TOKYO, Aug 25 — Taku Ueno buys beef from the United States (US), olive oil from Spain, and tomatoes from Italy to stock his supermarkets south of Tokyo, imports that have more recently become costlier almost by the day as the yen falls relentlessly.
The yen has weakened despite currency intervention in 2022, 2024, and 2026, and the exchange rate is still under pressure, even after rare joint US-Japan buying in August and July.
Takara MC's chief executive, whose organisation operates 43 supermarkets, and his counterparts across Japan are losing patience and looking for ways to insure against further weakness.
He has pushed for direct, longer-term contracts with overseas suppliers that lock in prices and exchange rates for up to a year at a time and help him avoid raising prices too quickly, which risks losing customers.
Meanwhile, bankers say others are turning to futures, forwards, and options to hedge against further yen weakness as authorities struggle to find fresh ways to steady or turn the currency.
While smaller firms have historically avoided such instruments, choosing instead to absorb modest import price hikes, cost pressures are now too great to ignore.
"For US beef, we used to negotiate every month, but the exchange rate is changing so quickly we now negotiate every three months. This means we do not have to raise prices for three months at least," said Ueno.
Not that it is easy to strike deals in a market where the yen is far and away the worst-performing G10 currency, having lost more than 30 per cent on the dollar over the past five years.
"Japan is completely losing its buying power. You have to go to suppliers in person and bow your head to make a purchase," he said, adding that he finds himself routinely outbid on beef deals lately by buyers from China or Thailand.
Locked in for 10 years
Japan's relatively low interest rates and the central bank's slow pace of hikes are driving the yen's long decline. Under Prime Minister Sanae Takaichi, investors have also grown concerned about Japan's debt load.
The yen hit a near 40-year low in July, just shy of 164 per dollar, before authorities intervened. It last traded around 159 to the dollar.
To be sure, the falling yen is still a boon for exporters and firms with foreign earnings, keeping them competitive and flattering their financial results when reported in yen terms.
But even they now seek stability as importers struggle to bear additional currency losses.
Japan's largest furniture chain Nitori Holdings buys many of its products from abroad and estimates each rise in the dollar-yen exchange rate of ¥1 hits its profit by around ¥2 billion (RM50.71 million).
It does not hedge its exposure at present but would consider currency forwards if extreme yen weakness continues long-term, a company spokesperson said.
Daiwa Securities said hedging demand has boomed, and Bank of America said it boosted headcount in its Japan FX team over the past two years to meet higher hedging demand.
Daiwa Securities' product marketing department executive director Akira Hirayama said that firms are now protecting themselves from further declines rather than assuming the exchange rate will return to previous levels.
"Previously, companies would hedge through banks just for a few months to a year. Now there are cases where customers want to lock rates in for as long as five to 10 years," he said.
Short-term shifts
Options markets also reflect long-term pessimism on the yen.
Since the joint intervention, and with a hawkish shift in market pricing for Japan's interest rate outlook, short-term options pricing has jumped, raising the cost of insuring against a rise in the yen.
But at the one-year tenor, the market has not really budged, and bankers say most investors' views have not either.
"I think while some Japan-based market participants argue that the tide in the FX market has turned, most investors, including offshore accounts, remain sceptical.
"The prevailing view is that no one intends to push dollar-yen materially below 150. So the dominant thinking in the market is that the 155 and 165 range is likely to persist," said J.P. Morgan's head of Japan sales and marketing Daiki Hayashi.
Even so, exporters are now considering hedging against a stronger yen to lock in overseas profits, according to Bank of America in Tokyo head of global foreign exchange sales Namato Nagahama.
"Everyone is wondering whether the dollar-yen has peaked here, but no one knows what will happen next because companies have kept seeing the yen weaken even while people kept calling each level a 'key level,'" he said.
