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Yen's gains hamper recovery in Japan


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Yen's gains hamper recovery in Japan

Toyota, Panasonic profits to be pinched



Japan's recovery is being undermined by the popularity of its currency.

The yen has averaged 90.92 against the dollar in 2010, putting it on course for its strongest year against the U.S. dollar since currencies began trading freely in 1971, according to data compiled by Bloomberg News.

That will limit profit at Toyota, Panasonic and other companies scheduled to report earnings over the next two weeks even as exports have climbed for the past seven straight months.

South Korean competitors including Samsung Electronics and HyundaiMotor have been the winners as the won fell 7.6% against the yen this year, making their goods cheaper overseas relative to Japanese exports.

"The currency is the key thing," Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute in Tokyo, said. "First-quarter earnings will be good, but company shares may not rise to welcome the results, because of the yen's gains."

The yen has risen against all the world's major currencies in 2010 and is up about 6.5% against the dollar and 17% against the euro, which fell to a more than eight-year low against the Japanese currency last month amid lingering concern over Europe's debt crisis. The won is down about 1.5% against the dollar this year.

"The yen has appreciated too much, and levels between 80 and 90 yen are abnormal," Nippon Yusen K.K. Chairman Koji Miyahara said at a forum July 23. The yen's rise is causing a "rapidly widening disparity with South Korea."

Should the yen remain 10% higher than the average export hedging rate set by Japanese companies, annual corporate profits will fall by almost 5%, said Tatsushi Shikano, senior economist in Tokyo at Mitsubishi UFJ Morgan Stanley Securities.

Real gross domestic product would decline by 0.4 percentage point.

Every yen gain against the dollar reduces annual operating profit at Toyota by 30 billion yen ($344 million) and 16 billion yen at Honda, according to the companies.

Both companies are basing their full-year earnings forecast on a rate of 90 yen per dollar.

The country's big manufacturers expect the yen to average 90.16 per dollar in the six months to March 2011, according to the Bank of Japan's quarterly Tankan survey released last month.

Exporters may maintain full-year profit forecasts even though first-quarter earnings are likely to beat expectations, according to Nagahama.

"That basically means they're lowering second-half earnings outlook because of a stronger yen," Nagahama said.

Toyota is forecasting full-year profit will rise 48% to 310 billion yen this business year. Panasonic expects to post profit of 50 billion yen after posting a 103.5-billion yen loss last year.



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