In 2012, a Camry that cost $22,000 got Toyota 1.7 million yen. In 2013, the same $22,000 Camry gets Toyota 2 million yen – an 18 percent increase in sales just because the currency weakened. To think of it another way, the weaker a country’s currency is, the more competitive its exports are in global markets.
In China to date, progress toward a freely floating yuan could possibly be too little too late. China has not followed the model of Chile, the only country to date that has managed to unpeg its currency the right way.
Last week Bloomberg Television featured a segment about the significant impact that currencies will have on corporations this earning season. After explaining how currencies impact multinational corporations, Bloomberg asked me to offer some detail on why currencies are going to continue to be significant for MNCs and how some companies are mitigating the impact.
Euro volatility had significant negative impacts on multinational corporations in a number of ways in 2012. In the second quarter, euro volatility caused billions in losses.
In 2012 we saw countries from the U.S. to Japan, Brazil, China, and many others, engage in competitive devaluation in an effort to bolster their economies (a relatively weak currency makes that country’s exports relatively cheaper – and more competitive in the global market).