Again the yen: is dollar pickup real or just window dressing?

While  many investors have been focused on the collapsing Euro market and the booming US market, guess what happened to the yen?

Yes the domestic market in Japan is “spinning its wheels” even with government subsidies, the recent drop in yen will make a significant impact on J3 earnings if it holds.  Currently, forecasts are mostly based with FX rate lower than 80, if the yen pulls to the low 80’s that will be a slight boost on the year-end translation.  If it sticks, it could be some unexpected tailwinds.

This is key, particularly for Toyota which has been the most punished company by investors for its relative overweight Japan production base.  Recent company remarks and posture suggest that despite playing the ever-loyal protector of anti-hollowing-out, Toyota is quietly moving production off-shore.

Nissan has made the most noise doing this with its typical fanfare announcements of new capacity in China, Mexico, Brazil and expansions in the US.  Honda on the other hand is already geo-diversified very well.

 COMMENT:  In the short-term, they all win, Toyota has the most to win in just regaining some reputation.  Long-term, they need to get moving on rebalancing production to local sites.  With attractive product plans for all three (I know, I know, the Detroit 2 +1 are better than before) but the Japan brands still have massive equity to build on. Watch out GM, Hyundai Kia and Chrysler.

Asian investors started moving on J3 rebound in November and have been rewarded with Toyota up almost 40%, Honda 35% and Nissan even up 20%.  Most of this was driven by rebound from 2011 crises and no good news expected from FX.  2012 Forecasts coming in April will be a key point to watch.  Typically, these companies run up into positive announcement, pulling back on any good news, but steady rebuilding following that.  Something to watch.

See my past comments on these topics

Altima -v- Camry 

Crises and the yen opportunity

Here it comes: Camry

Honda to increase production localization

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