Related News:
Honda CFO Hojo Says Strong Japanese Currency `Improbable' in the Long Term
Honda Motor Co.’s top financial executive said it is “improbable” that the yen, trading near an eight-month high, will maintain its current strength over the long term.
“If the Japanese economy is forced to create a production structure based on 85 yen to the dollar, that would be disastrous,” as the nation wouldn’t earn enough from exports to pay for commodities from overseas, Chief Financial Officer Yoichi Hojo said today in Tokyo. “If we can’t export, that means we can’t import. The ingredients for our everyday meals will change.”
The yen was at 86.19 per dollar at 2:30 p.m. in Tokyo after reaching its highest since Nov. 27 yesterday, making it difficult for Japan’s carmakers to export vehicles profitably from their home market. Every 1-yen gain in the currency against the U.S. dollar cuts operating profit at Honda, Japan’s second- largest carmaker, by 16 billion yen ($185.6 million).
Honda’s Japanese operations are unprofitable at a rate of 85 yen to the dollar, Hojo said. Still, improved sales of larger models in the U.S. as well as higher motorcycle deliveries and factory utilization in emerging markets are offsetting the negative impact from the strong currency, making Honda’s global operations profitable as a whole, he said.
The yen climbed at least 3 percent versus each of the 16 major counterparts this year as speculation Europe’s sovereign debt crisis will worsen and the U.S. economic recovery will slow boosted demand for the relative safety of the Japanese currency.
‘Dangerous’
“It’s dangerous to assume the yen won’t stay at 85,” said Kiyoshi Ishigane, a Tokyo-based strategist at Mitsubishi UFJ Asset Management Co., which oversees assets of about $65 billion. “This shows just how nervous Honda is about the yen.”
The yen could reach 80 or 75 to the dollar given the current momentum, Ishigane said.
Honda rose 2.6 percent to close at 2,853 yen in Tokyo trading. The stock has declined 8.3 percent this year.
Japanese Finance Minister Yoshihiko Noda told parliament Aug. 3 that currency rates should be determined by financial markets. He declined to comment on whether Japan will consider intervening to stem the yen’s appreciation.
The nation hasn’t intervened in the currency markets since March 16, 2004, when the yen was around 109 per dollar. The Bank of Japan sold 14.8 trillion yen in the first three months of 2004, after record sales of 20.4 trillion yen in 2003.
Financial Turmoil
The yen typically strengthens in times of financial turmoil, as Japan’s trade surplus makes the currency attractive because it means the nation doesn’t have to rely on overseas lenders.
“Whether intervention is the right thing to do is questionable.” Hojo said today. “But that’s for the government to decide.”
Honda, based in Tokyo, raised its full-year profit forecast last week with the company now expecting net income of 455 billion yen ($5.27 billion) in the year ending in March, compared with an earlier estimate of 340 billion yen. The company is basing its forecast on an exchange rate of 87 yen to the dollar, stronger than the average rate of 93 yen against the U.S. currency last fiscal year.
As a long-term strategy to combat the strong yen, Honda aims to increase the percentage of parts from overseas for Japan car production from about 17 percent, Hojo said, declining to specify a target proportion.
Shifting Japan production of the Fit compact or Insight hybrid to the U.S. as a measure to reduce currency impact is unlikely given low demand for those models, he said.
The company has completed about 90 percent of its currency hedging contracts at 90 yen to the dollar for the second quarter ending in September, Hojo said.
To contact the reporter on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net
Rate These Stories
Rate this Page