High yen hits Honda and Matsushita: Honda suffered most in Europe, where sales fell by 15 per cent

TWO of the biggest companies in Japan, Honda and Matsushita, reported profit slumps in the second quarter of the year, reflecting the rapid rise in the value of the yen.

Honda, the third-biggest Japanese car maker, saw its pre-tax profit slump by 55 per cent to Y15.3bn ( pounds 100m). It said falling sales in Japan, North America and Europe were aggravated by the yen's rise by 8.4 per cent in trade-weighted terms during the quarter. Although 11 per cent fewer cars were sold, revenue from them slipped by 21 per cent; motorcycle revenues fell by 3 per cent, even though sales volume was 12 per cent higher.

Honda has already increased US prices and cut UK dealer margins because of the high yen. John Lawson of the consultancy DRI/McGraw-Hill says Honda is more exposed to a strong currency than other Japanese motor companies because it exports more of its production. Results can only get worse because Honda, like the other car makers, is still partially protected by forward currency contracts.

The most serious slippage was in Europe. In the first half Honda's sales fell by 15 per cent, losing sales even in Britain, where the overall market has improved. A spokesman said this was largely because Honda does not produce diesels, sales of which have been rising particularly strongly.

European sales are expected to recover as production of the Accord from the new Swindon plant makes an impact. European transplant production is unlikely to increase rapidly in response to the strong yen, however, because of political pressure from European manufacturers.

Matsushita, the biggest consumer electronics group in the world and maker of Panasonic and Technics equipment, said its second-quarter profit fell by 23 per cent to Y6.7bn. The company said its overseas sales increased in local currency terms from a year earlier, but declined when translated back into yen terms because of currency movements.

Last week, Sony announced that its group profits also fell during the quarter - by 48.5 per cent to Y7.69bn. The stronger yen was responsible for a Y119bn drop in its sales during the three months, Sony said.

The dollar dropped from about Y125 in February to Y100.4 last week. After intervention by the US Federal Reserve last Thursday, it is trading at about Y104.

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