Stronger yen prompts Toyota to trim profit forecast, saps Honda

Toyota Motors executive vice president Moritaka Yoshida. (AFP)
Updated 02 August 2019

Stronger yen prompts Toyota to trim profit forecast, saps Honda

  • A strengthening yen hurts Japanese automakers as cars exported from Japan become more expensive

TOKYO: Toyota Motor Corp. lowered its annual profit forecast while Honda Motor Co. turned in a double-digit decline in quarterly earnings as a resurgent yen hurt two of Japan’s biggest automakers.
The quarterly earnings unveiled on Friday by Japan’s biggest and third-biggest automakers highlight how “safe-haven” demand for the currency — buoyed by global uncertainties and falling US interest rates — could eat into profits at Japanese exporters in the months to come.
A strengthening yen hurts Japanese automakers as cars exported from Japan become more expensive, while it also decreases the value of earnings made overseas.
Toyota cut its operating profit forecast for the year ending March 2020 by nearly 6% to 2.4 trillion yen ($22.4 billion), from a previous forecast of 2.55 trillion yen. The 2.7% drop on the year means it will snap a three-year run of rising profit.
“We have factored in cost reduction efforts for the year, but there are still some uncertainties. We cannot be complacent,” Toyota Operating Officer Kenta Kon told reporters at a results briefing.
It expects the yen to trade around 106 to the US dollar and 121 to the euro in the current financial year, from a previous assumption of 110 yen and 125 yen, respectively.
For the quarter just ended, however, Toyota posted an 8.7% rise in operating profit to 741.9 billion yen ($6.93 billion), its highest since the September 2015 quarter, helped by a slight increase in global vehicle sales.
But the stronger domestic currency took a toll on Honda’s profits. Japan’s No. 3 automaker posted an operating income of 252.4 billion yen for the April-June period, down 16% from 299.3 billion yen a year ago and lagging analyst forecasts.
Still, Honda reiterated its forecast for a 6% increase in operating profit to 770 billion yen for this fiscal year, and said it expected the yen to average around 110 to the US dollar, unchanged from its previous forecast.
Global impact
Easing demand for cars has also dented earnings at Honda and other automakers including Nissan Motor Co. and Ford Motor Co, prompting the latter two to announce job cuts and plant closures.
An escalating trade war between China and the United States, the world’s top two auto markets, and slowing economic growth have prompted a broad-based sales downturn in the global auto sector.
“Conditions in the US market continue to be severe, including the effects of the trade friction between the US and China,” Honda Executive Vice President Seiji Kuraishi told reporters, adding that tensions could also have a negative impact in China, where demand for cars is already slowing.
“How the Chinese market reacts to the US-China trade friction will be key to setting our business strategy.”
A downturn in the global auto sector could weigh on profits just as automakers invest heavily in new technologies including electric cars, autonomous driving technologies and ride-sharing services to survive a industry shift away from car ownership.
Toyota has been pouring money in ride-sharing services including Uber, Grab and Didi Chuxing while deepening alliances with SoftBank Group Corp. to develop on-demand transportation services in Japan, to position itself as a provider of mobility services.
Investors have backed this strategy, pushing Toyota shares roughly 10% higher this year, outperforming its domestic rivals.
Honda too has been scrambling to reinvent itself to compete with tech firms such as Google parent Alphabet and Uber, by expanding partnerships and investing in General Motors Co’s Cruise self-driving vehicle unit.

Economists fear a US recession in 2021

Updated 19 August 2019

Economists fear a US recession in 2021

  • Trump’s higher budget deficits ‘might dampen the economy’

WASHINGTON: A number of US business economists appear sufficiently concerned about the risks of some of President Donald Trump’s economic policies that they expect a recession in the US by the end of 2021.

Thirty-four percent of economists surveyed by the National Association for Business Economics, in a report being released Monday, said they believe a slowing economy will tip into recession in 2021. 

That’s up from 25 percent in a survey taken in February. Only 2 percent of those polled expect a recession to begin this year, while 38 percent predict that it will occur in 2020.

Trump, however, has dismissed concerns about a recession, offering an optimistic outlook for the economy after last week’s steep drop in the financial markets and saying on Sunday, “I don’t think we’re having a recession.” A strong economy is key to the Republican president’s 2020 reelection prospects.

The economists have previously expressed concern that Trump’s tariffs and higher budget deficits could eventually dampen the economy.

The Trump administration has imposed tariffs on goods from many key US trading partners, from China and Europe to Mexico and Canada. 

Officials maintain that the tariffs, which are taxes on imports, will help the administration gain more favorable terms of trade. But US trading partners have simply retaliated with tariffs of their own.

Trade between the US and China, the two biggest global economies, has plunged. Trump decided last Wednesday to postpone until Dec. 15 tariffs on about 60 percent of an additional $300 billion of Chinese imports, granting a reprieve from a planned move that would have extended duties to nearly everything the US buys from China.

The financial markets last week signaled the possibility of a US recession, adding to concerns over the ongoing trade tensions and word from Britain and Germany that their economies are shrinking.

The economists surveyed by the NABE were skeptical about prospects for success of the latest round of US-China trade negotiations. Only 5 percent predicted that a comprehensive trade deal would result, 64 percent suggested a superficial agreement was possible and nearly 25 percent expected nothing to be agreed upon by the two countries.

The 226 respondents, who work mainly for corporations and trade associations, were surveyed between July 14 and Aug. 1. That was before the White House announced 10 percent tariffs on the additional $300 billion of Chinese imports, the Chinese currency dipped below the seven-yuan-to-$1 level for the first time in 11 years and the Trump administration formally labeled China a currency manipulator.

As a whole, the business economists’ recent responses have represented a rebuke of the Trump administration’s overall approach to the economy.

Still, for now, most economic signs appear solid. Employers are adding jobs at a steady pace, the unemployment rate remains near a 50-year low and consumers are optimistic. US retail sales figures out last Thursday showed that they jumped in July by the most in four months.