1st Casualty of “Currency Wars” – US Automakers

Toyota Motor Corp., which last year overtook General Motors Co. (GM) to become the world’s largest automaker even as its profit margins lagged behind the industry, is riding a weakening yen that has Detroit executives concerned.

The yen has fallen 17 percent against the dollar since Oct. 31 as Shinzo Abe, who became Japan’s prime minister in December, advocated for the decline to improve his country’s economy. The currency’s slide gives Toyota and other Japanese automakers a financial gain on every car, which they can use to cut prices, boost ads and improve products. Morgan Stanley estimates the currency boost at $1,500 per car, while the Detroit automakers contend the figure is $5,700 per vehicle.

“We’re concerned about what the long-term ramifications are,” Joe Hinrichs, Ford (F) Motor Co.’s North American chief, said last month at a Cleveland engine factory the automaker is expanding. “Our workers and our businesses should not be disadvantaged by governments intervening in currencies.”

The yen’s impact is already falling to the bottom line. Toyota last month raised its profit forecast by 10 percent for the fiscal year ending March 31, to 860 billion yen ($9 billion), a five-year high. That would more than double the previous year’s profit and signal a complete comeback from the global recalls and 2011 Japanese earthquake that shook Toyota’s standing as a leader in earnings, sales and quality.


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Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu