System Thinking - Malaysia Ringgit vs Japanese Yen
Explore How Malaysia's Export-Driven Economy and Japan's Monetary Policies Shape the MYR-JPY Exchange Rate Amidst Global Trends and Market Speculation
Disclaimer
The views and opinions expressed herein are based on current market conditions, historical data, and speculative analysis as of [01/09/2024]. This report discusses various economic factors and their potential impact on the Malaysian Ringgit (MYR) and the Japanese Yen (JPY). However, currency exchange rates are influenced by a wide range of unpredictable factors including but not limited to global economic developments, geopolitical events, and changes in monetary policies.
The recommendation to buy Japanese Yen (JPY) using Malaysian Ringgit (MYR) is based on current analysis and should not be considered as financial advice or a guarantee of future performance. Financial markets are inherently volatile and subject to rapid change. It is important for readers to conduct their own research and consult with a qualified financial advisor before making any investment decisions.
The outcomes of the strategies and predictions discussed here may vary, and time will determine the accuracy of the judgment presented. Readers should be aware of the risks involved and make informed decisions based on their individual financial situation and investment goals.
1. General Information
Malaysia Ringgit (MYR)(Numeric Currency Code = 458)
The official currency of Malaysia, issued by the Bank Negara Malaysia, the country’s central bank.
The Ringgit was introduced on June 12, 1967, replacing the Malaya and British Borneo dollar.
The MYR is a fiat currency, meaning it is not backed by a physical commodity but rather by the government that issues it.
The value of the MYR is influenced by Malaysia’s economic performance, particularly its exports of commodities such as palm oil, rubber, and natural gas. The Ringgit’ stability is also affected by the monetary policies of Bank Negara Malaysia, inflation rates, and overall economic growth.
The MYR is sensitive to fluctuations in global commodity prices, as Malaysia is a major exporter. Changes in these prices can significantly impact the currency’s value.
Japanese Yen (JPY)(Numeric Currency Code = 392)
The Yen was introduced in 1871 as part of the Meiji government’s modernization efforts.
The Yen is also a fiat currency and serves as a reserve currency, widely held by governments and institutions around the world.
The Yen’s value is influenced by Japan’s economic conditions, including its export strength, trade balances, and the monetary policy of the Bank of Japan (BOJ). The Yen is often considered a safe-haven currency, attracting investors during times of economic uncertainty.
Japan is a leading exporter of automobiles, electronics, and machinery. The Yen’s value can be affected by changes in global demand for these products and the BOJ’s monetary policy decisions.
2. Mechanisms
The Mechanisms behind Japan’s Low Interest Rate Policy and Its Impact
Japan Implemented Low Interest Rates Policy and Its Speculation
Japan’s low interest rates make borrowing cheap, encouraging investors to take on more debt to invest in assets like stocks and real estate. This inflates asset prices, creating bubbles that benefit asset owners, widening the wealth gap.
With lower returns on domestic investments, Japanese companies seek higher returns abroad, expanding into countries like South Korea, Taiwan, and Singapore. This boosts Japan’s trade surplus, but also strengthens the currencies of these nations due to the influx of Japanese capital.
As their currencies appreciate, these countries face reduced export competitiveness, leading to slower economic growth and increasing their dependency on Japan for stability. Japan’s yen, as a reserve currency, gives it leverage over regional economies, influencing their monetary policies to align with Japan’s interests.
However, China’s growing economy and the yuan’s rising status as a reserve currency, along with China’s Belt and Road Initiative, are challenging Japan’s regional dominance. As countries in the region become less dependent on Japan and more aligned with China, Japan’s influence wanes. To maintain its position, Japan must adapt by innovating, forming new trade alliances, and adjusting its economic strategies.
3. Specific Sections
Overview of Japanese Companies in Malaysia
Total Number of Companies
As of 2024, there are 1,602 Japanese companies in Malaysia, comprising 764 manufacturing firms primarily focused on electrical and electronic products.
