Weak yen yet to reach corporate Japan's bottom line

TOKYO Sun Feb 3, 2013 5:32am IST

A picture illustration shows Japanese 10,000 yen notes featuring a portrait of Yukichi Fukuzawa, the founding father of modern Japan, taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao

A picture illustration shows Japanese 10,000 yen notes featuring a portrait of Yukichi Fukuzawa, the founding father of modern Japan, taken in Tokyo August 2, 2011.

Credit: Reuters/Yuriko Nakao

Related Topics



TOKYO (Reuters) - Currency hedging cost Japanese companies such as Honda Motor Co (7267.T) the chance to fully cash in on a weak yen last quarter, raising the risk that investor expectations could outrun earnings.

The near 20 percent fall in the currency since October has been a primary driver of the longest weekly run of gains for the benchmark Nikkei index .N225 since 1959. .T

But exporters may have been caught out by the magnitude of the yen's fall and bought too early, currency traders said.

"The rally is completely driven by hopes rather than facts," said Soichiro Monji, chief strategist at Daiwa SB Investments.

"We knew the yen's impact would be limited in October-December. Still I had thought the earnings would be a little bit better."

Analysts say a 1 percent decline in the value of the yen typically boosts corporate Japan's profits by about 1 percent. Auto, steel and electronics firms, all major exporters, reap the biggest benefit.

So they should be doing well in the fallout from Abenomics. New Prime Minister Shinzo Abe's drive for aggressive monetary easing and fiscal stimulus helped push the yen to a 2-1/2 year low of 92.29 to the dollar on Friday.

Japanese shares .TOPX are trading at more than 13 times forecast earnings, versus 11.6 at the end of September.

But warning signs come from firms like Honda, which booked an unrealized loss on currency derivatives of 54.5 billion yen ($598.5 million) in the fourth quarter, mostly in currency products.

Honda's chief financial officer Fumihiko Ike told reporters that the company hedged currency trades three month ahead, a common practice among Japanese exporters that means their fourth quarter sales were booked at yen levels near a record high.


The cheaper yen will likely start filtering through to bottom lines from the January-March quarter, but many Japanese companies remain cautious about earnings.

Honda trimmed its annual net profit forecast unexpectedly, citing poorer-than-expected demand in China and Europe.

Camera and printer maker Canon Inc (7751.T), which derives 80 percent of its revenue from overseas and is seen as one of the most competitive Japanese firms, reported a fall in quarterly profits in October-December.

Although Canon forecast a 26.6 percent increase in operating profits to 410 billion yen this year, that fell short of analysts' 452.1 billion yen outlook.

Still, the 33-month high for the Nikkei on Friday is also based on hopes that a weaker yen will revitalize the Japanese economy, not just exports

"No hedge fund wants to miss the debasement of the yen, and the majority sees the Japanese equity market as the most likely best performer in H1," Bank of America-Merrill Lynch said in a note.

But a weaker currency also carries domestic risks, especially in terms of energy costs in a country where almost all fuel is imported.

"A weaker yen will boost our profits but if the yen falls too much, that's also negative because we require a lot of electricity," said Makoto Kubo, executive vice president of Toshiba Corp (6502.T), which produces flash memory chips among other things.

"It's difficult to say what is the best level but 90 yen per dollar is not so bad."

(Additional reporting by Mari Saito, Yoko Kubota and Sophie Knight; Editing by Michael Urquhart)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Market Eye

Sensex, Nifty rise to second consecutive record high

Sensex, Nifty rise to second consecutive record high

The BSE Sensex and Nifty on Friday rose to their second consecutive record highs. The 30-share Sensex surged as much as 1.5 percent to an all-time high of 27,759.01. The broader Nifty gained as much as 1.49 percent to a record of 8,291.65.  Full Article 




Silver futures in India hit four-year low on global cues.  Full Article 

BOJ Policy

BOJ Policy

BOJ shocks markets with surprise easing as inflation slows.  Full Article 

Cost Cutting

Cost Cutting

PM Narendra Modi boots officials out of the first class cabin  Full Article 

Leisure Riding

Leisure Riding

Harley-Davidson woos affluent young Indians with bike culture  Full Article 

Shadow Banking

Shadow Banking

China's shadow banking sector growing rapidly, third largest in world - FSB.  Full Article 

Moody's on India

Moody's on India

Moody's welcomes India's policy steps, but wants to see more.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage