Japan Takes Steps to Weaken Yen

Reuters reported that both Switzerland and Japan, having shocked markets, may continue to take steps to weaken their respective currencies, according to analysts. Chris Turner, chief currency strategist at ING, said in a note quoted in the report, “It seems a fresh chapter is opening up in the currency wars, with both Japanese and Swiss officials trying to draw lines in the sand regarding the strength in their currencies they are prepared to tolerate. This is going to be a long and drawn-out campaign, since for Japan the Fed is more likely to cut than hike interest rates and thus the dollar remains pressured, and for the Swiss there seems no resolution to the [euro zone] debt crisis.”

The Washington Post reported that the appreciation of the yen is so serious that Japanese authorities are concerned that some of their major manufacturers may move production out of the country. The yen’s high valuation squeezes them on both sides of the equation: it means exported goods cost more, and when funds are brought back home the exchange rate slashes profits

Tokyo’s fears may not be without merit. Honda Motor Co. revealed Monday that the exchange rate obliterated approximately 22.5 billion yen ($282.3 million) from its profits in the most recent quarter. And Akio Toyoda, president of Toyota, was quoted saying at a July news conference, “The current environment makes it unreasonable to keep producing in Japan,” although he added, “[W]e can’t simply abandon domestic production when conditions get tougher.”