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.
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