Exporters face ‘breaking point’ over strong yen

by Jason Clenfield

Bloomberg

Toyota Motor Corp. and Sony Corp. are among Japanese exporters that may miss their forecasts as the yen strengthens more than they anticipated, eroding their earnings from televisions and cars sold overseas, investors said.

Toyota, Sony, Canon Inc. and Sharp Corp. had projected the yen would average at 90 to 95 to the dollar this fiscal year, based on their latest financial statements. That may force exporters to cut their outlooks, according to investors, including Koichi Ogawa.

“Intervention is necessary,” said Ogawa, chief portfolio manager at Tokyo-based Daiwa SB Investments Ltd., which manages ¥3.4 trillion in assets. “Companies may be forced to cut their forecasts if the yen continues to gain further.”

The yen is trading at its strongest against the dollar in 14 years, climbing to as high as 84.83 Friday, and prompting speculation Japan will sell its currency to halt gains. 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.

The Topix Electric Appliances Index, which includes Sony, Canon and Panasonic Corp., fell as much as 2.5 percent and led the broader Topix index lower. The Topix Transportation Equipment Index tumbled to a four-month low.

The nation’s electronics companies lose ¥31.8 billion in annual operating profit for each yen that the currency appreciates 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 Chief Executive Officer Fujio Mitarai, who also heads the nation’s biggest business lobby, said Friday Japan needs “urgent steps to counter this critical situation.” Canon would lose ¥4.4 billion in sales and ¥2.5 billion in operating profit in the quarter to Dec. 31 for each yen’s gain against the dollar, according 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 Friday.

Imada and Sharp spokeswoman Miyuki Nakayama said the impact on earnings may be small for the current fiscal year as 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, spokesman Akira Kadota said.

Still, Panasonic President Fumio Otsubo told a government panel Thursday that he didn’t want to look at newspapers because of the strengthening yen and the weakening won.

Should the Japanese currency stay at about ¥85 to the dollar, Toyota’s operating loss may widen by ¥90 billion 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.

Yuta Kaga, a spokesman at Toyota, which estimated the yen will average 90 against the dollar during the fiscal second half, said the current exchange rate may push down earnings. The company’s annual operating profit is reduced by ¥30 billion when the Japanese currency rises ¥1 against the dollar, the firm said.

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.

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, are eliminating more than 48,000 jobs as they struggle to compete against Samsung, Asia’s largest maker of chips and flat screens. Suwon, South 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.

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 CEO Carlos Ghosn said at last month’s Tokyo Motor Show.