Toyota, Sony and Canon, which generated more than 70 percent of revenue outside their home country last fiscal year, had projected the yen would average 90 to 95 to the dollar in the current period, based on their latest financial statements.
Canon Chief Executive Officer Fujio Mitarai, who heads the nation’s biggest business lobbying group, said Japan is “standing on the edge of a cliff” as the yen trades at its strongest against the dollar in 14 years, climbing to as high as 84.83 today. The stronger yen may widen the earnings rift between Japanese and South Korean manufacturers after Samsung Electronics Co. and Hyundai Motor Co. reported record quarterly profits.
“Intervention is necessary,” said Koichi Ogawa, chief portfolio manager at Tokyo-based Daiwa SB Investments Ltd., which manages $39.4 billion in assets. “Companies may be forced to cut their forecasts if the yen continues to gain further.”
The Topix Electric Appliances Index, which includes Sony, Canon and Panasonic Corp., fell as much as 3.5 percent and led the broader Topix index lower. The Topix Transportation Equipment Index tumbled as much as 3.1 percent to a four-month low.
‘Breaking Point’
Japan’s electronics companies lose a combined 31.8 billion yen ($369 million) in annual operating profit for each 1 yen appreciation against the dollar, according to a Daiwa Research Institute Ltd. estimate of 44 companies in September.
“We’re at a breaking point,” said Jesper Koll, chief executive officer of hedge fund TRJ Tantallon Research Japan. “There’s a point beyond which businesses don’t work.”
Canon’s Mitarai told reporters today Japan needs “urgent steps to counter this critical situation.” Canon would lose 4.4 billion yen in sales and 2.5 billion yen in operating profit in the three months ending Dec. 31 for every 1 yen gain against the dollar, according to the company.
“If the stronger yen becomes a long-term trend, it may affect our earnings,” Mami Imada, a Tokyo-based spokeswoman at Sony, said by phone today.
Limited Immediate Impact
Sony’s Imada and Sharp Corp. spokeswoman Miyuki Nakayama said the impact on earnings may be small for the current fiscal year because they use forward contracts to hedge currency risk. Panasonic probably won’t be affected through the end of the year even if the yen were to stay at 85 per dollar, spokesman Akira Kadota said.
Still, Panasonic PresidentFumio Otsubo told a government panel yesterday that he didn’t want to look at newspapers because of the strengthening yen and weakening South Korean won.
Should the Japanese currency stay at about 85 yen to the dollar, Toyota’s operating loss may widen by 90 billion yen in the fiscal second half and force the world’s largest carmaker to move more manufacturing outside Japan, said Mamoru Kato, an auto analyst at Tokai Tokyo Research Center in Nagoya, central Japan.
Yuta Kaga, a spokesman at Toyota, which estimated the yen will average 90 yen against the dollar during the six months ending March 31, said the current exchange rate may push down earnings. The company’s annual operating profit, or sales minus the cost of goods sold and administrative expenses, is reduced by 30 billion yen when the Japanese currency rises 1 yen against the dollar, according to the company.
Japan vs. Korea
The currency appreciation may spur corporate bankruptcies early next year by hitting domestic demand-based industries in Japan, said Nobuo Tomoda, an official at Tokyo Shoko Research Ltd. “While personal spending is in a slump amid deflation, companies such as retailers and services industries may struggle to survive.”
A stronger yen weighs on prices by making imports cheaper, pressuring domestic producers to discount goods to avoid losing customers.
Not all carmakers may reduce their estimates. Honda Motor Co., Japan’s second-largest automaker, and Nissan Motor Co. based their second-half earnings forecasts on the assumption the yen will trade at 85 to the dollar.
Korean Exporters Helped
The won has fallen 20 percent against the dollar and 37 percent against the yen in the past two years, helping South Korean exporters gain U.S. market share from Japanese rivals.
Sony and Panasonic, the world’s two largest makers of consumer electronics, have eliminated more than 48,000 jobs since September last year, as they struggle to compete against Samsung, Asia’s largest maker of chips and flat screens. Suwon, Korea-based Samsung reported record profit in the second quarter, citing a global economic recovery that spurred a rebound in prices.
Toyota and Honda, Japan’s two biggest automakers, have said they may increase overseas production as the stronger yen makes exports less competitive. Japanese carmakers have lost market share to South Korea’s Hyundai, which posted a record profit in the second quarter.
Shift Production Overseas
Toyota Executive Vice President Takeshi Uchiyamada said last month the company must “think about producing overseas what is now being produced in Japan.” Nissan, Japan’s No. 3 automaker, will fully use its production capacity in the U.S. and Mexico in the “very short term,” Nissan Chief Executive Officer Carlos Ghosn said at last month’s Tokyo Motor Show.
“An impact would be inevitable if the yen strengthens more,” Shigeru Jibiki, a spokesman for Mitsubishi Motors Corp., said today. “We’ll continue to cope with the situation by promoting cost reduction.”
“We’re not very concerned about a higher yen,” said Megumi Tezuka, a spokeswoman at All Nippon Airways Co., Japan’s second largest airline, which projects the local currency will average 95 yen a dollar in the fiscal second half. “We may have a drop in revenue but that should be covered by cheaper purchasing costs from abroad.”
Jet kerosene, priced in dollars, was ANA’s largest operating expense last fiscal year, accounting for 25 percent of its air transportation costs, according to the company’s figures.
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