ANGLE: Persistent yen weakness creates an opportunity to strengthen corporate hedges through intervention; management strategies can also curb risk (Reuters)

With yen weakness becoming entrenched, Japanese companies are strengthening their response to foreign exchange risk. They are raising their hedge ratios and extending hedge maturities, with forward bookings during intervention-driven market moves said to play a role in limiting risk. The trend is also spreading to reviews of procurement methods and product mixes, affecting companies' management strategies.

Workman, a major workwear retailer, saw a succession of limit orders set on foreign exchange forwards for next fiscal year executed when the yen rebounded sharply following the coordinated intervention by Japan and the United States. After the yen weakened, the company raised the proportion of its dollar-denominated procurement covered by forwards from about 50–60% to 80–90%, and has already booked about 85% of next fiscal year's purchases at approximately ¥148 per US dollar.

Companies overall are increasingly adopting long-term hedges, with more cases involving rates fixed for as long as 5–10 years. Banks are also receiving more inquiries about long-term hedges based on assumptions of continued yen weakness, as companies increasingly seek to smooth procurement costs and strengthen their business foundations.

There is a view that exporters' demand for hedging may remain elevated while yen weakness continues. More companies are considering measures based not only on views about the dollar-yen exchange rate's peak, but also on the assumption that yen weakness will persist, affecting interest-rate risk management and capital strategies beyond foreign exchange hedging.