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25 Jun 2013
Flash: JPY weakness a long-term phenomena – RBS
FXstreet.com (New York) - According to the RBS Research Team, “Our main scenario foresees continuation of a weak-yen trend over the longer-term, but we cannot completely rule out the risk of a return to yen appreciation.”
In particular, we think yen value could improve if a risk event occurs that sends shockwaves through the global financial system (although the possibility of tail risk has already sufficiently declined, in our view). Corporate earnings are more vulnerable to a stronger-yen setback if industries with high export ratios face considerable exposure to FX profits and generate relatively high profitability.
However, our analysis of corporate financial statistics for 1Q 2013 indicates that resilience to yen strength has been improving recently due to replacement of industries with those having relatively small export ratios and robust profitability, and relatively low breakeven-point sales ratios. “We thus expect industries with relatively small export ratios to support overall corporate earnings even if a risk event occurs that revives yen appreciation.” the team adds.
In particular, we think yen value could improve if a risk event occurs that sends shockwaves through the global financial system (although the possibility of tail risk has already sufficiently declined, in our view). Corporate earnings are more vulnerable to a stronger-yen setback if industries with high export ratios face considerable exposure to FX profits and generate relatively high profitability.
However, our analysis of corporate financial statistics for 1Q 2013 indicates that resilience to yen strength has been improving recently due to replacement of industries with those having relatively small export ratios and robust profitability, and relatively low breakeven-point sales ratios. “We thus expect industries with relatively small export ratios to support overall corporate earnings even if a risk event occurs that revives yen appreciation.” the team adds.