Japan Inc. Cashes in on Abenomics as Toyota Profit to Rise

Japanese Prime Minister Shinzo Abe’s economic recovery plan is filling the coffers of manufacturers from Toyota Motor Corp. to Sony Corp.

As the exporters prepare to announce first-quarter earnings this week, 14 of Japan’s 27 largest are projected to beat their own full-year operating profit forecasts by 5 percent or more, according to data compiled by Bloomberg. Net income may surge 75 percent from a year earlier among companies that sell abroad and 33 percent at domestic-oriented firms, UBS AG said this month.

Abe’s drive to end 15 years of deflation in Japan through monetary easing and fiscal stimulus benefited manufacturers as the yen dropped 5 percent against the dollar last quarter and about 20 percent in the past 12 months, boosting earnings from overseas. Toyota, the world’s largest carmaker, may exceed its fiscal-year net income target by 21 percent, according to the average of 23 analyst estimates compiled by Bloomberg.

“Abe introduced a real bullet,” said Ichiro Takamatsu, a fund manager in Tokyo at Bayview Asset Management Co. “Companies will report stronger numbers because of the weak yen.”

Toyota, set to report earnings on Aug. 2, may say first-quarter net income rose 48 percent to 430 billion yen ($4.3 billion), according to the average of four analyst estimates. Profit for the year ending March may jump 72 percent to 1.66 trillion yen, based on 23 projections.

Sony, Japan’s biggest smartphone maker, may boost full-year profit 28 percent to 55 billion yen, according to the average of 16 analyst estimates. The Tokyo-based company will report first-quarter earnings on Aug. 1.

Return Favor

Toyota fell 4.1 percent to 5,900 yen at the 3 p.m. close of trading in Tokyo, trimming its gain to 47 percent this year, as Japan’s currency gained to a one-month high against the U.S. dollar amid concern about slowing growth in the world’s biggest economies, boosting demand for haven assets. Sony shares, which have more than doubled this year, declined 3.6 percent to 2,057 yen. Japan’s broader Topix index fell 3.3 percent.

One question is whether those benefiting from Abenomics will return the favor to stimulate the broader economy. Companies such as Toyota, after stockpiling cash, could bolster Abe’s stimulus efforts by increasing capital investment, wages and dividends.

“Companies are of course happy to receive the windfall from a weaker yen and stronger exports, but extremely reluctant to spread this additional income,” said Martin Schulz, an economist at Fujitsu Research Institute in Tokyo. “They would rather keep that income and focus on investment, particularly overseas.”

Weaker Yen

Analysts expect exporters including Toyota and Sony to beat their forecasts in part because the yen is trading at lower levels than the companies predicted.

Toyota said in May it expects 1.37 trillion yen in annual profit, based on exchange rates of 90 yen to the dollar and 120 yen against the euro. Sony targets 50 billion yen in full-year net income based on the same projected rates.

Japan’s currency traded at an average of about 99 against the dollar and 129 against the euro in the quarter ended June 30, compared with about 80 yen and 103 yen a year earlier. The currency may weaken further to 120 yen against the dollar over the next year, Credit Suisse AG said in a July 1 report.

Toyota’s operating profit is boosted by about 40 billion yen for every 1-yen weakening in the Japanese currency against the dollar, according to the company.

‘Good Numbers’

“We are just at the starting lines toward sustainable growth,” Akio Toyoda, the carmaker’s president, said last month at the annual shareholder’s meeting. He said the strong yen was “becoming corrected.”

Shino Yamada, a spokeswoman for Toyota, and Mami Imada, a spokeswoman at Sony, declined to comment ahead of the companies’ earnings announcements.

“There should be many sectors that will benefit from the yen’s depreciation,” said Masamitsu Ohki, a fund manager at Stats Investment Management Co., a hedge fund in Tokyo. “I expect good numbers for the first quarter.”

Nissan Motor Co., Japan’s second-biggest carmaker, said July 25 it increased profit 14 percent to 82 billion yen in the three months ended June, amid the weaker yen and higher U.S. sales. The Yokohama-based company reiterated its forecast for full-year net income of 420 billion yen.

Panasonic, Honda

Panasonic Corp., Japan’s third-biggest TV maker, may post full-year net income of 59 billion yen, compared with the company’s forecast of 50 billion yen, according to the average of 14 analyst estimates compiled by Bloomberg. The Osaka-based company, which reports first-quarter earnings on July 31, had a 754 billion-yen loss last fiscal year.

Annual profit at Tokyo-based Honda Motor Co., Japan’s third-largest carmaker, may jump 70 percent to 624 billion yen, according to the average of 20 estimates.

Carmakers may get a bigger boost from the weaker yen than electronics manufacturers, said Makoto Kikuchi, chief executive officer at Tokyo-based Myojo Asset Management Japan Co.

“Consumer electronics makers see a limited impact,” Kikuchi said. “They have high ratios of overseas production as well as overseas sales.”

PlayStation 4

Sony’s operating profit is reduced by a weaker yen against the dollar, while it’s increased by a weaker yen against the euro, according to the company.

One product where Sony is hurt by the weakening currency is its new PlayStation 4 game console. The electronics maker has signed contracts to pay for parts in dollars, to avoid being hurt by the strengthening yen. The result is that parts and production are becoming more expensive just as the company prepares to compete in consoles against Microsoft Corp.

Japanese electronics makers continue to suffer from competition against Samsung Electronics Co. and Apple Inc. and from the emergence of smartphones and tablet computers, which are eroding demand for devices such as cameras and video-game consoles.

“In electronics, Japanese companies are extremely challenged by competition in Asia,” Schulz at Fujitsu said. “The overall demand is not strong.”

Canon, Nintendo

Canon Inc., the world’s biggest camera maker, cut its full-year forecast July 24, citing lower-than-expected demand.

Nintendo Co., the creator of “Super Mario,” may miss its 55 billion-yen profit forecast for the year ending March, according to analyst estimates. The Kyoto-based company, which fell short of initial sales projections for its new Wii U game console, may post net income of 53 billion yen, according to the average of 22 estimates. The company will report first-quarter earnings on July 31.

A sustained recovery for Japan’s economy will depend on whether Abe’s government can execute a more comprehensive growth strategy, Masayoshi Son, president of SoftBank Corp., said in Tokyo on July 23.

“Monetary initiatives or monetary techniques will not suffice in the long run,” said Son, whose Tokyo-based mobile-phone company acquired U.S. carrier Sprint Corp. earlier this month. “Unless Japan grows, all of those short-term initiatives will have no meaning.”

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