According to Jesper Koll, director of financial services firm Monex Group, the worst is not over for the Japanese yen – it could fall further in the coming months.
“I think the parabolic breakout is still on the way, so I expect we’ll see 150, 160 sometime in the next couple of months,” Koll told CNBC.Street Signs Asia” On Wednesday.
The Japanese yen fell to a 24-year low on Wednesday at 144.35 against the U.S. dollar, its weakest since August 1998.
The currency has since retreated slightly and was trading around 144 against the dollar earlier on Thursday.
Why is the yen weak?
Coll said the devaluation of the currency was one of the more “serious” and “easiest” moves to explain because it was “based on real fundamentals.”
This is the most textbook currency movement I have seen in the last 30 years,” he added.
Koll said “two powerful forces” will further weaken the yen: the widening interest rate differential between the U.S. and Japan and Japan’s trade and current account deficits.
In contrast to the US Federal Reserve, which has been raising interest rates more aggressively to control inflation, the Bank of Japan (BoJ) is taking a dovish stance on monetary policy after years of deflation.
Inflation will reduce the value of the yen by reducing its purchasing power.
“Inflation is likely to exceed 3% by the end of this year, which is above the central bank’s 2% target,” said Darren Tay, an economist at Capital Economics Japan.
3% inflation is relatively low — For example, inflation in the United States was 8.5% in July.
However, the BoJ “remains very firm in its position that it will continue with ultra-easy monetary policy to boost inflation and support growth in Japan,” Tay said on CNBC.Squawk Box Asia” Thursday.
Koll agreed with that analysis, saying the likelihood of the central bank raising rates is “close to zero.”
The BoJ is “committed to a free market in currency markets” and has “no smoking gun” as to why they should raise interest rates, he said.
Asked about Japan’s inflation outlook for the coming months, Koll said he would agree with the BoJ’s forecast for consumer price inflation next year “may fall below 2%”.
central bank said at the end of August inflation reaching 2% will not be enough. Rather, the “ultimate goal,” he added, would be to “create a virtuous cycle in which favorable financial conditions facilitate higher corporate profits and improved labor market conditions, thereby seeing sustained increases in wages and prices” and easing monetary policy. achieves this goal.
Sectors to benefit
But a weaker yen isn’t necessarily a bad thing—it could help Japanese companies become more competitive. And that’s partly because global supply chains will change in Japan’s favor as more companies look to increase their imports from Japan.
1. Machine manufacturing companies
“If you can’t buy from China anymore, you’ll buy from Japan,” said Koll, who advised investors to focus on Japanese machinery companies that will benefit from both a weaker yen and changes in the global supply chain.
Factory automation equipment maker Keyence said it would be a “big beneficiary” of the weakening yen.
Air conditioner maker Daikin is another company investors should watch out for, he said.
“The weather is getting warmer all over the world… More and more households are looking to equip themselves with air conditioners, and this is where Daikin really excels.”
2. Tourism
Ryota Tanozaki, CEO of the Tabist hospitality chain, said the yen’s depreciation would attract more tourists to Japan who want to take advantage of their stronger spending power.
Tanozaki noted that he is positive about the weakening currency, saying that travelers will have more purchasing power due to the weaker yen.
Japan has “various assets” such as its cuisine, transportation system and traditions, which attract foreigners to visit the country at a lower cost.
Tourism spending in Japan has fallen significantly over the past two years, but Koll is optimistic that Japan will follow Taiwan’s lead and restore visa-free entry for visitors from some countries.
The Japanese government announced on Wednesday that it will further relax Covid-19 travel measures and increase daily foreign visitor arrivals.
Nevertheless, while the increase in tourist arrivals has contributed to consumer spending in Japan, Tanozaki said high energy prices are still a cause for concern.
Companies in the utilities and food and beverage sectors will experience the downside of a weaker yen because these are industries that are heavily dependent on imports, Koll said.
“I’m a little worried about the higher ones [prices] “In the field of oil and energy,” Tanozaki said. The depreciation of the yen, as well as geopolitical tensions, will be “problematic” for businesses in the tourism sector, as they will be exposed to higher utility costs with the influx of tourists.
