Toyota reports ¥70bn FX impact

"We recognise the uncertainties we’re facing in both the foreign exchange and interest rate environment," said vice-president Ryuji Araki, when announcing the company’s results to June 30. "In responding to these challenges, Toyota will continue its efforts and work hard to maintain the profit levels of the fiscal year ended March 2004."

But the yen’s strengthening trend over the past couple of years could add to more FX headaches for the company, which is seeing growing international sales: in Asia, for example, they surged by 65% year on year, Toyota said last week.

Currently, 80% of Toyota’s exports are in foreign currency. Of that, 50% is hedged for the following six months using FX forwards and options. In the 2003 fiscal year, the company saw foreign exchange gains on a consolidated basis of ¥38 billion, compared with ¥35 billion the previous year. An official said this was mainly due to FX hedges – Toyota does not use derivatives for speculation.

At the same time, the company has been limiting transaction risk by localising production in different countries. Last calendar year, for example, 62% of the vehicles sold in North America were produced locally, while in Europe, 53% of vehicles sold were manufactured locally. Local operations permit Toyota to purchase many of the supplies and resources used in the production process in a manner that matches the currencies of local revenues with the currencies of local expenses, said the company.

Toyota said it also enters into currency borrowings in addition to localising production and the use of financial instruments.