Honda Shrugs Off Windfall as Japan Inc. Unsure About Yen

Don’t count Honda Motor Co. among Japanese exporters preparing for a financial bonanza from the tumbling yen.

Unlike Nintendo Co. and Japan Tobacco Inc., which raised their profit forecasts this week, Tokyo-based Honda yesterday cut its net income expectations for the year ending March, assuming the yen will trade at levels that have been outdated since November. Chief Financial Officer Fumihiko Ike said Honda is being “extra careful” with its yen forecasts because it doesn’t know what to expect in February and March.

The carmaker is not alone. Chubu Steel Plate Co. and NGK Insulators Ltd. are among dozens of companies this week that cut their profit projections by focusing on aspects such as sales in China and Europe rather than the benefits of a weakening yen. While conservative assumptions may give corporations extra room to beat their earnings forecasts, they may also undermine investor confidence.

“I can understand that they’re being conservative, but it would’ve been better if they’d maintained their forecast based on the current level of the currency,” Takashi Aoki, a Tokyo-based fund manager at Mizuho Asset Management Co., said about Honda’s earnings. “This new figure makes me wonder if they have other issues too.”

Outdated Rates

Honda shares rose 0.3 percent to close at 3,515 yen in Tokyo, while the Nikkei 225 Stock Average climbed 0.5 percent.

The maker of the Civic sedan yesterday said it revised its full-year outlook for the yen against the dollar to 81 from 80, and 105 from 103 versus the euro. The yen, which has weakened more than any currency since mid-November, is now trading at about 92 against the dollar and 125 versus the euro.

According to Honda, its operating income gains by 16 billion yen annually for every one-yen drop in the dollar rate, and 1 billion yen for each one-yen drop in euro rate.

Instead of reflecting the weaker yen’s added earnings, Honda lowered its full-year net income forecast by 1.3 percent to 370 billion yen ($4 billion), citing a slower-than-expected recovery in sales in China and weakness in European demand.

Though Honda is projecting the yen to be at 85 against the dollar and 110 versus the euro during the current quarter, the Japanese currency has never been that strong in 2013.

‘Sudden Move’

“The recent moves in the currency came all very suddenly, so our forecast may seem rather conservative,” Ike said in a briefing in Tokyo yesterday. “We don’t know what the trend will be in February through March, so we want to be extra careful.”

The yen will weaken by the middle of this year to about 100 to the dollar, while the Nikkei 225 Stock Average will reach about 13,000, according to Shun Maruyama, chief equity strategist at BNP Paribas SA. The Japanese currency will end 2013 at 92 to the dollar, according to the average estimate compiled by Bloomberg.

Nintendo Co., Panasonic Corp. and Japan Tobacco Inc. are among companies that have acknowledged their earnings will get a boost from Japan’s weakening currency.

Nintendo, creator of the Mario and Zelda game franchises, more than doubled its annual net income forecast this week to 14 billion yen. Japan Tobacco, Asia’s largest listed tobacco maker, raised its profit forecast to 330 billion yen from its previous forecast of 318 billion yen and Panasonic today reported an unexpected profit during the third quarter.

Turning Point

The currency began tumbling in mid-November, when Prime Minister Shinzo Abe -- then running for office -- was calling for “bold monetary policy” to beat deflation and drive down the value of the yen.

Prior to that, the yen had gained about 40 percent over five years, eroding the competitiveness of plants across Japan. A report by the statistics bureau today showed manufacturing jobs in the country fell to 9.98 million in December, falling below 10 million for the first time since 1961.

At Honda, the maker of the Accord sedan maintained its projections for operating profit and revenue, while cutting its forecast for global deliveries to 4.06 million from 4.12 million. From January to December, it expects to sell a record

4.4 million vehicles.

While Honda recovered from disruptions caused by natural disasters in 2011, the company reported lower sales in China last quarter as a territorial dispute over a group of islands in the East China Sea fueled a consumer backlash in the world’s biggest auto market.

‘Tough’ China

Deliveries in China declined a record 32 percent in the October-to-December period, based on Honda statements stretching back to 2006, to cap a 3 percent drop in full-year sales, according to the company.

The sales slump in China was more than expected and the market situation in Europe is “very tough,” Ike said.

Honda has said production at all five factories in China has resumed to double shifts as anti-Japan sentiment in country faded.

The automaker cut its full-year Europe sales forecast to 185,000 units from the previous estimate of 205,000, according to the company.

In the U.S., where Honda gets more than 30 percent of its global sales, deliveries surged 24 percent, according to industry researcher Autodata Corp. The automaker’s market share in the U.S. increased 1.1 percentage points to 9.93 percent in the October-to-December period, according to industry researcher Autodata Corp.

Industry First

Honda was the first among Japan’s biggest carmaker to report financial results this earnings season. Toyota Motor Corp., which regained its global sales lead from General Motors Co. last year, will report on Feb. 5. The maker of Corollas and Camry sedans will probably say third-quarter net income climbed 71 percent to 138.4 billion yen, according to the average of eight analysts’ estimates compiled by Bloomberg.

Nissan Motor Co., which relies on China more than Toyota or Honda, is expected to report profit last quarter fell 44 percent to 46.4 billion yen as Chinese consumers shunned Japanese brands, according to the average estimate. The Yokohama, Japan-based company will report Feb. 8.

Before it's here, it's on the Bloomberg Terminal.