Japan currency policy fuels trade reaction

A weaker yen is clearly good news for Saudi importers. But it could be positive for Saudi consumers only when the decline in prices to end-consumers is passed on by agents or distributors of Japanese products here, says Fawaz H. Al-Fawaz, a Riyadh-based economic consultant.
The Saudi riyal floats against the yen because of the parity with the US dollar, he pointed out.
The yen has been weakening against the dollar for two months, but has rebounded in the past two days, raising fears that Japanese exports may suffer.
The dollar last traded at 88.32, down 0.5 percent yesterday. The euro also fell against the yen to last trade down 0.7 percent on the day 117.28.
Many currency traders yesterday called the yen’s strength a healthy correction, given the yen has lost substantial ground since in recent months and hit a 2-1/2-year low of 89.67 on Monday.
“A weaker yen would obviously favor Japanese exports at the expense of competitors from elsewhere in the world. A stronger yen would have the opposite effect, to an extent modified by factors such as brand loyalty,” Jarmo T. Kotilaine, a regional analyst, told Arab News.
“Japan is clearly an important supplier of cars and other products such as consumer electronics to the region,” he said.
But he said: “Saudi exports to Japan are mainly composed of oil where the demand is relatively inelastic. In my opinion, it is still somewhat early to gauge the ultimate effect as the Japanese authorities have in the past repeatedly struggled to bring the yen down in a more sustained fashion.”
Japan’s Economy Minister Akira Amari has warned that the weak yen could hit consumers through higher import prices — comments echoed by Shigeru Ishiba, secretary general of the ruling Liberal Democratic Party.
Japan’s drive to weaken the yen poses a threat to big South Korean exporters such as Hyundai Motor, reports said this week.
Bank of Japan Gov. Masaaki Shirakawa says the central bank will persist in easing monetary policy as it works to pull the country out of its deflationary slump.
Japan's currency, the yen, has slipped against the US dollar and euro in recent weeks, helping relieve pressure on manufacturers whose competitiveness and profitability have suffered partly due to the currency's prolonged appreciation. But so far prices remain flat, indicating scant progress toward escaping deflation, The Associated Press reported yesterday
In announcing a 20-trillion-yen ($225 billion) economic stimulus package last Friday, Prime Minister Shinzo Abe reiterated his calls for the central bank to do more to boost growth.
Tokyo stocks lost 2.56 percent yesterday as the yen rebounded. The Japan's benchmark Nikkei stock average faced its largest daily fall in eight months.
Basil Al-Ghalayini, CEO OF BMG Financial Group, said: "With the US economy going through its biggest debt in history while the euro zone is still struggling with several members' sovereign debt, the Asian markets are showing the only promising economic block during 2012.”
He added: “China, be it the world's No. 2 economy, is obviously leading the trend and has the right fundamentals for a sustainable economy."
A rising currency hurts exports and major central banks, including the Federal Reserve, the Bank of England and the Bank of Japan, have been printing money in an attempt to keep the value of their currencies lower by increasing supply.
Investors have put on big bets against the currency with the new government in Tokyo very vocal about pressing the BoJ to tackle deflation, calling for a 2 percent inflation target, Reuters said.
The BoJ is widely expected to agree to such a target at its policy meeting on Jan. 21-22, although some traders said there could be buy-on-rumor-sell-on-fact selling in dollar/yen afterward.