Toyota, Panasonic Recoveries Limited by Yen’s Gain

Nippon Yusen K.K. Chairman Koji Miyahara
Nippon Yusen K.K. Chairman Koji Miyahara, attends a panel discussion at the 2009 World Economic Forum Meeting of New Champions in Dalian. Photographer: Nelson Ching/Bloomberg

Japan’s recovery is being undermined by the popularity of its currency.

The yen has averaged 90.92 against the dollar in 2010, putting it on course for its strongest year against the U.S. dollar since currencies began trading freely in 1971, according to data compiled by Bloomberg. The yen traded at 87.20 at 4:54 p.m. Tokyo time.

That will limit profit at Toyota Motor Corp., Panasonic Corp. and other companies scheduled to report earnings over the next two weeks even as exports have climbed for the past seven straight months. South Korean competitors including Samsung Electronics Co. and Hyundai Motor Co. have been the winners as the won fell 7.6 percent against the yen this year, making their goods cheaper overseas relative to Japanese exports.

“The currency is the key thing,” Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute in Tokyo, said. “First-quarter earnings will be good, but company shares may not rise to welcome the results, because of the yen’s gains.”

The yen has risen against all the world’s major currencies in 2010 and is up about 6.5 percent against the dollar and 17 percent against the euro, which fell to a more than eight-year low against the Japanese currency last month amid lingering concern over Europe’s debt crisis. The won is down about 1.5 percent against the dollar this year.


Toyota fell 1.6 percent to 3,040 yen at the 3 p.m. close in Tokyo. Panasonic rose 0.6 percent to 1,138 yen.

“The yen has appreciated too much and levels between 80 and 90 yen are abnormal,” Nippon Yusen K.K. Chairman Koji Miyahara said at a forum on July 23. The yen’s rise is causing a “rapidly widening disparity with South Korea.”

Should the yen remain 10 percent higher than the average export hedging rate set by Japanese companies, annual corporate profits will fall by almost 5 percent, said Tatsushi Shikano, senior economist in Tokyo at Mitsubishi UFJ Morgan Stanley Securities Co. Real gross domestic product would decline by 0.4 percentage point.

Every yen gain against the dollar reduces annual operating profit at Toyota, the world’s biggest carmaker, by 30 billion yen ($344 million) and 16 billion yen at Honda Motor Co., according to the companies. Both companies are basing their full-year earnings forecast on a rate of 90 yen per dollar.

The country’s big manufacturers expect the yen to average 90.16 per dollar in the six months to March 2011, according to the Bank of Japan’s quarterly Tankan survey released this month.

Exporters may maintain full-year profit forecasts even though first quarter earnings are likely to beat expectations, according to Nagahama.

“That basically means they’re lowering second-half earnings outlook because of a stronger yen,” Nagahama said.

Shutting Factories

Toyota is forecasting full-year profit will rise 48 percent to 310 billion yen this business year. Panasonic expects to post profit of 50 billion yen after posting a 103.5 billion yen loss last year.

Nidec Corp., the world’s biggest maker of disk-drive motors, kept its annual earnings forecast unchanged after changing the exchange rate reference for its full-year earnings estimate to 85 yen to the dollar from 90 yen, the company said in a statement on July 23. The company had better-than-expected earnings in the quarter to June 30.

“We have shut factories and installed new equipment to boost productivity” which is helping absorb the yen’s impact, said Masahiro Sakane the chairman of Komatsu Ltd., the world’s second-largest construction machinery maker.

Komatsu will complete the closure of a plant north of Tokyo this week after shutting a factory west of the capital in March.

Export Growth

Export growth is slowing in Japan as the rebound from the lows at the depth of the crisis tapers off. Exports accounted for about 13 percent of Japan’s economy in 2009.

Shipments abroad rose 27.7 percent in June from a year earlier, the Finance Ministry said yesterday in Tokyo, down from a 32.1 percent increase in May and 40.4 percent in April. Growth is forecast to slow in the U.S. and China, Japan’s biggest export markets.

Japanese policy makers signaled last week the yen is a risk to the economic expansion as analysts forecast the government may step into currency markets to help the nation’s exporters.

“An abrupt drop in stock prices or an appreciation in the yen could hurt the economy,” because the country is still reliant on overseas demand, National Strategy Minister Satoshi Arai said in Tokyo on July 23. Cabinet Office official Keisuke Tsumura said the same day the yen has been “a bit too high.”

Importers Gain

Still, companies that rely on imports of commodities such as utilities including Tokyo Electric Power Co. and Tokyo Gas Co., Japan’s largest power and natural-gas suppliers, may benefit.

Each yen gain in the currency against the dollar will cut Tokyo Electric’s fuel import costs as much as 17 billion yen in the year to March 2011, said Ryo Shimizu, a spokesman for the utility, which supplies more than 28 million customers in the capital and surrounding areas.

“The yen-dollar rate and oil price are the key elements that impact our earnings,” said Minoru Iwashita, a spokesman for Tokyo Gas. “It’s a simple mechanism: a stronger yen cuts the costs of our liquefied natural gas imports.”

Tokyo Gas forecast in April a 21 percent rise in net income for this business year. A one yen move in the Japanese currency can help bolster Tokyo Gas’s annual operating profit by 900 million yen, Iwashita said.

While Japanese companies are cutting costs and moving production overseas, their Korean competitors are reaping the benefits of a lower local currency. Samsung said earlier this month it had record operating income of 5 trillion won ($4.2 billion) in the three months to June.

The advantage will continue as long as the yen stays high, according to Kim Kwang Kook, a deputy general manager at Hyundai Heavy Industries Co.

“The stronger currency will help improve our price competitiveness against rivals,” Kim said.

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