Japan Businesses Hedge Against Weakening Yen

Japanese businesses are turning to currency hedging and longer-term supplier agreements as the yen's prolonged weakness drives up import costs.

The yen has lost more than 30% against the dollar over the past five years, making it the weakest-performing G10 currency over that period. The currency fell to nearly 164 per dollar in July, its weakest level in almost four decades, before authorities intervened.

Companies like Daiwa Securities have reported a sharp increase in demand for currency hedging, while Bank of America has expanded its Japan foreign-exchange team to meet rising demand. Some Japanese companies are now seeking to lock in exchange rates for as long as five to 10 years, compared with the shorter hedging periods that were more common previously.

Nitori Holdings, Japan's largest furniture retailer, sources a significant portion of its products from overseas and estimates that a one-yen rise in the dollar-yen exchange rate reduces its profit by around 2 billion yen, or approximately $12.5 million.