The Yen Is Killing Them

The yen’s strength isn’t news.

Japan’s currency has been gaining against the U.S. dollar for years. The latest leg of this trend started in mid-2007 and the yen has gained more than 40% on the greenback since then.

You can see this clearly in a weekly chart of the USD/JPY, which moves down as the yen gets stronger.

See larger image

But the yen’s strength is killing Japanese exporters, whose goods are relatively more expensive in the global marketplace as long as the yen remains strong.

Toshiyuki Shiga, chairman of the Japan Automobile Manufacturers Association, has an informal classification system for the yen. His categories include:

1) “Super, super strong”: below ¥80 to the dollar
2) “Super strong”: from ¥80 to ¥89 against the dollar, and
3) “Strong”: ¥90 and above

As you can see above, the yen has a long ways to go before anyone considers it fair-value, let alone weak. And most Japanese exporters would be ecstatic to see their currency go from “super, super strong” (where it is currently) to simply “strong.” This would improve their prospects of selling exports – from “super, super difficult” to simply “difficult.”

This export nation will continue to lose business to weak-currency competitor nations until the yen is weakens again.

And that’s why there’s about to be an all-out currency war on the Japanese yen.

If you haven’t done so already read the Survive & Prosper issue on “What’s the U.S. Dollar Worth?”.