- The JPY currency stumbled to the weakest level since October 2008 as G-7 officials indicated tolerance for the decline in the currency during a meeting over the weekend. While signalling acceptance of the JPY’s decline, policy makers are closely monitoring the impact of the weak JPY currency on other regional economies.

- On Monday’s close, JPY stood at 101.83 per USD (or RM2.95 per JPY100) after falling to 102.15 earlier in the day. Note that JPY has fallen 17% against USD this year and 13% vis-à-vis the EUR as the Bank of Japan stepped up monetary stimulus.

- The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about JPY60-70tril under the newly-introduced quantitative and qualitative monetary easing. By the end of 2013, the size of the asset purchase programme would amount to JPY101tril.

- Policy makers were reassured by Japan that its revolutionary new economic strategy was not targeting a weaker yen although there was concern expressed over the level of liquidity flowing around the global economy.

- According to Japan’s finance minister, Taro Aso, the G7 had levelled no criticism at the country for its new monetary policy strategy. Nevertheless, Wolfgang Schäuble, Germany’s finance minister had cautioned about the relatively high levels of global liquidity.

- The recent announcement by the Bank of Japan in terms of additional open market operations will continue to be supportive of a weak JPY ahead. While spurring growth through expansionary monetary policy and also the increase in both aggregate supply and demand, Japan is seriously trying to increase inflation towards its long-term target of 2.0%.

- Meanwhile, regionally currencies slipped yesterday owing to the monetary relaxation in the recent week. Against the Greenback, we note that AUD had depreciated the most yesterday to close at 1.0048 (or -0.7% from Friday’s close). Ringgit had also fallen by 0.2% to 2.9975. Meanwhile, THB had advanced by 0.3% to close at 29.68.

- In terms of Malaysia’s trade, we gather that Japan has contributed substantially to exports and imports to date accounting for 12.1% and 8.9% respectively. Nevertheless, Malaysia’s trade with Japan has declined by 9.7% totalling RM34bil to date. Exports to Japan had contracted by 8.3% YoY to RM20.46bil as at YTD while imports were lower by 11.7% totalling RM13.54bil.

- In all, we deem the depreciation of JPY to be unfavourable to Malaysia’s bilateral trades with Japan. Based on our estimate, the depreciation of JPY by 1% could potentially shave off Malaysia’s overall exports by approximately RM425mil; imports will likely deteriorate by RM83mil; thus reducing trade balance by about RM342bil.

Source: AmeSecurities