The vast majority of Japanese businesses expect the yen to strengthen against the dollar by the end of the year, according to a Reuters monthly survey released on Thursday, suggesting further weakness in the local currency could set in. businesses off guard.
The yen’s decline this year, which has accelerated in recent weeks, has weighed on households with higher costs for everything from food to fuel. The rapid declines have also raised alarm bells among big business and policymakers, making it difficult for companies to plan for the future.
The currency has lost around 20% against the dollar since the start of this year, hitting a new 24-year low of just under 145 yen last week. The yen was hammered against the dollar due to the widening gap between US and Japanese interest rates.
“The yen has weakened so rapidly that it has had a significant impact on business management,” an automaker official wrote, responding on condition of anonymity.
During the survey period from August 31 to September 9, the yen was trading in a range of 138 to 145 to the dollar.
The survey was conducted this week before Japanese authorities gave strong indications that they were uncomfortable with the currency’s sharp declines and appeared to be preparing to intervene to support it. On Wednesday, the yen was at 143.62 to the dollar.
“From the standpoint of maintaining economic growth and managing raw material supply costs, moderate yen gains are desirable,” wrote an official at a maker of industrial ceramics used in chips.
When asked how they expected the yen to perform against the dollar by the end of the year, 45% of top companies pegged it at 136-140, followed by 28 % at 131-135, depending on the survey.
About 11% put it at 126-130, while 3% set it at 120-125. Only 13% saw it weaken further from 141, meaning many businesses could be in trouble if the currency were to weaken again.
Separately, a slim majority of respondents want the yen to rise moderately while 28% want it to decline modestly.
So far, Japan hasn’t been able to capitalize on a big potential benefit from the weak yen: inbound tourism. Thanks to strict border controls, the world’s third largest economy still only receives a trickle of foreign tourists.
Prime Minister Fumio Kishida raised Japan’s daily entry cap to 50,000 this month and the government is now considering removing the cap altogether by October, the Nikkei business daily reported on Sunday.
The government is also considering scrapping a requirement that only package tour visitors are allowed entry, the newspaper said.
Still, the survey showed that Japanese businesses, which have lobbied extensively to ease restrictions on tourism, believe a recovery will be slow in coming.
A slim majority said they did not expect the government’s easing of border controls to help inbound tourism recover.
Some 28% believe inbound demand will return to pre-pandemic levels by the end of 2023, while 18% expect it to return to those levels in 2024 or later. 20% of them see it never returning to those levels.
A third said they were not affected by inbound tourism.
The Reuters Corporate Survey, conducted for Reuters by Nikkei Research, questioned around 500 large non-financial Japanese companies on condition of anonymity, allowing them to express themselves more freely.
Separately, the survey also found that three-quarters of companies are concerned about the possibility of an incident in Taiwan, given the political sensitivities around the island claimed by China.
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