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Yen Slide Against Baht a Boon for Thai Carmakers: Southeast Asia

February 04, 2013

Yen Slide Against Baht a Boon for Thai Carmakers

A Mitsubishi Motors Corp. worker takes notes as he works on the production line of the Mirage vehicle at the company's plant in Laem Chabang, Thailand. Photographer: Dario Pignatelli/Bloomberg

Japan’s policies that weakened the yen will boost Thailand’s baht, unlike the currencies of South Korea and Taiwan, as the Detroit of Asia benefits from cheaper car parts and engines from the world’s third-largest economy.

Thailand, a hub for Japanese carmakers including Toyota Motor Corp. (7203) and Nissan Motor Co. (7201), bought 54 percent of auto components from Japan in 2012, official data show. Importers are “too pleased with the situation,” Thai Finance Minister Kittiratt Na-Ranong said Jan. 24, after Japanese Prime Minister Shinzo Abe’s push for “bold monetary easing” to revive the economy sent the yen to a 2 1/2-year low against the dollar.

“The baht will certainly benefit if we see stronger export performance in the first quarter of the year on a revival in demand for Japanese products,” Jun Trinidad, a Manila-based Citigroup Inc. economist, said in a Jan. 30 telephone interview.

The baht strengthened 2.8 percent versus the greenback this year, the best performance among 11 most-traded Asian currencies, on optimism Thailand’s economy is recovering from the nation’s worst floods in almost seven decades. The yen’s 6.8 percent slide prompted declines of 2 percent and 1.7 percent in the won and Taiwan dollar as companies such as Toyota and Sony Corp. (6758) compete against South Korea’s Samsung Electronics Co. (005930) and Hyundai Motor Co. (005380), as well as Taiwan’s HTC Corp. (2498)

“When the yen depreciates, there is a tendency for the market to take the view that the Taiwan dollar or the South Korean won will have to move in line,” Trinidad said. “Thailand is a special case because much of the Japanese production for mass-assembly type of vehicles is in this Southeast Asian nation.”

‘Currency War’

A global “currency war” seems to be breaking out as monetary easing in Japan drags the yen lower, Ha Sung Keun, a Bank of Korea board member, said Jan. 28. Taiwan’s policy makers said Jan. 29 they will step into the foreign-exchange market as the island’s dollar rose 5 percent against the yen this year. The Japanese government will spend 10.3 trillion yen ($112 billion) to drive a recovery.

In Thailand, which calls itself the “Detroit of Asia” and where Japanese companies such as Canon Inc. (7751) and Honda Motor Co. (7267) are the biggest foreign investors, the central bank should avoid fighting market forces to stem currency gains, Finance Minister Kittiratt said in an interview last month.

Japanese companies accounted for 64 percent, or 348 billion baht ($11.7 billion), of the projects approved by the Thai Board of Investment in 2012, according to the Japan External Trade Organization, or Jetro. That compares with 159 billion baht of in 2011, or a 57 percent share among foreign companies.

The baht, which has appreciated 9.4 percent against the Japanese currency this year, dropped 0.6 percent today to 3.1015 yen as of 10:07 a.m. in Bangkok, according to data compiled by Bloomberg.

Labor Costs

“We’ve not heard any complaints about the exchange rate from Japanese companies in Thailand,” Yoichi Yajima, representative of the business support center in Thailand at Jetro, said in a Jan. 30 interview. “A stronger baht also helps to contain inflation, and that will help limit the costs for companies amid rising labor costs.”

Prime Minister Yingluck Shinawatra’s government raised minimum wages throughout the country in January, adding to stimulus measures to boost domestic demand and reduce reliance on exports for growth. The Bank of Thailand raised its 2013 growth forecast on Jan. 18 to 4.9 percent from an October prediction of 4.6 percent, while maintaining its projection for export to increase 9 percent.

Exporters Hurt

“The yen’s weakness comes at a good time because if machinery imports are cheaper when wages are going up, that could balance things up for Thailand,” Nalin Chutchotitham, a Bangkok-based analyst at Kasikornbank Pcl, said in an interview on Jan. 29. Thailand’s fourth-largest bank by assets expects the baht to advance to 29 against the greenback by the end of this year on capital inflows, she said. That’s stronger than the 29.6 per dollar median estimate of 26 analysts in a Bloomberg survey and 29.76 today.

The baht’s gain to a 17-month high in January makes it expensive and will hurt exporters such as rice producers, according to Ng Kheng Siang, head of Asia-Pacific fixed income in Singapore at State Street Global Advisors. It has risen 6.1 percent in the past six months versus the dollar, the best performance in Asia. Export growth slowed to 14 percent in December from 27 percent the previous month, a central bank report showed Jan. 31.

“Looking at the Thai baht, valuation wise, it could be on the rich side, and there could be some short-term correction,” Ng at the asset management unit of State Street, which has $24.4 trillion in assets under custody, said in a Jan. 29 interview. Ng said he may “underweight” the baht, meaning he may hold it less than the benchmark index he follows.

Earnings Boost

The falling yen will probably help to boost earnings of Japanese companies, allowing them to allocate more funds to expand overseas operations, according to Koji Fukaya, president of currency research and consulting company Office Fukaya in Tokyo and a former chief foreign-exchange strategist at Credit Suisse Group AG.

“That’s good for the Thai economy and business activities,” Fukaya said in a Jan. 29 interview.

Akio Toyoda, President of Toyota, Asia’s largest carmaker, said last month that automakers are regaining optimism and “beginning to see the light” with the yen. Canon, the world’s largest camera maker, forecast on Jan. 30 that profit will rise 14 percent this year amid the yen’s slide.

Japan’s shipments to Thailand increased 17 percent to 3.49 trillion yen in 2012, the biggest increase among Asian nations, while exports to the region as a whole declined 5 percent, official data show.

“The depreciation of the yen definitely is a drag on the ability of other Asian currencies to appreciate,” Ramin Toloui, global co-head of emerging markets portfolio management at Pacific Investment Management Co., which oversees the world’s largest bond fund, said in a Jan. 30 interview in Singapore. “Certain countries that are part of the production chains into Japan may be in a more beneficial position than countries that are direct competitors.”

To contact the reporters on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net; Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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