The world's #1 automaker is accelerating on strong earnings, helped by a weaker yen and solid overseas sales. But a weak domestic economy and tough competition from China suggests a bumpy road ahead.
If you were to give a report card for Toyota's earnings, the company should earn a solid "A". That's because Toyota revised up its profit forecast for the current business year. A weaker yen and solid overseas sales are offsetting the negative impact of sluggish consumption in Japan, where a sales tax hike in April is hitting spending. Experts agree, saying Toyota shares are clearly a "buy". In fact, none of the analysts polled by Thomson Reuters advise investors to sell or even just hold on to them. That's in contrast to rival Honda, who already hit some potholes in 2014. Japan's third biggest carmaker had to slash its full-year net profit forecast by six percent as customers are shying away after a series of recalls of its popular Fit hatchbacks. And even with the latest market rally inspired by the Bank of Japan's stimulus acceleration, Honda shares are underperforming the overall market still below its price at the start of October. (SOUNDBITE) (ENGLISH) REUTERS REPORTER, YONGGI KANG, SAYING: "Despite Honda's disappointing earnings, the auto sector seems to be in decent shape in general with record profits at Mazda and Fuji Heavy Industries known for its Subaru cars." But the future is not necessarily bright for Japanese carmakers and Toyota is no exception, says auto analyst Takaki Nakanishi. (SOUNDBITE) (ENGLISH) CEO, NAKANISHI RESEARCH INSTITUTE, TAKAKI NAKANISHI, SAYING: "The outlook is somewhat different because of slower demand in Japan, and we continue to have a tax problem, and also competition in China is getting much keener and also we are observing a slowdown in Europe, particularly Russia, South America, and also Southeast Asia." Nakanishi warns that the weak yen may only give Japanese carmakers a temporary boost and what's really needed is a pick-up in domestic demand - something that's beyond their control and perhaps an issue Prime Minister Shinzo Abe needs to tackle. ENDS