Strong Yen fuels German exports boom

Kuka said last month that its sales had more than bounced back to levels predating the financial crisis. By contrast, sales at its Japanese rivals were still a third below where they had stood in early 2008, before the global downturn slammed the machinery industry. A surge in orders from European carmakers has helped Kuka’s rebound. But it also does not hurt that the euro has plunged compared with the yen, which has given Kuka a price advantage against Japanese competitors that it did not have a year ago.

“Price is not the sole criteria, but it’s an important criteria,” said Kuka Chief Executive Till Reuter, said. “The weaker euro is to our advantage.” European companies tend to focus on the dollar exchange rate, because the US currency is the most important for world trade. But the yen’s recent strengthening is playing a role in Germany’s export boom as well.

The euro has fallen 19 per cent against yen in the last year, nearly double the decline against the dollar. Over all, the euro is down more than 36 per cent against the yen since August 2008. A stronger yen is good news for German machinery and auto companies whose main competitors often are based in Japan. And it is, of course, bad news in Japan. The rivalry between the two countries is particularly intense in China. It is the fastest-growing market for many German companies, but proximity gives Japanese exporters an edge.

China was the destination for 5 per cent of German auto exports last year, up from 0.6 per cent in 2000. And 9.1 per cent of German machinery exports went to China, up from 2.7 per cent a decade ago.  German companies gained ground in China last year, increasing their share of imports to 23 per cent from 21, while Japan’s share of Chinese imports slipped to 24 per cent from 27 pc, according to the engineering federation.

Because the Chinese currency moves in lockstep with the dollar, the yen is rising against the renminbi, even as the euro has grown cheaper. But economists and company executives caution that there are many other reasons for Germany’s gains. For example, Germany benefited from China’s heavy investment in infrastructure like power plants, which favored companies like Siemens. And the initial cost, in euros or yen, is often a secondary consideration in markets for specialised factory machines or heavy equipment, where both Japanese and German companies are strong. The benefit is small but significant, said Rolf Schneider, head of macroeconomic research at the German insurer Allianz. He calculates that the dollar’s rise against the euro has added three or four percentage points to German exports, while the yen’s rise has added only one percentage point.

The weak yen of a few years ago was a product of Japan’s extremely low interest rates, which made Japanese bonds and other assets less attractive for international investors.
But when the financial crisis hit, the European Central Bank also cut its benchmark interest rate, to a record low of 1 per cent, which meant that the interest rate that investors could earn on euros was not much better than the return for yen. That and shaky growth in much of the euro area meant there was less incentive for investors to put their money into Europe as opposed to Japan.

German industry representatives tend to play down the importance of exchange rates, preferring to emphasise other reasons their strategies and products are superior to those of competitors. Many multinational companies now produce their products all over the world, in part to protect themselves from currency swings. Kuka produces machinery in Shanghai as well as in Germany and in Hungary, and it buys parts from Japan.

Still, in Japan the yen has become a sensitive issue as the currency fluctuates around a 15-year high. Most exporters feel that they would see profits fall because of the strong yen. At best, interventions slow down currency movements and give companies more time to adjust.