As I’ve been saying all along, competitive currency devaluations will soon become the order of the day. See article below and my commentary — Larry
Bank of Japan Must Devalue Yen
The Bank of Japan has already tried most tricks to alleviate the global financial crisis. In an effort to combat the worst economic slump since 1974, it appears the next obvious solution would be to devalue the yen and boost the drastically ailing export industry. The yen rose 24% against the dollar in 2008, and this has severely hindered the profit margins of Japanese companies including Honda, Toyota and Sony. If rates continue to stay above 100 yen/$ many of these large multinationals may move portions of their operations overseas to cut costs.
My Opinion: If the Bank of Japan wants to ensure the future economic viability of the corporate entities operating out of Japan, they will have to intervene in currency markets and suppress the strengthening yen in an attempt to boost its once burgeoning export market. Companies like Honda see an 18 billion yen fall in operating profit for every yen rise against the dollar. While Honda may have more currency risk exposure due to 70% of its operating income coming from North America, this is not a problem unique to Honda or the automobile industry. Corporate giants like Sony and Pioneer are also announcing layoffs and other cost-cutting measures to reduce losses.
Japan has a robust and versatile export market. It is renowned the world over for producing quality goods and must capitalize on this goodwill.
