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Yen repatriation ‘fiesta’ fades as more exporters move abroad

Reuters

For yen traders, March used to be a time for extra vigilance. Traders knew they needed to be careful selling the currency because the nation’s exporters would place big yen bids ahead of their financial year-end.

But a shift in the business landscape has changed all that, with manufacturers now having less money to repatriate after moving their production facilities abroad.

“Repatriation obviously still takes place this time of the year, but it’s no longer a festive-type market event we used to see years ago,” said Bart Wakabayashi, head of forex at State Street in Tokyo, referring to the inward flows before the close of the fiscal year on Monday.

Traders say they saw very limited yen buying from Japanese exporters in recent weeks, up to and including Thursday — the last day for buying the currency for settlement within the financial year.

During the 2000s, the value of the yen spiked seven times out of 10 on the final day of currency trading. By contrast, Thursday saw the yen slip by 0.2 percent during Asian trading, coming to a close at ¥102.20 to the dollar.

The yen hit a five-year low of ¥105.45 per dollar early this year. While the Bank of Japan’s aggressive monetary easing since early 2013 has played a central role in the fall, traders also say that the impact of dwindling currency sales to exporters should not be overlooked.

“A while back, March was the time for repatriation before book closings but big names that sell Japan-made products overseas have now become a rarity, since they would rather manufacture abroad,” said Masatoshi Omata, senior client manager at Resona Bank’s market trading office.

“Large telegraphic transfer of funds (in the forex market) have dwindled considerably as a result,” he said.

Exports have still not returned to pre-crisis levels of 2008, despite Japan’s slow economic recovery, standing at ¥69.78 trillion in 2013 — some 17 percent below a record peak of ¥83.93 trillion in 2007.

Imports have also surged since the country became forced to import massive amounts of fossil fuels following the nationwide shutdown of its atomic power plants in the wake of the March 2011 Fukushima disaster.

As a result, Japan logged a trade deficit for the third year straight in 2013, with the figure snowballing to ¥11.47 trillion from ¥2.56 trillion in 2011.

The weakened yen may persist as manufacturers continue to move production overseas not simply to skirt rate fluctuations, but as part of a strategy of using international business to offset a shrinking home market hit hard by an aging population.

According to a survey of more than 600 Japanese manufacturers conducted by the Japan Bank of International Cooperation, respondents expected production outside Japan to rise to nearly 39 percent in early 2017, from 33 percent in early 2013. The ratio was just 26 percent in early 2003.