Weak yen most ‘textbook-driven currency transfer’ in 30 years: Monex Group

The worst isn’t over for the Japanese yen — it may plummet even additional in the approaching months, in keeping with Jesper Koll, director of economic providers agency Monex Group. 

“I think the parabolic overshoot is still on track, so I expect we’re going to see 150, 160 at some point over the next couple of months,” Koll informed CNBC’s “Street Signs Asia” on Wednesday.

The Japanese yen slumped to a 24-year low on Wednesday, and stood at 144.35 towards the U.S. greenback — the weakest it has been since August 1998. 

The currency has since pulled again barely and traded round 144 towards the dollar earlier on Thursday. 

Why is the yen weak?

Koll mentioned the depreciation of the currency is likely one of the extra “rigorous” and “easiest” strikes to clarify as a result of it’s “based on real fundamentals.” 

It is the most “textbook-driven currency move I’ve seen in 30 years,” he added.

Koll mentioned “two powerful forces” will weaken the yen even additional: the widening rate of interest differential between the U.S. and Japan and Japan’s commerce and present account deficit.

In distinction to the U.S. Federal Reserve, which has been mountain climbing rates of interest extra aggressively to regulate inflation, the Bank of Japan (BoJ) has been taking a dovish stance on financial coverage after a few years of deflation.

Inflation would lower the worth of the yen by lowering its shopping for energy.

Inflation in Japan is likely to breach 3% before the end of 2022, says economist

“Inflation is likely to breach 3% before the end of this year, above the central bank’s 2% target, said Darren Tay, economist at Capital Economics Japan.

Inflation at 3% is relatively low — inflation in the United States, for example, was at 8.5% in July.

However, the BoJ “stays very steadfast in its stance that it’ll keep its extremely simple financial coverage in order to spur inflation and to help development in Japan,” Tay said on CNBC’s “Squawk Box Asia” on Thursday.

Koll agreed with that analysis, saying that the likelihood of the central bank raising rates “is near nil.(*30*)dedicated to a free market in the currency markets” and has “no smoking gun” as to why they should increase interest rates, he said. 

When asked about Japan’s inflationary outlook for the coming months, Koll said the BoJ’s forecast for consumer price inflation next year could “return all the way down to beneath 2%,” and he would agree with that prediction. 

The central bank said in late August that reaching 2% inflation would not be enough. Rather, the “finish objective,” it added, is for “accommodative monetary situations to facilitate greater company earnings and improved labor market situations, and thereby generate a virtuous cycle in which wages and costs see sustained will increase” — and easing monetary policy would help it achieve that aim.

Sectors that will benefit 

But a weakening yen is not necessarily a bad thing — it could help Japanese companies become more competitive. And that’s partly because global supply chains are set to shift in Japan’s favor as more companies look to increase their imports from Japan.

1. Machinery manufacturing companies

“If you can’t purchase from China anymore, you are gonna purchase from Japan,” Koll said, recommending that investors pay attention to Japanese machinery companies that would benefit from both the yen depreciating and changes in the global supply chain. 

Keyence, a company that manufactures factory automation equipment, will be a “large beneficiary” of a weakening yen, he said.

Air-conditioning manufacturing company Daikin is another one investors should look out for, he added.

“It’s getting hotter in all places in the world … More and extra households are going to equip themselves with air-conditioners and that is the place Daikin is actually in a high pole place.”

2. Tourism

The yen’s depreciation is also likely to attract more tourists to Japan who want to take advantage of their stronger spending power, said Ryota Tanozaki, CEO of hospitality chain Tabist.

Inbound travelers will have much more purchasing power because of the depreciating yen, Tanozaki said, noting that he is positive on the weakening currency. 

Japan has a “number of distinctive property” similar to its delicacies, transportation system and traditions that may entice foreigners to go to the nation at a less expensive worth, he mentioned. 

Travelers to Japan will have much more purchasing power because of weakening yen, says Tabist CEO

Tourism spending in Japan has plunged significantly in the last two years, but Koll is optimistic that Japan will follow in Taiwan’s footsteps and resume visa-free entry for visitors from some countries. 

The Japanese government announced on Wednesday that it would relax more of its Covid-19 travel measures and increase the daily foreign visitor arrivals.

Nevertheless, although the uptick in tourist arrivals will contribute to consumer spending in Japan, Tanozaki said higher energy prices are still a cause for concern. 

Companies in the utility and food and beverage sectors will experience the downside of the weakening yen because these are the industries that rely heavily on imports, Koll said. 

“I’m a bit bit involved about greater [prices] in oil and power,” Tanozaki said. Yen depreciation as well as geopolitical tensions will be “problematic” for companies in the tourism sector as they must incur greater utility prices with the inflow of vacationers.

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