Toyota Signals Yen Strength, Dollar Weakness to Persist

Includes: FXY, JYF, JYN, TM, UDN, UUP, YCL
by: Emerging Money

One of Japan's greatest exporters has given in to what might become the inevitable: The strong yen is not likely to weaken much from here, and the dollar will remain on the defensive.

Toyota (NYSE:TM) , a perennial favorite at as a key player in emerging car markets, quietly cut its forecast for the yen's average exchange rate against the dollar to 80 for the entire second half of 2010.

By lowering its currency assumptions from 90 yen to the dollar, TM is essentially admitting that nothing out there- not the Bank of Japan, the G20 nor any unexpected revaluation in the forex markets- is likely to strengthen the dollar and weaken the yen in the next few months.

In fact, even at the dollar's weakest, it has yet to crack below 80.5 yen so far this year, so TM actually expects the yen to get a lot stronger by the end of the year.

Shifting its currency targets will cost the company a staggering $184 billion in profit when it reports its 2H financial results -- over and above any deterioration in its sales from having to compete with manufacturers based in the United States, China and other countries with relatively weak currencies.

For context, at the beginning of the year, it took around 92 yen to buy a dollar. Since then, the Japanese currency has appreciated 15%.

Bad news for TM and other Japanese exporters. Great news for yen-based investments like the yen funds: FXY, JYN and JYF are all up 14% to 15%, and the leverage YCL is the top currency ETF so far this year, up a stunning 26%:

Disclosure: No positions