Japanese automakers are benefiting from a tried-and-true strategy as the cheaper yen supports earnings in the face of weakening sales in China and the increasingly difficult transition to electric vehicles.

The currency was a contributing factor in the recent earnings reports from Toyota, Honda, and Nissan, which all exceeded analyst expectations by 6% to 21% for the three months ending in June.

“If the yen stays low, they clearly benefit but it doesn’t offset any other concerns,” said Satoru Aoyama, senior director at Fitch Ratings Japan.

“They are struggling in the Chinese market,” he said. “They just don’t have an immediate solution” for their problems there, he added.

Late last month, Nissan revised its estimate for operational profit for the entire year, increasing it to 550 billion yen ($208 million). According to CFO Stephen Ma, almost 20 billion yen of that came from the currency.

Although it is no longer as much of a benefit for automakers that have extended their foreign manufacturing in recent years, a weak yen has historically enhanced profitability for Japan’s major exporters.

Although the corporations themselves try to keep to conservative projections for the currency, shares of automakers sometimes react quickly to changes in the yen.

For instance, Toyota has remained true to its prediction of an average exchange rate of 125 to the dollar this fiscal year, a level last attained in April 2022, around one month after the U.S. Federal Reserve began hiking interest rates. Thursday saw the yen at 144.

According to Subaru’s CFO Katsuyuki Mizuma, a change in the value of one yen in relation to the dollar has an effect on operating profit of 20 billion yen.

A Honda executive said on Wednesday that the company’s operating profit for the months of April through June was tens of billions of yen greater than anticipated, with the weak yen accounting for nearly half of that.

“The yen wasn’t only weak against the dollar, but also against other currencies, including in Asia and Europe, so that comes through as a profit,” the official said.

The yen’s support comes just in time for Japanese automakers, who are having difficulties in China. The greatest vehicle market in the world is rapidly being dominated by domestic companies.

Honda saw a 5% decline in sales to retail customers in China during the quarter while Nissan’s fell by 46%.

Sales of Toyota increased during that time, especially those of its luxury brand, Lexus. For the first six months of the year, they decreased by roughly three percent.

Japanese manufacturers have also been hesitant to adapt their competitive offerings to the expanding worldwide market for electric vehicles.

How long the weak yen will persist is unknown. Recently, the Japanese central bank changed the cap on bond yields, raising hopes that it might finally abandon the ultra-loose policy that has weighed on the currency of the country.

Eisuke Sakakibara, a prominent former official in the finance ministry, told Reuters that by year’s end, the yen may increase to 130.

Subaru has maintained its 128 yen prediction, according to CFO Mizuma, who cited the challenge of forecasting the exchange rate.

“We’re really closely watching exchange rates,” he said.

(Adapted from JapanTimes.co.jp)

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