September 28th, 2009
12:20 PM GMT
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TOKYO, Japan - Imagine if your paycheck dropped 15 to 20 percent, without cause. You continue showing up for work at the same time, your job performance doesn't change, you don't change anything - but on Friday, your paycheck is 15 to 20 percent less.

Who would be happy?

Well, that's what sort of happened to Japan's biggest companies, thanks to the strong yen.

Now before your eyes glaze over at another currency story, consider this figure, cited by Toyota in a quarterly earnings report: A movement of one yen equals approximately U.S. $400 million for the company.

Before the global economic slowdown, one dollar was routinely worth 110 or 120 yen.  Today, the yen hit a new eight month-high (and the dollar a big low) of just under 89 - that equals about $12 billion in loss.

Without looking at how companies are managed or how the global economy is moving, these companies have already lost billions of dollars, thanks to the currency market.

Companies like Toyota, Honda and Sony are global companies that export to consumer-hungry America, the land of the dollar. Not only do they have to cope with a slowdown in demand, the yen is hammering their bottom line. Not an enviable business position.

Japan's new government came in on a wave of consumer outrage, saying it would get more money into the hands of the consumer.

Japanese Finance Minister Hirohisa Fujii told reporters that the government was not considering jumping into the market to sell the yen and help exporters. No more trickle down like the old government, pledged the incoming Democratic Party of Japan. The mantra of the day is trickle up. Economists wait to see if the new government is right.

Meanwhile, consumers in Japan cheer the news and enjoy the power of their currency at home. But in the boardrooms across Tokyo, there must be quite a different sentiment. They're probably wondering when that 20 percent will come back.

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Filed under: BusinessJapan

soundoff (10 Responses)
  1. varsha

    The export businesses are worst hit during such instances of strengthening of native currency against that of importing country. The best solution for such businesses is to diversify one's consumer base both domestically and internationally so such risks can be mitigated. A producer can have control over his products but not over these currency markets which follow macro-economic trends.

    September 28, 2009 at 5:45 pm |
  2. Digmen1

    Wow, a good blog !
    That 20 percent drop in just a short time, through no fault of their own, shows that the world's currency system is a mess. How can companies plan and survive in that climate ?
    Also I would like to know how much people are making out of this currency trading, ie the traders and the companies that org anise it ? Why is it necessary to trade in currencies, why should speculators be allowed to buy currencies ?

    September 28, 2009 at 9:24 pm |
  3. Alex

    Your paycheck would shrink, but your expenses would also shrink. Japan is one of the largest IMPORTers in the word as well, and their trade surplus has actually grown thanks to the strong yen.

    There's always to sides to this equation.

    September 29, 2009 at 12:12 am |
  4. Vendo Thefastlane

    Living in Japan and having debts in the US is a very big positive. I'm currently enjoying that... And perhaps it's the time to consolidate that foreign debt in a Japanese bank.

    Average people here are getting more and more positive due to the government change and the image of progress that seems coming. The strength of the yen is a benefit that most of the population enjoys and only those manufacturing largely for export are very worried. After all, Toyota, Sony, YKK and other major firms are not dependent on the US and make a large portion of their money in the domestic market.

    I recently had a chance to speak with some executives at Hitachi and this issue came up. Despite having one of the biggest corporate losses in the history of world business last year and dollar devaluation being a reason, there is an overarching confidence that the issue is no more serious or permanent than the similar yen value increase of the mid-90s.

    September 29, 2009 at 3:26 am |
  5. Mike

    Strange how its big news that pay is reduced by 20 percent in Japan since this has been a common problem for Hakkengaisya and contract employment at major firms for years! Pay is not just reduced but delayed by months at times too. Also lets not forget about japans bonus system. Yes it is more then once a year, but sometimes its coupons to buy products that help support their own company.

    This is what CNN should really report on!

    September 29, 2009 at 3:26 am |
  6. Heberlein, K

    Don't large companies that depend on export markets hedge against currency fluctuations? Wouldn't managing the currency risk be a basic way to protect the bottom line.

    September 29, 2009 at 8:39 am |
  7. Per Holmlund

    1985 the yen reached 250, 1995 down to 80, 1998 a positive reaction to 146 and where do we see the bottom? Technically it could be the 80 level, the last bottom, with a worst case around the 70 level. Look at monthly charts and make the trend your friend and try to talk with gold. Gold indicating weakness for the dollar and don’t scream the downturn is over until the dollar has recovered to the 100 level.

    September 30, 2009 at 8:15 am |
  8. Muthyavan.

    Will the 20% pay loss come back or not, bubbles of economic wield wind caused by the present world economic dawn turn has gone into different directions hitting at different targets. Japan which was a leading exporter of industrial goods for nearly fifty years has now confronted unexpected challenges from its Asian neighbours. In dealing with this new challenges Japan has elected a new political and economic leadership and how they are going to deal with is yet to be seen.

    October 1, 2009 at 12:37 am |
  9. Lim Boon Chuan

    Well it isn't that bad is it? A strong Yen does mean export reduction but it also means that the salary you are getting is worth more and can buy more goods vis a vis the US dollars for eg. The nett cumulative effect may even benefit the average salary man.

    October 2, 2009 at 2:55 am |
  10. Keith

    Since China pins its currency to the dollar one has to wonder if they are part of the reason the yen has increased so much in value since it ends up making Chinese goods cheaper in Japan and across the world.

    January 9, 2010 at 7:11 am |

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