Weaker Yen Hampers Cost-Cutting Plans of Toyota Supplier KYB

KYB Corp., a Japanese supplier to companies including Toyota Motor Corp. and Hitachi Construction Machinery Co., said the yen’s slide is making imported parts from Asia more expensive, hampering efforts to pare costs.

Using parts from outside Japan won’t provide much of a benefit should the currency remain at current levels of 95 yen to 100 yen per dollar, Executive Officer Masao Ono said June 19 in an interview in Tokyo. KYB will seek other ways to economize, including having its factories in North America and Europe use components from suppliers in Asia.

The yen’s 13 percent decline since Prime Minister Shinzo Abe’s election victory on Dec. 16 is a blow to a purchasing strategy for Tokyo-based KYB, which intended to buy more lower-priced Chinese and South Korean imports to protect margins as its customers are asking for a 15 percent price cut by March 2015. The yen has weakened the most among Group of 10 currencies in the past six months, according to data compiled by Bloomberg.

“The yen depreciated at a fast pace just when we outlined a plan to import overseas-made parts,” Ono said.

KYB holds a 40 percent global share of excavator cylinders, selling to customers such as Caterpillar Inc. It’s also the nation’s biggest maker of car shock absorbers.

The company declined 12 yen, or 2.4 percent, to 487 yen at the close in Tokyo trading. The stock has climbed 40 percent this year, outperforming a 27 percent gain in the Nikkei 225 Stock Average.

Yen Benefits

While KYB faces higher-than-expected costs, the weaker yen also benefits business by boosting the value of overseas sales, Senior Executive Officer Yasusuke Nakajima said in the interview. The company forecast profit will increase 28 percent to 10 billion yen ($103 million) in the financial year to March 31 after a 44 percent decline in the previous year.

Imports from China, Taiwan and South Korea accounted for 2.5 percent of KYB’s total purchases last year. Customers are asking for a 15 percent price cut over the three-year period through March 2015, according to Nakajima.

The company’s plan was to double imports to 3 percent of total purchasing costs in the year ended March 31, increasing that to about 10 percent in three years, Ono said.

The yen, which traded at 97.29 yen to the dollar as of 1:08 p.m. in Tokyo, fell as low as 103.74 yen on May 22, the weakest since October 2008.

Despite the weakening yen, domestic manufacturers won’t stop shifting production into Asia and other growing economies to tap market growth, Nakajima said.