You are here

One-third of Japan firms' profit targets at risk at current yen rate: Reuters poll

Disappointing growth figures released in Japan on Tuesday rekindled speculation that the central bank might have to unleash yet more stimulus to prop up a faltering recovery that is refusing to take root.

[TOKYO] One-third of Japanese firms say their profit plans for this business year would be hurt at current yen levels around 120 to 125 to the dollar, and that increases to a majority of companies if the currency weakens further to 130, a Reuters poll showed.

Concerns have grown that a further rapid depreciation in the yen could damage even an export-reliant economy like Japan, as import costs have spiked. Those include raw materials and fuel - a heavy burden for a country that has shut all its nuclear reactors in the wake of the 2011 Fukushima disaster.

Central bank Governor Haruhiko Kuroda last week effectively put a floor under the yen - at least for now - by saying it was unlikely to fall further because it was already very weak. A week earlier the yen had slid to a 13-year low of 125.86 and many foreign exchange traders were expecting a slide to 130 yen.

The Japanese currency has since regained ground to trade around 123.5 yen to the dollar. Even so, it is down 3 per cent this year and has lost over a third of its value since late 2012, when Prime Minister Shinzo Abe returned to power pushing bold stimulus to boost the economy and cure deflation.

Despite the worries about a weaker yen signalled by a number of firms in the survey, Hidenobu Tokuda, senior economist at Mizuho Research Institute, said the poll also offered positive signs of resilience in the service sector. "Exporters generally benefit from a weak yen and service-sector firms such as retailers seem to be coping with the currency's depreciation by passing on higher import costs to customers," said Tokuda, who reviewed the results.

Some 480 big and medium-sized firms were polled in the survey, which was conducted June 2-15 for Reuters by Nikkei Research. Managers respond anonymously and about 240 companies answered questions on foreign exchange.

Japanese firms have forecast an average 0.6 per cent rise in recurring profits for the current financial year to next March, according to central bank data.

While the survey showed a third of Japanese firms expect a negative impact on their earnings plans this financial year at 120 yen to 125 yen, that proportion increases to 53 per cent of firms at 130 yen and to 60 percent at 135 yen.

The rest said that even at weaker levels there would be no negative impact, although many noted that volatility would be a concern. "Excess yen volatility is the major negative factor for us as that would make it difficult to decide on investment plans," wrote an executive at an electronics firm.

The survey also found most companies, 69 per cent, believe that consumer spending has recovered to some degree after a national sales tax hike in April 2014. But only 7 per cent said they believe it has made a full recovery.

The hike - to 8 per cent from 5 per cent - was aimed at helping the government rein in massive debt. But it dampened consumer spending far more than expected and has been blamed for tipping the economy into recession for two quarters through September last year.

Overall sales at 42 per cent of firms have returned to levels seen before the sales tax increase, the survey showed, while another 30 per cent said sales had surpassed pre-hike levels.

Many firms wrote that sales were more brisk, although for some, much of the lift came from overseas markets. Others also said that while sales had recovered, cost increases on the weak yen had made it more difficult to maintain profit margins.