Johor
NEC Corporation — Intelligent Centre Operations, focusing on digital solutions and data center operations.
Toyota — Operates manufacturing plants, producing vehicles for local and export markets.
Sumitomo Corporation — Involve in various infrastructure projects and renewable energy initiatives.
Selangor
ROHM-Wako Electronics (Malaysia) Sdn Bhd — Engaged in semiconductor manufacturing.
Sony — Operates manufacturing facilities for electronics and consumer products.
Mitsui & Co. Ltd — Invested in IHH Healthcare Bhd.
Daihatsu (own Perodua)— Focuses on compact cars, with manufacturing operations primarily in Selangor, employing approximately 11,500 people directly and supporting around 70,000 jobs in the supply chain.
Penang
Intel — Invest in semiconductor manufacturing.
NIDEC — Manufacturing motors and electronics components.
Panasonic — Operates in the electronics sector, focusing on consumer products.
Sarawak
Sumitomo Corporation and Eneos — establish a clean hydrogen supply chain for local consumption and export to Japan.
Taiyo Yuden (Sarawak) Co Ltd — produce electronic components, contributing to Malaysia’s reputation as a hub for high-tech manufacturing.
Summary of Japanese Corporations in Malaysia
Automotive — UMW Toyota Motor, Perodua
Electronics — ROHM-Wako Electronics, Taiyo Yuden, Intel, Panasonic
Retail — Aeon, Don Don Donki
Healthcare — Mitsui & Co. Ltd, IHH Healthcare
Digital Industry — NEC Corporation
Green Energy — Sumitomo Corporation, Eneos
Japan Invest on Malaysia from 2000 to 2024
Japan-Malaysia Relations (Basic Data)
Number of Japanese nationals residing in Malaysia: About 24,545 (December 2022) Number of Malaysian nationals residing…www.mofa.go.jp
Japan Foreign Direct Investment 1960-2024
Foreign direct investment refers to direct investment equity flows in the reporting economy. It is the sum of equity…www.macrotrends.net
The value of the Japanese Yen significantly influences FDI dynamics. A weaker Yen boosts Japanese exports’ competitiveness, prompting firms to invest abroad to take advantage of lower production costs. Conversely, a stronger Yen raises costs for Japanese companies operating overseas, potentially deterring investment. Fluctuations in the Yen’s value impact investment decisions and capital flow to Malaysia. Additionally, Japan’s low-interest rates drive domestic firms to seek higher returns through overseas investments, further increasing FDI in Malaysia.
Trade Relation between Malaysia and Japan
E&E products are the largest contributor to Malaysia’s exports, accounting for 38.2% of total exports in 2022, with a value of RM 593.49 billion. Exports in this category grew by 30.2% compared to 2021.
Key Items
Electronic Integrated Circuits: RM 301.65 billion (up 32.7%).
Parts for Electronic Integrated Circuits: RM 43.58 billion (up 119.9%).
Apparatus for Transmission or Reception of Voice, Images, and Other Data: RM 31.19 billion (up 47%).
Photosensitive Semiconductor Devices: RM 26.11 billion (up 29%).
Computers: RM 20.56 billion (up 32.6%).
2. Petroleum Products
Exports of petroleum products increased significantly, reaching RM 163 billion in 2022, marking a 69.4% increase from the previous year.
In conclusion, Malaysia’s export performance is heavily reliant on two key sectors: petroleum products and electronic integrated circuits. With petroleum exports reaching RM 163 billion in 2022, any significant drop in global oil prices — such as a decline of more than 20% — could sharply reduce Malaysia’s overall export value. Similarly, the demand for electronic and electrical (E&E) products, which contributed RM 301.65 billion in exports, is closely tied to the economic strength of developed countries. Weak demand in these markets could negatively impact Malaysia’s export growth, underscoring the country’s vulnerability to fluctuations in both commodity prices and global E&E demand.
