Finance October 27, 2008, 7:14AM EST

Yen Keeps Rising as Japan Stocks Hit 26-Year Low

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Sony earns three-quarters of its revenues outside Japan, so it can be viewed as an extreme case of what happens when the yen swings too suddenly in the wrong direction.

This week is turning out to be no different for other big exporters. Today, camera and copier maker Canon (CAJ), one of the country's top performers in recent years, said it would post its first profit decline in nine years. The company now expects operating profit of $6.2 billion through March 2009, down from $7.6 billion last year. (Canon's shares ended the day down 10.9%.) And JPMorgan (JPM) reckons that Panasonic (PC), which will announce first-half earnings on Oct. 28, will struggle between now and the end of its fiscal year in March 2009 amid weaker demand for flat TVs and other digital gizmos.

Even Japan's car industry is hurting, despite years of building plants overseas to offset currency swings. In a recent note to investors, Nikko Citigroup analyst Noriyuki Matsushima predicted "a sudden and substantial earnings decline" for Toyota (TM). Matsushima expects Toyota to post operating earnings of $11 billion, a 50% decline compared with the year that ended Mar. 31, and $5 billion less than the company's projection. On Oct. 27, Toyota announced it had cut back output in the face of declining demand. In the nine months of this year, the company produced 7.2 million vehicles globally, down 3.2% from last year, while sales fell 4% in the last quarter. And while the worldwide slowdown will likely lead to a further slump in sales, in the short term it's the soaring yen that's likely to hurt earnings. UBS (UBS) estimates that for every one yen rise against the dollar, Toyota's operating earnings drop by about $500 million. Every one yen appreciation against the euro, meanwhile, costs about $85 million.

Rowley is a correspondent in BusinessWeek's Tokyo bureau. Hall is BusinessWeek's technology correspondent in Tokyo.