The Bank of Japan surprised markets on 31 October by announcing a significant increase in its quantitative easing policy. The policy triggered a fall of around 3% in the value of the Yen against the US dollar, a positive sign for Japanese exports. However, Japan's steel industry is likely to see its gains limited by fierce Asian competition and increased costs, Kallanish notes.

The Yen continued to fall on Monday, hitting 112.83 to the dollar in the Asian morning trade, because of the surprise stimulus. The Bank of Japan showed a rare split in making the decision, voting five to four in favour, confirming that the prime minister Shinzo Abe may not have 100% support for his inflationary policies.

For steelmakers, the move is a mixed blessing. Japan’s steel exports had seen some gain from the weak Yen last year. In 2013 South Korea saw hot rolled coil imports from Japan increase 6% to 2.58 million tonnes, despite a 9% fall in overall HRC imports to 4.48mt. China was the biggest loser in that market, seeing its HRC shipments to Korea fall 23% to 1.58mt. However, Japanese statistics show the country's total steel exports to Korea fell 8% this year to 5.51mt.

The incremental increase in competitiveness is minor compared to the fall in Chinese prices this year. China’s vastly oversupplied and slowing economy has seen its steel exports seize market share in the crucial Southeast Asian market. China’s finished exports were up 39.3% year-on-year over January-September 2014 to 65.34mt. Japan’s total iron and steel exports were down 5.5% over the same period to 31.4mt.

Added to this challenge is the increase in costs for Japanese steel producers, who import both iron ore and coking coal on a US$ basis. In comparison to other steelmaking countries, this has wiped out much of the benefit of the recent decline in iron ore prices, which have been a key driver of prices, especially from China. While the Yen has lost over 7% since the start of the year, the Chinese Yuan has lost just over 1%.

Even scrap-based EAF producers can be hurt, as the weak Yen incentivises Japanese scrap exports rather than domestic sales.

Steelmakers are also not seeing much gain from traditional steel-consuming export sectors in Japan, Kallanish notes. Japan’s automobile exports were down 4.5% y-on-y over January-September despite the weaker Yen as its car makers transplant production to new manufacturing hubs where costs are lower and end-user markets nearer.