Many companies envision an exchange rate of about ¥130 to the dollar in 2023, and if the current level of ¥150 to the dollar is maintained, the profits of the 20 leading Japanese companies will increase by nearly ¥2 trillion.
A weaker yen will boost the results of major Japanese companies. Many companies envisage an exchange rate of around 130 yen to the dollar in 2023, and if the current rate is maintained, the profits of 20 major Japanese companies will increase by nearly 2 trillion yen. Although the cost of importing enterprises has increased, the overall side of becoming the east wind is more prominent. Whether companies can use the earnings growth brought about by the depreciation of the yen to promote growth investment, shareholder returns and salary increases will be in focus.
The Nikkei estimated the impact based on the currency sensitivity and expected exchange rates of seven Japanese auto companies, seven precision equipment companies, three electronics companies, and three heavy industry and machinery companies. After October, assuming the current rate of 150 yen to the dollar and 160 yen to the euro, it will generate an increase in profits of about 2 trillion yen. If other factors remain unchanged, the target company’s consolidated operating profit forecast for 2023 will be raised by about 20%.
The most obvious beneficiaries are cars. The benefit of seven large car companies reached about 1.6 trillion yen, accounting for nearly 80% of the whole. Toyota’s operating profit is boosted by Y45bn for every Y1 depreciation against the dollar and Y6bn for every Y1 depreciation against the euro. Toyota envisions an exchange rate of 125 yen to the dollar and 135 yen to the euro in fiscal year 2023 (ending March 2024). In terms of earnings growth from the depreciation of the yen, the combined dollar and euro could be as high as 890 billion yen. The market forecast of Toyota’s operating profit for this fiscal year is 4 trillion yen, which is significantly higher than the company’s expectation (3 trillion yen).
Even at companies with high overseas sales, such as Mitsubishi Heavy Industries, Kawasaki Heavy Industries, Hitachi and Mitsubishi Electric, the weaker yen has been the main driver of earnings.
From the perspective of SONY Group, the depreciation of the yen against the US dollar is a headwind for some businesses, but the depreciation of the yen against the euro has a positive impact. In the three business areas of games, semiconductors and electronics, every 1 yen depreciation of the yen against the euro will boost SONY’s profits by 8 billion yen. Precision equipment companies such as Canon and Ricoh, which do more business in Europe, are also clearly benefiting from the yen’s depreciation against the euro.
From the perspective of the expected exchange rate distribution of the Japanese listed companies as a whole in 2023, about 130 to 134 yen per dollar accounts for nearly 60% of the whole, the highest proportion. 125 to 129 yen accounts for more than 10 percent. In this case, it is expected that the net profit of listed companies in the main Topix (prime) market will also hit a record high for three consecutive years in 2023.
From the perspective of import enterprises, the depreciation of the yen will lead to an increase in procurement costs. Ninety per cent of the company’s goods are made overseas and imported for sale in Japan, and every 1 yen depreciation against the dollar will reduce recurrent profit by 2 billion yen for the whole year. Companies will respond by raising prices and rationalizing measures, but further price increases may lead to a decrease in willingness to spend. Koichi Omura, president of Nishimatsuya Chain, said, we did not take any measures such as sudden increase in foreign exchange reservations because interest rates are unpredictable. It is not easy for companies to respond to the exchange rate.
Still, a 1-yen devaluation against the dollar and euro would boost the combined 2023 current earnings of 200 major Japanese companies by about 0.4 percent, according to Daiwa Securities. While the impact is half what it was more than a decade ago, the benefits are still huge. Daiwa Securities forecasts that the current earnings of 200 companies will increase by 6% from 2022. After July, the exchange rate will be set at 135 yen to the dollar and 150 yen to the euro. Chief strategist Kenji Abe said, If the exchange rate stays at the current level, there is room for upward performance.
The focus is on where the gains from the depreciation of the yen will be used. In the context of Topix requiring companies to improve the PBR (stock price to net worth ratio), listed companies are strengthening shareholder returns, and the dividend will reach a record high of 15 trillion yen in fiscal year 2023. However, in terms of dividends and share buybacks combined as a percentage of net profit, large companies at 40%(the median) are still lower than the US (80%) and Europe (nearly 60%), and there are many investors demanding greater returns.
In addition to growth-sustaining investments such as facility investment, research and development expenses, and mergers and acquisitions, human capital investments such as salary increases and Reskilling that help secure talented people are also essential. At a time of heightened uncertainty in the business environment, such increased investment is likely to boost corporate value and revitalize the domestic economy.