TOKYO -- For five years, a rising yen undermined Japanese automakers' profits. Now the currency's sudden weakening has delivered dramatic gains, especially in the January-March quarter.
Japan's automakers have issued conservative forecasts for the exchange rate in the fiscal year that began April 1. In doing so, they've built in room to exceed already rosy profit predictions.
On Thursday, May 9, the dollar-yen rate broke through the psychological barrier of 100 yen to the dollar. The yen hasn't traded that low in more than four years, and traded in the 70s for most of last year. The higher the number, the weaker the yen -- and the more positive the impact on Japanese exporters.
Nissan Motor Co. CEO Carlos Ghosn notes that each ¥1 decline against the dollar translates into a ¥15 billion, or about $159.3 million, gain for Nissan's operating profit.
But the benefits don't all flow to the bottom line. "It gives more power for competing in the market," say by lowering prices, Ghosn said.
The yen's decline picked up speed in early December. Japanese automakers posted strong currency gains in the January-March quarter.
Take Honda Motor Co. A currency loss for the first three quarters of the fiscal year that ended March 31 was turned into a currency gain by a huge windfall profit of $2.85 billion in the January-March quarter. That helped push full-year net profit up 74 percent to $3.9 billion.
Still, Japan's ever-risk-averse automakers have remained cautious in their forecasts. Toyota Motor Corp., for instance, assumes the Japanese currency will average about ¥90 to the dollar this fiscal year. Even at that level, Toyota forecasts its net income will jump 42 percent to $14.55 billion in the current fiscal year.
All of Japan's automakers have built earnings forecast on the assumption that the yen will grow stronger. And they all -- except Suzuki Motor Corp. -- forecast at least a double-digit increase in operating profit this fiscal year.
That leaves room for windfall profits if the rate stays at 100 -- or continues to drift higher.