Dollar's rise against yen may hurt profits overseas U.S. currency's strength is negative, analyst says


U.S. companies with Japanese operations are having a reversal of fortune in the currency market as the dollar's climb against the yen eats into first-quarter profit growth.

In the past 12 months, the U.S. currency has risen nearly 30 percent against the yen, rising from the low 80s last April to more than 107 yen last week, thanks to a slowly expanding economy and dollar buying by the Federal Reserve and other central banks. The rise eliminated a way for some U.S. companies to dress up their balance sheets by repatriating yen from Japanese sales for dollars.

"The dollar's strength is a big negative," said Michael Metz, chief investment strategist at Oppenheimer & Co.

Many big U.S. companies, such as International Business Machines Corp., Chrysler Corp. and other makers of computers, cars, electronics and software, are reluctant to raise prices to maintain profit margins in the fiercely competitive Japanese market. Some company executives said they would rather accept a loss now in hopes of gaining a bigger market share.

Last month, Oracle Chief Financial Officer Jeff Henley told analysts that the dollar's rise could reduce fiscal fourth-quarter revenue growth at the biggest publisher of database software by as much as 5 percent. Analysts said the change in the dollar could shave $70 million from Oracle's estimated $1.4 billion in sales in the quarter, when compared with results from the year-earlier period.

At Chrysler, executives are wrestling with the possibility of raising prices, said Jerry Hsu, head of the company's operations in Japan. "We need to be very market-competitive in pricing, but once it goes over 120 yen to the dollar, it becomes very difficult," he said.

IBM, meantime, faces the loss of $3.2 billion in sales and about 25 cents a share in profit this year because of changes in exchange rates, said Salomon Brothers analyst John Jones.

The dollar, which is near its first-quarter 1995 levels against major European currencies, isn't expected to fall much this year. That could result in weak overseas results when companies do their second-quarter earnings comparisons.

Pub Date: 4/07/96

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