The big story of the Japanese earnings season so far: the contrast between non-exporters, many of which have posted respectable first-half figures, and exporters, most of which have not. Toyota is a case in point. Japan’s biggest company by market capitalisation seems to be suffering from the classic double-whammy of a strong currency. Not only are its repatriated profits worth less, it is having to work harder to earn them.
Between April and September Toyota built more than half of its vehicles within its own borders, a significantly higher proportion than Honda or Nissan, which produce about two-thirds overseas. President Akio Toyoda is certainly aware of the need to diversify: in July he announced plans to combine the group’s carmaking units in northern Japan. In the meantime not even growing demand in India, Indonesia and Thailand, where Toyota sold more vehicles this year than last, can offset serious slumps elsewhere. In the US for example, Toyota led a fall in Japanese automakers’ market share of light-vehicle sales, from a combined 34 per cent in the first 10 months last year to 30 per cent this year. Supply shortages after the March tsunami certainly did not help. But strong unit sales growth from Hyundai (+ 20 per cent) and Kia (+ 35 per cent) suggest currencies played a part. The yen’s rise against the won during Toyota’s latest reporting period, after all, was a whopping 18 per cent.
The question now is how much more of this can Japan Inc take. As Mizuho notes, the current crop of full-year earnings forecasts suggests that the more a company sells overseas, the worse its outlook. It seems significant, too, that last weekend’s gathering of G20 finance ministers broke up without even a hint of a rebuke for Japan’s biggest ever one-day currency intervention, carried out days earlier. The G20’s reflexive hostility to non-market determined exchange rates could be another casualty of the eurozone sovereign debt crisis. If so, more yen selling by the Bank of Japan is surely in the offing.