Rethinking Saizeriya's Currency Hedging Strategy
Popular Japanese fast-food chain Saizeriya operates affordable family-style Italian restaurants in Japan with subsidiaries in a number of Asian locations. Since the company's Australian suppliers require payments to be made in Australian dollars (AUD) instead of Japanese yen (JPY), volatile currency exchange rates continue to be a serious risk to Saizeriya's operations. The company's president, Issei Horino, believes foreign currency hedging could reduce the costs associated with exchange rates. But an earlier attempt to use foreign currency coupon swap contracts from BNP Paribas went horribly wrong- it cost the company JPY15bn to break those contracts. As the JPY continued to depreciate, together with declining restaurant sales and a falling share price, Horino decided to revisit the company's previous use of foreign currency hedging to investigate whether Saizeriya could adopt an appropriate foreign currency hedge.