A weaker yen boosts profits, but “there is little room for unqualified celebration”: the adverse effects facing Japanese companies and the changing appropriate exchange-rate level

In this week’s earnings announcements, the weaker yen was seen boosting corporate performance against the backdrop of coordinated intervention by Japan and the United States. While it lifted profits at companies with high export ratios, rising raw-material prices, sluggish domestic demand and increasing labor costs are raising concerns about adverse effects. More companies are also pointing out that a weaker yen is not always advantageous.

Mitsubishi Electric raised its consolidated forecast for the fiscal year ending March 2027, while maintaining an assumed exchange rate of ¥150 and pointing to the possibility that a further weakening of the yen could provide an additional boost to earnings. Toyota Motor also revised its assumed exchange rate toward a weaker yen and raised its full-year forecast, while Mitsui & Co. posted record quarterly profit.

Meanwhile, DENSO and Sharp each lowered their earnings outlooks, underscoring that the weaker yen is not the only factor affecting profits. Yoshinoya Holdings recognizes both the positive effect of its overseas business and the rising cost of imports in Japan.

Companies’ views of the appropriate exchange-rate level are changing, with more of them assuming scenarios around ¥150 or near ¥160 rather than basing their plans on a return to the ¥120 range. In a JETRO survey, ¥120–124 was the most common range for the desirable exchange rate, but the number of companies choosing ¥135 or higher increased.

Recognition is spreading that the benefits of a weaker yen are limited to some companies, while foreign-exchange volatility and its adverse effects are affecting the ability to plan. Rather than mechanically following exchange-rate movements, companies are placing greater emphasis on stability.