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A 10-yen rally strands the currency assumptions behind 185 of 360 Japanese earnings plans
Toyota planned its year on 160 yen to the dollar while the market pays about 153, and at 50 billion yen of operating profit for every yen that gap is worth 300 billion to 350 billion. Daiwa's arithmetic puts the index-wide cost nearer 1.4%.
The Investor · Invest desk
What happened
- QUICK data released on the 11th shows that of 360 major Japanese companies disclosing exchange-rate assumptions for the year to March, 150 planned on 155-159 yen to the dollar and 35 on 160-164.
- The yen has gained as much as roughly 10 yen against the dollar since the joint U.S.-Japan intervention in late July, and now trades at about 153-154.
- Toyota Motor reset its annual exchange-rate assumption to 160 yen to the dollar when it reported earnings in August, weeks after the intervention that began the currency's climb.
- Operating profit at 20 major companies in autos, precision instruments, electrical machinery and heavy industry rose 779.8 billion yen in April-June from a year earlier, about 90% of it from currency.
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Why it matters
- constraint Shingo Ide of the NLI Research Institute puts manufacturers' tolerance at about 150 yen to the dollar, so at 153-154 the aggregate forecast is not the thing under threat and the pressure lands on the firms with the largest overseas sales.
- exposure For Mazda, which the analysis says would not have escaped an April-June loss without the weak yen, and for Mitsubishi Motors, the question at 153 is whether the quarter is profitable at all, not how large a revision to guidance.
- decision A finance director who cuts the plan to 153 before the Bank of Japan rules on rates is taking a position on that meeting, and one who waits keeps publishing numbers built on an assumed rate that no longer holds.
- contradiction Nikkei Asia's read is that the same move cuts import costs for crude oil, raw materials and food and helps importers such as Nitori Holdings, so the index-level effect runs both ways.
Six to seven yen separates Toyota's plan from the market. Toyota puts each 1-yen gain at about 50 billion yen of consolidated operating profit [5], so the gap is worth 300 billion to 350 billion yen over the full year [2]. Hitachi, Fujifilm Holdings, Seiko Epson and Honda Motor also shifted their outlook assumptions toward a weaker yen than they had previously projected [6]. Those assumptions were set in August, and the currency turned the other way after that [1].
Add the two cohorts and 185 of the 360 companies that disclosed, or 51%, planned on a dollar buying 155 yen or more [1]. That looks like a broad revision cycle. Kenji Abe, chief strategist at Daiwa Securities, calculates that a 1-yen gain trims total pretax profit at Japanese listed companies by about 0.3%, widening to about 0.4% once yen strength against the euro is counted [7]. The 155-159 cohort's midpoint is 157, about 3.5 yen above spot, which works out at roughly 1.4% of pretax profit [3]. The 35 companies that planned on 160-164 sit about 8.5 yen away, or about 3.4% [6]. Net profit at Tokyo prime-market companies is forecast to rise more than 10% in the year to March [13]. The measures differ, pretax against net, and they do not net cleanly, but a 1.4% drag does not turn a 10% year negative.
A weak yen inflates the yen value of profits earned at overseas subsidiaries and improves export margins [17]. The damage from a rally concentrates by geography of sales. About 702 billion yen of that 20-company increase was currency and about 78 billion yen was the operating business [4]. TDK books more than 90% of its revenue overseas and took 11.3 billion yen of its 29.8 billion yen operating profit increase from the weak yen [9], or 38% of it [5].
The offset inside the index is semiconductors. Growth continues at semiconductor and data-center-related companies, supported by expanding AI investment by big U.S. technology firms [14], and that is the line that has to keep carrying the prime-market forecast if manufacturing revises down. The reporting says that revision grows more likely the longer the yen sits far stronger than assumed [18].
My read is that the staleness is real and the aggregate is survivable, so the revision risk worth pricing sits in the individual disclosures. Selling pressure on the yen has not gone away [16]. If it wins and the currency drifts back toward 158, the 155-159 cohort can leave its plan where it is.
What to watch
- The Bank of Japan's decision on the 17th and 18th, and whether officials signal a faster pace of rate increases.
- Whether the 35 companies that planned on 160-164 yen cut their assumptions before the companies sitting at 155-159.
- Whether semiconductor and data-center earnings keep growing fast enough to hold the prime-market net profit forecast above 10%.