Profits still possible with yen at 92 to dollar: Sakurai

by Toru Fujioka and Tatsuo Ito

Bloomberg

Japanese companies can remain profitable if the yen trades around 92 to the dollar, according to Masamitsu Sakurai, head of the nations second-largest business lobby.

“While its difficult to endure abrupt currency swings, its manageable if the currency stays at the current level,” Sakurai, 66, head of the Japan Association of Corporate Executives (Keizai Doyukai), said in an interview Friday. “It’s not impossible to cope by making some management efforts.”

The yen is trading 10 percent above the level exporters based their profit forecasts on for this year, and companies reported their biggest drop in earnings in seven years last quarter.

Exporters including Toyota Motor Corp., Panasonic Corp. and Sakurai’s Ricoh Co. still expect to remain profitable this year amid the worst financial crisis since the Great Depression.

Sakurai said companies are making efforts to limit the effect of a strengthening yen. Some are reducing currency risk by outsourcing production overseas, allowing them to import products back at a lower cost, Sakurai said.

“There isn’t a company that would simply be thrilled by a stronger yen and fall into despair when it weakens,” Sakurai said. “We should take advantage of yen appreciation” because it will help lower prices of imported raw materials and energy.

The yen has advanced 20 percent against the dollar and 38 percent against the euro this year.

Panasonic, the world’s largest consumer-electronics maker, said its profits in the year ending March 31 will be ¥30 billion. Toyota forecasts earnings of ¥600 billion.

Economic and fiscal policy minister Kaoru Yosano said last week that “yen appreciation isn’t a bad thing” because it can lower import costs. Companies made their business plans based on the yen being at around 102 per dollar, according to the Bank of Japan’s “tankan” survey in September.

Squeezed profits are prompting companies to cut temporary workers. Isuzu Motor Corp., Komatsu Ltd. and Toyota have announced job cuts for temporary workers in the last month. The labor ministry estimates that at least 30,000 nonregular employees will lose their jobs by the end of the business year.

Asked whether he would consider job cuts, Sakurai said “it’s very hard for us to be certain about future business plans.”

“This recession is unprecedented. We still can’t see the bottom of this economic downturn,” he said.