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.

Japan’s households tighten purse strings as sales tax and typhoon hit

Updated 06 December 2019

Japan’s households tighten purse strings as sales tax and typhoon hit

  • Falls in factory output, jobs and retail add to fears of worsening slowdown after Tokyo unveils $122bn stimulus package

TOKYO: Japanese households cut their spending for the first time in almost a year in October as a sales tax hike prompted consumers to rein in expenses and natural disasters disrupted business.

Household spending dropped 5.1 percent in October from a year earlier, government data showed on Friday.

It is the first fall in household spending in 11 months and the biggest fall since March 2016 when spending fell by 5.3 percent. It was also weaker than the median forecast for a 3 percent decline.

That marked a sharp reversal from the 9.5 percent jump in September, the fastest growth on record as consumers rushed to buy goods before the Oct. 1 sales tax hike from 8 percent to 10 percent.

“Not only is the sales tax hike hurting consumer spending but impacts from the typhoon also accelerated the decline in the spending,” said Taro Saito, executive research fellow at NLI Research Institute.

“We expect the economy overall and consumer spending will contract in the current quarter and then moderately pick up January-March, but such recovery won't be strong enough.”

Household spending fell by 4.6 percent in April 2014 when Japan last raised the sales tax to 8 percent from 5 percent. It took more than a year for the sector to return to growth.

Compared with the previous month, household spending fell 11.5 percent in October, the fastest drop since April 2014, a faster decline than the median 9.8 percent forecast.

Analysts said a powerful typhoon in October, which lashed swathes of Japan with heavy rain, also played a factor in the downbeat data. Some shops and restaurants closed during the storm and consumers stayed home.

Separate data also showed the weak state of the economy.

The index of coincident economic indicators, which consists of a range of data including factory output, employment and retail sales data, fell a preliminary 5.6 points to 94.8 in October from the previous month, the lowest reading since February 2013, the Cabinet Office said on Friday.

It was also the fastest pace of decline since March 2011, according to the data.

Real wages adjusted for inflation, meanwhile, edged up for a second straight month in October, but the higher levy and weak global economy raise worries about the prospect for consumer spending and the overall economy.

While the government has sought to offset the hit to consumers through vouchers and tax breaks, there are fears the higher tax could hurt an economy already feeling the pinch from global pressures.

Japan unveiled a $122 billion fiscal package on Thursday to support stalling growth and as policymakers look to sustain activity beyond the 2020 Tokyo Olympics.

A recent spate of weak data, such as exports and factory output, have raised worries about the risk of a sharper-than-expected slowdown. The economy grew by an annualized 0.2 percent in the third quarter, the weakest pace in a year.

Analysts expect the economy to shrink in the current quarter due to the sales tax hike.