Importers may gain from rupee’s rise against yen

Japanese Prime Minister Shinzo Abe’s economic policies, dubbed “Abenomics”, aim to ease money policy and push up spending by his countrymen.

In tune with that, the Bank of Japan last week came out with a Rs 7,600-crore ($1.4 trillion) stimulus package. This, in turn, triggered a fall in the value of the Japanese yen against other currencies.

Bank of Japan Governor Haruhiko Kuroda has said he is ready to offer further stimulus or maintain an easy policy beyond two years if Japan is unable to meet its target of raising inflation to 2 per cent.

For India, it is an issue of interest as the rupee has gained nearly 7 per cent (28 per cent since November) against the yen since the beginning of this month. The rupee has increased to 55.18 from 58.25 for 100 yen.

Rupee RISE

What could be the effect of the rupee’s rise against the yen? Companies in India, especially in the automotive and electronics sectors, stand to gain from the rupee’s rise, as imports from Japan, the world’s third largest economy, will become cheaper. However, there is one problem. The rupee should not depreciate much against the dollar if Indian firms’ imports from Japan are to turn cheaper. That, in fact, seems to be happening as during this period as the rupee has slipped marginally to 54.61 from 54.37 to the dollar.

According to N.S. Venkatesh, Chief General Manager of IDBI Bank, with Bank of Japan deciding to inject more liquidity into its economy over the next few years to fight deflation, some of this liquidity will get transferred to India as foreign institutional investments.

This could help bridge the current account deficit. The rupee’s rise against the yen is, however, of concern to exporters. Sino-Indian bilateral trade is pegged at nearly $15 billion and the Centre aims to increased it to $25 billion by next year.

According to a Commerce Ministry official, most of the merchandise exports to Japan is contracted in dollar. Therefore, the rise in the rupee against the yen will not have any significant impact.

On the other hand, most project exports from India to Japan are valued in the yen. “The rupee’s rise could affect the profitability of such projects in areas such as railways and hydro power. Exporters have to bear the consequences of the volatility in foreign currencies and the Government cannot intervene,” the official said.

Seafood processors are undeterred by the recent rise of the rupee, saying that it will have no impact on shipments to Japan. Indian exporters do not expect any substantial drop in exports due to currency movements, said a managing committee member of the Seafood Exporters Association of India.

Chemical exporters, too, are unperturbed by the currency fluctuation.

“We don’t see any impact of the declining yen as our billing is in dollar terms,” said Ashish Bharat Ram, Managing Director, SRF Ltd. SRF Ltd exports speciality chemical ingredients to Japan valued at about $5 million annually.

The automotive industry is mixed with its reaction to the rupee-yen movements.

“It should help us eventually as cross rate of yen is better. Also, we have forward contract that hedges our risk. Our next round of hedging will be made once the current contract gets over,” said Jnaneswar Sen, Senior Vice-President, Sales and Marketing, Honda Cars India said.

But Yamaha Motors said the movement will have little impact as it makes most of its components here. “We get almost every part from the domestic market, so even if there is an impact, it will not be significant,” said Hiroyuki Suzuki, CEO and Managing Director, India Yamaha Motor.

Critical reversal

The Japanese yen has been appreciating against the dollar since August 1998. This structural uptrend helped the Japanese currency gain 49 per cent between 1998 and October 2011 when it peaked at 75 against the greenback. This was also the life-time high for this currency pair.

This long-term trend has however reversed since December 2012. The yen has depreciated from 77 to 99 since then, declining almost 28 per cent. It is however too soon to decide if this is a reversal in the long-term trend or just a minor pull-back. The area between 100 and 102 is the level that can make the yen halt a while. This is a psychological buttress as well as a critical Fibonacci support.

The rupee has been in a long-term downtrend against the yen, dropping from the high of 38 in 1974 to the current level of 1.8. This trend too reversed since the last quarter of 2012 with the rupee gaining 28 per cent. The currency pair is reaching a key hurdle in the region around 1.8 and 2. The current rupee appreciation against the yen is likely to halt in this zone. If the rally continues, 2.4 would be the next target.

(K. Ramkumar from Mumbai, Vishwanath Kulkarni, Amiti Sen, Ronendra Singh from Delhi and V. Sajeev Kumar from Kochi contributed to this story)