Japanese automakers Toyota, Honda, and Nissan have recently benefited from a historically weak yen, with the first two companies upgrading their full-year forecasts and Nissan reporting its first profit in approximately two years. However, industry analysts caution that external factors could undermine these gains in coming months.
In early August, the U.S. Treasury and Japan’s Ministry of Finance conducted a jointly coordinated yen-buying intervention, marking a historic move following the currency’s decline to 40-year lows exceeding 163 per dollar. This intervention raised concerns among market watchers, as Japanese automakers have traditionally leveraged a weak yen to make their exported vehicles more competitively priced globally. Vincent Sun, senior equity analyst at Morningstar, noted that government efforts to strengthen the yen would present challenges for Japanese automakers.
A stronger yen would present difficult tradeoffs for manufacturers. They could raise prices in foreign markets, risking market-share erosion, or absorb pressure on operating profit through the reduced yen value of foreign earnings. Masahiro Akita, senior analyst at Bernstein, indicated that a 1% change in the yen generally affects Japanese automakers’ operating profit by roughly 2%, with sensitivity varying by company and potentially reaching around 4% for some manufacturers.
Beyond currency concerns, the ongoing Middle East conflict poses additional risks to profitability. Analysts pointed to potential supply chain disruptions and elevated costs as consequences of regional tensions. The Strait of Hormuz and the Red Sea represent critical shipping lanes for Japanese automakers reliant on aluminum and petrochemicals like naphtha for vehicle production. Akita highlighted that the most significant earnings headwind stems from surging raw material costs intensified by the regional conflict, with inflation affecting naphtha, resins linked to oil prices, memory chips, and industrial metals including aluminum, copper, and steel.
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