TOKYO -- Exporters in Japan are projecting a stronger yen trend this fiscal year, snapping up forward currency contracts to lock in favorable exchange rates, which in turn will likely keep the currency from weakening.
Japanese exporters -- which use forward contracts to sell the greenback and buy the yen for when bringing overseas revenue back home -- were hesitant to take long positions when the yen was trading at around 107 two weeks ago. The currency had appreciated to the mid-107 level, its strongest in 17 months, on April 11 as speculators sold the dollar amid the fading prospect of imminent U.S. interest rate hikes.
But these companies have started taking long yen positions after the currency slid back past 110, said Seiichi Tanaka of Mizuho Bank.
Large manufacturers, many of them exporters, assumed an exchange rate of 117.46 yen to the dollar on average for this fiscal year, according to the Bank of Japan's Tankan survey of business confidence for March. But businesses are expected to adjust their rate forecasts, given that the yen is now stronger than this figure.
Considering that exporters started taking yen long positions with the currency close to 110, their rate projections will likely fall somewhere between 110 and 115. In that case, great demand would be seen for long yen contracts at around 110 to 112, predicted Osamu Takashima at Citigroup Global Markets Japan. This will likely limit downward pressure on the yen.
Electric-motor manufacturer Nidec set its assumed rate at 110 yen to the dollar for this fiscal year when releasing its fiscal 2015 results Monday. Market players will closely watch the assumed rates of other leading exporters when they report earnings over the next couple of weeks. Shin-Etsu Chemical and Koito Manufacturing post their results Tuesday, and Toyota Motor on May 11.
The yen's direction for now is expected to be largely influenced by the monetary policy of the Japanese and U.S. central banks, which will each meet later in the week. The BOJ is drawing greater attention as expectations of additional easing build.
But if the Japanese central bank fails to act, disappointed speculators will resume yen-buying, an official at a domestic bank predicted. In that case, market participants will likely focus on whether the currency appreciates beyond the mid-107 level.