Malaysia Debt Situation
Malaysia’s national debt and liabilities are reported to exceed 1 trillion ringgit (around $264 billion).
From 1969 to 2014, Malaysia received a total of $7.8 billion in loans from Japan, as reported by the Japan International Cooperation Agency (JICA).
In 2022, Japan committed to issuing yen-denominated bonds worth up to 200 billion yen (approximately $1.8 billion) to assist Malaysia in addressing its debt challenges.
Estimated Total Borrowing from Japan — the total borrowing from Japan can be estimated at around $9.6 billion (approximately $7.8 billion + $1.8 billion).
Calculation~~>3% of Malaysia total debt.
4. Global Trends in Asia Pacific
Industrialization Trends in Asia-Pacific
Countries like China, Taiwan, South Korea, and Japan have advanced up the industrial value chain, transitioning from basic manufacturing to high-value industries such as electronics, automotive, and machinery. China, known as the “world’s factory,” dominates various manufacturing sectors, producing nearly 48% of the world’s steel and significantly contributing to its GDP.
Southeast Asia’s Industrial Progress
Southeast Asian nations like Vietnam, Malaysia, and Indonesia are advancing in industrialization, particularly in electronics and textiles. Malaysia, for instance, is focusing on high-tech manufacturing, attracting significant corporate investments.
Malaysia is responsible for approximately 13% of global chip production and 7% of global semiconductor production. The E&E sector contributes about 38% to Malaysia’s total exports and 78% to the net trade surplus. Key Products: Major products include consumer electronics, electrical appliances, electronic components, and semiconductors.
From January to July 2022, Malaysia saw a 25.5% increase in M&E exports, totaling USD 8.34 billion. Key Products: This sector includes industrial machinery, electrical equipment, and construction and mining machinery.
Malaysia hosts several global automotive manufacturers, including Porsche, Volkswagen, Mercedes-Benz, and Honda, positioning itself as a regional hub for electric vehicles (EVs) and automotive components. The automotive sector produces automobiles, motorcycles, commercial vehicles, and EV components.
Malaysia is the sixth-largest producer of natural rubber in the Asia-Pacific region. Key Products: Key products include gloves, tyres, threads, automotive components, and seals.
The chemical sector contributes about 6% to Malaysia’s GDP and employs nearly 293,000 workers, accounting for 12.5% of total manufacturing employment. Key Products: This sector includes petrochemicals, oleochemicals, plastics, polymers, and agrochemicals.
5. Background of Japanese Yen
The Economic Event of Japanese Yen
USD: YEN
Yen Depreciation (2011–2015)
From late 2011, when the yen was valued at about 75 yen per US dollar, it depreciated to around 125 yen per dollar by 2015. This decline was driven by Japan’s prolonged economic stagnation and the impact of the 2008 financial crisis. The Bank of Japan (BOJ) responded with aggressive monetary easing, including large-scale asset purchases that doubled the money supply. While a weaker yen was expected to boost exports, many Japanese companies had already moved production overseas, limiting the benefits.
Yen Appreciation (2015–2021)
Between 2015 and 2021, the yen appreciated from about 125 yen per US dollar to around 105 yen per dollar. This appreciation was partly due to the yen’s role as a safe-haven currency during global uncertainties like the Brexit referendum and the COVID-19 pandemic. During this time, the US government intervened in currency markets to manage trade imbalances and mitigate the impact of the yen’s strength on American exports.
Recent Developments (2021–3/2024)
Since 2021, the yen has depreciated again, reaching around 145 yen per US dollar by August 2024. This recent decline is due to the BOJ’s continued ultra-loose monetary policy, while other major central banks, like the US Federal Reserve, have been raising rates to combat inflation. The yen’s depreciation has led to higher import costs and inflation in Japan. The BOJ is considering potential policy changes, with new governor Kazuo Ueda expected to bring a fresh perspective on managing inflation and economic growth.
