One argument against the negative bias (for Japanese companies) of a strong yen goes something like this: a stronger yen reduces the impact of high commodity prices, such as oil, which particularly helps the likes of consumers and smaller companies. I said as much, stating the obvious, last November (see here). At that time, Chief Cabinet Sec Machimura commented that it is “wrong to think that a high yen is something bad for the Japanese economy.”

That was then, when the yen was safely above ¥100/$1. Now, at ¥99, there’s the reality that corporate profits aren’t going to come in — just consider all the ¥110+ corporate forecasts. The problem now for exporters is regardless if the yen’s appreciation is offsetting increases in commodities prices, but more importantly rather, what happens to competitiveness and repatriation of overseas profits. Sources suggest up to around half of Japan’s export transactions are settled in US$.

Cutting to the chase, the domestic services sector and import-retailers may be blessed with the lesser of two evils, in the sense that there’s really only the ongoing matter of restricted demand to deal with, whereas most manufacturers and exporters will be hurt on both imports and exports.From the first page of Friday’s WSJ, “Japan Economy Quakes Anew As Yen Soars Against Dollar,” we see evidence of the pain:

Toyota Motor Corp. sees annual operating profit cut by 35 billion yen, or about $350 million, every time the dollar’s value slips by one yen. With the dollar having lost more than 10 yen since the end of last year, that suggests Toyota’s profits could take a several-billion-dollar hit. The car maker’s president, Katsuaki Watanabe, told reporters yesterday it isn’t clear if the company could maintain profit growth if the dollar continues to slide, despite cost cuts and other possible measures.

In the above chart, notice the impact of the weaker dollar/stronger yen on Toyota’s ADRs (TM: 69.52 +13.50%) versus its ordinary shares.

As I’ve said plenty of times in the past, forex is a double-edged sword for investors in Japanese ADRs.Yuka Hayashi and Joanna Slater of the Journal go on to explain the sub-¥100 trading level between 1994 to 1995, in which a historic low of ¥79.75 was set.

Then we hear the following from a Nissin Food Products spokesman:

Savings from the strong yen in no way offset the damage from the rise in commodity prices.

Here’s a one-year chart of the CurrencyShares Japanese Yen Trust (FXY: 97.67 -1.36%), which is listed on NYSEArca and now likely has net assets above $1B: