Weak Yen Near 40-Year Low Boosts Japan Carmakers While Pressuring Importers

Tokyo | EcoPulse24

Yen Stays Near Its Weakest Level Since 1986

The Japanese yen traded around ¥161.7 per US dollar on Thursday, remaining close to its weakest level since 1986, despite repeated warnings from Japanese officials over excessive currency volatility.

Earlier this week, Finance Minister Satsuki Katayama said she held talks with US Treasury Secretary Scott Bessent, with both sides reaffirming their willingness to coordinate on foreign exchange markets if necessary.

However, the yen remained under pressure as the wide interest rate differential between the United States and Japan continued to support the dollar. Investors have also become increasingly skeptical that Tokyo will carry out another large-scale currency intervention after its record operation nearly two months ago significantly reduced the country's foreign exchange reserves.

Meanwhile, the Bank of Japan's Summary of Opinions from its June policy meeting showed that policymakers generally remain in favor of gradual interest rate increases, citing progress in underlying inflation toward the central bank's 2% target and still-accommodative financial conditions.

Weak Currency Could Deliver $5.8 Billion Earnings Boost

While the weaker yen continues to weigh on the currency market, it is providing a significant earnings tailwind for Japan's export-oriented automakers.

According to Bloomberg estimates, if the exchange rate remains near current levels, Japan's major car manufacturers could receive a combined earnings boost of approximately ¥934 billion ($5.8 billion) this year.

The estimate reflects the conservative exchange-rate assumptions companies used in their earnings guidance. Toyota based its forecast on ¥150 per dollar, while Honda assumed ¥145, Nissan ¥150, and both Subaru and Mazda ¥155.

Toyota has previously estimated that every ¥1 depreciation against the US dollar increases its operating profit by roughly ¥50 billion, suggesting continued yen weakness could materially improve earnings if current exchange rates persist.

Lower Oil Prices Add Further Support

Japanese manufacturers may also benefit from easing energy costs following the sharp decline in oil prices.

Expectations that the Strait of Hormuz could reopen after the US-Iran peace agreement have pushed crude prices significantly lower. In yen terms, oil prices have fallen by more than 30% from their late-April peak.

Lower fuel and raw material costs could further improve profitability for exporters while also supporting consumer spending through lower gasoline prices.

Import-Dependent Businesses Face Ongoing Pressure

Not all sectors stand to benefit from the weaker currency.

Companies that rely heavily on imported goods continue to face rising procurement costs. A survey conducted by Tokyo Shoko Research found that 40.7% of Japanese companies said the exchange rate recorded in late May had negatively affected their businesses, particularly firms operating in wholesale, retail and manufacturing.

The survey also showed that businesses consider an average exchange rate of ¥136.8 per dollar to be more favorable than current market levels.

EcoPulse24 Data Snapshot

EcoPulse24 Analysis

Japan's weak yen is creating an increasingly uneven corporate landscape. Export-oriented manufacturers are positioned to benefit from stronger overseas earnings when translated back into yen, while lower oil prices provide an additional boost by reducing energy and raw material costs.

Conversely, businesses that depend on imported products continue to face margin pressure from elevated procurement costs. The divergence suggests that exchange-rate sensitivity is becoming an increasingly important driver of corporate earnings across Japan, while markets remain focused on the interest-rate gap between Japan and the United States as the primary force shaping the yen's direction.