Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / How the Yen's Fall Is Rewiring Asian Supply Chains
Transcript
- Lucas: So the yen hit 160 to the dollar last week — a level we haven't seen since 1990. Luna: And that's not just a Tokyo story. Every supply chain in Asia is recalibrating around that number. Lucas: Exactly. And here's the thing — a lot of people assume a weak yen is good for Japan. Cheaper exports, tourism boom, corporate profits up. And that's partly true. But the real story is how it's forcing structural changes in where and how stuff gets made. Luna: And if these conversations have helped you think a little differently about something at work, that's sort of the whole point. A small group of listeners already chips in to keep this show ad-free — buy me a coffee dot com slash fexingo. It's not a big thing, just honest support from people who find the show useful. Lucas: Yeah, and we really appreciate that. It's what lets us do deep dives like this without any sponsor angle. So — back to the yen. Luna: Right. Let's talk about Toyota, because they're a perfect case. They've spent decades building supply chains in Thailand, Indonesia, Mexico — partly to avoid currency risk, partly to be close to markets. Lucas: And now the yen is so cheap that it's actually cheaper to build a car in Japan and ship it overseas than to build it in some of those countries. That flips decades of supply chain logic on its head. Luna: Toyota announced last month they're bringing some of their hybrid production back to Aichi Prefecture. Not all of it — but enough that suppliers are starting to feel the shift. Lucas: The thing is, it's not just about wages. It's about the whole cost structure. When the yen drops 30 percent against the dollar in two years, the dollar-denominated cost of a Japanese-made engine plunges. Meanwhile, wages in Thailand have been rising about 5 percent a year. The math changes. Luna: There's another layer here. Japanese companies used to borrow cheaply in yen and invest in factories abroad. That's the classic carry trade. But with yen funding now uncertain — the Bank of Japan is slowly normalizing — some of those overseas projects are getting re-evaluated. Lucas: Right. So you've got two forces pulling in opposite directions: the cheap yen makes exporting from Japan more attractive, but the rising cost of hedging and the potential end of ultra-low rates makes long-term overseas investment less certain. Luna: And that's not even the most interesting part. Because the yen's slide isn't happening in isolation. Look at the Korean won — it's weakened too, but not as much. So Korean exporters like Samsung and Hyundai are suddenly more expensive relative to Japanese rivals. Lucas: That explains the Korea ETF surge. EWY is up 13 percent in the last five days alone. A lot of that is semiconductor optimism around Nvidia's new Arm chip, but currency dynamics are definitely part of the story. Luna: How so? Lucas: Well, if you're a global buyer of memory chips or displays, you're comparing Korean prices against Japanese competition. With the yen so weak, Japanese chip materials and equipment makers get a cost advantage. But Korean chipmakers still dominate in NAND and DRAM. So investors are betting that Korea can hold its own while Japan's export machine gets a second wind. Luna: But there's a risk — if the yen stays weak for years, it could hollow out Japan's domestic industrial base. Young workers might not want factory jobs, and automation can only go so far. Lucas: That's the paradox. A weak yen boosts profits for big exporters, but it also raises the cost of imports — energy, food, raw materials. That squeezes households and small businesses. Japan's real wage growth has been negative for 26 months straight. Luna: So the winners are a concentrated group: large manufacturers with global revenue but costs in yen. The losers are everyone else. Lucas: And that tension is showing up in trade finance. We're seeing more yen-denominated trade loans in Southeast Asia — Vietnamese and Indonesian importers are borrowing in yen to pay for Japanese machinery because the interest rates are still low and the currency keeps falling. Luna: Which is essentially a carry trade dressed up as a trade credit. Lucas: Exactly. But that creates its own risk — if the yen suddenly strengthens, those borrowers could get crushed. The Bank of Japan has been signaling it might raise rates again later this year. If that happens, the whole dynamic shifts. Luna: Let's talk about China for a second. The yuan is at 6.79 per dollar — it's weakened, but not nearly as much as the yen. That makes Chinese goods more expensive relative to Japanese goods in global markets. Lucas: Right, and that's a big deal for sectors where Japan and China compete head to head: construction equipment, machine tools, certain chemicals. Komatsu versus Sany, for example. Komatsu's costs are in yen, which just got 30 percent cheaper. Sany's costs are mostly in yuan, which is down maybe 10 percent against the dollar. Luna: So suddenly Japanese exporters are winning back market share they lost over the last decade. Lucas: That's exactly what we're starting to see. Japan's export volumes jumped 8.4 percent year-over-year in the latest quarter, and a lot of that is machinery and autos going to North America and Southeast Asia. Luna: But here's the question that keeps me up: does this last? Currencies can reverse faster than supply chains can adapt. Lucas: That's the billion-dollar question. If the yen stays at these levels for three to five years, you'll see genuine structural shifts — more production coming back to Japan, less investment in new factories abroad, a realignment of regional supply networks. But if it's a two-year phenomenon, companies that overreact could be left stranded. Luna: The trade-weighted dollar index is at 119.3 — still very high historically. That tells me the dollar is still strong, and the yen's weakness is partly a dollar story. Lucas: It is. The dollar's strength is compressing a lot of currencies. The euro is basically at parity, the yuan is drifting lower, the won is under pressure. But the yen is the outlier — it's fallen more than almost any major currency. That's specific to Japan's ultra-loose monetary policy, which is only now starting to normalize. Luna: One more thing I want to touch on: the impact on India and Southeast Asia. A weaker yen means cheaper Japanese capital goods — machine tools, industrial robots, precision instruments. That could accelerate automation in Indian factories, which are already investing heavily in robotics. Lucas: Absolutely. India's imports of Japanese machinery are up 22 percent year-to-date. And Indian IT services companies are also seeing some benefit — they often bill in dollars but have yen-denominated costs for Japanese clients. Luna: So the yen's slide is rewriting the competitive map of Asia in real time. Not just for Japan, but for every country that trades with Japan or competes with it. Lucas: And that's why this is the most important currency story in global trade right now. The next six months will tell us whether this is a cyclical moment or a permanent reset. Luna: I'm watching the Bank of Japan's July meeting closely. If they signal a rate hike, the carry trade unwinds, and the yen could spike. That would be a very different conversation. Lucas: It would. But until then, the cheap yen is reshaping supply chains — one factory decision at a time.