- Japan's Parliament appoints Haruhiko Kuroda as new head of
the Bank of Japan who supports the new PM's policy of monetary
easing to revive the economy.
- The upcoming days could be reminiscent of the 1990s when a
weak yen resulted in Japanese automakers offering cheap cars,
which bodes well for automakers' profitability.
The Detroit automakers have a new headache, and this time, they
can't do much about it. Japan's Parliament has confirmed
Mr. Haruhiko Kuroda as new head of the Bank of Japan. Mr.
Kuroda supports the new PM's policy of aggressive monetary easing
to fight deflation and revive the economy by making the Japanese
companies more competitive.
The upcoming days could be reminiscent of the 1990s when a cheap
yen resulted in Japanese automakers offering cars at prices
American automakers simply could not compete with. Years of
restructuring and cost cutting measures have made the American
autos competitive once again, and the news of Mr. Kuroda's
appointment and policy views is not music to their ears.
Toyota Stands To Benefit
Among the Japanese automakers,
) is bound to gain the most due to a higher proportion of vehicles
exported. The company exported more than 2 million vehicles in the
previous year alone. Toyota's products will become more affordable
to foreign customers, which will help boost sales. At the same
time, overseas profits will swell when translated back to the local
currency. Even the vehicles produced by Toyota in North
America will benefit since the automaker sources a significant
portion of its parts from Japan.
Toyota's net margins of <2% are one of the lowest within the
automotive segment and a weak yen certainly bodes well for its
profitability. Toyota has already upped the net income
guidance for fiscal 2013 (April'12 - March'13) to a whopping
860 billion yen (~$9 billion) at the end of the third quarter.
Since Prime Minister Shinzo Abe took office in December, the yen
has fallen more than 20% against the greenback, and the PM is
determined to weaken the yen even further. Toyota's stock has also
gained by a similar amount in the same time frame.
With Kuroda's appointment, you can expect the yen to fall even
further. The Japanese currency is still relatively strong when
compared to its historical levels. Currently, a dollar yields about
95 yen. Between 2000 and 2008, a single U.S. dollar yielded
more than 100 yen. It's only after the 2008 crash that the yen
became stronger as global investors flocked to pour their money
into safer havens.
See our complete analysis for Toyota
More Flexibility With Higher Margins
Around the world, Toyota's vehicles are safe choices - they
offer a good value for money, have low maintenance and are fairly
fuel efficient. Now, the automaker has the option to reduce prices
or offer more freebies at the same price, or a combination of both,
as the situation may demand.
Take the case of the Camry. Sales were down 9.6% in
February. To combat the slump, Toyota is now offering a
zero-interest financing on all Camry sales. Similarly, it could
look to offer greater incentives or throw in some add-ons for free
for other models whenever the need arises. The higher margins allow
room for all these adjustments. Earlier, all this would not have
We currently have a
$105 price estimate for Toyota's stock
, which is in line with the current market price.
How a Company's Products Impact its Stock Price at Trefis