Sat, Jan 22, 2011 - Page 10 News List

Agency mulls aid for companies facing yen swap loss

Bloomberg

Japan’s Financial Services Agency said yesterday it was examining ways to help small businesses cope with losses on foreign-exchange derivatives, after the yen climbed 15 percent against the dollar last year.

The financial watchdog is talking with officials from commercial banks to study what measures can be taken, Financial Services Agency Minister Shozaburo Jimi said at a news briefing in Tokyo.

Banks sell derivatives to help companies hedge against fluctuations in currency values.

Corporate bankruptcies related to the yen’s appreciation more than tripled to 75 last year from 22 a year earlier, a Jan. 13 report compiled by Tokyo Shoko Research Ltd shows.

Failures associated with currency-derivatives losses amounted to 26 percent, or 35 percent of the total.

“We’ve been getting a number of calls for consultation and complaints from those who have currency-derivative contracts and have seen a substantial impact,” Jimi said. “Under the law, financial institutions are prohibited from making up for losses of their customers. We are now exchanging views with the financial industry to study what we can do.”

Derivatives sold five years ago to smaller businesses include a financial tool designed to reduce risks of the yen weakening against the dollar, said Kunio Hashimoto, a senior researcher at Tokyo Shoko Research. The yen’s advance since the global financial crisis has resulted in losses for companies that bought such products, Hashimoto said.

Japan’s currency has gained 38 percent against the dollar in the past five years, reaching a 15-year high of ¥80.22 on Nov. 1. The appreciation has undermined the economy’s recovery by eroding the value of profits earned abroad and reducing exporters’ competitiveness with rivals.

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