Toyota Warns Stronger Yen Will Drive Profits Down – Wall Street Journal

A Toyota Yaris L compact vehicle at an auto show in Beijing in April.
ENLARGE

TOKYO—After three years of record-breaking profits buoyed by a weak yen, Toyota Motor Corp. said Wednesday the party was over.

The world’s biggest car maker by vehicle sales said it expected net profit would decline by more than a third in the current financial year, which ends in March 2017.

“Until now, we benefited from currencies and our profits expanded beyond our actual capabilities. But since the beginning of this year, the tide has greatly shifted,” said Toyota President Akio Toyoda.

Mr. Toyoda’s company is the biggest example of Japanese manufacturers getting hit as the yen strengthens against the dollar and other currencies. Both Mazda Motor Corp.
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and Suzuki Motor Corp.
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earlier said they anticipated double-digit profit declines in the current year.

Toyota on Wednesday reported a 6.4% increase in net profit to ¥2.31 trillion ($21.3 billion) for the financial year that ended in March, boosted by a weak yen and strong vehicle sales in North America.

Exporters like Toyota benefit from a weak yen when they bring foreign currency earnings home, but they lose out when the yen strengthens.

The yen is now trading at around ¥109 against the U.S. dollar, compared with around ¥120 in early January. Toyota said it expected an average exchange rate of ¥105 to the dollar this financial year.

The company estimated that the stronger yen would erase ¥935 billion of its operating profit in the current financial year.

Without the help of a weak yen, the company must work harder to boost sales, Mr. Toyoda said.

While the number of vehicles sold in North America, Toyota’s largest market, rose thanks to healthy demand for sport-utility vehicles, sales declined in Japan, Europe and Asia. The company projects sales volumes to rise in all of these markets in the current year.


The company is betting that a corporate shake-up announced earlier this year—which broke Toyota into smaller, more independent units—will be better at producing cars customers want to buy. The company had become too bloated to make decisions quickly enough, Mr. Toyoda said.

“I think that this year will be a test of whether we can transform our intentions into reality,” he said.

Toyota is still among the world’s healthiest car makers and boasts a huge cash pile. Even after the expected decline, net profit for the current fiscal year is projected to be ¥1.5 trillion or nearly $14 billion.

But Mr. Toyoda is determined to keep his company’s place at the top of the automotive world. Toyota is accelerating investment in what it sees as the future of the industry: robots and cars that drive themselves. It plans to shell out at least $1 billion over the next several years researching self-driving cars at its research institute in Silicon Valley.

Those plans will be tested as profits decline. Toyota said it planned to raise research and development spending more slowly this year.

Toyota also said it plans to buy back up to ¥500 billion worth of its own shares. The buyback will take place between May 18 and November 17, it said in a statement.

Write to Sean McLain at sean.mclain@wsj.com and Yoko Kubota at yoko.kubota@wsj.com

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