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Yen forecasting

March 09, 2010 | By Naresh Khanna

Many Indian printers who bought offset presses with deferred credit and foreign currency loans, especially the Japanese Yen, may be in a spot of trouble as the first payments become due. For instance, if they bought a machine when one Yen was equal to 36 paise, by the time the machine actually came in and cleared customs, the Indian Rupee had already depreciated to 40 paise against one Yen. The Rupee has kept on depreciating against the Yen for most of the last two years and is currently valued at 50 paise to the Yen. As the first installments of the loans become due later this year, many of the printers who took loans of Japanese currency without long-term cover for rate fluctuation are looking at paying back almost 30 per cent more than they planned.

For many printers there will be no alternative to deferring the payback by another year if it is possible. Although the Yen is expected to weaken against the US Dollar by April (it is expected to go to 96 Yen to the dollar in April as opposed to the current rate of 91 Yen to the dollar), it is expected to strengthen again to 88 vis a vis the dollar by September. The Rupee is also expected to strengthen against the US Dollar — from the current rate of 46 to as much as 42 Rupees by August.

Thus April seems like a plausible window for repayment of the Yen by Indian printers. The August- September window would be speculative since one would have to gamble that the Rupee lives up to the forecast and strengthens, while the Japanese Yen does not live up to a similar forecast. Since both forecasts are of 10 per cent appreciation against the dollar, and both are from the same source (www.forecasts.org), this does not look like a good bet. The better and more structured option is to pay the extra interest and try to extend the loan or the payment schedule.