Since Japan’s new prime minister Shinzo Abe took up his post last December with a promise to revive the nation’s stalled economy by aggressively printing new money, the yen has crashed. This has been great news for exporters, as it makes their products cheaper abroad.
Now Sony, which produces Playstation consoles (note to millennials: these were really big in the 1990s) and loss-making televisions, has reported much better quarterly earnings (pdf) than usual on the back of the weak yen. In October-December last year, Sony only managed to hemorrhage ¥10.7 billion ($114 million), compared with ¥158 billion in the corresponding period in 2011. Electronics maker Panasonic and auto firm Toyota have also benefited from the weak currency.
Sony’s share price has almost doubled since early December last year. And it is not alone. Japan’s TOPIX index of leading firms (yellow line) has risen substantially since the yen (blue line) began to weaken, hinting Abenomics, as the prime minister’s economics policies have been nicknamed, has spurred traders to buy Japanese equities almost indiscriminately.
But there is no guarantee the yen will continue falling. Capital Economics, a London consultancy, pointed out in a February 6 note that recent yen weakness is not only down to Abenomics but also to “reduction in safe haven demand.” What they mean is that, back in 2011 and for much of last year, traders who were nervous about European economies switched out of euros and into yen. Nowadays, tentative signs of recovery in Europe are boosting the euro. But the euro zone is still contracting, so that optimism could drain away, pumping up the yen once again.
Meanwhile, Abe’s government may come under pressure from the country’s large importers not to encourage any further currency weakness. Tokyo Electric Power Co.—better known as Tepco—is really struggling with the currency decline, and it is unlikely to be the only large Japanese employer in the energy or commodities field to be feeling pain.
And as the Wall Street Journal points out here, many Japanese exporters have problems that a weak currency cannot solve. The WSJ writes:
Take Japanese consumer electronics giants like Sony, Panasonic and Sharp, whose share prices have all about doubled since November’s lows.The weaker yen has helped these companies, but none of them has a must-have product to compare with those of Samsung or Apple, or flat-panel televisions that are cheap enough to compete with producers from China.
The weak currency could also prompt bloated Japanese conglomerates, which have been reluctant to cut jobs, to continue to defer painful but necessary restructuring programs far into the future.