Slowdown to persist in emerging markets this year: Toyota chief

Slowing demand in emerging markets including India, Thailand, Brazil and Russia has marred an earnings boom for Japanese exporters; weaker yen  drives up profits

Bloomberg

Tokyo

A slowdown in emerging markets will extend into this year, compounding uncertainty over demand in China and at home, according to a group representing Japan’s auto manufacturers.

“A deceleration is seen in emerging markets that have been growing rapidly until now,” Akio Toyoda, president of Toyota Motor Corp and chairman of the Japan Automobile Manufacturers Association, said in a statement. “This year, the situation is unpredictable.”

Slowing demand in emerging markets including India, Thailand, Brazil and Russia has marred an earnings boom for Japanese exporters as the weaker yen drives up profits.

In China, the world’s biggest auto market, Japanese carmakers face a potential repeat of the consumer backlash that happened in 2012 should tensions escalate between the two countries over ownership of a group of disputed islands.

“It may be impossible” to shield against tensions between the two countries, Toyoda told reporters on December 20. “But we will work to minimize the impact.”

A slump in developing-nation demand led Honda Motor Co to miss analysts’ forecasts for its first-half earnings. Nissan Motor Co, which has plans to use Mexico as an export hub, cut its projection for full-year earnings by 15% to reflect worse-than-expected sales in emerging markets.

Toyota’s operating profit slipped in Asian markets excluding Japan in the last quarter, dragged down by a slump in demand in Thailand as government rebates ended for first-time car purchases.

Toyoda said he isn’t optimistic about Japan’s auto market this year given the increase in the nation’s sales tax from April 1.

The levy will be raised to 8% from the current 5%, and the government plans to lift it to 10% in 2015.

On the yen, which slid to a five-year low against the dollar last month, Toyoda said Japanese automakers would like to see stability, as production bases aren’t easy to shift.

Meanwhile Prime Minister Shinzo Abe’s plan to raise Japan’s sales tax for the first time since 1997 threatens to bolster the yen just as its 18% slump this year was starting to help the nation’s exporters. The yen will climb against most its Group-of-10 peers in the first half of 2014, analyst estimates compiled by Bloomberg show, as Japan raises the sales levy to 8% on April 1 from 5%.

The currency, forecast to hold at 104 to 105 per dollar in the period, has fallen to fair value as implied in the Organization for Economic Cooperation and Development’s measure of purchasing-power-parity.

The last time the yen was this close to the equilibrium rate was June 2007, just as it began a more than 50% rally to a record 75.35 per dollar reached in October 2011 with the global financial crisis boosting demand for havens.

Japan’s Topix index of shares has soared 51% this year, more than twice the advance in the MSCI World Index for developed markets.

Toyota Motor Corp jumped 60% during the period as Panasonic Corp more than doubled. The exporters have raised earnings forecasts, both citing exchange rates.

The yen’s plunge this year, the biggest since 1979, started after the Bank of Japan initiated unprecedented stimulus to end more than 15 years of deflation.

The move was part of Abe’s strategy to boost the economy through fiscal spending, monetary easing and a package of growth initiatives.

Japan’s currency may strengthen as the sales-tax increase dims the outlook for consumer spending and pushes down shares, increasing demand for the currency as a haven.

The nation’s gross domestic product is estimated to shrink 3.9% in the April-June period, the biggest contraction since an earthquake and tsunami struck the nation in March 2011.