Japanese denim and other products are becoming more competitive, as aggressive quantitative easing from the Japanese central bank pumps money into the economy and pushes down the value of the yen. This should help mills and brands looking to increase their export share.
Prime Minister Shinzo Abe and central banker Haruhiko Karuda have pushed an aggressive inflationary policy to jump-start Japan’s stagnant economy through inflation and easy credit. The actions have caused the yen to depreciate against the dollar, from around 84 to 100.
Nomura Securities released a report last week related to the yen’s rapid fall, stating, “The much-bolder-than-expected monetary easing…is set to have a major impact on domestic and international investment flows.”
The firm expects the yen to continue falling, reaching 102 by the end of this year and 106 by 2014.
Uniqlo parent company Fast Retailing reaped higher profits in the half ended Feb. 28, due partly to the falling yen. The company also raised full-year net profit and sales guidance.
Takeshi Okazaki, Fast Retailing’s group senior vice president, indicated at a press briefing that the company might take advantage of low raw materials costs and the currency situation to lower prices on jeans. The company uses Japanese denim in its products, and the jeans are sewn in China or other low-cost Southeast Asian nations.
“The weakening of the yen helps our export business in certain ways,” Tadayuki Kaihara, managing director of the denim manufacturer Kaihara, told WWD. The company holds at least 50 percent of the market share for Japanese denim and supplies to Uniqlo and a slew of international brands, including Levi’s, Gap, J. Crew and Seven For All Mankind. “The weaker yen makes Japan-made denim less expensive and more cost friendly to international buyers.”
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Kaihara and other Japanese manufacturers appreciate the weak yen, but they insist that the high quality of their products will be the deciding factor.
Tatsushi Tabuchi, sales Manager at Rampuya, parent company of Momotaro Jeans and Japan Blue, told WWD that the value of the yen isn’t responsible for their increase in international orders.
“In our 2012 fiscal year, international orders increased 33 percent over 2011,” Tabuchi said. “But I think this was mainly to do with increased name recognition.”
Rampuya last raised prices about three years ago, clocking a 10% rise at a time when the economy was contracting and the yen was strengthening. Still, international orders were positive. At that time, the company decided to start attending trade events overseas, exposing international buyers to their product. Overall, the company gets about 10% of total sales of $7.1 million from exports.
If a weakening yen makes exports cheaper, it also makes imports more expensive. The cotton used to make Japanese denim comes from overseas, along with petroleum products and dye. A weak yen means higher energy prices, which could resonate through the supply chain.
Still, denim makers are hopeful that the shifts will help compensate for high Japanese production costs that have gradually eroded market share, even as it has pushed them to create more innovative processes and higher quality products.