CFOs Brace for Yen’s Decline

James Flaws, CFO of Corning Inc.

Experienced chief financial officers are aware of the larger patterns that reappear in economic systems, and it seems as though 2013 might become 1995 all over again. With Japan’s yen tumbling to a 4 and a half-year low against the dollar’s rebound, the currency market feels all too familiar to many CFOs. However, there are a few striking differences between the current situation and 1995.

  • Unprecedented intensity. When the yen dropped in the 90s, the currency depreciated over a 3-year period to 147.66 per dollar. Today, however, the drop is much more rapid, with many of the nation’s top economists predicting that the yen could fall by an additional 17.1% by the end of the year.
  • Halted intervention. Though the yen has weakened approximately 21% in the last 6 months, there’s less of a need for regulation or stimulus for a central world bank. Japan is currently ramping monetary easing, allowing a neutral valuation without intervention.

The recent drop has James Flaws, the chief financial officer for Glassmaker Corning Inc., investing up to $100 million to protect the company against additional yen declines. Other hedges across the nation are likewise insulating themselves to protect against the expected currency depreciation.

CFOs Cope with Currency Exchange Frequently

In today’s hyper-reactive economy, it’s not uncommon for chief financial officers to craft or employ strategies to protect against currency declines. In 2008, United Technologies Corporation had to cope with the declining dollar against the Euro. Because the company CFO and vice president of accounting and finance were able to insulate the company, United Technologies Corp. actually earned an additional $10 million even as the dollar lost value.

Key tools that organizations are taking advantage of include financial hedges, which address the short-term currency problems. However, for those more concerned about the long-term health of the greenback, companies and their CFOs evaluate their business’s current operations. According to the most recent data, over half of all CFOs in Europe believe that the dollar’s decline and struggles are going to be a long-term phenomenon. Regardless, one truth remains the same: whether it’s the yen or the dollar, strategic CFOs must always consider the ever-evolving value of world currencies.