The yen's value rose to its highest level in about seven months on September 8, falling to the 152 yen per dollar range during trading. This strengthening of the yen has raised concerns about declining profitability in the Japanese automotive industry. With a significant portion of revenue generated overseas, the conversion of foreign earnings into yen results in lower amounts. Most companies had based their performance forecasts on a weaker yen, increasing the pressure from currency fluctuations.
Toyota, the world's largest automaker, is particularly sensitive to exchange rate changes. According to Bloomberg, the company estimates that for every 1 yen drop in the dollar-yen exchange rate, its annual operating profit decreases by approximately 50 billion yen (about $437 million). Toyota has assumed an average exchange rate of 160 yen per dollar for the current fiscal year ending in March 2027, indicating a significant gap from the current rate.
Suzuki also projected last month that the yen would weaken further compared to May. Bloomberg reported that all Japanese automakers, except Nissan, have set their exchange rate forecasts for this year's performance higher than the current rate. Nissan has set a lower average exchange rate of 150 yen per dollar for the fiscal year from April 2026 to March 2027.
Japanese automakers have historically applied conservative exchange rates when setting performance forecasts to exceed or easily meet expectations in actual results. They have also mitigated currency risk by producing vehicles and parts directly in key overseas markets.
In fact, Japanese automakers have benefited from a weaker yen in the past. The depreciation of the yen has helped offset some of the cost burdens from U.S. tariffs, high oil prices, and supply chain disruptions. Notably, at the end of June, the yen's value fell to its lowest level since 1986, prompting the U.S. and Japan to jointly intervene in the foreign exchange market for the first time in 15 years.
However, the recent strengthening of the yen has increased uncertainty for Japanese automakers' performance. Masahiro Akita, a senior analyst at U.S. investment bank Bernstein, stated in a recent interview with CNBC that a 1% change in the yen typically impacts the operating profit of Japanese automakers by about 2%.
* This article has been translated by AI.
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