Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013
Japanese yen

12666

Weak yen spells strong profits for Japanese companies

RELATED TOPICS​

Shogo Maeda, Head of Japanese Equities, comments on whether a weaker yen is leading to profits for Japanese companies…

Most Japanese companies have now announced results for the fiscal year 2012. The evidence is now clear that the much-publicised policy of Prime Minister Shinzo Abe, dubbed ‘Abenomics’, has reaped rewards for not only share prices but for bottom lines too.

The stockmarket has been booming, despite a recent short-term correction, with the TOPIX up nearly 40% year-to-date. Meanwhile, a weakening yen has given previous anaemic GDP numbers a much-needed boost. Economic data released last week showed that Japan’s economy grew at an annualised 3.5% in the first quarter, beating analyst expectations of a 2.7% expansion. How were earnings received? And what is the outlook for Japanese companies under Abenomics as the fiscal year 2013 kicks off?



Show me the yen



Japanese earnings results for 2012, on aggregate, slightly exceeded the consensus expectations as pre-tax profits were up 9% while after-tax profits increased 23% year-on-year. As for earnings guidance in the upcoming year, it has broadly been in line with our expectations – pre-tax profit looks set to increase 19%, with after-tax gains of 45% year-on-year. However, the guidance comes with two caveats, both of which offer scope for upward revisions. Firstly, there are the usual conservative estimates by banks on their trading profits. Secondly, exporters have drawn up relatively conservative assumptions on foreign exchange rates.

Appreciation of depreciation



For example, median foreign exchange rates assumed by exporters in their earnings guidance are around 93/94 yen to the US dollar and 120 yen against the euro. This is in contrast to the current exchange rates of 102/103 yen and 131/132 yen, respectively. As a result, there is clearly potential for further revisions upwards – a one-yen depreciation against the US dollar can be expected to increase operating profits by 1-2% for aggregate corporate earnings excluding financials.

A particular mention should be given to management guidance for the possible earnings improvement for large trading companies, from which we have taken encouragement. Many of these companies have been lagging the market, mainly due to their exposure to resources and commodities. They’re currently trading at merely 7x the current year’s earnings, while the TOPIX trades at around 16x.



Conclusion



Looking ahead, we see the biggest risk to current earnings expectations as weak global economic growth, particularly in the US. The weakness in China and Europe has, to a large extent, already been factored in by companies. 

Latest News

EFAMA has commented on today’s vote by the European Parliament in favour of a new..
Morgan Stanley Investment Management (MSIM) has announced the launch of the MS INVF Systematic Liquid..
Confidence in the continuing strength of bitcoin and Ethereum is driving wider interest in altcoins..

Related Articles

Juan Nozal, Mapfre Asset Management
Juan Nozal, Fixed Income Portfolio Manager at MAPFRE Asset Management, talks about the outlook for fixed income assets over 2024, in what he predicts will be an outstanding year for this asset class...
Juan Nozal, Fixed Income Portfolio Manager at MAPFRE Asset Management, talks about the outlook for fixed income assets over 2024,..
n response to the increased attention to climate change risk, institutional investors, asset managers, and asset owners in the US are committed to implementing a variety of measures to address climate change and reach their net-zero goals, according to Cerulli Associates...
n response to the increased attention to climate change risk, institutional investors, asset managers, and asset owners in the US..
Lord Hollick, House of Lords
A House of Lords committee has raised “significant concerns” over the role of UK regulators, their ability to operate with genuine independence from government and how they are held to account...
A House of Lords committee has raised “significant concerns” over the role of UK regulators, their ability to operate with..
Rob Edwards, Morningstar
The complexities of assessing performance from responsible investment strategies have been laid bare after Morningstar’s ESG indices delivered a mixed bag in 2023...
The complexities of assessing performance from responsible investment strategies have been laid bare after Morningstar’s ESG indices delivered a mixed..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by