Permanent shifts in inflation could mean more volatile policy – Barkin from the Fed

Reuters poll: More yen suffering may surprise Japanese companies

Written by Tetsushi Kajimoto

TOKYO (Reuters) – A monthly Reuters poll showed on Thursday that the vast majority of Japanese companies expect the yen to rise against the dollar by the end of the year, suggesting that further weakness in the local currency could surprise businesses.

The yen’s deceleration this year, which has accelerated in recent weeks, has burdened households with rising costs of everything from food to fuel. The rapid declines also sparked concern among major companies and policymakers, making it difficult for companies to plan ahead.

The currency has lost about 20% against the dollar since the beginning of this year, hitting a 24-year low of 145 yen last week. The yen has come under pressure against the dollar due to the widening gap between US and Japanese interest rates.

“The yen weakened so quickly that it had a major impact on the running of the business,” a manager at one of the automakers wrote, on condition of anonymity.

During the survey period from August 31 – September 9, the yen traded in the range of 138-145 to the dollar.

The survey was conducted before the Japanese authorities this week gave strong indications that they are not comfortable with the sharp declines in the currency and appear to be preparing to intervene to support them. On Wednesday, the yen was at 143.62 to the dollar.

“From the point of view of sustaining economic growth and dealing with raw material procurement costs, moderate gains in the yen are desirable,” wrote a manager at a company manufacturing industrial ceramics used in chips.

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Asked how they expected the yen to move against the dollar by the end of the year, 45% of companies – the largest portion – pegged it at 136-140, followed by 28% at 131-135, the survey showed.

About 11% set it at 126-130, while 3% set it at 120-125. Only 13% saw it weaken more than 141, which means many companies could fall back if the currency falls again.

Separately, a slim majority of respondents want the yen to rise moderately while 28% want it to decline modestly.

domestic tourism

So far, Japan has not been able to capitalize on one potentially big benefit from the weak yen: inbound tourism. Thanks to strict border controls, the world’s third largest economy still sees few foreign tourists.

Prime Minister Fumio Kishida this month raised the daily limit for arrivals to Japan to 50,000 and the government is now considering eliminating the cap entirely by October, Business Daily reported on Sunday.

The newspaper said the government is also considering repealing a requirement to allow entry only to visitors on package trips.

However, the survey showed that Japanese companies – which have lobbied widely to ease restrictions on tourism – believe the recovery will be slow going forward.

A slim majority said they did not expect the government to ease border controls to help inbound tourism recover.

About 28% believe incoming demand will return to pre-pandemic levels by the end of 2023 while 18% expect it to return to those levels in 2024 or thereafter. 20% say it never returns to those levels.

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A third said they were not affected by incoming tourism.

The Reuters Corporate Survey, conducted by Nikkei Research for Reuters, polled about 500 large Japanese non-financial companies on the condition of anonymity, which allowed them to speak more freely.

Separately, the survey also found that three-quarters of companies are concerned about the possibility of an accident in Taiwan, given the political sensitivities around the island claimed by China.

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