The Bank for International Settlements (BIS) announced that the real effective exchange rate (*1) for August, with the base year being 2020(=100), was 73.19, reaching the lowest level since measurements began in 1970. Due to the continuation of accommodative monetary policy in Japan, there is strong downward pressure on the yen. Although Japan's consumer price inflation has remained above the Bank of Japan's 2% target, Governor Ueda has indicated a forecasted slowdown towards the end of the year, with the consensus among market participants being that there will be no policy changes in the near term. Considering the recent trend of rising oil prices and the potential for a further depreciation of the yen to push up import prices, there is a possibility of a renewed acceleration in inflation at the year-end. It is important to note that such a scenario could lead to a sudden shift in market perceptions of monetary policy.
At Cadira Capital Management, we do not make top-down investment decisions based on predicting exchange rate movements. However, we pay attention to exchange rate trends as they are crucial factors when considering the business strategies and performance trends of individual companies. When analyzing individual companies, investing based solely on exchange rate movements is considered risky, as companies benefiting from a weaker yen (such as those involved in exports or foreign tourism) may face negative consequences if the exchange rate reverses. Additionally, an increasing number of companies are adopting policies to enhance local sourcing in their overseas expansion, limiting the direct impact of exchange rate fluctuations on their performance. Sony Group Corporation, for instance, has commented that the fluctuation in the yen-dollar exchange rate has almost a neutral effect on its profits. Ultimately, since the impact of exchange rates varies by company, we emphasize the importance of thoroughly examining the fundamentals of each company before making investment decisions.
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