Yen for foreign funds may pinch Indian cos

NEW DELHI: With the Yen for the firsttime in 16 years breaching the 80-mark against the US dollar, Indian companiesthat had used the Japanese currency to raise overseas debt may have some reasonto worry as their repayment cost could go up.The yen touched 79.98against the greenback at around 9.55PM India time as increased risk of radiationfrom quake-hit nuclear power plants raised fears of Japanese companiesrepatriating funds home. In April 1995, three months after the Kobe earthquake,the Japanese currency had touched 79.75 against the US dollar, a post World WarII high, as the Clinton administration had threatened sanctions over opening theauto market to US exports.Currency traders are predicting that thecurrency could break the 1995 record as market intervention by the Japaneseauthorities could suck out liquidity since banks would have to sell USdollars.In the past several Indian companies availed of yenloans as it was seen to be less volatile. Though that notion has changed overthe last three years as the Japanese currency has continuously appreciated andeven caused some problems for several Indian companies, there is still asizeable amount of yen loans, and it could cause some hardship in the shortterm."If corporate do have a yen liability, then, yes, it's painful. The current bias is of strengthening of the yen since people are still bringing money back post the crisis. But given the monetary policy and longer term prospects, yen would probably weaken," said Ananthanarayn G, Standard Chartered Bank's Managing Director and regional head for fixed income and currency for South Asia."The firming of the yen is a short-term phenomenonbecause of repatriation of funds. It will affect only those companies whoserepayments are becoming due in the next two months and who have not coveredtheir exposure. Even then the impact will be only 1-1.5% becauase the yen wasalready 81.5 before the quake" added K N Dey Director Basix ForexSolutions.In the medium term the yen is expected to weaken.The rating agencies had already lowered the outlook on Japan and the governmentthat is already in deficit is making huge liquidity infusion and all this isbound to weaken the yen, he said.Dealers, however, said thatIndian companies which had availed of yen loans were also protected as they hadconverted them into the US currency or Indian rupee.