* Impact of yen to start filtering through this quarter
* Japanese exporters typically hedge 3 months ahead
* Some analysts see risk that market too optimistic on yen
By Hideyuki Sano
TOKYO, Feb 3 Currency hedging cost Japanese
companies such as Honda Motor Co the chance to fully
cash in on a weak yen last quarter, raising the risk that
investor expectations could outrun earnings.
The near 20 percent fall in the currency since
October has been a primary driver of the longest weekly run of
gains for the benchmark Nikkei index since 1959.
But exporters may have been caught out by the magnitude of
the yen's fall and bought too early, currency traders said.
"The rally is completely driven by hopes rather than facts,"
said Soichiro Monji, chief strategist at Daiwa SB Investments.
"We knew the yen's impact would be limited in
October-December. Still I had thought the earnings would be a
little bit better."
Analysts say a 1 percent decline in the value of the yen
typically boosts corporate Japan's profits by about 1 percent.
Auto, steel and electronics firms, all major exporters, reap the
So they should be doing well in the fallout from Abenomics.
New Prime Minister Shinzo Abe's drive for aggressive monetary
easing and fiscal stimulus helped push the yen to a 2-1/2 year
low of 92.29 to the dollar on Friday.
Japanese shares are trading at more than 13 times
forecast earnings, versus 11.6 at the end of September.
But warning signs come from firms like Honda, which booked
an unrealised loss on currency derivatives of 54.5 billion yen
($598.5 million) in the fourth quarter, mostly in currency
Honda's chief financial officer Fumihiko Ike told reporters
that the company hedged currency trades three month ahead, a
common practice among Japanese exporters that means their fourth
quarter sales were booked at yen levels near a record high.
The cheaper yen will likely start filtering through to
bottom lines from the January-March quarter, but many Japanese
companies remain cautious about earnings.
Honda trimmed its annual net profit forecast unexpectedly,
citing poorer-than-expected demand in China and Europe.
Camera and printer maker Canon Inc, which derives
80 percent of its revenue from overseas and is seen as one of
the most competitive Japanese firms, reported a fall in
quarterly profits in October-December.
Although Canon forecast a 26.6 percent increase in operating
profits to 410 billion yen this year, that fell short of
analysts' 452.1 billion yen outlook.
Still, the 33-month high for the Nikkei on Friday is also
based on hopes that a weaker yen will revitalise the Japanese
economy, not just exports
"No hedge fund wants to miss the debasement of the yen, and
the majority sees the Japanese equity market as the most likely
best performer in H1," Bank of America-Merrill Lynch said in a
But a weaker currency also carries domestic risks,
especially in terms of energy costs in a country where almost
all fuel is imported.
"A weaker yen will boost our profits but if the yen falls
too much, that's also negative because we require a lot of
electricity," said Makoto Kubo, executive vice president of
Toshiba Corp, which produces flash memory chips among
"It's difficult to say what is the best level but 90 yen per
dollar is not so bad."