After the global recession, a strengthening yen, recalls, the tsunami and Thai floods, the market value of Japan’s automakers has fallen by 53 percent over the past five years. Now, investors are betting a change in government will give them a boost.
Shinzo Abe, leader of the opposition Liberal Democratic Party expected to win a Dec. 16 election, has vowed to weaken the nation’s currency and boost government spending to stimulate the economy. That has spurred speculation carmakers will see rising profit from exports and increased sales at home.
Abe, who previously served as prime minister when Japan’s automakers were at their peak, on Nov. 15 said the LDP would seek “unlimited” easing from the central bank to weaken the yen. Since then, Nissan Motor Co. (7201) has advanced 14 percent, Honda Motor Co. has jumped 16 percent and Toyota Motor Corp. (7203) has gained 15 percent.
“Abe’s comments have become a turning point,” said Seiichiro Iwamoto, who helps oversee about $33 billion at Mizuho Asset Management Co. “The change in political leadership would be good timing for weakening the yen,” which he said could decline to 84 to the dollar from an average of 79.4 this year and a postwar high of 75.4 in October 2011.
Every one-yen change in the currency’s value against the dollar will shift this year’s operating profit by about 35 billion yen, Toyota estimates.
“I want the nation’s next political leader to be someone who understands what businesses have been going through,” Toyota President Akio Toyoda told reporters this month at a meeting of the Japan Automobile Manufacturers Association, which he heads. “If you look at even just the past five years, the market cap of companies has been cut by half.”
Toyota’s market value surpassed 30 trillion yen in 2007, when the total for Japan’s six biggest carmakers was about 48 trillion yen. The Toyota City, Japan-based manufacturer’s market capitalization now stands at roughly 12 trillion yen, while all six companies are worth about 23 trillion yen.
Shares of Toyota fell 1.3 percent to 3,530 yen at the close on the Tokyo Stock Exchange today, while Honda declined 1.4 percent to 2,728 yen. Nissan dropped 2.9 percent to 783 yen.
Abe, prime minister in 2006 and 2007, led Japan at a time when its automakers had risen to global dominance. Toyota overtook General Motors Co. (GM:US) to become the world’s largest car company and Toyota’s Lexus, Nissan’s Infiniti and Honda’s Acura maintained top rankings in quality surveys.
Abe’s Liberal Democratic Party is leading the ruling Democratic Party of Japan in opinion polls, with 25 percent support from respondents compared with the DPJ’s 16 percent, according to a Nikkei newspaper survey taken Nov. 16-18.
The Liberal Democratic Party on Nov. 21 pledged to achieve nominal economic growth of 3 percent and set an inflation target with the Bank of Japan (8301) of 2 percent should it win the election.
The party’s platform calls for economic stimulus that would include a “large-scale” extra budget. Abe has said the inflation target should be as much as 3 percent.
Still, the most important factor for automakers and other exporters would probably be a softening currency, said Satoshi Yuzaki, general manager at Takagi Securities Co. in Tokyo.
“The biggest boost that Japanese carmakers will be getting is from the possible weakening in the yen,” Yuzaki said.
Any gains, though, could be offset by trouble in China. In September, a dispute over East China Sea islets claimed by both countries led to riots and a boycott of Japanese products that slashed sales of Japanese cars in China.
Abe has said Japan should build on the islands, fueling concern that the dispute could escalate if he’s elected. He has also met with the Dalai Lama, called for democracy in Tibet and visited a war shrine in Tokyo that China says should be avoided because it honors convicted war criminals.
Toyota deliveries in China during the July-to-September period tumbled 23 percent, the biggest quarterly drop on record, according to company figures dating to 2002. Nissan, the biggest Japanese carmaker in China, and Honda both cut profit forecasts for the year ending March 2013 by about 20 percent, citing the slump in China sales.
Abe has vowed to restore the competitiveness of exporters at a time when Japan is suffering its worst year for overseas sales since the global contraction in 2009. Europe’s crisis, China’s slowdown and the dispute with the Chinese have hurt manufacturers and deepened the risk of a recession.
Exports totaled 53.5 trillion yen for January through October, down 2.3 percent from the same period in 2011, according to data compiled by Bloomberg from Finance Ministry figures. The trade deficit for 2012 so far is a record 5.3 trillion yen.
Carmaker troubles can mostly be blamed on the strength of Japan’s currency, according to Mark Templin, global marketing chief for Toyota’s luxury Lexus brand.
“We went through an economy that tanked, an industry that dropped 40 percent, a recall crisis, and all the natural disasters, one after another,” Templin said in an interview in Palo Alto, California, earlier this year. “But the biggest challenge we face, that we’ve ever faced, is the currency.”
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