U.S. Rating Downgrade Exacerbates Currency Misery for Elpida, Fuji Heavy

Japanese exporters said the U.S.’s loss of its AAA credit rating will hinder efforts to weaken a near-record high yen that is crimping their overseas earnings.

“I’m very worried that this super-strong yen situation may last over a prolonged period,” Yasuyuki Yoshinaga, president of Fuji Heavy Industries Ltd. (7270), maker of Subaru cars, said in an interview yesterday. “Money is flowing to the yen because of weakness in the U.S., European economies and concerns about U.S. credit.”

The yen rose to as much as 77.06 against the dollar today, its third straight daily gain, as investors shunned the greenback after Standard & Poor’s cut the rating on the U.S.’s long-term debt to AA+. The gains returned the yen close to levels that last week prompted the government to sell Japan’s currency for the first time since March.

“We’re in trouble,” said Yasuo Shirai, chief financial officer at Elpida Memory Inc. (6665), the world’s third-largest maker of computer-memory chips. “The dollar is losing trust after the rating on the U.S. Treasury was cut.”

Cutting Profit

For Tokyo-based Elpida, earnings forecasts are based on exchange rate of 80 yen to the dollar, with each 1 yen rise cutting annual profit by about 3 billion yen ($39 million).

Bank of Japan Governor Masaaki Shirakawa said in parliament today that volatile exchange rates could have a “negative impact” on the economy. Board member Sayuri Shirai said she’s “very worried” about an excessively strong yen because it could hurt corporate sentiment.

The Japanese government is ready to sell yen again if it sees speculative trades driving the currency higher, Vice Finance Minister Fumihiko Igarashi said on public broadcaster NHK yesterday. A stronger yen erodes exporters’ overseas earnings when repatriated and reduces their competitiveness.

“Our sales are being strongly impacted by the foreign exchange,” Yoshio Kokubo, managing director at Tokyo-based Pilot Corp. (7846), told reporters today. “It exasperates me. It’s America and Europe’s problem.”

The expected exchange rate for Pilot, which manufactures and sells stationery, is 82 yen for the first half of this year, Kokubo said.

“We have no idea what level it will be in the second half- year,” he said.

South Korean Won

A stronger yen benefits companies that rely on raw materials bought overseas. Export profits at Suntory Holdings Ltd., the Osaka-based whiskey and beer maker, are about equal to the cost of imported raw materials, said Kozo Chiji, managing executive officer at Suntory.

“We are not really affected by strong yen, but we hope the exchange ratio will be stabilized,” Chiji said.

Mami Imada, a spokeswoman at Tokyo-based Sony Corp., declined to comment, citing the company’s policy not to comment on market fluctuations.

Akira Kadota, a Tokyo-based spokesman at Panasonic Corp., declined to comment, as did Keisuke Ohmori, a spokesman at Toshiba Corp.

Toyota Motor Corp., Nissan Motor Co. and Honda Motor Co. also declined to comment.

The S&P decision to cut the U.S. credit rating also may hurt profit for South Korean companies by raising the value of the won, said Lee Seung Woo, an analyst at Shinyoung Securities Co.

LG, BYD

“This is an unprecedented event,” Lee said. “It’s more likely to be negative than positive.”

North America accounts for 28 percent of revenue at Samsung Electronics Co. and 22 percent at LG Electronics Inc. (066570), according to data compiled by Bloomberg.

LG is “watching” the unfolding market reactions, said Sally Lee, a spokeswoman in Seoul. Samsung also is monitoring the situation, a spokesman, Nam Ki-Yung, said.

BYD Co Ltd. (1211), the Chinese carmaker part-owned by Warren Buffett’s Berkshire Hathaway Inc., doesn’t expect much impact from any U.S. slowdown as the company prepares to debut its E6 electric car there, said Paul Lin, a spokesman for BYD.

“We are targeting the new-energy vehicle segment,” Lin said. “The segment has potential to grow so the current developments won’t likely impact our plan.”

‘Button Down’

Indian software exporter Infosys Ltd. earned 66 percent of its revenue from North America in the year ended March 31.

The actions it took to skirt the worst of the 2008 global recession, including winning new orders outside its traditional markets of Europe and the U.S., may brace it against further downturns, Chief Executive Officer S. Gopalakrishnan said in an e-mail.

“We were able to react very quickly in the past when the recession happened,” Gopalakrishnan said of the Bangalore-based Infosys, India’s second-largest software exporter. “These responses are still fresh in our memory and I believe that the industry may be able to withstand another global downturn.”

Wipro Ltd. (WPRO), the nation’s third-largest software exporter, generates about 41 percent of its sales from the U.S. The biggest impact of the downgrade may be on consumer sentiment, said T.K. Kurien, chief executive officer of Wipro’s information-technology unit.

“If there’s concern, it’s how much people would button down their current-year spending,” Kurien said.

To contact the reporter on this story: Robert Fenner in Melbourne at rfenner@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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