Automakers in Japan get financial lift from exchange rate

TOKYO — Japan's automakers are posting mixed financial results as they fight through the global semiconductor shortage with slumping sales. But as they battle to boost earnings, they are also riding a surprise tailwind that provides a welcome lift: favorable foreign exchange rates.

A weakening Japanese yen has emerged as a windfall for the country's automakers, helping buoy results just when they need it most amid pinched production and derailed deliveries.

As Japanese automakers kicked off earnings season last week, Toyota, Honda, Subaru and Mitsubishi all rode the forex updraft, which may gather pace given U.S. economic trends.

For Toyota and Mitsubishi, the currency bonanza made substantial contributions to profit growth in the July-September quarter. For Honda and Subaru, the exchange gains helped offset the impact of tumbling sales, even though overall profits declined in the period.

Toyota Motor Corp. led the charge, posting a percent jump in operating profit in the July-September period, despite output cutbacks and stagnant sales. Even as supply chain woes continue, Toyota is forecasting near-record-level profits and revenue this fiscal year.

In Toyota's calculus, the home currency has depreciated 4 percent against the U.S. dollar and 5 percent against the euro since last year. At Toyota, exchange rates lifted operating profit by ¥115 billion ($1.03 billion) in the three months to Sept. 30.

The stellar results in Toyota's fiscal second quarter were also helped by reduced spending on spiffs and R&D expenses — even though global retail sales dipped 0.5 percent to 2.51 million vehicles.

Toyota was not alone in cashing in on a foreign-exchange windfall.

Mitsubishi Motors Corp., rebounding from a full-year loss, bounced back to profitability in the July-September period with a big bump from foreign exchange. The gain added ¥9 billion ($80.6 million) to help deliver Mitsubishi's ¥14.6 billion ($130.8 million) quarterly operating profit. Without that forex impact, Mitsubishi's profit would have been down by more than half.

Today, the Japanese yen is trading at its lowest against the dollar since late 2018. The greenback is gaining against the yen amid rising expectations that the U.S. will begin to tighten monetary policy and adjust interest rates, as American policymakers grapple with burgeoning inflation.

Honda Motor Co. said the yen may continue weakening, further propping up future earnings.

"The foreign exchange rate has a big impact on us, and the weak yen is favorable," said Honda Senior Managing Executive Officer and CFO Kohei Takeuchi.

In the July-September quarter, currency effects added ¥36.7 billion ($328.7 million) to Honda's operating profit as the biggest plus factor. But even those windfalls were not enough to offset the blow of plunging revenue as Honda cut back on output and sales suffered in turn.

Honda reported a 30 percent slide in operating profit in the latest quarter, as the chip shortage hammered production and undercut deliveries. Its worldwide deliveries dropped 27 percent to 917,000 vehicles, from 1.25 million a year earlier.

Executive Vice President Seiji Kuraishi said Honda expects the microchip crisis to begin easing early next year, but not in time for the company to recover fully by the end of the current fiscal year on March 31, 2022. "The impact was greater than previous forecast," he said.

As a result, Honda cut its fiscal year earnings and sales outlook.

Joining Honda in downward revisions was Subaru Corp. Global output for Subaru fell 40 percent to 158,000 vehicles in the latest quarter, and sales fell 13 percent to 200,000. Operating profit at the all-wheel-drive niche player dropped 46 percent in the three months to Sept. 30.

But Subaru's pain would have been worse if not for an ¥8.2 billion ($73.4 million) currency bump. For the fiscal year, forex is seen chipping in some ¥30.7 billion ($275.0 million).

Still, the weaker yen is not all positive for Japanese automakers. It also pumps up the costs of acquiring raw materials from overseas. With commodity costs soaring, the yen's weaker purchasing power may only add to that headwind in the long run.

Subaru CEO Tomomi Nakamura expects his company to go gangbusters when the supply crunch relaxes and output returns to normal. U.S. consumers are ready to buy, he said. "If we could have supplied more vehicles to the U.S. in the first half, we could have sold a lot more. So, it is frustrating," he said. "But I think we have laid the groundwork, so we are ready to increase sales and generate more profits when our production recovers."

Naoto Okamura contributed to this report.