Weakening Yen Strengthens Toyota's Profits

Friday, Toyota announced that it nearly doubled its quarterly profit over one year ago. The robust earnings were largely due to the weakening of the Yen, brought on by the economic policies of Japanese Prime Minister Shinzo Abe.

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From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

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And I'm Audie Cornish. Right now is a good time to be an automaker. Sales are up for almost every major company operating in the U.S. Toyota saw its profits increase by a whopping 94 percent. But as NPR's Sonari Glinton reports, Toyota's success is as much about currency as it is about cars.

SONARI GLINTON, BYLINE: It's an odd fact of the U.S. car market in recent years: Success has depended a lot on government action. Joe Gagnon is a senior fellow at the Peterson Institute for International Economics. He says the same is true in Japan, especially now.

JOE GAGNON: With the election of Shinzo Abe as prime minister, the yen depreciated a lot because he was saying he was going to have very easy monetary policy, lower interest rates in Japan.

GLINTON: Lower interest rates in Japan, a cheaper yen, it may not sound like a big deal, but Gagnon says when you look at it...

GAGNON: Yeah, it's a big deal. It's a big deal for Japan, and it affects the whole world.

GLINTON: Gagnon says Toyota didn't have to do big redesigns or introduce new models. The sharp decline in the value of the yen has pushed down Toyota's costs, and lower costs have helped boost Toyota's profits.

GAGNON: Initially this isn't really about Toyota stealing market share, it's just about the fact that even with the same market share, their costs have gone down, so their profits have gone up.

GLINTON: Eighty percent of Toyota's increase in profit came from the declining yen. The Japanese auto companies have been struggling for years against a strong yen, and it used to make Japanese exports tougher to sell because a strong yen made them more expensive. The last few years were lean ones for Toyota, and it used that time to wring out costs and is now much more efficient than the other Japanese automakers.

KARL BRAUER: I think the most important thing to keep in mind is that they are a huge, global automaker, and they've been doing it for long enough to really have figured out how to maximize almost any situation.

GLINTON: Karl Brauer is a senior analyst with Kelley Blue Book. He says this makes Toyota far more competitive and, going forward, it will allow it to spend more on research and development. Brauer says Toyota is now in a position to use strategic price cuts on its most popular models.

BRAUER: What they're able to do now is they're able to lower the price on vehicles, like use a lot of incentives, and they can do it more easily because of the yen situation by incentivizing the Camry, lowering its effective purchase price to maintain sales base.

GLINTON: Brauer says Toyota is clearly looking to maintain its sales lead and stay on top of the world car market, with a little help from the Japanese government. Sonari Glinton, NPR News.

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