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25 Jun 2013
Flash: Capital efficiency increases resilience to JPY appreciation – RBS
FXstreet.com (New York) - While many observers immediately envision a scenario of a sudden disruption of Japan's economic growth from a decline in overseas demand and a return to yen strength based on past trends, we expect the recent improvement in profitability of industries with low export reliance to offer a buffer against the risk of lower corporate profits, reiterates the RBS Research Team.
While differences exist depending on the industry, the restoration of a relatively high ROA for the major industries indicates that corporate profitability is improving. Specifically, automotive, chemical, and production machinery industries have been generating strong ROA recently. “We expect the automotive industry to continue to show improvements in profitability and capital efficiency improvements because of its control of a broad supply chain in Japan and other countries, and sustained competitive advantages.
“While it is often assumed that automobiles dominate Japan's overall export trend, we think export and output recoveries in the production machinery, chemicals and other industries with strong profitability, capital efficiency and competitive advantages are increasing the resilience of corporate profits to any yen appreciation.” the team adds.
While differences exist depending on the industry, the restoration of a relatively high ROA for the major industries indicates that corporate profitability is improving. Specifically, automotive, chemical, and production machinery industries have been generating strong ROA recently. “We expect the automotive industry to continue to show improvements in profitability and capital efficiency improvements because of its control of a broad supply chain in Japan and other countries, and sustained competitive advantages.
“While it is often assumed that automobiles dominate Japan's overall export trend, we think export and output recoveries in the production machinery, chemicals and other industries with strong profitability, capital efficiency and competitive advantages are increasing the resilience of corporate profits to any yen appreciation.” the team adds.