How Stronger Yen Will Affect Toyota

The company has announced that it will likely post a one third decline in its profits.

On Wednesday, Toyota Motor Corp. has announced that it is more than likely that its days of posting profits are now over. The main reason of such announcement is the strength of the currency. Since last three years, the biggest car maker had been reporting strong profits on the back of weaker yen. But now since Yen is getting stronger the company has officially announced that its happy days are near to end.

For the current financial year which will end in March 2017, the automaker giant has given out its speculations that the net profit will likely to decline more than a third.

Toyota President, Akio Toyoda has stipulated that the company made the most of the weak currencies and generated hefty profits. He admitted that the profits shown by the company were beyond the actual capabilities of the company however since the commencement of the current year, the conditions have transitioned a lot.

The company is the biggest example of the strong influence which yen had on the companies operating in Japan. In the similar, two companies from the same industry, Suzuki Motor Corp. and Mazda Motor Corp. has expressed that they have been expecting a double digit decline in the current year’s profit.

On Wednesday, the world’s biggest automaker showcased an impressive 6.4% increase in net profit which reached to $21.3 billion for the financial year which ended in March. The impressive growth in the profits was backed by strong vehicles sales in North America and weak yen.

The weak currency helps exporters like Toyota in such way that the manufacturers bring foreign currency earnings home whose equivalent home currency is quite exorbitant. However, when the home currency strengthens, the same benefits are not reaped.

As of now, against the dollar, the yen has been trading at around ¥109 whereas in early January the yen had been around ¥120. For this financial year, the company is expected the currency to garner an average exchange rate of ¥105. Moreover, the Japanese automaker has estimated that because of the stronger yen, company’s operating profit will be erased by a massive ¥935 billion. Mr. Toyoda opined that without the support of weak currency the company has to up its game and work twice as much as it has been doing to boost sales.

North America is Toyota largest market and thankfully the sales of the region have substantially gone up. Although the healthy demands for Toyota’s sport utility vehicles massively increase the sales in the region however sales drop in Asia, Europe, and Japan. However, in the current year, the company has been speculating a rise in the sales volume in these regions.

According to the company, the corporate shake up that has been announced earlier this year will aid in the production of customers friendly cars. The “shake-up” has segregated the company into smaller independent units. Mr. Toyoda has expressed that the company is in the position of coming up with decisions quickly and hastily.

He expressed: “I think that this year will be a test of whether we can transform our intentions into reality.”

Additionally, between May 18 and November 17, the company is planning for a buy back up to $4.58 billion (US equivalent of ¥500 billion) worth of its shares. In the near future, it will be revealed whether the company increased its efficiencies to post boastful profits or not.