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Weaker Yen More Gain Than Pain for Japanese Denim

Shift presents more export opportunities but also lifts makers’ costs.

Kaihara holds a substantial market share in Japan.

TOKYO Japanese denim is widely considered to be some of the best in the world and comes with a price tag to match its quality, which can be an obstacle for many would-be buyers.

But the recently weakened yen means that prices for Japanese denim are becoming more competitive, which is expected to provide a lift for mills and jeans brands looking to boost their exports.

Since Prime Minister Shinzo Abe took office on Dec. 26, his aggressive economic stance has caused the yen to drop to a three-year low, down from 84 yen to the dollar to around 100 yen to the dollar today.

In a report released last week, Nomura Securities said it had changed its foreign exchange forecasts to reflect the yen’s rapid fall.

“The much-bolder-than-expected monetary easing…is set to have a major impact on domestic and international investment flows,” the report said.

Nomura said it now expects the yen to be valued at 102 against the dollar by the end of the year, and at 106 by the end of 2014.

Fast Retailing said the weakening yen had contributed to its success in its fiscal first half ended Feb. 28. It was also one reason the retailer raised its full-year net profit and sales guidance. Fast Retailing operates the Uniqlo fast-fashion chain, which has the largest share of Japan’s jeans market of any company.

 

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Takeshi Okazaki, Fast Retailing’s group senior vice president and chief financial officer, said at a press briefing that if material costs remain low for an extended period of time, the company may decide to pass these savings on to customers by lowering prices. Uniqlo currently uses Japanese denim in all of its men’s jeans that are sewn in China or Southeast Asia, where labor costs are lower than in Japan.

“The weakening of the yen helps our export business in certain ways,” said Tadayuki Kaihara, managing director of the denim manufacturer Kaihara, which 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.”

However, Kaihara said that while the weakening of the yen may attract more interest from international buyers, it is the quality of Japanese denim that will eventually be the deciding factor.

“Thanks to our untiring effort in product development, our orders increased even though the yen was strong last year,” Kaihara said. “Our customers are satisfied with our quality and innovative products, which are justified for the price they paid.”

Tatsushi Tabuchi, sales manager at Okayama-based Rampuya, which owns the denim brands Momotaro Jeans and Japan Blue, said while orders and interest from international buyers have increased, he doesn’t believe the value of the yen is responsible.

“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.”

Tabuchi said that Rampuya raised its prices by just over 10 percent about three years ago, when the yen was strengthening and the overall economy was suffering. This was around the same time the company started participating in trade events outside Japan. At the moment, Tabuchi said, Rampuya has no plans to lower prices again now that the yen is sliding.

Rampuya’s most recent international exhibition was in Germany in January, and Tabuchi said the response from international buyers was positive. The company’s international sales total about 65 million yen, or $656,000 at current exchange, just less than 10 percent of its overall sales of 700 million yen, or $7.1 million.

While a weaker yen may help attract more overseas buyers to Japan’s prestigious denim, Kaihara warns that its effects may not all be positive.

“While the weakening of the yen helps our export business, it does weaken our purchasing power in the same magnitude for buying raw materials like cotton, oil, dyestuffs [and other materials] outside Japan,” he said. “Every coin has two sides, everything has its pros and cons, but in general, it does more good than harm.”

Denim manufacturers are hoping this good will help to offset Japan’s high production costs that leave them hard- pressed to compete with much cheaper offshore production and have pressured them to emphasize quality and innovation.

“But for Kaihara, we believe in the value and uniqueness of Japan-made denim, and this is the reason [our production] will stay in Japan,” Kaihara said.