Introduction
The rapid decline of the Japanese yen against the US dollar has caught the attention of market observers worldwide. This downward trend in the yen’s value holds significant implications, particularly within the realm of intellectual property (IP) and patent strategies. As the yen weakens against the dollar, it exerts considerable influence on the landscape in which patent attorneys and firms operate. In this article, we delve into the multifaceted impacts of this currency shift on the business of patent acquisition and protection in Japan. From the cost dynamics associated with obtaining patents to the strategic considerations that firms must now navigate, we explore the nuances of this evolving scenario.
The Rapid Decline of the JPY
In the foreign exchange market on April 29, 2024, the Japanese yen experienced a significant decline against the US dollar, reaching a level of 1 dollar = 160 yen (1 yen = 0.006250 dollars) at one point, marking approximately 34 years since the yen reached such a weak level against the dollar, last seen in April 1990.
Reflecting on the historical trajectory, the USD/JPY exchange rate hit its all-time high at 1 dollar = 75 yen (1 yen = 0.013333 dollars) on October 31, 2011. From 2013 to 2022, the exchange rate remained relatively stable at around 1 dollar = 110 yen (1 yen = 0.00909 dollars). However, since around 2022, the yen has been steadily depreciating. The fact that on April 29, 2024, the exchange rate temporarily reached 1 dollar = 160 yen (1 yen = 0.006250 dollars) implies that the value of the yen has effectively halved since 2011.
The reason behind the depreciation of the yen lies in the interest rate differential between Japan and the United States. When the USD/JPY exchange rate hit the 75 yen level in 2011, Japan was grappling with a strong yen and deflation. Subsequently, the Bank of Japan implemented an “unprecedented monetary easing” to break the cycle of a strong yen and deflation. This extraordinary monetary easing involved a negative interest rate policy, wherein a portion of deposits incurred a negative interest rate of 0.1%, effectively charging depositors for holding excess reserves. Although the Bank of Japan ended its negative interest rate policy in March 2024, the zero interest rate policy persists.
In contrast, the United States had maintained a zero interest rate policy but began raising rates from March 2022 onwards. In the United States, depositors receive interest on their deposits. In such a scenario, it is natural for investors to sell yen and hold dollars to earn interest.
Decrease in Costs Associated with Patents in Japan
First, let us consider a typical patent application in Japan. Considering the fees charged by the Japan Patent Office, the application fee is 14,000 yen, the examination request fee, for example, for 20 claims, amounts to 218,000 yen, and the registration fee for the 1 to 3 years after the patent is assessed is 28,300 yen for 20 claims, totaling 260,300 yen.
At the exchange rate of 1 dollar = 75 yen (1 yen = 0.013333 dollars) in 2011, this would amount to $3,470. However, at the current exchange rate of 1 dollar = 160 yen (1 yen = 0.006250 dollars), this is equivalent to $1,626. Considering that the USPTO official fees from patent filing to issue are roughly $3,000 at minimum, the cost of patent acquisition in Japan is thus the lowest it has been since 1986.
Furthermore, if a patent law firm invoices attorneys’ fees in yen, the total cost of acquiring rights, including attorneys’ fees, is reduced. As a result, not only are official fees lower, but the overall cost of obtaining rights is also decreased.
Economic Dynamics and Competitive Landscape
On the other hand, Japan’s nominal GDP for the year 2023, when converted to dollars at the average exchange rate, amounted to $4.2106 trillion. In contrast, Germany’s GDP for the same period surpassed Japan’s, reaching $4.4561 trillion.
Reflecting on the past, Japan’s economic scale surpassed that of West Germany in 1968, becoming the second-largest in the world after the United States, based on GNP (Gross National Product) at the time. However, in 2010, China surpassed Japan in terms of GDP, leading Japan to hold the third position, which was further challenged last year when Germany surpassed Japan, relegating it to the fourth position. Nevertheless, the reasons behind this shift lie in the rapid depreciation of the yen and the inflation occurring in Germany. This can be attributed to Japan’s significant depreciation against the dollar, coupled with Germany’s inflation rate far exceeding that of Japan.
Despite the fact that the value of the yen has effectively halved against the dollar, Japan’s ranking as the fourth-largest economy in terms of GDP when converted into dollars is rather remarkable. This demonstrates the stability of the Japanese economy. As most Japanese companies are export-oriented, the depreciation of the yen proves advantageous for them. Thus, with the yen depreciation acting as a tailwind, Japanese companies have demonstrated strong performance.
Impact on Corporate Performance and Patent Strategies
In spring 2024, over 400 companies listed on the Tokyo Stock Exchange announced their financial results for the period from April to December 2023. More than half of these companies benefited from the depreciation of the yen and achieved increased profits. When the exchange rate shifts in favor of yen depreciation, the relative prices of Japanese products overseas decrease, enhancing their competitiveness. With increased demand for Japanese products from overseas and boosted exports, corporate performance improves. Particularly for industries competing in the global market such as automotive and steel, yen depreciation contributes to enhanced performance. For instance, Toyota Motor Corporation’s consolidated financial results for the year 2023 saw operating profits surpassing $25 billion dollars for the first time in history, driven by strong sales across all regions worldwide.
This phenomenon has significantly influenced the patent strategies of Japanese companies. While specific data may not be readily available, the notable increase in operating profits suggests a potential reallocation of budgets towards the acquisition and utilization of intellectual property (IP). As Japanese companies experience enhanced profitability amid the weakening yen, they are likely to recognize the importance of safeguarding their innovations through patents. With a greater financial capacity at their disposal, these companies may prioritize investments in securing intellectual property rights to protect their technological advancements, product innovations, and market positions. In fact, the number of patent applications in 2023, after a previous trend of decline, experienced a notable increase. In the year 2023 alone, a total of 300,133 patent applications were submitted, marking a substantial increase from previous years’ figures.
Conclusion
In conclusion, the current depreciation of the yen presents an excellent opportunity for foreign companies and patent attorneys seeking to obtain patents in Japan. The favorable exchange rate not only reduces the costs associated with patent acquisition but also enhances the competitiveness of Japanese patents in the global market. As such, leveraging the weakening yen can prove advantageous for entities looking to establish or expand their intellectual property portfolio in Japan.
Additionally, the current depreciation of the yen is unlikely to persist, as the Bank of Japan is expected to raise interest rates in the near future. As the interest rate differential between Japan and the United States begins to narrow, there may be a shift towards buying yen in anticipation of yen appreciation. If you have outstanding invoices denominated in yen from Japan, it is advisable to settle them promptly. By doing so, you can capitalize on the favorable exchange rate and potentially pay less in your home currency.
