TOKYO -- The yen's surge against the dollar and the euro could cost leading Japanese exporters 750 billion yen ($7.13 billion) in operating profit in fiscal 2020.
This comes on top of the drop in demand for their products caused by the novel coronavirus outbreak.
Alarm over the outbreak's economic impact has driven traders to the safety of the yen, which rose Monday to highs beyond 102 to the dollar -- its strongest in more than three years -- and close to 116 to the euro. The average forecast of around 350 Japanese companies puts the Japanese currency at 108.4 to the greenback and 122.1 to the euro for the year ending March 31.
If the yen stays around 102 to the dollar and 117 to the euro in fiscal 2020, the hit to aggregate operating profit at 20 major exporters would equal roughly 10% of their projected total for fiscal 2019.
The damage would be especially severe in the export-heavy auto industry. Seven major automakers would see an estimated 580 billion yen drop in total profit, with Toyota Motor accounting for just over half at 297 billion yen. The yen's strength against the dollar alone would deflate profit by 75 billion yen at Nissan Motor -- 88% of its fiscal 2019 total.
Canon would be hardest hit among precision equipment makers at 26 billion yen for the year through December. Olympus, which generates 80% of its revenue overseas, would suffer a 16 billion yen hit for the fiscal year ending March 2021.
For Sony, the impact of appreciation against the dollar would be negligible, but the yen's rise against the euro would be a 20 billion yen drag.
Structural changes made in the wake of the 2008 financial crisis, such as moving production abroad, have reduced many companies' vulnerability to currency swings.
Daiwa Securities estimates that each 1-yen fluctuation against the dollar moves total projected pretax profit at 200 major companies by 0.45% now, compared with 0.98% in June 2009.
Exporters are increasingly handling production abroad, sourcing parts and materials from overseas and settling transactions in yen.
Mazda Motor's construction of production facilities in Mexico in 2014 has helped shield it from a stronger yen. Each 1-yen appreciation against the dollar lowers operating profit by an estimated 600 million yen this fiscal year, 800 million yen less than before the plant came online.
Seiko Epson gets a 700 million yen boost to profit for each 1-yen rise against the greenback this fiscal year, thanks to its ramping up of overseas procurement.
A stronger Japanese currency also benefits domestically oriented companies that buy parts and materials from overseas. Papermaker Oji Holdings would book a profit increase in the billions of yen in fiscal 2020 if exchange rates stay at current levels, thanks to lower materials costs.
Japan Airlines and ANA Holdings, which buy fuel in dollars, would pay less in yen terms, with JAL's annual fuel costs dropping by an estimated 13 billion yen. Companies such as apparel seller Shimamura, which procures more than 90% of its stock from foreign sources, would enjoy fatter profit margins.
But in many cases, the benefits of a strong yen are offset by the underlying reason for the market shift: the coronavirus, which is cutting into consumer spending as many shoppers stay home. Both JAL and ANA have scaled back international and domestic flights amid shrinking global demand for air travel.