Report

Accounting Illusion No Longer Works in Corporate's Favor Profits Slide on Yen Reversal

posted by Richard Katz on June 02, 2016

Found in Japan, categorized in Macro

Tags: Richard Katz TOE yen Abe Abenomics corporate profit

Report Cover

Headline

What the yen giveth, the yen taketh away. When the yen was plunging, it artificially propped up the profits that Japan’s leading multinationals reported on their books.

Abstract

Key points of this report,
- The current profits of Japanese corporations have fallen in the last three quarters. For all corporations, current profits are down 16% from April-June 2015
Among manufacturers, who are the biggest multinationals, profits are down a whopping 29% from three quarters ago to a level first reached 13 years ago in 2003
In part, profits are down because sales have slumped, but an even bigger reason for the plunge in profits is that the ratio of profits-to-sales is down 13.5% from its peak in April-June 2015
The roller coaster ride of the yen’s value has played a pivotal role in the roller coaster ride of profits; over the last five years, there has been a stunningly high 95% correlation between the profits:sales ratio and the value of the yen
Most of the impact of the ups and downs of the yen on profits is a pure accounting illusion, but one that, for a while, misled many foreign investors 

About Richard Katz

Richard Katz

Richard Katz is Editor of The Oriental Economist Report, a monthly newsletter on Japan, as well as the semi-weekly TOE Alert e-mail service on Japan, and is also a special correspondent at Weekly Toyo Keizai, a leading Japanese business weekly.

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