Stronger Yen Threatens Profit Momentum for Japanese Automakers

Japanese automakers have been enjoying the benefits of a weak yen for their latest quarterly earnings. Toyota, Honda, and Nissan raised full-year guidance, with Nissan posting its first profit in roughly two years.

However, a coordinated currency intervention by the U.S. Treasury Department and Japan's Ministry of Finance has led to a stronger yen, which threatens to reverse the profit momentum for these automakers.

Each 1% move in the yen impacts operating profit by about 2%, with some manufacturers experiencing effects as high as 4%. Analysts warn that this will force automakers to either raise overseas prices or absorb compressed operating profits.