Yen Appreciation (3/2024-present)
As of March 2024, the BoJ has raised interest rates for the first time in 17 years, setting the short-term interest rate at approximately 0 to 0.1 percent. This decision marks a departure from the long-standing negative interest rate policy, which had been at -0.1 percent.
Factors Influencing the Yen’s Exchange Rate
Monetary Policy Divergence — Differences in monetary policies between the BOJ and central banks like the Federal Reserve significantly impact the yen’s value.
Global Economic Conditions — Economic uncertainties, trade tensions, and geopolitical risks affect the yen’s safe-haven status and demand.
Structural Factors — Japan’s current account surplus and status as a net creditor nation support the yen’s long-term strength.
6. Analysis
The Impact of the Depreciation of the Japanese Yen (2021-Present)
The depreciation of the Japanese yen in recent years has been a complex issue with far-reaching implications for the global economy.
Why Japan’s launched ultra-loose monetary policy, including negative interest rate and massive asset purchases by the Bank of Japan (BOJ)?
Japan’s desire to boost exports and maintain its trade surplus is another factor behind the yen’s decline. A weaker yen makes Japanese goods more affordable overseas.
Impact on Japan
A weaker yen raises import costs for Japan, contributing to inflation. This is a concern given Japan’s massive public debt.
However, the yen’s depreciation also benefits some Japanese industries, such as exporters and inbound tourism. It can help offset the impact of rising import prices.
Japan’s large current account surplus and status as a net creditor nation provide some cushion against the negative effects of a weaker currency.
Impact on Other Countries
The yen’s depreciation is exporting inflation to other countries. It makes Japanese goods and services more competitive, potentially eroding the trade balances of Japan’s trading partners.
Countries with close economic ties to Japan, such as those in the Asia-Pacific region, may face challenges in managing the influx of cheap Japanese capital and the impact on their currencies.
The U.S. has raised concerns about the yen’s decline, as it can make American exports less competitive. However, the U.S. has also benefited from the yen carry trade, which provides cheap funding for U.S. assets.
7. Speculation
Now, we talk about speculation about Malaysia Ringgit vs Japan yen.
Ringgit: YEN
The historical exchange rate trends between the Malaysian Ringgit (MYR) and the Japanese Yen (JPY) over the past ten years reveal fluctuations influenced by various economic factors.
As of August 30, 2024, the exchange rate is approximately 1 MYR = 33.840 JPY.
The highest recorded exchange rate in recent history was about 34.3056 JPY per MYR on July 10, 2024.
The lowest exchange rate in 2024 was 30.7058 JPY per MYR on January 1, 2024.
Over the past decade, the exchange rate has generally ranged from approximately 30 to 35 JPY per MYR, indicating a relatively stable yet fluctuating relationship.
Over the last ten years, the MYR has experienced periods of depreciation and appreciation against the JPY, influenced by Malaysia’s economic performance, global market conditions, and changes in monetary policy by both Malaysian and Japanese central banks.
Questions
What is Oil Price Impact?
USD 100 per barrel: Malaysia’s oil revenues would increase, potentially strengthening the MYR against the JPY.
USD 60 per barrel: Reduced export revenues could weaken the MYR, leading to depreciation against the JPY.
2. What if Natural Gas Price Decline?
A sharp drop in natural gas prices would hurt Malaysia’s export revenues, likely weakening the MYR and causing it to depreciate against the JPY.
3. What if Palm Oil and Rubber Price Increase
Higher palm oil and rubber prices would boost Malaysia’s export earnings, likely leading to MYR appreciation against the JPY.
4. What is the impact of U.S. Federal Reserve Rate lowers interest?
If the U.S. Federal Reserve lowers interest rates while the Bank of Japan raises them, the Yen would likely strengthen against both the U.S. dollar and the Malaysian Ringgit. This interest rate gap would make the Yen more attractive to investors, leading to capital inflows into Japan. As a result, the MYR would likely depreciate against the Yen, especially if Malaysia keeps rates low to support its exports, increasing the likelihood of capital outflows.
