Japanese Yen fluctuates strongly, will it affect Vietnam?

The Japanese Yen has recently experienced many ups and downs, falling to its lowest price in 38 years. Although it is currently on an upward trend, there are still signs of instability.

Since the beginning of the year, the Japanese currency has fallen sharply many times. In July, the Yen fell to nearly 162 Yen to 1 USD - the lowest level in 38 years - leading to intervention in the foreign exchange market by the Ministry of Finance and the Bank of Japan (BOJ). Previously, in May, when the Yen fell to 160 Yen to 1 USD, Japanese authorities also had to sell foreign currency to prop up the domestic currency.

After a series of drastic interventions from the Japanese Government and the Bank of Japan, the Yen has continuously increased in value with new records. On August 27, the Yen in Japan had an exchange rate of 143 Yen/USD, while the New York market was 144 Yen/USD. This is the highest price in the past 5 months, the reason is said to be due to the moves showing that the US Federal Reserve (FRB) is about to lower the floor of bank interest rates once again.

Analyzing the impacts of the Yen when it fluctuates strongly, financial expert - Dr. Nguyen Tri Hieu said that when the Japanese Yen depreciates, it means the Vietnamese Dong increases in value compared to the Yen. This will affect Vietnamese people living and working in Japan, whose income is in Yen. “When they send money back home, the Yen converted to Vietnamese currency will be less,” he said.

Similarly, Associate Professor Dr. Ngo Tri Long analyzed that if Vietnamese workers in Japan send money back or convert it to VND, they will suffer losses when the Yen price drops sharply compared to the general level of world currencies, including Vietnam.

The Japanese Yen has recently experienced strong fluctuations. (Illustration photo: Reuters)

As for import-export businesses, the level of impact will vary depending on each specific case. “Enterprises exporting to the Japanese market will suffer when the Japanese Yen depreciates because of pre-signed contracts, which cannot change prices. Meanwhile, businesses importing from the Japanese market will benefit when input prices decrease,” said Mr. Long.

To clarify this aspect, Dr. Nguyen Tri Hieu explained: Enterprises exporting to Japan, if the contract receives money in USD, will not be affected whether the Yen increases or decreases. As for enterprises exporting to Japan and receiving Yen, the conversion will not be beneficial.

Economist Nguyen Quang Huy, Faculty of Finance and Banking, Nguyen Trai University, also said that the fluctuation of the Yen can affect the Vietnamese economy in many different ways.

As the Yen depreciates, Japanese goods become cheaper for Vietnamese consumers. This could lead to increased imports of goods from Japan, such as electronic equipment, automobiles and industrial machinery. Conversely, Vietnamese goods exported to Japan become more expensive, leading to a decrease in the competitiveness of Vietnamese products in this market.

Therefore, the depreciation of the Yen, if prolonged, could increase Vietnam's trade deficit if imports from Japan increase faster than exports. This could put pressure on the balance of payments.

Fluctuations in the Yen also affect foreign investment. “Japan is one of the major foreign investors in Vietnam. If the Yen depreciates, the profits of Japanese companies when converted into Yen will decrease, which may lead them to reconsider their investment plans. However, on the contrary, if Japanese companies see opportunities to take advantage of low production costs in Vietnam, they may also increase investment, especially in export manufacturing industries ,” Mr. Huy said.

In addition, the volatility of the Yen may prompt Japanese investors to seek more stable markets and Vietnam could be a potential destination if the Vietnamese economy is seen as stable.

Analyzing the impact of the Yen's erratic fluctuations on the exchange rate, Dr. Nguyen Tri Hieu said that the VND/USD exchange rate is only indirectly affected. If the Yen falls deeply over a long period of time, it could lead to a decrease in the exchange rate between the USD and Vietnam. This is beneficial for the macro balance. "However, at this time, I think the fluctuations of the Japanese Yen do not affect the exchange rate of the Vietnamese Dong."

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