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Yen impact on corporate Japan Macro Economic Research May 2013

Please refer to the disclaimer at the end

In the recent articles Japan follow up Institutional Exposures and Japan the end of the

beginning I have discussed Japanese households financial asset positioning (only some

12.5% in assets that would provide protection in a weaker Yen/higher inflation scenario) and

Japanese Institutional hedging (foreign security holdings are typically 80% hedged back into the

Yen). What about the corporate sector? How much of the benefits of the weaker Yen are

already in the numbers? Toyota reported results for the year to March 2013 on 8th

May, soproviding us with a topical opportunity to examine this. Their consolidated financial summary is

below:

An 18% increase in Revenue was leveraged into a 271% increase in operating profit. The

average Yen for the financial year ended March 31 2013 is shown as 83 to the USD, compared

to an average of 79 in 2012. The spot rate as I write is over 101, some 22% weaker. The impact

of a weaker Yen has not significantly been reflected yet in Toyotas profits. Toyota also providesa forecast for the year ahead:

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Yen impact on corporate Japan Macro Economic Research May 2013

Please refer to the disclaimer at the end

Revenue is expected to grow by 6.5% and operating income by 36%. This uses an average

USDJPY of 90 depreciating off the F2013 rate of 83. In reconciling 2013 with the forecast 2014

numbers Toyota specifically identifies the effect of an 8.4% weaker Yen as +Y460bn. If we

assume the Yen averages at 100 in F2014 (a 20% depreciation), a simplistic pro-rata

adjustment gives us Operating Income of Y2460bn (+86%) for 2014. This is 18% higher than

the current consensus forecast operating income per Bloomberg of Y2077bn.

Conclusion

It is clear that the impact of a weaker Yen still needs to be reflected in Japanese corporates

financial accounts and to a lesser extent the forecasts of market participants.

Kevin Cousins is a portfolio manager at Brait Capital Management Limited. ("BraitCM"). This article is prepared byKevin as an outside business activity. As such, BraitCM does not review or approve materials presented herein. Theopinions and any recommendations expressed in this article are those of the author and do not reflect the opinions orrecommendations of BraitCM. None of the information or opinions expressed in this article constitutes a solicitationfor the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice andany recommendations that may be contained herein have not been based upon a consideration of the investmentobjectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in anysecurities or other instrument should be based upon your own analysis and conclusions. Either BraitCM or KevinCousins may hold or control long or short positions in the securities or instruments mentioned.