As yen weakens, Japan gets boost over Korea

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As yen weakens, Japan gets boost over Korea

Japan Inc. is coming back at the expense of Korea Inc.

Twelve analysts covering Toyota Motor, Japan’s largest manufacturer, have raised their earnings estimates for next fiscal year as the yen dropped against all major currencies in the past month.

By contrast, shares of Hyundai Motor and Samsung Electronics fell last week after the Korean exporters voiced concerns about the rising won.

As Japanese companies prepare to announce earnings - Toyota and Sony are among hundreds reporting by the end of next week - investor confidence in the world’s third-largest economy is back. The benchmark Nikkei 225 Stock Average is near its highest since April 2010 as the yen’s slide helps Japanese makers of cars and ships compete against their Korean rivals in markets such as the U.S. and Europe.

“Automakers are the ones that can fully benefit from a weaker yen, and the results this time may spur expectations for a better period next fiscal year,” said Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan, a Tokyo-based hedge fund advisory firm. “A weaker yen will be a tailwind.”

The benefits of the weaker yen will begin showing during the current quarter and Japanese companies will probably forecast a recovery in the second half of next fiscal year, Kikuchi said.

Among corporate chieftains regaining optimism is Toyota President Akio Toyoda, who said this month that domestic carmakers are “beginning to see the light” with the yen. About 15 months ago, the 56-year-old executive, who’s also chairman of the Japan Automobile Manufacturers Association, was so pessimistic that he warned Japanese carmakers may collapse under the weight of a local currency that had surged to a postwar high of 75.35.

Exporters are now getting some help. The Bank of Japan last week announced a shift to Federal Reserve-style open-ended easing, and Prime Minister Shinzo Abe, who took office last month, has called for “bold monetary policy” to beat deflation and drive the yen lower.

“If current yen depreciation were to continue, this could have a marked effect,” Bank of America Merrill Lynch said in a report on carmakers last week. “We can look for an improvement in competitive strength and high earnings growth.”

At Toyota, Asia’s biggest carmaker, net income for the year ending March 31 may triple to a five-year high of 890.7 billion yen ($9.8 billion) and climb to 1.17 trillion yen a year later, according to the average of 24 analyst estimates compiled by Bloomberg. Toyota’s annual operating profit gains by 35 billion yen for every 1 yen drop in the value of the Japanese currency against the dollar, according to the carmaker.

The ratio of Toyota’s share price to sales has gained 50 percent since Oct. 11 and is at the highest level since March, according to data compiled by Bloomberg. The Japanese carmaker’s price-to-sales ratio is double that of General Motors, the biggest premium versus the Detroit-based rival since September, and 1.6 times that of Ford Motor, the data show.

“Toyota and other carmakers have been forced to fight with disadvantages including a strong yen,” said Ichiro Takamatsu, a fund manager at Tokyo-based Bayview Asset Management. “Their businesses have been hindered by the currency, the March 11 earthquake and floods in Thailand. The environment has improved because one of those factors is starting to disappear.” Bloomberg
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