Yen at 34-yr low after BoJ ends negative interest rate; these 3 Indian stocks may benefit

Auto-ancillary companies supplying components to Japanese automakers and Indian banks with yen exposure could benefit from exchange rate gains resulting from a weaker Yen

The Japanese yen hit a 34-year low recently after the Bank of Japan moved to end negative interest rates. Usually, rate hikes strengthen the currency as higher interest rates draw investors putting money in debt.

However, in the case of the yen, the message from the central bank officials has been more dovish.

The market has taken this as a signal that monetary policy will continue to be accommodative, and this is weighing on the yen.

"The statement suggested that this is not the start of an aggressive rate hiking cycle, even though wage inflation is set to pick up strongly,” said Kunal Sodhani, Shinhan Bank.

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“Investors have been selling the yen for the dollar because the interest rate difference is wide; BoJ is following an ultraloose monetary policy and the US Fed, a tight (monetary) policy,” he said.

This is the third time in two years that the Yen has fallen as low as 152 to the dollar. On the previous two occasions, there was a strong and sustained reversal. So the market is expecting some intervention by the BoJ around these levels, Sodhani said, adding "As per charts, USD-JPY is open to 154.00 levels, while a close below 149.20 can bring the pair back into a consolidation phase".

Auto-ancillary companies supplying components to Japanese automakers and Indian banks with yen exposure could benefit from exchange rate gains resulting from a weaker Yen. Additionally, Indian businesses reliant on importing goods and services from Japan might find relief as a softer yen could lower their import costs.

This favourable condition could extend across various sectors, including electronics, machinery, automotive, chemicals, and FMCG, Aamir Makda, Commodity & Currency Analyst, Choice Broking told Moneycontrol.

Also read: Yen hits 34-year low ahead of key US inflation test

The weakening of the Yen, especially to a 34-year low, can have significant impacts on various sectors in India, particularly the automotive industry, according to CA Krishnan R, Director & CEO of Unimoni Financial Services. 90

"Many Indian companies are collaborating with Japanese companies for technology exchange and components. A weaker yen will make Japanese products relatively cheaper in international markets, and this will be beneficial for the Indian automotive industry, especially Maruti Suzuki," he said.

Maruti Suzuki gave 3.6 percent of the net total income as royalty to its parent entity Suzuki Motor Corporation (Japan) in FY21. Additionally, the value of imports in yen also accounts for 7-8 percent of the company's annual income. Following the slump in yen, Maruti Suzuki shares rose 3 percent on March 27 to hit a fresh record high of Rs 12,722 on NSE.

Lumax Industries and JTEKT India are poised for favourable outcomes. Lumax Industries' collaboration with Japan-based Stanley Electric Company entails royalty payments in yen, while JTEKT India's transactions with its Japanese parent JTEKT Corporation are denominated in yen.

This reduction in costs enhances operational efficiency and also augments financial performance, thereby positively influencing stock values in the automobile and related sectors. Therefore, the yen depreciation directly translates into improved prospects for these stocks affiliating with Japan.

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