Yen appreciation and a series of impacts on the economy

The Yen has now quickly reached its highest level since mid-March this year. Photo: Phuong Anh

Recently, at the Japanese Monetary Policy Meeting, the Bank of Japan (BOJ) decided to raise the interest rate on the overnight lending rate to 0.25% from the previous range of 0 - 0.1%. Governor Kazuo Ueda also expressed a more positive view on the interest rate increase. In response, the Yen rose to its highest level since mid-March.

The stock market took a negative turn. A series of export-related stocks were sold off. The Tokyo Stock Index (TOPIX) closed down more than 3%, its deepest drop since April 2020. Meanwhile, the yield on two-year government bonds jumped to its highest level since 2008 as interest rates edged up.

According to Mr. Kasumi Miyajima (Ministry of Economic Affairs of Japan), when short-term interest rates increase, mortgage interest rates change, the number of borrowers is expected to increase. Loan interest rates of small and medium-sized enterprises also increase, making business operations difficult. The current interest rate increase will have a direct impact on debt repayments as early as September for new loans and around January 2025 for existing borrowers.

In addition, this affects the business performance of borrowing companies in Japan, so Mr. Kasumi Miyajima said that the impact will be even greater if the economy continues to grow or does not become a drag on the economy.

Such a rapid appreciation of the yen is a rare event outside of currency intervention and is not favored by the stock market, said Tomoo Kinoshita, global market strategist at Invesco Asset Management. In addition to the decline in export-related goods due to the yen's rise, sectors that were considered unaffected fell and were widely sold.

While the strong yen is a short-term headwind, the expert remains optimistic about the outlook for Japanese stocks. The Nikkei average is likely to rise to around 43,000 by the end of the year. At the same time, the yen's rapid appreciation is expected to subside soon.

For Vietnam, the increase in interest rates and the Yen are also expected to have a certain impact. According to the Research Department of BIDV Securities Company (BSC), the increase in Vietnam's real public debt is the first impact, which may then cause direct investment (FDI) and indirect investment (FII) from Japan to decrease. Moreover, the appreciation of the Yen will have a positive impact on exporting enterprises and a negative impact on enterprises importing goods from the Japanese market. At the same time, it will also have a negative impact on enterprises using loans in Yen.

Remittances from Japan are also affected. Vietnamese workers in Japan will benefit if the Yen appreciates because they can receive higher interest rates when depositing money in Japan and have higher income when converting to USD/VND.

Source: https://laodong.vn/kinh-doanh/dong-yen-tang-gia-va-hang-loat-tac-dong-toi-nen-kinh-te-1374556.ldo