While a growing Japan would help the world economy by adding demand, the country’s loose-money policy adds to worries that similar moves in the U.S. and elsewhere are diverting too much cash into emerging markets. Brazil, for example, fears capital inflows will pump up stock prices, strengthening its currency and making its exports dearer. Central banks in Australia and New Zealand moved last week to sap their currencies’ strength. Others in Asia are considering action, too.
The U.S. has trod a careful line on Tokyo’s moves. It is trying to encourage bold steps to revive Japan’s economy because that would aid the U.S. recovery. But it also wants to ensure Japan isn’t deliberately depressing the value of its currency for competitive purposes.
Finance ministers of the Group of Seven leading economies at a meeting over the weekend reaffirmed they would refrain from weakening currencies via monetary policies. Japan’s Finance Minister Taro Aso said G-7 members didn’t complain about the Bank of Japan’s monetary easing or the yen weakness. He said the dollar’s jump above the 100-yen mark wasn’t discussed. Bank of Japan Gov. Haruhiko Kuroda said the G-7 clearly understands Japan’s easing is aimed at ending 15 years of deflation and not at manipulating exchange rates.
U.S. Treasury Secretary Jacob Lew, speaking on CNBC Friday, said he would “keep an eye” on whether stimulus provided by the Japanese and other central banks is intended to improve domestic economic growth or weaken currencies.
Many economists see the yen declining even more this year. Capital Economics sees the currency hitting as much as 120 yen to the dollar in 2014.
-Nina Adam, Ian Talley and Alastair Gale contributed to this article.
Write to Thomas Catan at thomas.catan
Felix (Kyung) Seo