Bloomberg News

Abe Euphoria Lifts Toyota, Weaker Yen Revives Japan Inc.

February 05, 2013

Toyota Senior Managing Officer Takahiko Ijichi

Toyota Senior Managing Officer Takahiko Ijichi said in a briefing in Tokyo today, “Ever since the new government took control, it feels as though Japan is filled with the spirit for economic revival.” Photographer: Kiyoshi Ota/Bloomberg

Toyota Motor Corp. (7203), the world’s largest carmaker, counts on the Camry sedan and the Prius hybrid to outsell other automakers. For profits, it’s counting on Prime Minister Shinzo Abe and his campaign to cheapen the yen.

“Ever since the new government took control, it feels as though Japan is filled with the spirit for economic revival,” Toyota Senior Managing Officer Takahiko Ijichi said in a briefing in Tokyo yesterday. “Some say that they can’t feel any real substance in the whole ‘Abenomics’ phenomenon, but as a result, it’s weakened the yen and boosted stock prices.”

Toyota, which yesterday raised its profit forecast to a five-year high, is leading the revival of Japan Inc. (NKY) as the weakening local currency attracts investors and drives up stocks to levels last seen in 2008. Behind the recovery is the new prime minister, whose calls for monetary easing have helped the yen weaken against all other currencies since mid-November, making Japanese products from cars to vacuum cleaners more profitable overseas.

“Abenomics has proven to be a great plus to Japanese companies,” said Masayuki Kubota, who helps oversee the equivalent of $1.8 billion at Daiwa SB Investments Ltd. in Tokyo. “The biggest result we’re seeing is in the foreign exchange and stock market.”

Japan’s biggest manufacturer raised its forecast for net income in the year ending March by 10 percent to 860 billion yen ($9.2 billion).

Shares Gain

Toyota rose 4.6 percent to 4,750 yen as of 9:28 a.m. in Tokyo trading, headed for its largest gain since Jan. 4. The Nikkei 225 Stock Average added 2.5 percent.

Nomura Holdings Inc. raised its target price for Toyota 21 percent to 5,800 yen following the earnings announcement. The automaker’s earnings may further outperform with the weaker yen added to strong sales in North America and Southeast Asia, Masataka Kunugimoto, a Tokyo-based analyst at the broker, wrote in a report dated yesterday.

Toyota shares have gained 54 percent in Tokyo trading since the yen began tumbling in mid-November, adding more than $50 billion in market value in that period. That’s more than General Motors Co. (GM:US)’s total market capitalization.

The yen began tumbling in November as Abe -- then running for office -- called for “bold monetary policy” to beat deflation and drive down the value of the yen. The Japanese currency slid yesterday after Bank Of Japan Governor Masaaki Shirakawa said he will step down on March 19, almost three weeks before his term was due, accelerating a leadership transition that may aid Abe’s campaign for aggressive easing.

Toyoda Ally

The prime minister is turning out to be an ally for Toyota President Akio Toyoda, who for years, struggled through natural disasters, the humbling recall of millions of vehicles and a local currency that had climbed to a postwar high.

Toyoda said before Abe gained power that he hoped Japan’s next political leader would be “someone who understands what businesses have been going through.”

The car executive, also chairman of the Japan Automobile Manufacturers, said last month that the industry is “beginning to see the light” as the yen extended its slide.

Relief for Japan’s automakers from the yen comes after half a decade of unfavorable exchange rates drained profits -- Credit Suisse Group AG estimates the total cost at 3.68 trillion yen in the five years ended March 2012 -- and allowed South Korea’s Hyundai Motor Co. (005380) to gain market share. They may recoup about 1 trillion yen this fiscal year and the next based on current exchange-rate trends, according to the broker.

Exchange Rates

Toyota revised its exchange-rate assumptions to 81 yen to the dollar and 104 yen versus the euro. It had previously based its annual financial projections on 79 yen to the dollar and 100 yen to the euro.

The yen traded at 93.79 against the dollar, a 2 1/2 year low, before trading at 93.54 as of 9 a.m. in Tokyo and reached 127.42 against the euro, the lowest since April 2010, before trading at 127.10. The currency may end the year at 93 versus the dollar, according to the median of forecasts compiled by Bloomberg, as Abe’s administration seeks to fight deflation and revive Asia’s second-largest economy.

In December, the number of Japanese manufacturing jobs declined to below 10 million for the first time since June 1961 as years of yen appreciation weakened the nation’s export competitiveness.

Brighter Outlook

The brightening outlook for Japan’s biggest company is spreading to its supply chain. Denso Corp. (6902), Toyota’s biggest supplier, last week raised its profit forecast 16 percent to a five-year high. Toyota Boshoku Corp. (3116), Tokai Rika Co. (6995), Koito Manufacturing Co. (7276), Aisin Seiki Co. (7259) and Toyoda Gosei Co. (7282) also increased their earnings projections in the past week.

Autos aren’t alone in benefiting from the yen as companies from Nintendo Co. (7974) to Japan Tobacco Inc. to sportswear maker Asics Corp. raised their profit forecasts and Panasonic Corp. (6752) reported earnings that exceeded estimates.

Such optimism comes at the expense of companies in Korea, where the won strengthened 4.4 percent against the dollar last quarter, more than any other major Asian currency, according to data compiled by Bloomberg. Hyundai Motor Co. and smaller affiliate Kia Motors Corp. both reported quarterly profit declines last month and expressed concerns about worsening exchange rates.

Market Share

The reversal of fortunes is evident in the U.S. market, where Hyundai’s market share has dropped in three out of the past four months to the lowest since December 2011, according to data compiled by Bloomberg Industries. By contrast, Toyota’s share has risen for two straight months to the highest since May 2012.

It’s not just the U.S. where Toyota is gaining.

The maker of the Corolla outsold General Motors Co. and Volkswagen AG (VOW3) globally last year, regaining the industry sales lead after ceding it to GM in 2011. Toyota has forecast since late December that its deliveries -- including those of its Daihatsu Motor Co. (7262) and Hino Motors Ltd. (7205) units -- will reach 9.91 million vehicles in 2013.

For the fiscal year ending March, the company yesterday raised its forecast for deliveries by 100,000 vehicles to 8.85 million units.

“Toyota is Japan’s largest company and its shares can be a benchmark for all Japanese companies,” said Hirochi Nishi, an equities manager at SMBC Nikko Securities Inc. in Tokyo. “Considering their conservative view on currency rate forecast, I think we can expect Toyota’s profit to rise further.”

To contact the reporters on this story: Anna Mukai in Tokyo at amukai1@bloomberg.net; Masatsugu Horie in Tokyo at mhorie3@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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