Japanese yen is set to appreciate in the coming months as indicators show that industries have started shifting production back to Japan due to the weakening yen and rising costs of labor in global locations.
The moves may result in rising local capital expenditure which is very much needed to boost the economy that is still reeling from the effects of the April 1 hike in consumption tax from 5 percent to 8 percent.
Japanese manufacturers scaled up offshore production from the late 1980s after the yen surged against its peers, making locally-produced goods uncompetitive. 20.6 percent of Japanese goods were made in offshore locations in 2012, according to the Japan News.
Whilst the U.S. dollar plunged under 80 yen following the tsunami and earthquake in March 2011, it has remained at least 100 yen over the past year due to the quantitative easing measures rolled out by the Bank of Japan.
A few companies that have expressed interest in shifting production back home include Daikin Industries Ltd which will produce some air conditioners for the Japanese market in Japan. Presently, such devices are manufactured in China. Canon Inc has also disclosed that it will try as much as it can to make new items in Japan.
The Japan’s central bank has said reports from its branches in Yokohama, Osaka and Fukushima indicate that manufacturers of auto parts and electronic appliances are either in the process of or a preparing to shift production from China to Japan. Its branch in Nagasaki said a shipbuilder has decided to invest in a plant in Japan instead of in Southeast Asia.
All these indicators point out to a rising economic output in Japan, which may strengthen the yen relative to its peers such as the euro and the dollar in the coming months.
To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
To contact the reporter of this story; Yashu Gola at firstname.lastname@example.org