The yen-dollar exchange rate has recently dropped by about 10 yen, falling below the expected rates applied to the earnings forecasts of more than half of Japan's major companies. Approximately 90% of the profit increase for 20 major manufacturers in the April to June period was due to the weaker yen, indicating that the yen's appreciation could negatively impact manufacturing performance.
According to the Nihon Keizai Shimbun (Nikkei) on September 11, a report from financial information firm QUICK revealed that among 360 major listed companies in Japan that disclosed their expected exchange rates, 150 set their rates for the 2026 fiscal year (April 2026 to March 2027) at 155 to 159 yen per dollar, while 35 companies anticipated rates of 160 to 164 yen. The current yen-dollar exchange rate (153 to 154 yen) is lower than the expected rates of 185 companies, which account for 51.4% of the total.
The yen-dollar exchange rate approached 164 yen in late July but fell to the low 155 yen range following a joint intervention by the U.S. and Japan. It rebounded to the 160 yen range at the end of August but has since plummeted to the 153 to 154 yen range this month. Companies have been adjusting their expected rates upward, reflecting the 160 yen rate from late July when earnings reports for the April to June period began to be released.
Toyota Motor Corporation raised its expected exchange rate from 150 yen to 160 yen during its earnings announcement for the April to June period last month. For every 1 yen decrease in the yen-dollar exchange rate, Toyota's annual consolidated operating profit decreases by approximately 50 billion yen (about $435 million). Hitachi, Fujifilm Holdings, and Seiko Epson also increased their expected rates to 160 yen, 156 yen, and 155 yen, respectively, in their latest earnings announcements.
Kenji Abe, chief strategist at Daiwa Securities, estimates that a 1 yen decline in the yen-dollar exchange rate results in a roughly 0.3% decrease in the ordinary profits of all listed Japanese companies. Including the impact of the yen's strength against the euro, the decline could be about 0.4%. This is due to a reduction in the yen-denominated value of overseas earnings and a deterioration in export profitability.
Japanese listed companies reported strong earnings for the April to June period, driven by increased demand for AI semiconductors and the benefits of a weaker yen. The operating profits of 20 major manufacturers in the automotive, precision instruments, electrical and electronics, and heavy machinery sectors increased by a total of 779.8 billion yen (approximately $6.8 billion) compared to the same period last year, with about 90% of this increase attributed to the weaker yen.
TDK, which generates over 90% of its sales from overseas, saw its operating profit rise by 29.8 billion yen, with 11.3 billion yen coming from the weaker yen. Mitsubishi Electric, which has 57% of its sales from overseas, reported an adjusted operating profit increase of 50.5 billion yen, with 22 billion yen attributed to the weaker yen.
Mazda returned to profitability in the April to June period, but without the yen depreciation benefits, it would have reported a loss. Mitsubishi Motors also faced an operating loss when excluding currency effects. The Nikkei noted that the weaker yen has masked the structural weaknesses faced by automotive companies. Tetsuya Fujimoto, Mazda's chief financial and accounting officer, stated during the earnings announcement press conference, "We are pushing forward with structural reforms and cost-cutting activities, and it is crucial to build resilience against currency fluctuations."
However, the yen's appreciation is not detrimental to all Japanese companies. It reduces the costs of importing raw materials, fuel, and food, supporting domestic businesses. Importers like Nitori Holdings, which brings furniture and household goods produced overseas into Japan, benefit from a stronger yen.
The Nikkei forecasts that the earnings of companies listed on the Tokyo Stock Exchange's Prime Market (excluding finance) will increase by over 10% year-on-year for the 2026 fiscal year, despite the yen's strength, due to ongoing strong performance in semiconductor and data center-related companies driven by AI investments from U.S. tech firms. However, Hideaki Ide, chief equity strategist at the Nissay Asset Management Research Institute, cautioned that while manufacturing can withstand a yen-dollar rate of 150 yen, if the rate falls below that, the overall performance of the manufacturing sector will decline, even if semiconductor-related companies continue to perform well.
Meanwhile, the market is closely watching the Bank of Japan's monetary policy meeting scheduled for September 17-18. If comments suggesting an acceleration in interest rate hikes emerge from the Bank of Japan, the yen-dollar exchange rate could fall further. Conversely, concerns over Japan's fiscal deterioration may exert potential selling pressure on the yen. The Nikkei predicts that the exchange rate will experience significant fluctuations in the near term. Ayako Sera, chief economist at Mitsui Sumitomo Trust Bank, noted that the underlying political uncertainties, including messages from U.S. and Japanese financial authorities, contribute to the high volatility of the exchange rate.
* This article has been translated by AI.
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