Although it is not recommended to start an export business just because the yen is weak, if the yen becomes extremely weak, the results of the import business will clearly deteriorate.
Here we summarize the various factors that support the yen's depreciation.
Factors contributing to the depreciation of the yen
interest rate difference
This is affected by the interest rate difference between Japan and other countries. If another country's interest rates are higher than Japan's, that currency may become more attractive and funds may flow into it. This makes the yen relatively weaker.
The factors that determine long-term interest rates include:
central bank policy
Central banks (for example, the US Federal Reserve or the European Central Bank) try to regulate the economy through interest rate policy. When a central bank raises its policy interest rate, long-term interest rates generally tend to rise as well. Conversely, lowering the policy interest rate may also lower long-term interest rates.
expectations of inflation
Long-term interest rates are influenced by expectations of future inflation. Expectations of high inflation can cause long-term interest rates to rise, as investors predict future inflation and reflect that risk in prices.
economic growth outlook
Economic growth prospects also influence long-term interest rates. When the economy is strong and growth is expected, long-term interest rates tend to rise. Conversely, when the economy is unstable, investors seek safe assets and long-term interest rates may fall.
On the other hand, deteriorating employment statistics lead to a decline in interest rates.
Demand and supply of government bonds
The supply and demand for government bonds also affect long-term interest rates. When there is demand for a lot of government bonds, that demand can cause interest rates to rise. Conversely, when supply increases, interest rates tend to rise.
economic indicators
When a country's economy becomes stronger, that country's currency may become stronger and other currencies may become relatively weaker. Economic indicators, growth rates, employment data, etc. are closely watched by market participants.
trade balance
When Japan's trade balance is in the red (imports exceed exports), demand from foreign countries becomes an incentive to buy yen, causing the yen to weaken.
political uncertainty
When political uncertainty and geopolitical risks increase, the Japanese yen, which is considered a safe-haven asset, may be bought, creating a tendency for the yen to appreciate. Conversely, if there is political stability, the yen may weaken.
Global market situation
Trends in global financial markets and relative movements with other major currencies also affect the yen exchange rate. For example, if the dollar's strength increases relative to other currencies, the yen will become relatively weaker.
Export business under yen appreciation
The strong yen may make Japanese products more expensive in other countries' currencies. This may reduce the price competitiveness of exported products and adversely affect competitors in other countries.
However, if the product is only available in Japan, stable sales are possible even if the market price rises without changing the supply-demand relationship.
If you purchase and sell products from Japan that compete with local or Chinese sellers, your profit margin will decline due to the strong yen.
The key is to select products for an import business that will be profitable even when the yen is weak, and for an export business that will be profitable even when the yen is strong.
You should not handle products that will be in the red if the market leans in either direction. If you do proper product research and choose the products you want to handle, you will never end up in the red, even if your profit margin can be as low as 10%.
However, in recent years, it has been said that even with the depreciation of the yen, it has become difficult for export industries to grow.
A major reason for this is that exporting companies have increased their local production overseas.
In response to trade friction and the strong yen due to increased exports, Japanese export manufacturers of automobiles and other products have shifted their exports to local production overseas.The local production ratio, which was 2-4% in the early 1980s, was 25% in the late 2010s. Japan's manufacturing costs have risen to 1.5%, and one-fourth of Japanese products supplied overseas are now produced locally.
This means that demand for Japanese products overseas is now being met through local production overseas rather than exports from Japan.
The continued decline in production capacity shows that the hollowing out of Japan's manufacturing industry is progressing.
However, in the case of retail purchases, it is easy to directly benefit from a weak yen, so it is said that export businesses that sell retail goods on Amazon or eBay are especially likely to benefit from a weak yen.
Especially when selling to the United States, the highest state tax in the United States as of 2023 is 7.25% in California, 4% in New York and Hawaii, 6.25% in Texas, and 6.5% in Washington state. . Some states have no tax.
These will be collected automatically.
On the other hand, Japan's consumption tax is 10% as of 2023, and is said to rise to nearly 20% in the future, but it is possible to receive a refund if you are an export business.
Therefore, it has the advantage that it is easy to proceed with business without being affected by the Japanese economy.
