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Economy

Increase in forward exchange contracts to combat weak yen

TOKYO -- Japanese importers of fuel and parts are increasing the number of forward exchange contracts to curb the impact of the drastically weaker yen on their earnings.

     The dollar climbed to the upper-118 yen range in Tokyo on Thursday for the first time in seven years and three months.

     The weaker yen is generally a positive factor for major Japanese companies, who are mostly exporters. Importers, however, are becoming increasingly vigilant against a further depreciation of the currency.

     Japan Airlines Chairman Masaru Onishi says the lower yen hurts earnings even more than a consumption tax hike. 

     Rival airline operator ANA Holdings, meanwhile, raised the ratio of fuels for which it decides an import exchange rate in advance from 45% to 60% for fiscal 2015 following the yen's rapid depreciation.

     JAL increased its ratio by five percentage points to 45% for fuel used in fiscal 2015.

     Japan's airline companies depend on imported fuel. For JAL, this means that every one-yen fall against the dollar translates into an annual cost increase of 2.6 billion yen ($21.8 million).

Supply switch soon?

Nitori Holdings, which manufactures furniture in other Asian countries for import into Japan, has extended the period of forward exchange contracts by three months since October. These contracts cover products imported until summer 2016.

     Sony also manufactures many of its products overseas and imports them to Japan. The weaker yen will likely mean higher sales prices for newly released TVs, smartphones and game consoles, as every one-yen fall against the dollar results in an annual profit decline of 3 billion yen for the company.

     The electronics giant said it will also consider changing materials suppliers if the yen's depreciation continues.

     Nissan Motor is likewise considering switching from commodity-grade imported parts to Japanese parts.

(Nikkei)

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