What Weak Yen Can Do for Japan Automakers Overseas

Source: Toyota | Facebook

Will the depreciating yen become a game changer for Japanese automakers that have grappled with a strong currency for several years now? Yes, it could, says Nomura.

The yen - which has fallen 24 percent against the U.S. dollar over the past six months - should have a "significant" impact on Japanese automakers' profits and export volumes, according to the investment bank, paving the way for market share gains in major exports markets such as Europe and the Middle East.

Each one percent weakening in the yen could boost individual automakers' operating profits by 2-6 percent during fiscal year ending in March 2014, the bank estimates.

Among the biggest automakers, Toyota and Mazda would benefit the most, as they export a large portion of their domestic production.

Of the 4.66 million domestically manufactured vehicles shipped out of Japan last year, Toyota accounted for 2.03 million units, while Mazda accounted for 703,000 units.

"Toyota sourced 43 percent of its cars sold in Europe from outside Europe - primarily Japan; whilst the corresponding figure for Mazda was close to 100 percent," Nomura said.

Historical trends indicate that that there is a strong correlation between the euro-yen exchange rate and the market share of Japanese carmakers in Europe, according to the bank.

This, however, is unlikely to be achieved by carmakers cutting prices to gain a competitive advantage, instead, Nomura said they will likely export cheaper models that were previously unprofitable due to the strength of the yen.

"We think most of these gains would be at the expense of the weaker European players such as Fiat, PSA and Renault. In addition, given their plans to cut down production capacity in Europe, GM and Ford are also likely to see some loss of market share," the bank said.

The weakening yen is also expected to help Japanese automakers to expand their foothold in the Middle East - which accounts for 11 percent of the country's auto exports.

When the yen was strengthening between 2007 and 2011, Japanese carmakers lost market share in the Middle East to their Korean rivals Hyundai and Kia. However, the bank expects a reversal of this trend.