A sharp rise in the value of the New Zealand dollar against the Japanese yen eroded profits at used car dealership NZ Automotive Investments (NZAI).

The company, which owns the national chain of 2 Cheap Cars, said a combination of circumstances caused the currency to rise, which affected its currency hedging position.

“Due to external economic factors, including the war in Ukraine, weaker economic sentiment in Japan, and further bond purchases by the Bank of Japan, the New Zealand dollar

has strengthened against the Japanese yen in recent weeks,” the company said in a statement to the stock exchange.

It said it would incur a loss of $700,000 on hedging contracts, reducing its underlying net profit for the year ending March to between $1.7 million and $1.8 million from its forecast. previous $2.3 to $2.7 million.

There would be some offsetting in the net numbers with a gain of $900,000 on the value of its leases, which would translate to an actual profit for the full year of $2.6-2.7 million versus expected to be around $3.2-3.6 million.

The company said it was required to recognize the currency hedging loss in this fiscal year, even though the cars would not be delivered until the new fiscal year.

A rise in the New Zealand dollar against the yen would normally make goods and services purchased cheaper, but companies doing large business protect themselves from currency fluctuations by taking out hedging contracts, a form of insurance to lock in rates change.

In March, the New Zealand dollar rose more than 9% against the yen, reaching its highest level since June 2015.