The depreciation of the yen supports the performance of 34 Japanese companies

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International Business News  –  The depreciation of the yen is supporting the performance of Japanese listed companies. According to the statistics of 34 major Japanese companies that released their April-June 2022 financial reports as of the end of July, the effect of the depreciation of the yen on boosting profits exceeded 240 billion yen. 16% of the net profit of 34 companies. Helping to resolve the negative impact of rising raw material prices, some companies have successively raised their performance forecasts for fiscal year 2022 (as of March 2023).

The Nikkei surveyed a total of 48 companies, including the Nikkei Average and Nidec, which has reported earnings as of July 29. Among them, 34 companies recorded the amount of foreign exchange impact and exchange profit and loss in the financial statement explanatory materials and profit and loss statement. Against the background of the interest rate difference between Japan and the United States brought about by the US interest rate hike, the yen has depreciated. The average exchange rate in the mid-term from April to June 2022 is 1 US dollar to nearly 130 yen, a depreciation of 20 yen compared with the same period of the previous year.

As the yen weakens, net income from exports and yen-denominated earnings of overseas subsidiaries will swell, with “businesses such as automobiles and machinery clearly benefiting,” said Akichi Okamori of Sumitomo Mitsui DS Asset Management. On the other hand, the price of imported products will rise, which will become a factor that squeezes profits for domestic demand-oriented enterprises. The total net profit of the 34 companies from April to June 2022 increased by 11% over the same period of the previous year to 1.5407 trillion yen. Without the effect of the yen’s depreciation pushing up profits, there is a high probability of a decline in profits.

Among the 34 companies, the depreciation of the yen had a positive effect on 28 companies (282.5 billion yen). The most obvious effect of pushing up profits is Murata Manufacturing Co., Ltd., which pushed up operating profit by 30 billion yen, and at the same time, the foreign exchange gains brought by the reassessment of foreign currency-denominated assets reached 12 billion yen. The proportion of domestic production is relatively high, and overseas operating income is relatively high, and profits are easily improved due to the depreciation of the yen. Consolidated net profit from April to June 2022 was affected by higher raw material prices, which decreased by 3% compared with the same period of the previous year. If there was no depreciation of the yen, the profit drop would have been even greater.

In the electronics industry, where overseas operating income is relatively high, many companies have achieved profit growth due to the effect of the depreciation of the yen. Taking Nidec as an example, since the positive effect of the depreciation of the yen is higher than the negative factors such as rising raw material prices, the net profit from April to June 2022 hit a record high. Nitto Denko’s net profit from April to June 2022 increased by 27% to 26.4 billion yen, and the effect of the depreciation of the yen pushing up profits reached 14.5 billion yen in terms of operating profit.

In addition, it supports the earnings of vehicles facing headwinds such as supply constraints. From the perspective of Nissan, in terms of operating profit, the effect of the depreciation of the yen pushing up profits reached 25.7 billion yen. This offset a decrease in profit (50.7 billion yen) due to higher prices of raw materials such as steel and resin. Judging from Mitsubishi Motors, which has a record high net profit from April to June 2022, based on operating profit, the effect of the exchange rate pushing up the profit will reach 17.5 billion yen, and the non-operating income will also gain 17.2 billion yen.

In view of the current exchange rate market, some companies have raised their annual performance forecasts one after another. When Mitsubishi Motors released its April-June earnings report, it adjusted the expected exchange rate to 125 yen per dollar, down 3 yen from the beginning of the period. A weaker yen boosting profits will intensify, raising its full-year forecast.

Advantech adjusted its net profit forecast for fiscal 2022 to 130 billion yen, up 49 percent year-on-year, up 17.5 billion yen from its previous forecast. The depreciation of the yen became the factor that pushed up profits, further raising previous expectations for record profits. In the field of international shipping, where U.S. dollar settlement is the mainstream, the market for superimposed container ships is strong, and the three giants, Nippon Yusen, MOL and Kawasaki Kisen raised their net profits.

On the other hand, from the point of view of domestic demand-oriented companies, etc., the depreciation of the yen leads to the deterioration of import accounting, which is a headwind. Taking Tokyo Gas as an example, the depreciation of the yen from April to June 2022 will lead to a drop in profits of more than 11 billion yen. NEC was affected by the depreciation of the yen, and the cost of purchasing parts ballooned, resulting in a 500 million yen drop in profit.

Shingo Iide of the Nikkei Research Institute said in the April-June earnings report of Japanese companies that “profits are improving due to the depreciation of the yen, mainly exporting companies.” However, the exchange rate fluctuated violently, and the yen rose to 130 yen against the US dollar on the 2nd, the highest level in 2 months. Depending on future exchange rate trends, the effect of boosting profits may also weaken.