Honda's Return to Profit Is Made Uncertain

The yen's recent appreciation makes it less certain Honda Motor Co. can return to profitability in its fiscal second half, the Japanese car maker said Thursday.

"The second half is just an unknown zone," Takanobu Ito, Honda's president and chief executive, said in an interview.

Honda in July projected an operating loss of 10 billion yen, or about $100 million, for its fiscal first half, which ended in September, and an operating profit of 80 billion yen in the second half.

But the assumptions were based on an estimated dollar rate of 90 yen in the second half. The dollar dropped to an eight month low of 88.23 yen on Monday and has stayed below 90 yen for most of the week since then.

A stronger yen squeezes profit that the company earns overseas when repatriated into the yen. In the current fiscal year, which runs through March, Honda anticipates overseas vehicle sales will account for 80% of its global sales.

To fend off the impact of the stronger yen, the car maker can increase production overseas while cutting output in Japan to reduce its exports from home. But Mr. Ito said there aren't many options available for the company to mitigate the impact of the unfavorable exchange rate in the short term. The dollar's sluggish performance against the yen in the current fiscal year already is affecting sales of Honda's remodeled Insight hybrid, which the company produces in Japan, he said.