[TOKYO] The yen's surge after Britain's vote to leave the European Union is set to depress operating profit at Japan's automakers this year, analysts said, exacerbating a slump in earnings already anticipated for the current year.
While executives at Asian automakers with factories in Britain have told Reuters they may slow investment in Britain or even freeze plans following the EU membership vote, analysts said the yen's appreciation would have a bigger immediate impact on the industry.
Analysts at JPMorgan anticipate an average foreign exchange impact of around 17 per cent on Japanese automakers' operating profit if the yen stays around 100 yen per US dollar and 110 yen per euro this year. Credit Suisse analysts see each 1 per cent yen rise pulling down operating profit by an average of 2.5 per cent.
Even before the so-called Brexit vote, Japanese automakers were bracing for a big hit from a stronger yen just as they need to invest in a range of next-generation technology, such as cleaner fuel and driver-less cars.
The Japanese currency traded around 101.60 per US dollar and 112.20 per euro on Monday, pushed up after investors rushed into the "safe-haven" yen following Friday's vote. This left the yen trading higher than automakers' annual assumption rates of around 105 yen and 120 yen, respectively.
"Among the (automakers) in particular, the impact is huge on Mitsubishi Motors and Mazda, which have high exposure to the UK and the rest of the European market, and are heavily affected by European currencies," JPMorgan autos analyst Akira Kishimoto said in a note.
Other analysts expected Mazda Motor Corp may be the hardest hit, given that Europe accounts for as much as 17 per cent of total global sales at the automaker, higher than many of its peers as the automaker has focused on growing its presence in developed markets over Asian ones.
Mazda is budgeting for a rate of 110 yen to the dollar and 125 yen to the euro for the year to March 2017, which will result in an 81.0 billion yen (S$1.07 billion) hit to its operating profit.
For Mitsubishi Motors Corp, Europe is the second-biggest market after Asia, comprising nearly 20 per cent of total global sales.
Analysts said Toyota Motor Corp, Nissan Motor Co Ltd and Honda Motor Co Ltd have manufacturing operations in Britain but were better placed than others to weather currency fluctuation because their production was diversified across regions.
"(Toyota, Nissan and Honda) all have exposure to the plummeting British pound, but their operating profit is less forex-sensitive than Mitsubishi Motors' and Mazda's," Credit Suisse analyst Masahiro Akita said in a research note.
For more coverage of the EU referendum, visit bt.sg/BrexiT