Recently, the Bank of Japan took steps to stop negative interest rates, which caused the value of the Japanese yen to fall to a 34-year low. Increases in interest rates typically result in investors taking on more debt, which strengthens the currency.
On the other hand, central bank officials have been more dovish in their messaging regarding the yen. This is impacting on the yen since the market has interpreted it as an indication that monetary policy would remain accommodative.
“The statement suggested that this is not the start of an aggressive rate hiking cycle, even though wage inflation is set to pick up strongly,” stated Kunal Sodhani at Shinhan Bank.
“Investors have been selling the yen for the dollar because the interest rate difference is wide; BoJ is following an ultraloose monetary policy and the US Fed, a tight (monetary) policy,” he added.
The Yen has dropped to as low as 152 to the dollar three times in the last two years. The last two times there was a significant and long-lasting reversal. Thus, Sodhani stated, “As per charts, USD-JPY is open to 154.00 levels, while a close below 149.20 can bring the pair back into a consolidation phase”.
This advantageous situation may apply to a number of industries, such as electronics, manufacturing, automotive, chemicals, and fast-moving consumer goods. Moneycontrol was informed by Aamir Makda, Commodity & Currency Analyst at Choice Broking.
The Yen’s depreciation, to a 34-year low, can have a big effect on a lot of Indian industries, especially the car industry, says CA Krishnan R, Director & CEO of Unimoni Financial Services.
“Many Indian companies are collaborating with Japanese companies for technology exchange and components. A weaker yen will make Japanese products relatively cheaper in international markets, and this will be beneficial for the Indian automotive industry, especially Maruti Suzuki,” he mentioned.
Maruti Suzuki shares increased 3% on March 27 to reach a new record high of Rs 12,722 on NSE, following the decline in the value of the yen.
JTEKT India and Lumax Industries are well-positioned for success. While JTEKT India’s transactions with its Japanese parent JTEKT Corporation are also in yen, Lumax Industries’ partnership with Japan’s Stanley Electric Company involves royalty payments in yen.
Disclaimer: Before making any financial decisions, please consult with recognized specialists to confirm the opinions mentioned in this article.
