Olympic fire leaves Japanese yen ice cold

In Japan, the vaccination rate is much lower than in the Netherlands. However, that is not the only reason why the yen is now under pressure.

106 days left. Then the Tokyo Olympics start. The organization has already announced that no foreign supporters are allowed to be present, in view of the risk of new corona infections. The country already has more than enough difficulty dealing with the virus in its own country.

Due to new outbreaks, new measures have been announced in the metropolis of Osaka, just before the Olympic fire would come through the city. People have to work from home as much as possible and shops are only allowed to open to a limited extent. That image is familiar to us. Yet there is a world of difference in the way in which the pandemic in the Netherlands and Tokyo is being tackled.

Slow, slower, Japan
Despite a slow start and a break with the AstraZeneca vaccine, approximately 3 million shots have already been taken in the Netherlands. That is almost 18 vaccines per 100 inhabitants. In Japan, that number is just 1 in 100. The country started pricking even later than the Netherlands. This delay is the result of a relatively strict and slow approval process for new vaccines.

And due to a lack of special equipment, millions of Pfizer vaccines are thrown in the trash in Japan. The vaccination program is expected to really pick up steam in July. Until then, many Japanese keep their hands on the cut. This is mainly because shopping, vacation and going out is a lot more difficult as a result of lockdown measures.

Waiver wave or less pay?
The labor market is in fact not as good as the extremely low unemployment rate of 2,9% suggests. Unlike European and especially American companies, Japanese companies are not quick to lay off employees when the economy is down. Instead, they cut costs by cutting wages.

The salary of Japanese employees was 3,2% lower in December than at the end of 2019. That is the largest decrease in twelve years. If there is suddenly a lower amount on your pay slip, it is not very attractive to spend good money. Another factor holding back the growth of the Japanese economy is the shortage of chips. This mainly affects industrial export companies. At the beginning of this week, this was already a reason for car manufacturer Subaru to temporarily close a large factory.

Yen under pressure
In 2021 Japan is heading for economic growth of less than 3%. That compares very poorly with the growth of 7% that the United States is heading for. The difference has been reflected in the foreign exchange market lately. Since the turn of the year, the yen has fallen 6% against the dollar. This decline is twice as great as, for example, the decline of the euro.

As long as the Japanese vaccination rate continues at a snail's pace and the large export companies suffer from the chip shortage, the yen will have a difficult period. Even the start of the Olympics on July 23 cannot change that

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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