Japan Inc struggles with yen rise, Thai floods

TOKYO Mon Oct 31, 2011 4:18am GMT

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TOKYO Oct 31 (Reuters) - Japan's biggest corporations are facing an ever tougher fight to keep up with their nimble Asian rivals as the soaring yen and Thai flooding hit manufacturers already battling consumer gloom in Europe and the United States.

From Nintendo to Panasonic, Sony and Honda, Japan Inc. is struggling to fend off competition from the likes of Samsung and Hyundai, which have been steadily nipping at their heels, as the soaring yen and supply disruption undermine their recovery attempts.

"The strong yen will be a negative factor in companies' outlooks...it's hard to quantify (the impact of Thai floods on earnings) at this point, but a lot of companies will be affected," said Mizuho Investors Securities analyst, Nobuo Kurahashi.

"On top of that, the macro-economic situation is not good. I think more companies will revise down their forecasts, a lot of them in the technology sector."

Even after a slide triggered by what appeared to be another round of government intervention on Monday, the Japanese currency stood at about 79.2 yen against the dollar, after a relentless rise from more manageable levels about 100 yen three years earlier.

Attempts by many Japanese manufacturers to sidestep the yen and other high domestic costs by building up production in Thailand have also run into difficulties.

This month's disastrous flooding has forced many firms to close plants that are either actually under water or lacking necessary parts, in an echo of the supply chain woes that threw Japan's manufacturing into chaos following the March 11 earthquake and tsunami.

After games giant Nintendo Co Ltd announced last week it expects to make its first annual net loss ever for the year to March 2012, further gloom is expected from this week's earnings.

Panasonic Corp is expected to slash its annual forecast to a net loss of about 300 billion yen ($4 billion) when it unveils quarterly earnings at 0630 GMT on Monday, the Nikkei business daily said at the weekend.

Hit by the cost of layoffs as it tries to pare costs and strip out overlapping businesses following its buyout of subsidiary Sanyo, the company will also likely cut its sales target as consumers turn conservative, the paper said.

More than 60 percent of global consumers said it was not a good time to spend and one in three North Americans said they had no spare cash in a survey by Nielsen published at the weekend.

"A historically high yen and a slowdown in demand in major markets are creating an increasingly difficult external environment for the companies," ratings agency S&P said in a statement about Japan's electronics firms released on Oct. 26.

"As a result, downward pressure on the ratings on the companies may build if we see a higher likelihood of flood damage to factories or supply chains having a prolonged impact on production and slowing recovery in their earnings and financial profiles."

By contrast, South Korean rival Samsung Electronics Co , far quicker than Japanese firms to jump into the growing smartphone market, said it remained "cautiously optimistic" about the vital October-December period.

Later in the week, Sony Corp and Nikon Corp are also expected to reveal more information about the effects of Thai flooding on their operations, particularly camera manufacturing.

Just as in the aftermath of the earthquake, the auto industry, which relies on an uninterrupted supply of up to 30,000 parts per vehicle, may be among the worst hit of Japan's industries.

Honda Motor Co , the first of the Japan's top three automakers to report earnings, is likely to offer conservative outlook later on Monday due to higher yen and the flooding in Thailand.

Japan's third-biggest automaker by sales has been hit the hardest by both disasters this year, recovering slowly from the supply disruption in northeast Japan and suffering direct damage at its Thai car factory in the Ayutthaya industrial estate.

($1 = 75.760 Japanese yen) (Reporting by Isabel Reynolds; Editing by Matt Driskill and Miyoung Kim)

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