Honda plays safe on yen 'windfall'

Japanese carmaker cuts income forecasts amid uncertainty over how long currency fall will last

PUBLISHED : Saturday, 02 February, 2013, 12:00am
UPDATED : Saturday, 02 February, 2013, 4:25am

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cut its net income expectations for the year ending March, assuming the yen will trade at levels that have been outdated since November.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.

Instead of reflecting the weaker yen's added earnings, Honda lowered its full-year net income forecast by 1.3 per cent to 370 billion yen, citing a slower-than-expected recovery in sales in China and weakness in European demand. Though Honda is projecting the yen to be at 85 against the dollar and 110 versus the euro during the present quarter, the Japanese currency has never been that strong in 2013.

"The recent moves in the currency came all very suddenly, so our forecast may seem rather conservative," Ike said. "We don't know what the trend will be in February through March, so we want to be extra careful."

In contrast to Honda, Japan's weakening currency is boosting the earnings outlook at Nintendo and Japan Tobacco.

Nintendo, creator of the Mario and Zelda game franchises, more than doubled its annual net income forecast this week to 14 billion yen. Japan Tobacco, Asia's largest listed tobacco maker, raised its profit forecast to 330 billion yen from its previous forecast of 318 billion yen as the weaker yen boosts the value of overseas earnings.