Toyota, auto electronics suppliers fuel earnings growth streak in Japan

Prime Minister Shinzo Abe's policies led to the weakening of the Japanese yen.

TOKYO (Bloomberg) -- Japanese exporters led by Toyota are set to report higher third-quarter profit as a weaker yen fuels the country's longest stretch of earnings growth since 2007.

Net income for Japan's largest non-financial companies probably rose about 52 percent in the three months ended December, a fifth straight quarter of aggregate increase, data compiled by Bloomberg show. Earnings almost doubled on average in each of the previous four quarters, nine times faster than the Standard & Poor's 500.

Toyota, the world's most profitable automaker, is set to report an estimated fourfold increase for the quarter after vehicle demand jumped in the United States and recovered in China.

Panasonic Corp. and Hitachi Ltd., Japan's two biggest employers after Toyota, are also benefiting as rising profits bring Prime Minister Shinzo Abe closer to ending 15 years of deflation.

"It has definitely been a while since we've seen a steady growth streak this long," Hisao Matsuura, a strategist at Nomura Securities Co., said by phone. "The risks that affected things until last year -- the debt crisis in Europe, natural disasters, emerging markets slowdown and U.S. uncertainty -- have gone."

Yen effect

The growth comes as a weaker yen boosts the value of overseas earnings, especially at companies that had already cut costs to cope with a currency near a postwar high over the previous year. The dollar averaged 98 yen in 2013, compared with 80 yen in 2012. The average so far this year is about 104 yen.

The wave of rising profit comes amid sales and output growth at carmakers combined with the increasing use of electronic parts such sensors, batteries and cameras, benefiting some of Japan's biggest manufacturers.

Panasonic, recovering from two straight annual losses, counted on automotive systems for 37 percent of revenue in the three months ended September, the biggest contributor. Sales of car systems including lithium ion batteries, drive control systems and parking cameras were 650 billion yen ($6.3 billion) in the period, more than triple the 188 billion yen a year earlier.

The maker of televisions, cameras, solar panels and home appliances expects to double auto-related revenue to 2 trillion yen by March 2019 and is in talks with car parts makers for acquisitions and alliances, Yoshihiko Yamada, head of the auto and industrial systems unit, said in an interview last month.

Hitachi, an industrial group that makes everything from auto parts to power plant equipment to telecommunications gear, more than tripled net income to about 70 billion yen in the three months ended December, according to the average of four estimates compiled by Bloomberg.

Abenomics winners

Abenomics, the prime minister's program of monetary easing that weakened the currency, stimulus spending and advocacy of wage increases, is starting to show benefits for companies, Hitachi Executive Vice President Toyoaki Nakamura told reporters in October when the company reported second-quarter earnings.

Demand for car parts in the United States and China is also boosting profit, he said.

"Automakers and machinery makers have really benefited from the increase in overseas earnings," said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. "Those gains drove stock prices higher, which in turn stimulated domestic personal consumption."

The profit surge has yet to prompt wage increases that Abe and economists have said are needed to sustain growth. While the prime minister has called for incomes to advance more quickly than inflation, prices will jump five times faster than wages in the fiscal year starting in April, according to a Bloomberg survey in December.

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