The latest quarterly earnings reports from Toyota, Honda, and Nissan all benefited from the yen being at historic lows. Toyota and Honda raised their full-year profit forecasts, while Nissan recorded its first profit in about two years. However, the external environment is unlikely to remain this favorable going forward.
The yen fell to a 40-year low, briefly breaching the 163 yen per US dollar mark. Against this backdrop, the US Treasury and Japan's Ministry of Finance executed a rare coordinated yen-buying intervention in early August, a move with significant implications. Japanese automakers have historically relied on a weak yen to lower the selling price of exported vehicles, boosting their global competitiveness; therefore, this intervention has raised market alarms.
Vincent Sun, a senior equity analyst at Morningstar, stated, "If the government's intervention is aimed at pushing the yen higher, it would be negative for Japanese automakers." Analysts point out that a stronger yen would force carmakers into a dilemma: either raise prices in overseas markets, risking a loss of market share, or see their overseas revenue shrink when converted back to yen, thereby squeezing operating profits.
Masahiro Akita, a senior analyst at Bernstein, noted, "For every 1% change in the yen's exchange rate, the operating profit of Japanese automakers is generally affected by about 2%. However, sensitivity varies across companies, with some seeing an impact of around 4%."
Analysts also believe that the ongoing conflict in the Middle East will cause further trouble. Analyst Sun mentioned that the conflict could further disrupt supply chains and drive up costs. The Strait of Hormuz and the Red Sea are crucial shipping routes for Japanese automakers, as the aluminum, naphtha, and other petrochemical raw materials needed for vehicle production are transported through these waterways.
Akita stated, "The biggest negative factor for automakers' profitability is the surge in raw material costs, which is further exacerbated by the ongoing conflict in the Middle East." He added, "Naphtha, oil-linked resins, memory chips, and industrial metals like aluminum, copper, and steel—essentially all key production factors are seeing price increases, creating a comprehensive negative impact on industry profitability."
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