5. What if Global Economic Downturn?
The JPY would likely appreciate as a safe-haven currency, while the MYR might depreciate due to reduced global demand for Malaysia’s exports, widening the exchange rate gap.
6. If BOJ Tightens, BNM Holds?
Short-term: The JPY would appreciate against the MYR as higher Japanese rates attract capital.
Long-term: A stronger Japanese economy would sustain JPY appreciation, while Malaysia might face continued MYR weakening if economic challenges persist.
7. Increased Semiconductor Production
Boosted semiconductor exports could strengthen the MYR against the JPY by improving Malaysia’s trade balance, depending on global demand and competition.
8. What is the Strategies for MYR Depreciation?
Malaysian exporters could focus on cost reduction, productivity improvements, product diversification, currency hedging, and market expansion to maintain competitiveness.
9. What is the Geopolitical Conflict Impact?
A conflict could drive demand for safe-haven currencies like the JPY, causing it to appreciate, while the MYR could weaken due to risk aversion and trade disruptions.
My Perspective
Over the past decade, Malaysia has focused on maintaining a trade surplus, even if it means tolerating currency depreciation. As an export-driven economy, Malaysia prioritizes a positive trade balance, managing the Malaysian Ringgit (MYR) to support key sectors like oil, palm oil, and electronics. This approach mirrors Japan’s strategy, where trade balance takes precedence over immediate currency stability.
Currency fluctuations are common due to global commodity price changes and market conditions. Malaysia accepts some level of MYR depreciation to boost export competitiveness and sustain its trade surplus. This trade surplus is crucial for economic growth and is strategically managed through export policies and currency valuations.
Looking forward, maintaining oil prices above USD 80 per barrel long-term may be difficult due to changing global supply and demand and global economic dynamics. Additionally, with the Federal Reserve tightening its monetary policy and adjusting its balance sheet, there is a risk that speculative bubbles, such as those in Bitcoin, could burst, potentially impacting the broader economy.
I buy Japanese Yen using Malaysian Ringgit.
Summary
The relationship between the Malaysian Ringgit (MYR) and the Japanese Yen (JPY) is shaped by a range of economic factors, monetary policies, and global conditions. Key points from the analysis include:
Japanese Monetary Policy: Japan’s ultra-loose monetary policy, including low interest rates and significant asset purchases, has led to Yen depreciation. This approach aims to boost exports and combat deflation but also results in higher import costs and inflation in Japan. The Yen’s depreciation influences capital flows and economic conditions in countries like Malaysia. But, the Japan’s ultra-loose monetary policy ends.
Sectoral and Investment Impacts: Japanese investments in Malaysia, particularly in automotive, electronics, and green energy sectors, are crucial in shaping the MYR/JPY exchange rate. These investments strengthen economic ties and affect Malaysia’s export performance and currency stability.
Global Trends and Speculation: The MYR/JPY exchange rate is affected by global commodity price fluctuations, changes in U.S. Federal Reserve policies, and regional geopolitical developments. Speculative factors, such as variations in oil prices or semiconductor production, also influence currency dynamics.
Strategic Currency Management: Malaysia’s strategy of prioritizing a trade surplus, even with some MYR depreciation, aims to maintain export competitiveness. This approach parallels Japan’s focus on managing trade balance and economic stability amidst fluctuating currency values.
Looking forward, Malaysia must adeptly handle global economic changes and commodity price shifts to manage the MYR’s value. Likewise, Japan’s monetary policy adjustments will continue to impact the Yen’s performance. Understanding these dynamics will help stakeholders anticipate and respond to future fluctuations in the MYR/JPY exchange rate.
If you'd like to show your appreciation, you can support me through:
✨ Patreon
✨ Ko-fi
✨ BuyMeACoffee
Every contribution, big or small, fuels my creativity and means the world to me. Thank you for being a part of this journey!