Yen’s rise and corporates’ expectations mismatch mean lower profit

Yen has risen to highest level since October, 2014, when Bank of Japan (BOJ) recalibrated its purchasing program from ¥ 60-70 trillion per annum to ¥ 80 trillion. On that particular day Yen declined by more than 2% and it’s kept weakening until it reached 125.85 per Dollar in last June.

However latest string of easing hasn’t gone well for the bank, it for the first time reduced rates to negative but Yen gained more, posing doubts over central bank’s ability to push it lower.

While Yen level isn’t a policy tool and Japan among the G20 economies agreed not to use competitive devaluation to boost economy. Yen weakness came as a part of the package, more of a side effects. So, if Yen rises despite policy easing, then probably best thing to do is let it be.

While policymakers at Bank of Japan (BOJ) later the month will be debating on what to do next, it is the corporates, who would suffer from its strengthening like they benefited from its weakness since 2012 to last year.

It is quite expected by market that corporates will suffer the stronger Yen, but the key question is how much.

It is likely to be quite large, at least the tankan survey, which allegedly led to latest strengthening, points in that direction. While we don’t have individual hedge levels if any, but Tankan survey is pointing that base expectation for corporates, is that Yen for 2016, will average at 117.46, which is about 876 pips weaker. If that isn’t achieved, we may be looking into much weaker corporate incomes in Japan.

Yen is currently at 108.7 per Dollar.