The dollar’s sharp dive to a 12-year low against the yen Thursday raises the specter of reduced profits among major export-driven manufacturers in Japan, including Toyota Motor Corp. and Sony Corp., analysts say.
This outlook casts a shadow over the economy as a whole, already bracing for fallout from the strained U.S. credit market and economic slowdown, which could send the dollar down further.
It’s no secret that the yen’s rise is eroding gains from cost cuts at Toyota, the world’s second-largest automaker. Every yen the Japanese currency gains on the dollar cuts Toyota’s annual operating profit by ¥35 billion, according to the automaker.
“The (auto industry) profit forecast is expected to worsen for the time being,” said Yoshio Watanabe, senior analyst for the automobile sector at Mizuho Securities Co.
He said carmakers are likely to have a tougher time in the next business year that starts in April if the dollar stays around ¥100.
“In this business year (that ends March 31), they estimated their earnings based on an exchange rate of around ¥116 because of the dollar’s strength in the first half of this business year,” Watanabe said. “So a level around ¥100 will give them a shock.”
The appreciation of the yen in recent months has dragged down other exporters.
Sony, more than 70 percent of whose sales are made overseas, said a ¥1 rise against the dollar slices ¥6 billion off its operating profit.
The electronics giant cut its operating profit forecast to ¥410 billion at the end of January from an earlier projection of ¥450 billion for the current business year.
Economists predict the dollar may weaken further in the near future.
“The dollar could continue to fall as concerns rise over the strained credit market in the U.S. and its economic slowdown,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo.
“I expect the dollar to further fall to ¥95 (in the worst-case scenario),” he said.
However, he added that later this year the positive effects of a series of interest rate cuts by the Fed and the U.S. government’s fiscal stimulus package could fend off a severe recession.
Kodama predicts the yen will hover around ¥100 for a while.