Bearish Yen Equals Bullish Future for Toyota, Japanese Exporters

NEW YORK (TheStreet) -- Toyota (TM) and Honda (HMC) are among those Japanese companies having a happy holiday thanks to a yen that has fallen to a five-year low against the U.S. dollar, resulting in cheaper exports to America. Items priced in yen are now selling at the biggest discount since late 2008 based on the currency conversion rate.

Currency manipulation by Tokyo has certainly played a major role in helping the auto makers as well as such exporters as Sony (SNE) and Canon (CAJ).

When Prime Minister Shinzo Abe entered office in 2012, his strategy for economic growth, dubbed "Abenomics," focused on weakening the yen through the massive purchase of bonds by the Bank of Japan. That is much like the Federal Reserve's quantitative easing. Basic economics at work: The more supply without increasing demand, in this case the yen, the less it is worth over time. It has obviously worked for the Japanese yen.

The recent policies of the Federal Reserve have also helped the Greenback rise against the yen.

Around the time the Fed decided to reduce its quantitative easing last week, the Bank of Japan voted unanimously at its a two-day meeting to maintain its current level of easing, making for a bullish future for Japanese exporters.  

About the effects of the declining value of the island nation's currency, Governor Haruhiko Kuroda, the governor of the Bank of Japan, stated after the vote, "The correction of an excessively strong yen has been a plus for Japan's economy."

It is also a plus for the shareholders of Japanese stocks.

For Toyota, quarterly sales growth is at 16.20%. Over the past five years it was a negative 3.20%. Much of that can be attributed to the yen making Japanese products much cheaper for foreign buyers, in addition to the rebound from the Great Recession. Toyota's shares recently traded up nearly 3% to over $121 and for the year to date are up 27.2% for 2013. Thanks to exports Toyota has been able to expand its operations throughout North America, including Kentucky and Mississippi.

It is much the same story for Honda, Canon and Sony.

Honda now has quarterly sales growth of 27.30%. For the past half decade it was a negative 3.80%. For Canon, quarterly sales growth is now 14.20%. The previous five years is was a negative 4.90%. Sony sales are now increasing quarterly at a 10.60% rate after declining by 5.20% for the last five years.

Honda shares are currently up 15 cents to $41 and are up near 11% for the year to date. Canon shares are currently off over 1% to around $32 and are down 18.1% for the year to date. Sony, flat at $17.36, is up nearly 52% on the year.

For 2011, according to the United States Trade Representative, Japan exported $128.8 billion in goods to the United States. It posted a huge surplus in trade as it imported just $66.2 billion in products from America. The biggest group of exports from Japan to the United States was in the motor vehicle division, $41 billion (almost one-third the total). Next was machinery at $31.2 billion.

With the Japanese yen decreasing in value and American economic growth increasing, there should be even more exports to the United States. The more the yen falls against the dollar, the more Japanese exporters will be selling to America.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Jonathan Yates has written for numerous publications including Newsweek and The Washington Post. He is a former general counsel for general counsel for a publicly traded corporation. Much of his career was spent working on Capitol Hill for Members of Congress in both the House and Senate. He has degrees from Harvard University, Georgetown University Law Center and The Johns Hopkins University.

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