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Economy

Once seen as boon, falling yen may now be bane to Japan Inc.

TOKYO -- The Japanese currency's exceptionally fast slide, slipping some 7 yen against the dollar since late August, is now worrying industry leaders who had previously welcomed its depreciation.

     The yen softened to 109.41 yen to the dollar Tuesday, its weakest showing since August 2008. The currency sank by 5.59 yen in September alone. The last time it weakened by over 5 yen in a month was in December 2009.

     Between April and late August, the yen hovered in a narrow range of 101-103 yen to the dollar. But with the U.S. Federal Reserve Board moving to wind down quantitative easing and the Japanese central bank keeping its measures in place, the prospect of a yawning interest rate gap between the two countries accelerated the yen's decline.

     Although the Japanese business community initially welcomed the softer yen, some are now beginning to brace for the fallout.

     Japan is stuck with a chronic trade deficit. So a major yen depreciation raises the cost of buying materials abroad, squeezing the earnings of smaller businesses that cannot easily pass them on via higher prices on manufacted goods.

     "It does not benefit the country or industry," Yasuchika Hasegawa, chairman of the Japan Association of Corporate Executives told a news conference Tuesday, expressing his concern about the weak yen.

     Sadayuki Sakakibara, chair of Japan's largest business lobby, Keidanren, also noted Monday that any sudden currency movements should be watched warily.

     A survey by the Japan Chamber of Commerce and Industry, which comprises small and midsize businesses, shows that 38.8% of its member companies see 100 yen to 105 yen per dollar as a desirable rate. And 30.5% chose the 95 yen to 100 yen range as favorable. About 80% of all companies polled consider the current 109 yen level undesirable.

     "The production activities of client companies have shifted overseas, so a weaker yen doesn't lead to increased orders," said an official at a Shizuoka Prefecture electronics parts manufacturer, expressing concerns voiced by many businesspeople. "The higher prices of imported parts could squeeze profits."

(Nikkei)

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