Yen weakens to a two-decade low...Thai exports to Japan decline 0.6 percent (Current Issue No.3327)

Japan's currency has been weakening and hit a 24-year low at Yen 136.24 per USD (as of June 22, 2022), declining 17.1 percent compared to early 2022. Compared to other major currencies, the Yen saw the steepest depreciation, and has signaled a continued drop throughout the rest of the year. The global upward interest rate trend, plus domestic inflationary pressure, are factors which have adversely affected Japan’s production and consumption. It is expected that Japan’s economy will grow 2.1 percent in 2022. For the remainder of 2022, close attention should be paid to movements of the Yen as well as external factors from the global economy – these could put more pressure on Japan’s economy late this year and more prominently in 2023.

The Yen’s depreciation has caused Japan to face rising import prices throughout this year. KResearch views that there are varied degrees of impact on demand that Japanese importers need to consider from each trade partner country, i.e. Group 1 High Impact: Luxury goods with high prices; the prices will be rising in line with the weakening Yen, so consumers may defer their purchases; Group 2 Medium Impact: Essential goods for consumption; consumers will bear the burden given the high prices; and Group 3 Low Impact: Supply chain goods; manufacturers need to sustain their production capacity.

Considering Thai exports in the dimension of trade structure, compared to Japan’s other trade partners in Asia, Thailand has not experienced much impact, thanks to the advantageous trade structure. Japan has relied on essential consumer goods and intermediate goods such as chicken meat, processed fish, electronic parts, rubber, and chemicals, which account for more than 80 percent of the total, while luxury goods for which consumers may defer their purchases account for only around 20 percent. In terms of Yen value compared to other currencies in the region, Thailand’s consumer goods and intermediate goods or supply chain goods have faced challenges from rivals in Asia which have a competitive edge in terms of currency value and potential in manufacturing technology products, i.e., Malaysia, South Korea, Taiwan and China which produce the same products, including integrated circuits, auto parts, plastic pellets, as Thailand.

Meanwhile, Thai imports have enjoyed lower costs due to the Yen’s depreciation. Thai entrepreneurs can purchase raw materials and capital goods from Japan at lower prices. Japan is Thailand’s second largest importer, accounting for 11.7 percent of total Thai imports, which are mainly intermediate goods i.e. chemicals, machinery, electrical machines, electronic circuit boards, steel and steel products, auto parts, medical equipment, plastic products, diodes, printed circuit boards, and motorcycle parts, while others are consumer goods i.e. passenger cars, watches, cosmetics, office equipment and cameras.

Given this, KResearch views that Thai exports this year may experience limited direct impact from the weakening Yen. Overall, Thailand has lost export opportunity worth USD 500-800 million, resulting in a decline of Thai exports during the remainder of this year. Additionally, due to the high base, Thai exports to Japan throughout 2022 may see a 0.6-percent contraction, with an export value of USD 24.8 billion (based on a forecast range of 3.0-percent contraction to 0.6-percent growth, with export value of USD 24.2-25.1 billion). Meanwhile, Thai imports have indirectly benefited from Japan’s intermediate goods for which prices are decreasing. However, due to the very high base in 2021, Thai imports throughout 2022 may rise only 0.4 percent to USD 35.8 billion (based on a forecast range of 1.6-percent contraction to 2-percent growth, with import value of USD 35.1-36.4 billion). By the net total, Thailand still has a trade deficit of USD 10 billion with Japan. However, such impacts also depend on the currency used for goods payments between Thailand and Japan; approximately half of import-export payments are made using USD currency.