Japan's Yen fell to 34-year low, here's how it will affect Indian stocks

Japanese currency Yen dropped to its lowest level since 1990, following a meeting of Japan's leading monetary authorities. They deliberated on the steep depreciation of the currency and hinted at their preparedness to take action if necessary.

However, analysts anticipate that the recent 34-year low in the Japanese yen will likely bring positive effects to the Indian automotive sector and companies involved in importing electronic items, machinery, and auto components from Japan. Despite this, they foresee a neutral to slightly positive impact on the overall markets.

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“The weakening of the Yen, especially to a 34-year low, can have significant impacts on various sectors in India, particularly the automotive industry. The automotive industry is growing in India, and many Indian companies are collaborating with Japanese companies for technology exchange and components,” said CA Krishnan R, Director & CEO of Unimoni Financial Services Limited.

Krishnan further highlighted that Maruti Suzuki India Limited (MSIL), which is country's largest passenger car maker, is expected to the biggest gainer.

“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 added.

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Maruti Suzuki, Motherson Sumi, and Sharp are among the stocks with Japanese lineage that are likely to be in focus.

Analysts further said that the fall in the Japanese currency will benefit the importers. "The fall in Japanese yen will benefit the importers as they will be required to pay less rupees for their imports in yen with rupee being in small range. Earlier in February 2022, 100 Yen was costing ₹65, which has now come down to ₹55," Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, was quoted as saying by The Economic Times.

Bhansali further added, “If royalty payments are being made by companies in yen, the outgoing will be lower. Indian imports could also increase, particularly electronics, machinery and auto components. Main imports from Japan are machinery, metals, electric machinery and iron and steel.”

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In the fiscal year ending 2022-23, bilateral trade between Japan and India amounted to $21.96 billion. Of this total, Japanese exports accounted for $16.49 billion, while Japanese imports stood at $5.46 billion.

Last week, the Japanese currency experienced a significant decline, reaching a 34-year low of 151.975 yen per dollar. In response, the Bank of Japan intervened by purchasing Japanese government bonds. According to Reuters, the Bank of Japan bought bonds worth ₹87.5809 trillion yen ($578.55 billion) throughout the fiscal year ending in March. This intervention contrasts with the previous year's record JGB purchases, which totaled 135.989 trillion yen ($898.33 billion).