When the Yen Falls to the 150 Range per Dollar
Automobile Companies' Profits Increase by 1.6 Trillion Yen
Toyota Expected to Gain 890 Billion Yen
Following last year, there is a forecast that Japanese export companies will experience an earnings surprise again this year due to the unprecedented yen depreciation. It is estimated that the additional operating profit of the top 20 listed companies alone will reach 2 trillion yen (18.0272 trillion KRW). The market is closely watching whether Japanese companies will use this earnings windfall for shareholder returns or capital investment.
The Nihon Keizai Shimbun selected 7 automobile companies, 7 precision machinery companies, 3 electronics companies, and 3 heavy machinery companies by industry to investigate the impact of the weak yen against the dollar. The survey estimated that if the yen depreciates to 150 yen per dollar, their operating profits for the 2023 fiscal year would increase by 2 trillion yen compared to previous estimates. This is about 20% higher than each company's forecast.
Among them, the increase in operating profit of automobile companies reached 1.6 trillion yen, accounting for 80% of the total. Toyota Motor Corporation set its expected exchange rate for the 2023 fiscal year at 125 yen per dollar. Accordingly, if the yen depreciates by 1 yen against the dollar, Toyota will achieve an additional 45 billion yen in operating profit annually compared to expectations. Nihon Keizai Shimbun predicted that Toyota's additional operating profit due to the weak yen would reach 890 billion yen. Honda and Subaru set their expected exchange rates at 128 yen and 125 yen per dollar respectively, and it was found that their operating profits would increase by 10.5 billion yen and 10 billion yen respectively if the yen depreciates by 1 yen.
Precision machinery companies are also expected to see a significant improvement in their 2023 fiscal year performance due to the windfall from the weak yen. Mitsubishi Heavy Industries, Kawasaki Heavy Industries, and Hitachi Ltd. assumed a dollar-yen exchange rate of 130 yen, and if the yen depreciates by 1 yen, each company could gain an additional operating profit ranging from 1.5 billion yen to 1.8 billion yen.
The impact of improved performance due to the yen depreciation is expected to be observed not only in these 20 companies but also across listed companies in general. According to Nihon Keizai Shimbun, 60% of companies listed on the Tokyo Stock Exchange assumed an exchange rate of 130 to 134 yen per dollar for the 2023 fiscal year. More than 10% of companies set the exchange rate between 125 and 129 yen. Since the current yen value against the dollar is approaching 150 yen, companies that set a lower exchange rate will gain more additional profits from the currency depreciation. Daiwa Securities estimated that if the yen depreciates by 1 yen against the dollar and euro, the ordinary profit of major companies this year will increase by 0.4%.
The market's attention is focused on whether companies will return the additional operating profits to shareholders instead of accumulating them as retained earnings if this earnings windfall occurs. Recently, under the Tokyo Stock Exchange's requirements, listed companies trading below their book value are striving to enhance corporate value. However, the proportion of share buybacks in the net profits of large Japanese companies is only 40%, which is significantly smaller compared to the US (80%) and Europe (less than 60%).
The Nihon Keizai Shimbun explained, "There is a growing call for companies to expand shareholder returns and invest in human capital," adding, "If companies use the cash generated from the weak yen for capital investment, it is expected to enhance corporate value and stimulate the domestic economy."
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