Since the beginning of the year the “currencies wars” have taken another step forward. The recent developments are coming from Japan. The political change in Japan and the decisions of Bank of Japan in the past several months to take its monetary policy to the next level are among the contributing factors for the devaluation of the Japanese yen. This shift brings uncertainty to the region, but could also prove to be beneficial over time to leading Japanese companies.
It’s worth mentioning several Japanese companies that are likely to augment their revenues on account of these changes. Many leading Japanese companies haven’t performed well in recent years. Such companies, such as Sony Corporation (ADR) (NYSE:SNE) or Toyota Motor Corporation (ADR) (NYSE:TM) are seeking growth and stability. During 2012, Sony’s revenues fell by nearly 9.6%. This drop in revenues also led the company to record a sharp fall in its operating profitability from a 3% in 2011 to 1% loss in 2012. This company’s free cash flow is negative and reached in 2012 around ($4 billion) compared to ($1 billion) in 2011. Nonetheless, Sony still has nearly $7.7 billion in cash. But another two more years like 2012 and Sony might erase its cash deposits. The depreciation of the Japanese yen could make Sony Corporation (ADR) (NYSE:SNE) more competitive in its industry, but without a rise in revenues, it won’t help the company over time. Despite the company’s revenues fall in 2012, its stock jumped by almost 27% since the beginning of the year. Some suspect the yard sales of the company’s assets including after it had sold its main offices in New York for $1.1 billion. Even if this is the case, the company’s cash situation will continue to be a risk issue.
Toyota’s situation isn’t much better as its revenues fell by 2.2% during 2012. Its profit margin is also low but stable at 2%. Nearly 75% of the company’s revenues are from aboard with North America leading the board at 28%. So from the revenues stand point, for a every 1% drop in the Japanese yen against other currencies, may lead, assuming all things equal, to a 0.75% rise in its revenues.
Toshiba also hasn’t performed well in 2012 and its net sales in the first nine months of 2012 declined by 7.1%. Since this company’s international revenues account for 56% of the total net sales, a drop in Japanese currency by 10%, assuming all things equal, will lead to a gain of 5.6% in total revenues, or another $2.5 billion gain in sales. This won’t compensate for the company’s drop in revenues, but might curb its fall.
Japan Tobacco International is another leading Japanese company, but its situation is much better than the Japanese companies listed above. This company’s revenues grew by nearly 4.7% in 2012 and its operating profit margin is set at 14%. Since this company’s international revenues account for nearly 38% of its total revenues, for every 10% drop in Japanese yen, assuming all things equal, the total revenues of Japan Tobacco will rise by 3.8%. This company’s stock, much like Sony’s, has also taken off in 2013 as it spiked by 20.5%.
Some of the companies I have listed above may not be the best investment available, but should bring to mind that if the macroeconomic condition in Japan will lead to the devaluation of the Japanese yen, this could also raise these companies’ revenues, which will likely to reflect in their stock price.
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The article Is it Time to Become Big in Japan? originally appeared on Fool.com and is written by Lior Cohen.
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