Yen Strength Squeezes Japan Inc.'s Earnings and Fuels CXMT's Record Profit
The yen has strengthened significantly since the joint U.S.-Japan currency intervention in late July, leaving major Japanese manufacturers' earnings under pressure. According to data from financial information provider QUICK, of 360 major Japanese companies that disclosed exchange-rate assumptions for the fiscal year ending in March next year, 150 built their business plans on a rate of 155-159 yen to the dollar and 35 on 160-164 yen. However, the currency is now trading at around 153-154 yen.
Toyota Motor estimates that every one-yen gain in the yen against the dollar reduces its annual consolidated operating profit by about ¥50 billion (₩435.3 billion). Meanwhile, Kenji Abe, chief strategist at Daiwa Securities, calculated that a one-yen gain cuts total pretax profit at Japanese listed companies by about 0.3%.
The Bank of Japan is due to decide whether to raise interest rates at its monetary policy meeting on the 17th and 18th, which may continue currency volatility for some time. Wealthy investors have been rebalancing their portfolios since July, trimming domestic growth stocks and shifting into dollar-denominated Brazilian bonds, long-short funds, equity-linked securities (ELS), and gold.
China's ChangXin Memory Technologies (CXMT) has posted an operating margin of 82% in the second quarter, overtaking SK hynix at 76% and Samsung Electronics at 70%. CXMT's success can be attributed to its focus on general-purpose DRAM, which has driven up prices for DDR5.