(Bloomberg) -- In a disappointing third-quarter earnings season for Japan Inc., one prominent theme is that moves in the yen have been a particular headache.
A total of 438 Tokyo-listed companies have cut their full-year earnings guidance, according to data compiled by Bloomberg. Fifty-six of them announced a change to their currency expectations in addition to their lowered profit forecasts. Prominent corporates Asahi Group Holdings Ltd., Mitsubishi Motors Corp. and Shiseido Co. all highlighted the impact of currencies when they revised their earnings guidance lower.
“The economy was doing much better last year, which may have made it harder to see the impact from forex,” said Seiichi Suzuki, chief equity market analyst at Tokai Tokyo Research Institute. Given the impact of the trade war, “it’s no surprise companies are affected by forex this year.”
A combination of the surge in trade tensions and slowing global growth has led to a mixed year for the yen against its global peers. While the currency is up over 4% against the euro and almost 3% versus the Chinese yuan, it has risen just 0.6% against the greenback, with fund withdrawals, seasonality and the steady growth in Japanese acquisitions abroad all acting as a counterweight to haven flows, according to analysts.
Overseas Exposure
Japanese companies have been expanding overseas organically and through big ticket M&A in a bid to be less dependent on the stagnant home market, where falling population numbers hold dim prospects for growth. But the growing exposure to overseas business has left many firms vulnerable to a currency that can move as much on geopolitical uncertainty as it does on Japan-specific economic factors.
One of those is Asahi, which has in recent years increased overseas sales about three-fold to a third of revenue by using acquisitions to expand its beer business in Europe. Japan’s largest brewer revised down both annual sales and operating profit guidance for the second quarter in a row when it announced earnings Nov. 5, citing foreign exchange as a result of a stronger-than-expected yen against the euro.
Meanwhile, automaker Mitsubishi Motors cut its profit forecast on Nov. 6, citing revised exchange rate expectations and a decrease in vehicle volumes. Cosmetics giant Shiseido also pointed to foreign exchange when it said Nov. 7 that it expected annual sales and operating income to be less than previously announced.
Compared to a “satisfactory” earnings season in the U.S., the reporting process isn’t as complete in Japan with fewer Topix constituents having reported, Jonathan Allum, a strategist at SMBC Nikko Capital Markets Ltd. in London, wrote in a note last week. “The news is frankly not as good, with companies undershooting their own estimates and many revising down their full year forecasts.”
Risk Rally
Still, investors are shrugging off the profit downgrades for now and choosing to bet on an improvement in Japan’s corporate fortunes, amid a global risk-asset rally that has driven the benchmark Topix Index to a more than one-year high.
“As the economy bottoms out and if companies can see profit in the next earnings cycle, then there’s room for more growth in Japanese stocks,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co.
