Japanese companies rarely dislike a weak yen! Exchange rate volatility is 'harmful'; a weak yen may cause chaos in financial markets.

Japanese corporate executives are calling for a stronger yen, and even companies that benefit from a weak yen are no exception. Specific data from the Bank of Japan's quarterly Tankan survey released in July shows that Japanese companies expect the average exchange rate in the second half of this year to be 152.51 yen per dollar. Although the yen has strengthened rapidly over the past two weeks, from a historical perspective, the yen is still at a weak level. According to Macrotrends data, the average exchange rate of the yen against the dollar over the past 10 years has been about 123 yen per dollar. On Thursday, the yen traded at 156.3 yen per dollar. Kawasaki Heavy Industries Chairman Yoshinori Kaneko said in an interview on Tuesday that when the yen exchange rate fluctuates, "we cannot formulate strategy," which is the "biggest problem" facing the company. Kaneko also said that if the yen strengthensto 150 yen per dollarhe might consider moving manufacturing operations back to Japan from the United States. According to a report released by the company last year, Kawasaki Heavy Industries has 27 production bases overseas, including in the United States, and 17 production bases in Japan. Takayuki Ueda, president and CEO of Japanese energy giant Inpex, wants the yen exchange rate to be even stronger. He said that 100 yen per dollar would be an "appropriate" level consistent with the state of the Japanese economy. Inpex's revenue in the first six months of this year declined compared with the same period last year due to lower crude oil sales, but the company said in its financial report that a 6.7% depreciation of the yen against the dollar to 158.37 yen per dollar helped offset part of the revenue decline. Ueda made these remarks even though nearly 90% of the Japanese oil company's business is located overseas and conducted in dollarsmeaning the company actually benefits from a weak yen. He said: "If we look at the entire Japanese economy, the current exchange rate level may be too weak." Takeshi Hashimoto, chairman of Japanese shipping giant Mitsui O.S.K. Lines, said in an interview last week that he hopes to see stability in the foreign exchange market and that a yen exchange rate of 150 to 155 per dollar would make him "feel at ease." Mitsui O.S.K. Lines' revenue is also mainly denominated in dollars, so it can benefit from a weak yen. But Hashimoto said: "We are somewhat worried that (a weak yen) will cause chaos in financial markets." Investors expect the Bank of Japan to raise interest rates by 25 basis points at its two-day policy meeting ending Friday, bringing the policy rate to 1.25%. However, the Federal Reserve raised interest rates on Wednesday for the first time since 2023 and is expected to raise rates further, prompting traders to bet that there will be three more rate hikes by the middle of next year. This could keep the U.S.-Japan interest rate differential wide. Even though the market has fully priced in the Bank of Japan's rate hike on Friday, unless the central bank's officials can convince the market that further monetary tightening is coming, the yen may continue to weaken. Investors will focus on Bank of Japan Governor Kazuo Ueda's remarks at the press conference after the rate decision is announced, looking for clues about the pace and scope of further tightening by the Bank of Japan. Rinto Maruyama, senior rates and FX strategist at SMBC Nikko Securities, said that the yen's renewed decline gives the Bank of Japan a greater reason to emphasize the upside risks to inflation, and rising oil prices may give policymakers a reason to tighten policy further. Rinto Maruyama said that the Bank of Japan's expected rate hike on Friday will bring Japan's policy rate into the estimated range of the neutral zone, making it unlikely that officials will signal a 50-basis-point hike or consecutive rate hikes. He believes that if this meeting is interpreted as dovish, 158 will be the next upside target for the dollar against the yen. This means that if investors conclude that the Bank of Japan's tightening cycle cannot keep pace with the Federal Reserve, the yen will become vulnerable. Rinto Maruyama believes that over time, if U.S. interest rates rise faster than Japan's, the dollar against the yen is expected to gradually recover to 160. Matthew Ryan, head of market strategy at Ebury, said he expects the Bank of Japan to raise interest rates and make hawkish remarks. He said: "The risks facing the Bank of Japan are extremely high, and it may in effect endorse continued quarterly rate hikes thereafter."