The yen may have depreciated to 110 against the dollar from a high of 96 earlier this year, but bankers are advising extreme caution in using the Japanese currency for raising resources and hedging risks.
With global markets still in turmoil, treasury executives say the depreciation is of recent origin and there is no clarity if the trend of the weakening yen will continue in the near term. Most banks, which sold derivatives instruments to Indian companies, had predicted that the currency will not breach the 110 mark against the dollar. But many companies had to take a hit as the calls went wrong.
“It is still a volatile market. The greenback has gathered strength only in the recent past. How long will it sustain? The direction is not clear,” said a senior Bank of India executive.
“For us, the yen will have to stay around 113 for a certain period before sensing any definite trend. This is not a proper time to firm up resource-raising plans,” a State Bank of India executive said.
When the financial markets are marked by extreme volatility, a mere change in value of currencies in a fortnight should not be considered as a basis for borrowing plans, which entail a commitment for three to five years, A V Rajwade, a foreign currency expert, said.
Many Indian companies used the Japanese currency to take advantage of the low interest rate regime and a stable currency.
