Strong Yen shaves nearly $51bln of top seven Japanese automakers’ profits image

The strong yen will end up wiping out nearly $51-billion in profits from core operations at Japan’s top-seven carmakers over the four years from fiscal 2008, the business daily newspaper Nikkei reports.

In the central bank’s Tankan survey, the diffusion index measuring sentiment among big makers such as carmakers and high-tech firms dropped to minus 4 from September’s plus 2 for the first decline in two quarters.

Domestic automakers, which are being squeezed by the extreme rise in the yen’s value, are seeking to cut production costs by buying more parts from overseas.

Some economists fear Japanese parts makers will be forced to relocate plants overseas or go out of business if the trend continues. Economists say this could lead to the complete hollowing-out of the Japanese automobile industry.

Japan’s top automaker expects operating profit to fall 57 percent to 200 billion yen in the year to end-March, well below a consensus forecast of 419 billion yen in a survey of 23 analysts by Thomson Reuters.

Toyota said the floods accounted for 120 billion yen of the downward revision to operating profit, while the yen’s strength, which makes exports less competitive and eats into overseas profits when brought back to Japan, cut another 190 billion yen.

HONDA plans to shift a major chunk of its manufacturing to North America over the next two years, bulking up production capacity in the region by as much as 40 per cent to combat a strengthening yen.

Nissan Motor Co. Chief Executive Officer Carlos Ghosn said Japan’s second-largest carmaker will gradually shift production to Thailand, China and Mexico to mitigate the impact of the strong yen.

It’s “difficult to make an investment in a country with no return,” Ghosn said at the Tokyo Motor Show last month.

“The yen is a huge handicap for exporters from Japan.”

A stronger currency makes exports less competitive overseas and so the government periodically rattles its sabers, warning traders it will strike if the currency rises too rapidly.

The US Treasury on Tuesday criticized Japan’s interventions to halt the yen’s rise in the last six months, saying they were unnecessary and that Tokyo would do better to strengthen its domestic economy and competitiveness.

The dollar stood at 77.82 yen, slightly lower than 77.88 in New York late Tuesday.

The euro was almost flat at $1.3069 and 101.70 yen, compared with $1.3070 and 101.77 yen in New York.