Since the beginning of the year the “currencies wars” have taken another step forward. The recent developments are coming from Japan. The political change in Japan and the decisions of Bank of Japan in the past several months to take its monetary policy to the next level are among the contributing factors for the devaluation of the Japanese yen. This shift brings uncertainty to the region, but could also prove to be beneficial over time to leading Japanese companies.
The Japanese yen has tumbled down by nearly 7.8% against the USD since the beginning of the year. The decision of the newly elected Prime Minister Shinzo Abe to augment the government spending along with the Bank of Japan’s (pdf file) decision to expand its asset purchase program and to raise inflation target from 1% to 2% have also contributed to the depreciation of the Japanese yen against other leading currencies. The government and BOJ are expected to take further steps to jump start the Japanese economy, which will likely further depreciate the Japanese currency. If the Japanese yen will continue to fall, then leading Japanese companies that export their goods and services are likely to benefit from this development.
It’s worth mentioning several Japanese companies that are likely to augment their revenues on account of these changes. Many leading Japanese companies haven’t performed well in recent years. Such companies, such as Sony Corporation (ADR) (NYSE:SNE) or Toyota Motor Corporation (ADR) (NYSE:TM) are seeking growth and stability. During 2012, Sony’s revenues fell by nearly 9.6%. This drop in revenues also led the company to record a sharp fall in its operating profitability from a 3% in 2011 to 1% loss in 2012. This company’s free cash flow is negative and reached in 2012 around ($4 billion) compared to ($1 billion) in 2011. Nonetheless, Sony still has nearly $7.7 billion in cash. But another two more years like 2012 and Sony might erase its cash deposits. The depreciation of the Japanese yen could make Sony Corporation (ADR) (NYSE:SNE) more competitive in its industry, but without a rise in revenues, it won’t help the company over time. Despite the company’s revenues fall in 2012, its stock jumped by almost 27% since the beginning of the year. Some suspect the yard sales of the company’s assets including after it had sold its main offices in New York for $1.1 billion. Even if this is the case, the company’s cash situation will continue to be a risk issue.