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Japan Inc believes Abe, Trump don't want to see excessive yen weakness: poll

Monday, January 23, 2017 - 07:55

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Japanese companies believe that neither US President Donald Trump nor Japan Prime Minister Shinzo Abe want to see the yen weaken significantly, a Reuters poll showed, a development they worry could spark an unwelcome political backlash.

[TOKYO] Japanese companies believe that neither US President Donald Trump nor Japan Prime Minister Shinzo Abe want to see the yen weaken significantly, a Reuters poll showed, a development they worry could spark an unwelcome political backlash.

The Reuters Corporate Survey, conducted Jan 4-17, also found that Japanese firms want Mr Abe to push Mr Trump hard on trade issues, while nearly a third cited national security concerns as the most pressing issue Mr Abe should bring up with the new president.

The latest survey highlights caution over how US policy will develop under Mr Trump, who was sworn in as president on Friday, with his protectionist agenda casting a cloud over the outlook on global trade.

Mr Trump has complained that the dollar's strength is hurting trade relations with China. He has also vowed to make sweeping changes to US trade policy and protect American jobs, threatening to levy punitive tariffs on Chinese imports and renegotiate the North American Free Trade Agreement with Mexico and Canada.

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The monthly poll of 531 big and mid-sized companies found that 73 per cent said that Mr Trump would not tolerate the dollar rising beyond 120 yen, and 90 percent saw 125 yen as a red line. "I think the US will try to arrest excessive strength in the dollar in order to promote protectionism," wrote a manager at a machinery company.

Managers answered on condition of anonymity in the survey, which was conducted for Reuters by Nikkei Research. Around 240 answered questions on Trump.

The dollar surged at the end of last year on expectations that fiscal stimulus proposed by Mr Trump would boost growth and inflation and lead to accelerated US interest rate hikes.

But the greenback fell to six-week lows against major currencies last week after Mr Trump complained about dollar strength. He has criticised Japan as well as China and Mexico for running trade surpluses with the United States.

"Given the irregularity of Trump's remarks, many companies seem to worry about when a weaker yen becomes the target of his criticism," said Hidenobu Tokuda, senior economist at Mizuho Research Institute, who reviewed the survey results.

A weaker yen helps Japan's exporters because it boosts repatriated income from abroad. But it also lifts prices of imports such as oil and food that can hurt households.

Bank of Japan Governor Haruhiko Kuroda warned of a potential hit to households when the dollar rose to around 125 yen in mid-2015. That has led markets to believe Tokyo won't tolerate a dollar rise above that level, known as the "Kuroda line".

The survey showed that 31 per cent of firms want Mr Abe to press Mr Trump on multilateral trade pacts such as the Trans-Pacific Partnership (TPP) and Nafta in order to avert protectionism.

Another 31 per cent urged Mr Abe to push Mr Trump to maintain the US-Japan security ties amid concerns over Mr Trump's criticism of Japan for being a free rider on the bilateral alliance.

Thirteen percent called for efforts to keep China in check. "TPP and the free trade framework are vital," said an official at an electrical machinery firm," but our utmost concern is geopolitical risks when promoting trade."

REUTERS

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