Japan Inc Hunts for Hedges as Yen Weakness Persists

Japan Inc is seeking new hedges to protect against further yen weakness after years of currency intervention failed to stabilize the exchange rate. Taku Ueno, chief executive of Takara MC, which operates 43 supermarkets in Japan, has seen import costs rise as the yen falls. He's now negotiating direct and longer-term contracts with suppliers to lock in prices and exchange rates for up to a year.

Ueno is not alone; smaller firms are increasingly using futures, forwards, and options to hedge against further yen weakness. Daiwa Securities reports a boom in hedging demand, while Bank of America has boosted headcount in its Japan FX team over the past two years to meet higher demand.

Even exporters, who have benefited from the weak yen, are now considering hedging against a stronger yen to lock in overseas profits. Short-term options pricing shows a jump in the cost of insuring against a rise in the yen, but at the one-year tenor the market hasn't really budged.

Experts believe that companies have grown impatient with the central bank's slow pace of interest rate hikes and investors' concerns about Japan's debt load are driving the yen's decline. The currency has lost over 30% on the dollar over the past five years, making it the worst-performing G10 currency.