• Bloomberg


The yen’s biggest monthly advance since 2008 is threatening profits of exporters from Toyota Motor Corp. to Nissan Motor Co., endangering the rebound from March’s record earthquake.

The currency was at 77.30 per dollar at 9:34 a.m. Tuesday in Tokyo, 7 percent higher than the 82.59 average that exporters used for profit forecasts in a Bank of Japan survey released last month.

Toyota sees a yen stronger than 80 as a brake on growth and Finance Minister Yoshihiko Noda said Tuesday that the yen is overvalued.

Japan’s “Mr. Yen,” former top currency official Eisuke Sakakibara, forecasts it will climb as high as 75 after already reaching a postwar record of 76.25 in March. With reconstruction efforts bogged down in political wrangling, the yen’s advance may add pressure on Prime Minister Naoto Kan to quit and push the BOJ to inject more money into the economy.

“The strong yen is the biggest uncertainty facing Japan’s economic recovery,” said Eiji Hirano, a former BOJ executive director and now executive vice president at Toyota Financial Services Corp. “Japanese companies were doing all they could to get back on their feet, helping the nation rebound faster than expected — the strong yen could kill all of the optimism that was built up on that.”

Sakakibara didn’t provide a time frame for his projection. He directed exchange rate policy at the Finance Ministry between 1997 and 1999 and became known as Mr. Yen because of his efforts to influence the currency’s rate through comments and intervention.

Noda declined comment on intervention when asked at a news conference in Tokyo whether the government would sell the yen to stem its gain. Japanese officials are reportedly preparing to sell the yen. The BOJ may also weigh easing monetary policy at a Policy Board meeting Thursday and Friday, media reports say.

Authorities stepped in unilaterally last year for the first time since 2004 after the yen surged to its highest since 1995. They did so again in March, this time in a coordinated operation with the Group of Seven, when it appreciated more than 3 percent in the week following the quake to a postwar high of ¥76.25.

The yen’s strengthening past 80 to the dollar is slowing the economic recovery, Toyota Motor President Akio Toyoda said July 19. The automaker is aiming to be profitable at an exchange rate of ¥80 and prefers the ¥85 level as a manageable break-even point, according to Executive Vice President Atsushi Niimi.

Nissan is worried about the impact of the currency’s appreciation on jobs, Corporate Vice President Joji Tagawa said July 27. The company said the stronger currency shaved its operating profit by ¥55 billion in the quarter ended June 30.

“We’re at our limit,” Tagawa said before more gains that took the yen’s advance for July to about 5 percent.

BOJ officials in the past week have voiced more concern about the currency, with Policy Board member Hidetoshi Kamezaki saying the bank would need to act “proactively” should the yen’s gains pose a threat to growth and prices. The stronger currency, in addition to the nationwide power shortage triggered by nuclear plant shutdowns since March, may encourage companies to move factories and jobs out of the country, he said.

“If this becomes a trend, it’ll likely accelerate the shift of production overseas,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo, referring to the appreciating currency. Lack of action by authorities “is just another sign that Japan has no strategy to revive its industries, a great contrast with nations like South Korea, where the government clearly supports industries.”

The fallout from the stronger yen may dilute the government’s efforts to rebuild the nation after the natural disaster left more than 20,000 dead or missing. Kan last week pledged ¥19 trillion in outlays over five years for reconstruction.

The effect of the earthquake-relief stimulus “will be smaller if the yen continues to stay at this level given that corporate sentiment will cool and that will lead to sluggish capital spending and hiring,” said Masamichi Adachi, a senior economist at JPMorgan Chase and a former BOJ official.

Efforts to roll out more government spending to spur growth have been hampered by rising calls from ruling and opposition lawmakers for Kan to step down. The prime minister’s approval rating slid to 19 percent last month, compared with about 70 percent when he took office in June 2010, according to a survey by the Nikkei newspaper and TV Tokyo between Friday and Sunday.

Gross domestic product for the year ending March would be cut by 0.8 percentage point if the yen trades at an average of 75 per dollar in the second half of the fiscal year, according to Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute, the research arm of Japan’s second-largest life insurer.

Nomura Holdings Inc. estimates that growth will be reduced by 0.24 percentage point with the yen at that level and 0.49 point if it trades around 70.

The BOJ is projecting a 0.4 percent expansion for the year.

“Companies had been forecasting a rebound in profits in the second half, but if exporters’ profits are strained and that depresses stocks, we’ll need to start to worry about the effect that will have on economic growth,” Nagahama said.

The economy probably contracted in the second quarter and is forecast to rebound from the period starting July 1 as export demand and reconstruction projects fuel growth, according to economists surveyed by Bloomberg.

Former policymakers and analysts have said the BOJ may need to bolster stimulus to ease the damage the yen will have on profits and the economy. The bank doubled its asset-buying fund to ¥10 trillion after the March temblor caused stocks to plunge and the yen to surge. The BOJ also cut its benchmark rate close to zero last October after the currency climbed to a 15-year high against the dollar.

“The BOJ needs to buy a significant amount of government bonds to provide ample liquidity,” Sakakibara, who is currently a professor at Aoyama Gakuin University, said at a forum in Tokyo on July 27.

Sakakibara said the BOJ’s failure to ease policy enough was one reason behind the yen’s advance. “I hope Japan follows the example of the U.S. and does quantitative easing rigorously.”

The BOJ Policy Board may wait for more evidence that the global outlook has deteriorated rather than just evaluating underlying currency moves, analyst Maiko Noguchi said.

“Recent moves don’t necessarily dictate direct action from the BOJ given they’ve said they don’t target specific foreign exchange levels,” said Noguchi, an economist at Daiwa Securities Capital Markets. “The decision to ease policy further will probably require stronger evidence that the global economy is stalling.”

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