Honda plays safe on yen 'windfall'

Don't count Honda Motor among Japanese exporters preparing for a financial bonanza from the tumbling yen.

Unlike Nintendo and Japan Tobacco, which raised their profit forecasts this week, Tokyo-based Honda on Thursday cut its net income expectations for the year ending March, assuming the yen will trade at levels that have been outdated since November. Chief financial officer Fumihiko Ike said Honda was being "extra careful" with its yen forecasts because it did not know what to expect in February and March.

The carmaker is not alone. Chubu Steel Plate and NGK Insulators are among dozens of companies this week that cut their profit projections by focusing on aspects such as sales in China and Europe rather than the benefits of a weakening yen. While conservative assumptions may give corporations extra room to beat their earnings forecasts, they may also undermine investor confidence.

"I can understand that they're being conservative, but it would've been better if they'd maintained their forecast based on the current level of the currency," Takashi Aoki, a fund manager at Mizuho Asset Management, said about Honda's earnings. "This new figure makes me wonder if they have other issues too."

Honda yesterday revised its full-year outlook for the yen against the dollar to 81 from 80, and 105 from 103 versus the euro. The yen, which has weakened more than any currency since mid-November, is now trading at about 91 against the dollar and 123 versus the euro.

According to Honda, its operating income gains by 16 billion yen (HK$1.34 billion) annually for every one-yen drop in the dollar rate, and one billion yen for each one-yen drop in euro rate.