Business
What is happening to the Japanese currency?
At the end of the last century, Japan became the first major economy to cut interest rates to zero.
During the Covid pandemic, many other nations adopted that tactic to support their economies.
Those countries are now raising interest rates but the Bank of Japan (BOJ) on Friday yet again kept its main rate below zero. And that is bad for its currency.
The yen has long been seen as a safe haven, which investors traditionally bought at times of crisis.
But that status is now on shaky ground. This year alone it has lost more than a fifth of its value against the US dollar to hit the lowest level since 1990.
Why is this happening?
The yen’s slide has been driven by the difference between interest rates in Japan and the US.
Since March, the US Federal Reserve has aggressively raised its main interest rate – from 0.25% to 3.25% – as it tries to tackle the rising cost of living.
Higher interest rates tend to make a currency more attractive to investors.
As a result there is less demand for currencies from countries with lower rates and those currencies fall in value.
Economic stagnation
However, some experts believe the weak yen reflects the state of the country’s finances.
The economy has hardly grown in the last three decades. It is also the world’s most indebted nation.
Japan also faced the demographic time bomb of a low birth rate and a population with the highest proportion of older people in the world.
The government has allowed some foreign workers to help address the issue but there is still strong opposition to immigration.
“There is no reason for the yen to strengthen,” says Takeshi Fujimaki, a former adviser to billionaire investor George Soros.
He expects the Japanese currency to hit 180 against the US dollar before eventually collapsing in value, as he has previously warned.
Will Japan raise rates?
BOJ governor, Haruhiko Kuroda, has repeatedly said the economy is too weak to handle higher interest rates.
Like much of the rest of the world, Japanese consumers are struggling with rising inflation but that has been welcomed by policy makers, who have long wanted prices to rise.
Mr Kuroda says the bank’s current policy is necessary to help it reach its 2% inflation target.
That is because for years Japan has faced deflation, or falling prices, which is bad for an economy because when prices keep dropping, consumers tend to hold back on buying big ticket items as they expect them to be cheaper in the future.
What can Japan do?
Japan had not intervened in the global currency market to prop up the yen for almost two and a half decades.
Last month though, as the currency fell, authorities stepped in, spending $21bn (£18.3bn).
It helped for a short time but soon the currency tumbled again, this time crossing 150 yen to the dollar.
That reportedly triggered fresh intervention, this time with an estimated $37bn.
The Japanese government has so far refused to confirm it stepped in again, even as traders said they saw signs of another intervention earlier this week.
Experts have warned that these attempts to prop up the yen will only ever have a short term effect.
“It is to show the position of the Japanese government that it doesn’t want any further weakening of Japanese yen,” Eisuke Sakakibara, a former senior official at Japan’s finance ministry said.
What does it mean for consumers and businesses?
The weak yen makes everything Japan buys more expensive.
The country relies heavily on imported oil and gas. Because of exchange rates and rising energy prices, the amount of money it spent on imports last month jumped by 46%.
But it is not all bad news for businesses. The money made abroad by Japanese exporters is worth a lot more back home. As exports account for about 15% of the country’s total economic activity, that is not insignificant.
However, Japan’s consumers have seen their purchasing power halved over the last decade. Ten years ago, 10,000 yen would buy an item worth $132, but today it only gets you something worth $67.
That is a major problem because average salaries in Japan have hardly risen in over three decades.
The issue is even more acute when people need to use the yen to pay for things overseas, for example when they travel or their children study abroad.
Is this good news for tourists?
When the yen started to fall in value Japan’s borders were still shut so people did not feel much of an effect.
However, now that Japan has started to allow visitors in the currency’s sliding value makes the country more attractive to tourists, as their holiday money goes further.
In 2019, Japan welcomed 32 million foreign visitors, who spent about 5 trillion yen ($33.6bn; £29.7bn).
While tourist numbers are still a long way from that level, investment bank Goldman Sachs has predicted inbound spending could reach 6.6tn yen within a year of the country fully reopening.
Reports /TrainViral/
The prospective new owner of Royal Mail has said he will not walk away from the requirement to deliver letters throughout the UK six days a week, as long as he is running the service.
“As long as I’m alive, I completely exclude this,” Czech billionaire Daniel Kretinsky told the BBC.
Mr Kretinsky has had a £3.6bn offer for Royal Mail accepted by its board.
Shareholders are expected to approve the deal in the coming months, but the government also has a say over whether it goes ahead.
Currently the Universal Service Obligation (USO) requires Royal Mail to deliver letters six days a week throughout the country for the same price. But questions have been raised over whether the service could be reduced in the future.
In an exclusive interview with the BBC, Mr Kretinsky also said he would be willing to share profits with employees, if given the go-ahead to buy the group.
