Exchange rate volatility impacts importers, exporters

Recent fluctuations in the U.S. dollar and Japanese yen had both positive and negative impacts on Vietnamese traders, the Ministry of Industry and Trade (MoIT) reported.

The Vietnamese dong has strengthened by 12% against the Japanese yen this year while it weakened 2.6% against the U.S. dollar.

MoIT officials said the U.S. Federal Reserve (Fed) had tightened monetary policy to curb inflation in the U.S., while the Bank of Japan (BOJ) has continued monetary easing to support economic recovery after the pandemic.

Depreciation of the Japanese yen has partially benefited some businesses with loans to pay in Japanese yen and Vietnamese importers.

Many Japanese food and household items are favoured by Vietnamese consumers. The weaker yen has caused the prices of many items sold at supermarkets across Vietnam to fall by 15-20%.

Vietnam’s BRG Retail Co., Ltd. imports more than 1,000 items directly from Japan. After the Japanese yen weakened against the Vietnamese dong, the price of Japanese goods also dropped.

"We usually sign an annual contract with a supplier in Japan, but we pick up the goods every month," said Nguyen Thuy Duong, deputy general director of BRG Retail.

Trinh Ba Ngoc, director of Osaka Semitsu, said not all Vietnamese businesses would immediately benefit from the depreciated Japanese currency. Annually, his company had to buy equipment from Japan at a cost of VND100 billion ($4.28 million) via an intermediary partner, meaning it has not benefited from a depreciated Japanese yen.

In contrast, Vietnamese exporters working with Japanese partners suffer a loss when they convert Japanese yen into Vietnamese dong.

They explained that in the long run, a weak domestic currency would make imported goods more expensive. As a result, Japanese consumers will limit their spending on non-essential imports. This will lead to lower demand for imported goods from all countries, including Vietnam.

When the U.S. dollar appreciates against other currencies, including the Vietnamese dong, it increases the price competitiveness of exported goods from Vietnam. However, it raises costs for Vietnamese importers.

In the context of a sharp increase in the price of raw materials, a stable exchange rate would play an important role in reducing pressure on imports, while minimising difficulties for businesses and supporting Vietnam’s economic recovery.

Due to rapid and unpredictable fluctuations on the global market, the MoIT has urged businesses to take advantage of free trade agreements (FTAs) and make use of reduced tariffs.

The BOJ policy of keeping Japanese rates pinned down to support the economy, combined with rising U.S. interest rates, has been a major factor in the Japanese currency’s recent weakness.

To combat untamed inflation, the Fed raised its key interest rate by another 0.75% on July 27 - further increasing how much consumers will pay on debt like credit cards, mortgages and other loans.

The federal funds rate, which indirectly determines the cost of loans, has increased from near-zero to a range of 2.25% to 2.5%. This is the fourth-rate hike in five months.