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Toyota tips 35% profit dive on strong yen

Toyota Motor Corp President Akio Toyoda speaks during a company results news conference as he stands in front of a picture of a Toyota Prius car in Tokyo, Japan, May 11, 2016. REUTERS/Thomas Peter


Tokyo / AFP

Toyota on Wednesday warned that its annual net profit will fall by about a third as a stronger yen, and a slowdown in Chinese growth and other emerging markets dent its bottom line.
The surprise new forecast — which would mark Toyota’s first profit decline in five years — tipped a 1.5 trillion yen ($13.8 billion) net profit for the year to March 2017.
That is down 35 percent from a record 2.31 trillion yen net profit that the world’s biggest automaker also reported Wednesday for its recently ended business year.
Sales this year will also be down nearly seven percent, although the automaker expects to sell more cars globally.
The new outlook — which does not include the impact of plant shutdowns linked to Japan’s deadly earthquakes last month — underscores the negative impact that a resurgent yen is having on Japanese firms doing a lot of business abroad.
“Our earnings over the past several years have been boosted by (favourable) exchange rates,” said Toyota president Akio Toyoda.
“But we recognise that this trend has changed significantly.”
The yen has weakened sharply since late 2012 when Prime Minister Shinzo Abe swept to power on a pledge to kickstart Japan’s lumbering economy.
That was good for firms such as Toyota and rivals Honda and Nissan — both report results this week — because repatriated foreign profits were worth more when the yen was weak.
But the unit has rallied in recent months as volatile equity markets driven by fears about the global economy pushed investors into a currency seen as a safe bet.
Toyota said its new forecast was based on the dollar buying around 105 yen, well down from an average rate of 120 yen in the previous year.
“Strong North American sales and foreign exchanges gains were dual profit drivers for Japan’s auto industry this past year…but the tide has changed,” said Shigeru Matsumura, an analyst at SMBC Friend Research Center.

‘Cash cow’
Toyota also said on Wednesday that it would buy back about 500 billion yen worth of its shares.
Sales for the latest period rose in Toyota’s key North American market, but they were down in Japan, Europe and Asia, it said.
“China and other emerging countries are showing a risk of a slowdown,” Toyota said.
Japanese automakers have benefited from healthy growth in the US where low interest rates boosted demand, although the possibility of rate hikes this year could dampen sales.
Meanwhile, weakening demand in emerging markets such as Thailand and Indonesia were also threatening the company’s bottom line.
The company and other automakers are also wrestling with costs linked to a huge scandal at supplier Takata.
A defect in the firm’s airbags have been linked to 13 deaths and scores of injuries globally, prompting a massive recall to replace the problem parts.

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