The Japanese Yen Wrecks Havoc On Some Of Your Favorite Companies

Over the years, American’s have really gotten a “thirst” for Japanese products. Who hasn’t come in contact with Toyota (TM), Sony (SNE), Nissan (NSANY), Mazda, Panasonic (PC), Fujitsu, Casio, Toshiba (TOSBF.PK) or Nintendo?

We use their cars, their electronics and don’t forget….their Wii’s. They’ve really seemed to get a feel for what we like…actually much better than many American companies. Americans have “voted” with their dollars as they’ve increasingly bought up Japanese goods (especially their cars and electronics) and as a result it’s given these companies an “ever-increasing” market share against many of its American competitors.

However, these companies have had a “thorn in their side” over the past five months that is really “throwing a wrench” in things. What is it? Their own currency, the yen.

Take a look at the chart of the USD/JPY exchange rate. The yen has become so strong against the dollar that it’s driven that exchange rate down a full 21% in just 5 short months. That’s like a year or two’s “typical move” all within five short months.

The Yen Dominated Everything in 2008 and that Strength Continues Even Now!

How bad is it hurting them? Let’s take a look.

Toyota is going to have its first loss in 71 years and it’s closing many plants for 11 days in light of the recession and strong yen. Meanwhile, Honda (HMC) had its credit rating cut by Fitch from A+ to A.

Sony is having its first loss in 14 years. In fact, it’s cutting 16,000 jobs because it’s been so bad. How bad? Well, analysts were expecting a profit of 35 billion yen…instead, they may report a 100 billion yen loss. Ouch! Toshiba is also taking its first loss in 7 years.

Nintendo can’t even gain any ground even as Wii sales go through the roof and retailers can’t keep them on the shelves.

Mazda will also lose about 20 billion yen in profits due to the sharp appreciation of the yen.

Didn’t they see this coming? Couldn’t they have hedged? Yes, actually they did see “some” downside coming in the USD/JPY exchange rate and yes, they did hedge. The problem is that they weren’t hedged down far enough. After all, it’s not every day that a pair drops 21% within a few months. So of course they didn’t “bet” on that happening.

However, their worst nightmare has come to haunt them…a strong yen in a recessionary environment. It’s a double whammy!

Knowing about currencies gives you an edge in both the stock market and the currency market!

This is why it’s good for everyone to know something about currencies and exchange rates. Whether you invest in the stock market or if you invest in the currency market, either way, you want to be aware of where these exchange rates are and whether they “put the wind to these company’s backs” or if the rates have become an ankle weigh around their feet. It gives you an edge.

While I do use these to my advantage in my stock portfolio, I really enjoy directly investing in these exchange rates and to profit directly from them rather than just indirectly.

Many people only think you can buy Currency ETFs to accomplish this but if you want to cut down your spreads (difference between the buy and sell prices) and you want to do away with the broker’s commission all together, then you want to execute your orders in the forex market (aka FX or currency market).

In the mean time, keep an eye on where the yen goes. Because, therein lies a lot of these Japanese exporter’s futures.

Subscribe by RSS Subscribe by Email