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abenomics in action

Japan’s leading exporters say the weak yen is helping them, to a point

A slew of Japanese companies announced earnings today, including Nissan, Panasonic, Hitachi and Nippon Steel & Sumimoto Metal. Here’s a roundup of how Abenomics—the country’s aggressive monetary easing policy that has led to a sharp drop in the value of the yen—affected their performance:

Weakening yen definitely helped widen profit margins. The falling yen helped Nissan post net profit of ¥110 billion in the first quarter of the year (pdf), compared with ¥75.34 billion ($740 million) for the same period in 2012. The weaker yen contributed ¥43.2 billion of its ¥174.4 billion in operating profit in Q1 of this year, which rose nearly 50% from the same period last year.

Panasonic also saw its operating profit for the year ending March 31 more than triple, compared with the previous fiscal year, hitting ¥160.9 billion, even as sales fell nearly 7%.

Lower relative pricing for exports is also boosting optimism. Hitachi—whose business includes consumer electronics and computer systems—projected a big bounce in its operating profits for the next fiscal year (starting in April 2013). The company expects a 20% rise in net profit, on a revenue increase of 1.8% (paywall). Consumer electronics giant Panasonic, meanwhile, reported a similarly rosy forecast for its FY 2013 operating profit.

The weaker yen may encourage Japanese industrial companies to ramp up production. Nippon Steel & Sumimoto Metal Corp. saw its net loss shrink compared with what it had projected (paywall). “First of all, a weaker yen creates some resistance to [cheap] steel imports flowing into Japan,” Katsuhiko Ota, company executive vice president, said. “Secondly, [the currency factor] gives incentives to steel product users to ramp up production in Japan.”

Let’s not forget the yen’s effect on imports, though. Nippon Steel & Sumimoto Metal faced rising raw material costs as result of the weakening yen. Panasonic also called out that import costs on appliance and energy products from China will go up, offsetting some of the benefit to its export sales (paywall).

But, then again, maybe the yen’s not even “weak.” Many have also pointed out that it might be finding its proper level, as its strengthening since global quantitative easing programs elsewhere made it perhaps too strong. Nissan CEO Carlos Ghosn appears to be in that camp (paywall).

“We’ve been begging to remove the headwinds of the exchange rate. We’ve been begging since 2008. Five years later, it’s happening so we applaud it,” said Ghosn, adding that its current ¥101 to the dollar value puts it in “neutral territory.”

But the cheaper yen is by no means a cure-all. Despite the yen benefit, Nissan still recorded minimal profit growth, particularly compared with Toyota’s Q1 blowout. Its net income for the first quarter was ¥110.1 billion, up from ¥75.3 billion in the same period in 2012.

Part of that’s because Nissan weathered setbacks due to the 2011 tsunami/earthquake better than Toyota did. But it turns out the benefits of the cheapening yen weren’t nearly enough to offset a pronounced slowdown in China sales, its second-biggest market. That’s because of rising anti-Japanese sentiment due to the territorial dispute over the Senkaku/Diaoyu Islands. And Ghosn said the biggest worry wasn’t even China—it was Nissan’s lackluster performance in the US, its top market, due to increased competition and struggles to ramp up production there.

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