Japan’s carmakers are assuming that the yen will trade near current levels against the US dollar in the coming months, based on forecasts they issued just as the US stepped in to help the Japanese currency from weakening further.
Toyota Motor Corp., Nissan Motor Co. and others based their profit and sales outlooks on the view that the currency will remain at ¥150 to ¥160 against the dollar for the fiscal year through March 2027, according to their latest round of results. The yen is currently trading within that range, at around ¥157.7 as of Thursday.
Over the past week, the governments of the US and Japan took joint action in the currency markets for the first time since 2011, seeking to reverse a slide that they said was threatening to drive up inflation and import prices in the island nation. While a stronger yen would help alleviate that, it would also cut into carmakers’ earnings, which are driven by sales abroad that translate into higher profits when brought back home.
“Japanese automakers seem to expect the yen to remain weak even after the recent US-Japan intervention, while keeping some buffer against yen appreciation and exchange-rate volatility,” said Bloomberg Intelligence senior analyst Tatsuo Yoshida.
The forecasts suggest carmakers view intervention as more of a brake on extreme moves rather than a fundamental shift in direction, given interest-rate differentials and capital flows that continue to weigh on the currency. Toyota, Honda and Suzuki revised their assumptions toward a weaker yen from the levels set in May, while the others left theirs unchanged, giving them scope for additional profit if current exchange rates persist.
Their positioning also reflects how the industry’s exposure has changed, with Japanese carmakers now manufacturing a large share of the vehicles they sell overseas in or near their final markets, creating a natural hedge because production expenses can be paid in the same currency. Even so, parts and vehicles exported from Japan still become more profitable when the yen weakens, while overseas earnings rise in yen terms when consolidated at home.
Even with the yen seen at weak levels, sharp currency moves can also be problematic, as a sudden rise in the yen instantly shrinks profits carmakers bring back from sales in places like the US before they can adjust their prices or production.
“It’s truly a headache for those of us on the ground,” said Tetsuya Fujimoto, chief treasury and accounting officer at Mazda. “It’s extremely important to build strong resilience to currency fluctuations” by reducing costs, he said.
Japan’s auto manufacturers have long embraced conservative currency assumptions, helping them to meet or exceed forecasts when posting results. Toyota is better equipped to tolerate the risks that come with adopting a weaker-yen assumption. Its earnings are more global and spread across Japan, North America, Europe, Asia, financial services and other businesses, giving it more operational flexibility to offset an adverse currency move.
Exchange-rate movements added roughly ¥345 billion to Toyota’s operating profit in the first quarter, given that the yen was already weaker than what the company anticipated during the period. On that basis, raising the full-year assumption to ¥160 from ¥150 probably adds another ¥420 billion, which was reflected in the carmaker’s upgraded profit and sales outlook announced earlier this week.
While Toyota can count on robust sales, thanks to the popularity of its hybrids in North America and a model lineup that’s in high demand, Nissan and Honda will find it harder to take advantage of a weaker yen to boost profits, given their struggles to expand sales volume in the US market.
“Honda still has some upside if the yen remains weaker than ¥155, but the room is now smaller than before,” Yoshida said. “Nissan is struggling to grow sales volume, while rising input costs remain a major challenge. As a result, the benefit from the weak yen may not fully translate into higher profit.”
Takanori Azuma, Toyota’s chief accounting officer, said that a stable exchange-rate environment is ideal for the business, while noting that “exchange rates have fluctuated significantly in the few days” leading up to the company’s earnings announcement.
“We aren’t currency speculators, so we don’t try to guess where foreign exchange rates are heading,” Azuma said. “This doesn’t mean we will simply adjust this target whenever exchange rates move. Once we publish numbers to the public, they become targets that we are fully committed to achieving.”
With assistance from Tsuyoshi Inajima.
This article was generated from an automated news agency feed without modifications to text.
