Currency: Japan Devalues Yen 5%

A strong currency hurts the export-led economy.

A strong currency hurts the export-led economy.

As the yen hit a post war high, the Japanese government has made a move to intervene in the currency market. As a result, the yen has seen a weaknening in its performance by as much as 5%.

Export economy

Because Japan has an export-led economy, a strong yen tends to hurt the country because it makes Japanese goods more expensive to buy around the world.

The result of the weakening of the currency was that the yen traded against the dollar at 75.31:1 instead of its previous figures of 79.33.

Finance minister of Japan, Jun Azumi, calmed fears of a dropping currency by stating that the state of the yen does not truly reflect the state of Japan’s economy.

He also said that the Japanese currency had been pushed to unrealistic levels by speculation in the foreign exchange market (Forex), as well as the strength of the US and European currencies.

Mr. Azumi said that Japan was forced to take “firm measures” because Forex decisions did not reflect the “economic fundamentals.”

Part of the rise in the yen is due to its current position as a “safe-haven” asset for many investors. As the US and European economies slow down or suffer from debilitating debt crises, more and more investors flock to the yen and yen-dominated assets.

Japan has already stepped into its currency market earlier this year.

Profits take a hit

As a result of the strong yen, Japanese firms such as Toshiba, Honda, and Panasonic all have taken a profit hit in the third quarter.

Toshiba reported its net profit from July to September falling 19% from a year ago.

The motor division of Honda fell 55% while Panasonic had a loss of 105.8 billion yen, compared with its 31 billion yen profit one year ago.

Toshiba and Panasonic both cited the impact of the 11 March earthquake and tsunami that hit Japan as other reasons for weak Japanese profits in the global market.

Because of the smaller third quarter profits, Panasonic has lowered its full-year predictions, saying it now expects to net a loss of 420 billion yen this year. This would be Panasonic’s worst performance in a decade, and is a severe cut from the previous forecast of 30 billion yen.

The company said that its higher restructuring costs, combined with weaker demand from the US and Europe and the strong yen were hurting growth projections.

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