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21 May 2013
Flash: Trade effects from a weaker yen - Nomura
FXstreet.com (Barcelona) - Nomura Strategist Jens Nordvig feels that a big question in relation to the sustainability of the yen move relates to the impact of the weaker yen on trade.
He feels that there is little doubt that profit growth will be notably impacted by the weaker yen, but whether a more competitive yen will translate into stronger export volume is a different issue (so far the trend in export growth remains negative). Further, he adds that there is a general consensus that many Japanese companies (both in electronics and in the auto sector) have a very different supply chain today from just five years ago which means that yen fluctuations do not have the same impact on volume that they used to. In other words, he feels that export volume is likely to respond less (or slower) to yen weakness. He finishes by writing, “In addition, a large part of imports (energy) is likely to be inelastic to the yen. All told, the J-curve is flatter than in the past. The implication is that there will not be any trade effect that counters the yen weakness emanating from weak capital flows, at least not in the very near term.”
He feels that there is little doubt that profit growth will be notably impacted by the weaker yen, but whether a more competitive yen will translate into stronger export volume is a different issue (so far the trend in export growth remains negative). Further, he adds that there is a general consensus that many Japanese companies (both in electronics and in the auto sector) have a very different supply chain today from just five years ago which means that yen fluctuations do not have the same impact on volume that they used to. In other words, he feels that export volume is likely to respond less (or slower) to yen weakness. He finishes by writing, “In addition, a large part of imports (energy) is likely to be inelastic to the yen. All told, the J-curve is flatter than in the past. The implication is that there will not be any trade effect that counters the yen weakness emanating from weak capital flows, at least not in the very near term.”