Strong Yen Spells Big Trouble For Toyota

Edward Niedermeyer
by Edward Niedermeyer
strong yen spells big trouble for toyota

Japans currency rose to a 14-year high against the dollar last week, prompting fears that the island nation’s exports could be dramatically affected. And no firm stands to lose as much Toyota, which had been operating under the highest assumed exchange rate of any of Japan’s auto exporters. Reuters reports that ToMoCo had pegged the rate at 90 yen to the dollar, some five yen higher than rivals Honda and Nissan. With the Yen trading at 86.29 to the dollar, that assumption could add up to big losses: Toyota reckons that for every one yen drop against the dollar, operating profits will decline some 30b Yen due to the fact that it exports over half of its Japanese-made automobiles, most of which head to market in the US. Aizawa Securities analyst Toshiro Yashinaga explains that Toyota, more than any other Japanese firm, is riding the razor’s edge.

Carmakers that issued big profit warnings last year have set cautious forex assumptions this time, so roughly speaking the current rates are within expectations. But there are views that the dollar could sink even further in 2010, to the 70s (yen), and in that sense Honda and Nissan, which are relatively strong in emerging markets, are in the winning camp

Japan’s government has thus far resisted calls to intervene in the Yen’s exchange rate. As if Toyota’s heavy exposure to the moribund US market weren’t bad enough, exchange rate uncertainty could make Toyota’s second-straight loss even worse than expected when the firm announces its fiscal year-end results in March.

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  • Lumbergh21 Lumbergh21 on Nov 30, 2009

    The weaker the dollar less it buys. That $200 Blu-Ray player now costs $240 (or stays at $200 rather than dropping to $160). A weak US dollar means reduced buying power

  • Omoikane Omoikane on Nov 30, 2009

    STEVEN02, here is the link for Toyota's october sales. That's where the 34% comes from: http://pressroom.toyota.com/pr/tms/document/October_2009_Sales_Chart.pdf Also, once the ongoing Tacoma project is completed in Texas, that plant is going to have to run overtime to satisfy the demand for Tundras and Tacomas.

    • Rnc Rnc on Dec 01, 2009

      Omo is correct regarding Toyota's import %, however that is a recent trend as NA factories are running flat out and thier JPN factories are running way under. It is not profitable for them to import cars (same example as above say 185m yen to manufacture a car in Japan, sells for $20k in US, at 100/1 exchange, they make a profit, at 90/1 they are selling at loss at 80/1 they are selling at a significant loss).

  • Imag Imag on Dec 01, 2009
    Toyota reckons that for every one yen drop against the dollar, operating profits will decline some 30b Yen due to the fact that it exports over half of its Japanese-made automobiles, most of which head to market in the US. This sentence is not making any sense in context. If they are selling Japanese cars in the US, then a drop in yen would increase, not decrease profits. I see the headline changed - was this a typo as well, or am I missing something?

  • Lumbergh21 Lumbergh21 on Dec 01, 2009

    Sorry Pete, Unless you are buying anything made with petro-chemicals or made outside the US. I picked a Blu-Ray player as it is most certainly going to be manufactured and imported from the east. Would you prefer toaster? Car? TV? Steel? Etc.

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