Weaker Yen Supports Japanese Exports

Over the past 12 months, the Japanese Yen has depreciated by some 39% against the Euro. This is because investors have regained some confidence in the Euro with the easing of the European Sovereign debt crisis, but also because of the accommodative monetary policies adopted by the Bank of Japan since the end of 2012 when Shinzo Abe came to power as Japan’s Prime Minister. The Yen has depreciated by almost 27% against the US Dollar over this period - the difference between these two depreciations can be attributed to the impact of the European Sovereign debt crisis.

Japanese exports have continued to pick up for the fourth month figures released for June show. Compared with June 2012, Japanese exports have increased by 7.4% globally and exports to the EU rose by 8.6% which is their first increase in 21 months. This provides some evidence that things are getting better in Europe as demand has strengthened.

A weak Yen boosts direct exports from Japan, priced in Yen, but does not help with Japanese goods produced overseas – such as Nissan cars made in the UK. However, when the (in this case) Sterling profits are repatriated, they buy more Yen than was the case a year ago. It also means that Japanese manufacturers abroad have more scope to attract customers through special deals.

On the other side of the coin, Japanese imports have also risen since Japan is reliant on importing most of the raw materials that it needs and fossil fuels for power production whilst much of the nation’s nuclear power generation capacity is mothballed. Imports were up by 11.8% over the past year, contributing to a trade deficit of $1.8 billion.

Japan remains vulnerable to slowing demand in China which is one of its major trading partners. Relations with China have been strained over the sovereignty of islands in the East China Sea which both nations claim.