Japanese Corporates Not Yen Bears (Any More)

Japan's Economics Minister Amari had initially suggested a few days ago that the correction to the yen's strength had been corrected. Reports suggested that under criticism from his cabinet colleagues, he softened his comments, now indicating that correction was ongoing. The dollar proceeded to recover and made new multi-year highs yesterday. 

Amari was not talking off the top of his head.  A Reuters survey of 400 Japanese businesses, half of which were manufacturers, released on Tuesday, shows that almost half the businesses said the yen's decline has been sufficient and more than a third would like to see the yen recover somewhat.  Only 15% of the respondents sought further yen depreciation.  

The Reuters survey found 48% of Japanese businesses wanted to see the dollar-yen rate stabilize around JPY100.  Seven percent of the companies wanted to see JPY105 and eight percent wanted to JPY110.  Almost 30% want the dollar to ease back to JPY95 and nearly 10% prefer JPY90.  

The results for just the manufacturing sector were similar.  Many Japanese manufacturers import inputs and the depreciation of the yen boosts costs of these.  In addition, Japanese companies, such as autos, consumer electronics and the like, have moved production facilities offshore, insulating themselves to some extent from the vagaries of the yen. 

While Abenomics has enticed foreign investors to boost their exposure to Japanese equities by around $100 bln since the election was called in mid-November 2012, Japanese business and investors seem less enchanted.  The Reuters survey found that only 13% of the corporate respondents planned to boost investment in response the government's initiatives and only 10% plan to boost wages or employment.  These findings were in line with other recent surveys.  

Japanese investors have not been spooked by the depreciation  of the yen and BOJ's decision to purchase of the new issuance this year and next.   They have not fled the land of the falling yen and low nominal interest rates.  Instead they have been significant sellers of foreign bonds.  The weekly MOF data indicates Japanese investors have sold JPY5.36 trillion (~$53.6 bln) of foreign bonds this year and another JPY4 trillion (~$40 bln) of foreign stocks.  

They are essentially taking profit on the large stock of foreign assets they have acquired.  This is not the behavior of investors who think the dollar-yen is going to infinity as one fund manager put it.  This is the actions of investors who think the decline in the yen is an anomaly that will not be sustained. 

The findings of the Reuters poll also say something about the so-called currency war that has captured the imagination of the media and blogosphere.  Globalization has complicated corporate interests.  A weaker currency is not always beneficial.    A stronger currency is not always harmful.  

The diversity of corporate strategies, the varying elasticities of demand and different competitive environments for their products mean that it is difficult to generalize the currency views of Japan Inc.  Moreover, given turnover, corporate flows are swamped by financial flows.  The 2010 BIS triennial survey of currency market turnover (the next one is due later this year) put the average daily turnover of dollar-yen near $565 bln and eur-yen at another $110 bln.  

This means that while the corporate views of the dollar-yen rate are interesting, it is difficult to extrapolate from it to trade the yen.  Short-term speculators, momentum players and trend followers may be more important for the day-to-day moves than Japanese businesses.