However, he appeared to reject the idea of employees having a stake in Royal Mail, which unions have called for in exchange for their support.
The Royal Mail board agreed a £3.6bn takeover offer from Mr Kretinsky in May for the 500-year-old organisation, which employs more than 150,000 people. Including assumed debts, the offer is worth £5bn.
But because Royal Mail is a nationally important company, the government has the power to scrutinise and potentially block the deal.
As well as keeping the new government on side, Mr Kretinsky also faces the task of convincing postal unions that the proposed deal will benefit employees.
The USO is a potential sticking point for both the government and unions.
Royal Mail is required by law to deliver letters six days a week and parcels five days a week to every address in the UK for a fixed price.
How well this has actually been working in practice is a different matter. Ten years ago, 92% of first class post arrived on time. By the end of last year it was down to 74%, according to the regulator Ofcom.
Last year the regulator fined Royal Mail £5.6m for failing to meet its delivery targets.
Royal Mail has been pushing for this obligation to be watered down. It wants to cut second class letter deliveries to every other weekday, saying this will save £300m, and lead to “fewer than 1,000” voluntary redundancies.
‘Unconditional commitment’
Mr Kretinsky has committed in writing to honouring the USO, but only for five years.
And after that, in theory, the new owners could just walk away from it.
However, Mr Kretinsky told the BBC: “As long as I’m alive, I completely exclude this, and I’m sure that anybody that would be my successor would absolutely understand this.
“I say this as an absolutely clear, unconditional commitment: Royal Mail is going to be the provider of Universal Service Obligation in the UK, I would say forever, as long as the service is going to be needed, and as long as we are going to be around.”
Mr Kretinsky added that the written five-year commitment was “the longest commitment that has ever been offered in a situation like this”.
Another potential stumbling block for the deal, however, is how the company will be structured.
Unions would like to see the company renationalised, but Dave Ward, general secretary of the Communication Workers Union (CWU), told the BBC that would be “difficult in the current political and economic environment”.
Instead, what the CWU is pushing for is “a different model of ownership” – that is, where the employees part-own the business.
To get its support for the takeover, the union wants employees to share ownership of the company, along with other concessions including board representation for workers.
It says profit sharing is “not going to be enough to deliver our support and the support of the workforce”.
If the union doesn’t get what it wants, it won’t rule out industrial action, Mr Ward said. Its members went on strike in 2022 and 2023.
Although Mr Kretinsky said he is “very open” to profit sharing, he is not in favour of shared ownership.
“I don’t think the ownership stake is the right model,” he said. “The logic is: share of profit, yes, [but an] ownership structure creates a lot of complexity.
“For instance, what happens if the employee leaves? He has shares, he is leaving, he is not working for the company, he [still] needs remunerating.”
Mr Kretinsky said he didn’t want to create “some anonymous structure” but instead “remunerate the people who are working for the company, and creating value for the company”.
The union is also concerned about job losses and changes to the terms and conditions of postal workers’ contracts.
Mr Kretinsky has guaranteed no compulsory redundancies or changes in terms and conditions but only until 2025.
“If we are more successful, and we have more parcels to be delivered, we need not less people, but we need more people,” he said. “So really, job cuts are not part of our plan at all.”
He said if the management, union and employees work together, “we will be successful”.
Another concern is the potential break-up of the business.
The profit for Royal Mail’s parent company last year was entirely generated by its German and Canadian logistics and parcels business, GLS. Royal Mail itself made a loss.
Mr Kretinsky has promised not to split off GLS or load the parent company with excessive debt, although borrowings will rise if the deal goes through.
But he has a way to go to convince the CWU.
“I can’t think of any other country in the world that would just just hand over its entire postal service to an overseas equity investor,” Mr Ward of the CWU said.
However, Mr Kretinsky said that the postal unions “do understand that we are on the same ship, and that we need this ship to be successful, and that if we are there, we don’t have any real problems to deal with, because the sky is blue, and it’s blue for everybody.”
The union cannot stop this deal but the government can block it under the National Security and Investment Act.
Business Secretary Jonathan Reynolds has said he will scrutinise the assurances and guarantees given and called on Mr Kretinsky to work constructively with the unions.
Mr Kretinsky may say that he and the unions are ultimately on the same ship but, as things stand, they are not on the same page.
Who is Daniel Kretinsky?
Daniel Kretinsky started his career as a lawyer in his hometown of Brno, before moving to Prague.
He then made serious money in Central and Eastern European energy interests.
This includes Eustream, which transports Russian gas via pipelines that run through Ukraine, the Czech Republic and Slovakia.
He then diversified into other investments, including an almost 10% stake in UK supermarket chain Sainsbury’s and a 27% share in Premier League club West Ham United.
The Czech businessman is worth about £6bn, according to reports.
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