High yen hits Japanese firms

JAPAN'S two biggest car companies and three of its largest electronics groups yesterday blamed big profit declines on the fast-appreciating yen. The groups warned that price rises and cuts in capital investment might be necessary to compensate for the strength of the yen, which has risen more than 24 per cent against the dollar this year.

The surprising foray into the foreign exchange markets on Thursday night by the American Federal Reserve meant that the yen closed almost Y3 lower at Y105.12 to the dollar last night. But it was only fear that the Fed might sell the Japanese currency again that prevented it from embarking on a new assault on the Y100 to the dollar barrier.

The US authorities are widely believed to have agreed to cap the rising yen as long the new Japanese government comes through with a package to stimulate the economy and a further cut in the discount rate, now at a record low of 2.5 per cent.

Toyota Motor and Nissan Motor, Japan's biggest car producers, said sales and exports dropped sharply in July as the yen strengthened against the dollar and Japan's economy slumped.

Toyota, which saw exports fall 12.6 per cent to 129,228 vehicles last month, said it planned to make 'substantial' price increases on models sold overseas. It has already raised prices on cars sold in Germany, the UK and Italy by 0.8-3.0 per cent and sources in Japan suggested the company had decided to increase the price of 1994 models due to go on sale in the US by 5 per cent.

Exports at Nissan were hit harder, plunging 33.4 per cent in July from a year earlier to 56,411. It was Nissan's 12th consecutive month of year-on- year declines.

Consumer electronic groups have also been affected by the yen's remorseless rise. Reporting a 59.2 per cent fall in pre-tax profit to Y4.03bn in the three months to June, Pioneer Electronic said it planned to compensate by cutting capital investment and shifting more production abroad.

The company said unstable currencies and stiffer competition in its important markets in Japan were likely to continue. 'To counter these conditions, we will reduce costs such as capital expenditures and selling, general and administrative costs. We will also work to hedge against currency risks by shifting more production overseas,' it said.

TDK and Teac, two other large electronics groups, also blamed the yen for problems. TDK said it expected to report pre-tax profit of about Y6.4bn for the first quarter to June, barely half that of a year earlier, while Teac said it expected a Y5.4bn pre-tax loss for the year to March 1994.