Akio Nitori, Chairman of Nitori HD, talks about “The dollar will eventually reach 110 yen – how will we work then?

To 130 yen per dollar by the end of the year

Needless to say, the strength of the domestic business is behind the company’s ability to launch a bullish strategy. Sales are growing steadily thanks to the business integration with home improvement retailer Shimachu and the company’s foray into apparel and other non-furniture areas.

We are also moving forward with in-house production of items that we had previously outsourced. For example, we have switched from renting distribution centers to building our own. That alone will reduce annual costs by more than 1 billion yen. We are also focusing on in-house production of carpets and curtains. We are amateurs, so we have a hard time at first, but after a certain amount of time, we are able to make better improvements than the specialized companies that have been doing this for decades. By making our own profit from the profits we used to give to outside companies, we are able to give back to our customers in terms of price.

Above all, the yen’s depreciation, which has been a source of pain for the company, has now reversed. The fact that the yen has begun to appreciate is good news for Nitori. The chairman of Nitori Corporation says with a smile, “We are currently at 143 to the dollar.

The yen is currently at about ¥143 to the dollar, but we expect it to be in the ¥130 range by the end of this year, between ¥120 and ¥130 next year, and eventually in the ¥110 range. The reason is the narrowing interest rate gap between Japan and the U.S. While interest rates have finally started to rise in Japan, the U.S. will probably lower interest rates significantly in the future. Some indicators of economic deterioration have already begun to emerge, but what I am focusing on is the real estate market. Rents in major American cities have already fallen by about 20-30%, and some say that they will eventually be cut in half. This is just a premonition for now, but the economy is going to get real bad from now on, so we have no choice but to cut interest rates.

It is expected that interest rates will be cut by about 0.5% by the end of this year, and it is possible that they will be lowered by 1% next year, and then by another 1% the year after that as well. If this happens, the yen will naturally strengthen. What will Nitori do with the increased profits from a stronger yen? Of course, we will return the profit to everyone by lowering the prices of our products. We may be able to review prices as early as the beginning of the new year.

While the strong yen is a tailwind for Nitori, it is not necessarily positive for the Japanese economy as a whole. This is because large corporations, especially those in the export industry, have been benefiting from the weak yen. Many of these companies have achieved their highest profits, including foreign exchange gains, but the situation will be the exact opposite from now on.

The Nikkei Stock Average has been declining since reaching a record high of 42,224 yen on July 11, but could there be a further decline? Mr. Nitidori’s view is as follows.

The assumed exchange rate for major companies is about 146 yen to the dollar, but it has already fallen below that level. Since profits will decrease, stock prices will reflect this.

The decline in stock prices is not only a sad news for individuals who have invested in stocks through the new NISA and other programs, but it is also a headache for companies, as it increases the risk that Japanese companies will become targets of takeovers by foreign companies, as was the case in August when Seven & i HD received a takeover offer from a Canadian convenience store giant. However, the chairman of Seven & i Holdings remains calm.

You may be surprised that a company of that size could be the target of a takeover bid,” he said. But in the eyes of large overseas companies, their market capitalization is small. Thanks to the current depreciation of the yen, they can buy Japanese companies at a very reasonable price. If the yen appreciates to 110 yen again, the story will change, but the possibility that Japanese companies will become easy prey for foreign companies will continue for some time. Moreover, foreign funds will closely study the cutoff, including how many fixed shareholders they have. Even large companies cannot be too careful.

Are there any secret measures that Japanese companies can take to prepare for takeovers? Chairman Nitidori continued.

Chairman Nitidori continued, “In any case, you have to continue to expand. To do so, they should not save the money they make, but invest it in their businesses. And we will raise the salaries of our employees. Looking at the Engel’s coefficient, which shows the ratio of food costs to expenditures, Japan’s is 27%, almost double that of the U.S., which is 15%. As you can see, Japan must realize that it has become a very poor country. If this situation continues, consumption will not increase, nor will the profits of companies themselves. However, the high cost of living is due in large part to the high cost of imported goods as a result of the weak yen. In addition, the government is aiming for a 2% inflation target, but as long as wage increases are not keeping pace, I feel that the 1% level is appropriate.”