Moody's Investors Service lowered the credit rating outlook of Toyota Motor Corp. and its affiliates from stable to negative due to worries that gains in the yen would delay recovery in their profit margins. In a statement, Moody’s said that its rating may be reduced if it can’t employ steps to become profitable once again. Moody’s affirmed Toyota's senior unsecured long-term rating at Aa3, three notches under the top investment grade.
Toyota, which is on track to lose the top spot as the biggest automaker this year to General Motors Co., said that auto sales may be at its highest in at least 12 years in 2012 as it recovers from the disruptions in its output due to the natural disasters that took place this year at Japan and Thailand.
Its obstacles to recovery include the gain in the yen, which reduces Toyota's export earnings, and the sluggish economic growth in the U.S. and China.
Moody’s describes Toyota’s path to profitability to be “more protracted than anticipated” because of the impact on the strong yen on the automaker. He said that this is “compounded by eroding macro-economic conditions” in several core markets.
In the last six months, Japan's currency has advanced more than 8%. This is the best performance among 10 developed-nation peers that are monitored by Bloomberg Correlation-Weighted Indexes.
Moody’s said that Toyota is "vulnerable" to the stronger yen because it is highly dependent on its Japan output to sustain sales in markets like the U.S. and Europe. To lessen the impact of its current exposure, it would have to boost its overseas output further and it will be using parts that are locally sourced.