Yen plunge hurting, but more still to come

—things are not as bad as they could be.

This ^^^

An excellent article!

“In addition to losses in currency derivatives due to past strengthening of the yen… increased costs in imports due to a cheaper yen since the end of 2012 worsened its profitability rapidly,” the Teikoku report said of the bag maker.

Just from this, it sounds like Fukai may have screwed themselves over.

Currency derivatives should be used for hedging purposes. If Fukai had been doing this correctly, losses on the derivatives when the yen strengthened should have been offset by gains / savings in their real business operations.

Then with the weaker yen their derivatives positions should have had the opposite effect, giving them profits to offset the increased costs of imports.

That their use of derivatives is stated as an issue in their bankruptcy suggests bad management, but then an alternative explanation - as noted in the article - may be that the rapid depreciation of the yen from highs in 2011 to lows in 2014 - 3 short years - may have a lot to do with their troubles. 115-120 yen per se may not be so bad, but it has come this far in a hurry.

Did a first grader write this article? Certainly nobody that I have ever met wants a cheaper yen-the writer must be at 1st year primary school outside Japan Doing a little research would show China to be the main producer of manufactured goods in the world and not Japan. Most Japanese production takes place outside Nippon now.....

@fxgai I loved your explanation but I'm not that smart in terms of such vocabulary (^.^;) I've already tried searching it up, but you are very knowledgeable so.... Can you please comment again and explain to a high-schooler? Thanks so much! I agree with the parts I do understand. :D

Now that imported foods are so expensive, the Japanese farmers must be out in force plowing up the dormant fields and paddies to prevent starvation. Isn't this what all those farmers said when their products were artificially priced higher? Isn't this the reason why the politicians backed up the farm lobby? Citizens of Japan, your farmers will be out in force shorty so you will not starve.

The only saving grace for Japan is that the energy prices and the oil prices are dropping like rocks. That will drastically cut the energy import bills. Otherwise this would have been far far worse. Japan got lucky.

I have to question if Japan is now able to control the fall on their currency. I had read that Japan doesn't want any further drops, yet it's still dropping. It could be out of control now.

The number of yen-linked corporate bankruptcies nearly tripled to 301 in the 11 months through November, according to Teikoku Databank, a corporate credit research firm.

And according to the same firm, 16 straight months of firms filing for bankruptcy with November recording the lowest of the year.

http://response.jp/article/2014/12/09/239252.html

"but you are very knowledgeable"

Yes, he is. He solidly supported the hike of the consumption tax, i.e. removing consumers' purchasing power amid insufficient demand and at the point when the economy was starting to recover.

We need more "knowledgable" opinions like that.

When the price of oil swings back the other way Japan is in for a massive shock!

As a regular visitor to Japan it's great to see the yen back to where it was years ago. I feel for those living in Japan though

JeffLee,

He solidly supported the hike of the consumption tax, i.e. removing consumers' purchasing power amid insufficient demand and at the point when the economy was starting to recover.

A 3% consumption tax hike does indeed increase reduce consumer's purchasing power, but that was not the point of hiking the tax as everyone knows.

A 30% depreciation of the currency, an "intended side-effect" of the borrow and spend policies solidly supported by you, does not come without trade-offs either. I know it must be tough for people of your creed to read an article like this one and post a comment addressing the article, rather than other posters...

not a one way bet though...... huge volatility just now. Maybe after the erection normal seervice will resume as yen weakens to 125.

"A 30% depreciation of the currency, an "intended side-effect" of the borrow and spend policies solidly supported by you,...."

Much of that "depreciation" is due to the surging strength of the US dollar, not the weakness of the yen, because the USD is being bought up by traders on the success of the US economy,

The euro against the yen for example is around 10 percent higher over the past year, 134 to 149, which is no big deal, and fully within a normal range.

BTW, the US also engaged in bold stimulus measures, as Japan did, but without your sweeping tax hike.

Much of that "depreciation" is due to the surging strength of the US dollar

I'd definitely put the majority of the depreciation down to the yen. The yen's depreciation against virtually everything except the Russian Ruble tells the tale. It's been a yen story mostly - "Abenomics" don't you know.

The euro against the yen for example is around 10 percent higher over the past year, 134 to 149

Compare the whole two years of Abenomics rather than just the past year and you'll find we've gone from 105 to 147. Whoops, silly me that's MORE than the 30% depreciation I mentioned. My apologies for being "wrong" again!

Just face the reality, Abe wanted to devalue the yen and he has done so to great effect. The saving grace for your 30% yen devaluation is that prices don't adjust immediately, but really it's just nonsense to fuss over a 3% tax hike when the currency plunge of 30% will hurt consumers more at the end of the day.

In addition to losses in currency derivatives due to past strengthening of the yen

The quant will 'span margin' the traders options or futures to culcuate the sufficient margin to cover potential losses. This is best pratice. Currency derivatives are as much used for speculation, as well as a hedge

True. But Fukai was a "bag maker", so if they were using derivatives for speculation rather than just hedging their business risks, then even more fool them.

A 3% consumption tax hike does indeed increase reduce consumer's purchasing power, but that was not the point of hiking the tax as everyone knows.

That may be true, but, Abe and the rest of them must have known that hiking the consumption tax would lower consumers' buying power. The point of the tax increase was certainly not to help consumers.

It is indeed fortunate that oil prices have gone down because, if they hadn't, Japan would be in much worse shape. The BOJ's activities are unsound: printing money that hasn't been earned delivers no real, across the board, economic benefit.

must have known that hiking the consumption tax would lower consumers' buying power

Yes, but then I'd think everyone would know that the impact of a 30% depreciation in the value of the yen would lower it as well.

Everyone hates the tax but is quick to overlook the yen depreciation.

Everyone hates the tax but is quick to overlook the yen depreciation.

Oh, that hasn't overlooked by on my end. The yen began its slide not long after Abe took office. The higher tax only compounds the damage done by a lower yen. The only thing that has "saved" Japan is oil's fast depreciation. Otherwise the economy would be much worse.