Japan companies benefit from undervalued Yen

14 April 2015

A depreciated Yen is not enough to boost Japan’s Middle East expansion

The undervalued Yen is set to make Japanese companies even more competitive in the Middle East and North Africa (Mena) region, helping them offer cheaper exports and services.

Yet, it is far from being the only factor driving Japanese success in the region.

Japanese contractors already have a strong track record of winning large contracts in the Mena, particularly in the power and water sector.

Armed with a depreciated Yen, Japanese contractors will be able to further sharpen their competitive edge against European and other Asian companies enabling them to offer attractive bids on projects. Japanese goods and services will also be priced more appealingly if the Yen remains undervalued.

But there are other factors at play. In fact, the impact of the Japanese government’s Yen depreciation policy on global export volumes has been patchy.

Some months see significant growth in global volumes, while other months see a reversal of that trend.

Japanese contractors rising regional success has also been put down to their abilities to bring attractive financing solutions to the table as well.

The country’s export credit agency, the Japan Bank of International Cooperation (Jbic), is playing a major role in supporting contractors and exporters.

Often contractors are keen to form a bidding consortium that includes Japanese firms, as it means they can include Jbic-backed financing in their funding proposal to project sponsors.

Jbic can fill funding gaps on projects through the provision of guaranteed export credit provided by commercial banks to the borrower. The bank can also provide investment loans.

The Japan Investment and Cooperation Agency (JICA) is another government-backed body gaining popularity and is providing funding to projects in the wider Middle East region, most recently lending to an irrigation project in Egypt.

The Japanese Yen is likely to remain undervalued in the immediate future as Prime Minister Shinzo Abe continues to push forward with his monetary-easing policies.

It is not a trend that guarantees Japanese success in the region, however. It will be a combination of a multiple of factors, including the provision of financing, that will really strengthen Japan’s position.

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