Toyota Motor Corp. will revise its assumed exchange rate for the second half of fiscal 2010 from the current 90 yen against the dollar to 80 yen, it has been learned, in a move that shows the firm believes the yen will continue to ride high.
The revision's effect will translate into an additional 150 billion yen loss in the firm's consolidated accounts for the six-month period through March next year.
A company's assumed exchange rate is the predetermined mark it uses to calculate future settlements with other firms.
Therefore an exporter company, for example, will incur losses if the yen rises above the assumed exchange rate, but benefit if the yen declines.
Toyota's revision of the assumed rate to 80 yen per dollar shows the company believes the yen will maintain its current strength for the time being, observers said.
It is expected that the judgment by Toyota, the nation's top auto manufacturer, will prompt many other companies to follow suit and revise their assumed exchange rates to around 80 yen per dollar when they announce midterm earnings for the first half of the fiscal year, which ended Sept. 30.
Many listed companies are expected to make their midterm earnings announcement before the end of this month.
In Toyota's case, if the yen falls by 1 yen in relation to the dollar, its consolidated operating profit will decrease by about 30 billion yen on an annual basis, or about 15 billion yen on a six-monthly basis. Revising its assumed exchange rate by 10 yen therefore means Toyota's profit will decrease by about 150 billion yen.
However, the firm plans to maintain its projection of a consolidated operating profit of 330 billion yen for the current fiscal year.
For the midterm settlement of accounts to Sept. 30, Toyota expects to announce an operating profit of 270 billion yen--100 billion yen more than earlier predicted--after good sales in emerging nations and doing brisk business domestically thanks to the government's subsidy program for eco-friendly cars, which concluded in September, the sources said.
In addition, Toyota plans to make up for some of the currency exchange loss by transferring some of its domestic production operations overseas, the sources said.
However, if the yen rises above its all-time high of 79.75 yen to the dollar, exceeding Toyota's revised assumed exchange rate, the automaker may have to revise the rate once more.
Automakers' business results in the second half of this fiscal year are expected to be worse than in the April-September term, as the termination of the eco-car subsidy program is likely to result in fewer domestic sales.
