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Forex

Japan Inc. softening its outlook for the yen

Euro's strength leaves room for better-than-forecast results

The euro is trading at much stronger levels against the yen than expected.

TOKYO -- Japanese companies are adjusting their assumed exchange rates to reflect the yen's weakening trend, brightening earnings prospects for export-heavy corporations.

The modified average assumed rate for the current fiscal year stands at about 110 yen per dollar, roughly in line with the market, and 118 yen per euro, much stronger than the current trading rate of around 130 yen. The previous averages were 109 yen to the dollar and 117 yen to the euro. Many of the companies that revised their outlook had initially made conservative forecasts.

Toyota Motor softened its assumed rate from 105 yen to 110 yen per dollar and from 115 yen to 124 yen per euro. The automaker expects consolidated operating profit to fall 7% from the prior year to 1.85 trillion yen ($16.7 billion), a 250 billion yen improvement from its prior guidance. Of that, 220 billion yen can be attributed to the change in exchange rates.

Honda Motor weakened its assumed rate by 2 yen to 107 yen per dollar. Operating profit for the current year is now expected to slide 14% to 725 billion yen, 20 billion yen higher than the initial estimate thanks in large part to the softer yen forecast. Maritime shipper Nippon Yusen also weakened its expectations by 2 yen to 110 yen per dollar.

Pretax profit at major corporations grows by 0.5% for every 1 yen softening against the dollar and by 0.1% for each 1 yen decline against the euro, according to estimates by Daiwa Securities. Japanese companies with a presence in Europe could be in for a windfall should the yen continue to trade around its current level against the euro.

Musical instrument maker Yamaha also weakened its assumption from 120 yen per euro to 124 yen. Although the change boosted full-year operating profit expectations by 2 billion over its previous guidance, the new rate is still conservative, leaving room for further upgrades.  

Printer manufacturer Seiko Epson, meanwhile, softened is stance from 110 yen per euro to 123 yen. The company's annual operating profit is lifted by 1 billion yen for every 1 yen depreciation against the euro.

However, there are also many companies that did not revise their assumed rates for the euro. Casio Computer stayed at 118 yen per euro, and office equipment maker Ricoh stood pat at 115 yen. "Future exchange rates are difficult to predict," said Akinori Takagi, senior executive managing officer at Casio. 

"There are a good amount of companies sticking to conservative assumed exchange rates over concerns about geopolitical and other risks," explained Kazuhiro Takahashi, an equity strategist at Daiwa Securities. 

On the other hand, a stronger yen is a plus for companies that import raw materials. Tokyo Gas and Hokuriku Electric Power, which procure liquefied natural gas in dollars, both strengthened their assumed rates by 1 yen to 114 yen against the greenback. Nichirei, which imports chicken and beef, remained at 116 yen per dollar. Companies reliant on domestic demand are planning for weaker rates than the current market, allowing them to absorb any damage should the yen continue to soften.

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