Financial risks

12 Months Ended

Mar. 31, 2025

19. Financial risks

(1) Financial risk management policy

Toyota is exposed to various risks such as credit risk, liquidity risk and, market risk (foreign currency risk, interest rate risk, commodity price fluctuation risk and stock price fluctuation risk). To hedge market risk, Toyota also uses derivative financial instruments including foreign exchange forward contracts, foreign currency options, interest rate swaps, interest rate currency swap agreements, and interest rate options. With respect to the execution and management of derivative transactions, Toyota follows company regulations that set out transaction authority, and it is a policy not to conduct speculative transactions using derivative financial instruments.

In addition, Toyota procures necessary funds (mainly bank borrowings and issuing corporate bonds) based on the capital expenditure plans, and temporary surplus funds are managed with highly safe financial assets and short-term working capital is procured through bank borrowings and commercial paper. As for liquidity risk concerning fund procurement, each company manages it by preparing a monthly cash flow plan, etc.

(2) Credit risk

Receivables related to financial services are exposed to credit risk. The risk arises from the failure of customers or dealers to meet the terms of their contracts with Toyota or otherwise fail to perform as agreed. Toyota manages its credit risk by defining risk management methods and management systems for specific risks in accordance with the regulations on risk management. Based on such regulations, Toyota mitigates credit risk through periodical monitoring of customers’ credit status and undertaking the maturity control and account balance control, while detecting promptly any doubtful accounts caused by deterioration in the financial conditions.

Please see Note 3 “Allowance for credit losses on finance receivables” about measuring method of the expected credit losses on receivables related to financial services.

The carrying amount after impairment of financial assets presented in the consolidated financial statements, as well as guarantee obligations and loan commitments that are set forth in the notes to the consolidated financial statements, are the maximum exposure to the credit risk of Toyota’s financial assets that do not take into account the value of the acquired collateral. The allowance for credit exposures of loan commitments and financial agreements is measured in the same way that the allowance for retail receivables is measured.

Retail receivables and financial lease receivables are being secured by vehicles as collateral. Wholesale receivables and other dealer loans are secured by placing appropriate property as collateral. During the reporting period, there is no change in the policy regarding collateral.

The net changes in the allowance for credit losses relating to the retail receivables are as follows:


	Yen in millions
	For the year ended March 31, 2024
	Expected credit loss for 12 months			Lifetime expected credit loss						Total
	Expected credit loss for 12 months			Financial receivable not credit-impaired			Credit-impaired financial receivable			Total
Allowance for credit loss at beginning of year		95,720			124,867			54,284			274,871
Provision for credit loss, net of reversal		34,386			64,742			142,299			241,427
Charge-offs		—			—			(150,458	)		(150,458	)
Other		(19,062	)		(41,819	)		31,193			(29,688	)

Allowance for credit loss at end of year		111,044			147,790			77,318			336,152


	Yen in millions
	For the year ended March 31, 2025
	Expected credit loss for 12 months			Lifetime expected credit loss						Total
	Expected credit loss for 12 months			Financial receivable not credit-impaired			Credit-impaired financial receivable			Total
Allowance for credit loss at beginning of year		111,044			147,790			77,318			336,152
Provision for credit loss, net of reversal		36,053			59,305			181,769			277,127
Charge-offs		—			—			(189,044	)		(189,044	)
Other		(29,265	)		(56,209	)		17,543			(67,931	)

Allowance for credit loss at end of year		117,832			150,885			87,587			356,304

“Other” primarily includes reversal of allowance for credit loss due to the collection of retail receivables.

The table below shows the retail receivables segregated into aging categories based on the numbers of the days outstanding:


	Yen in millions
	March 31, 2024
	Expected credit loss for 12 months		Lifetime expected credit loss				Total
	Expected credit loss for 12 months		Financial receivable not credit-impaired		Credit-impaired financial receivable		Total
Current		22,750,132		1,526,798		—		24,276,931
Past due less than 90 days		318,524		694,558		23,761		1,036,843
Past due 90 days or more		—		4,598		171,574		176,172

Total		23,068,656		2,225,954		195,335		25,489,945


	Yen in millions
	March 31, 2025
	Expected credit loss for 12 months		Lifetime expected credit loss				Total
	Expected credit loss for 12 months		Financial receivable not credit-impaired		Credit-impaired financial receivable		Total
Current		25,114,478		1,335,387		12,067		26,461,932
Past due less than 90 days		306,022		658,638		20,028		984,689
Past due 90 days or more		—		16		191,385		191,401

Total		25,420,500		1,994,041		223,481		27,638,021

The net changes in the allowance for credit losses relating to the finance lease receivables are as follows:


	Yen in millions
	For the years ended March 31,
	2024			2025
Allowance for credit loss at beginning of year		36,920			46,909
Provision for credit loss, net of reversal		23,617			31,539
Charge-offs		(7,676	)		(10,311	)
Other		(5,952	)		(11,417	)

Allowance for credit loss at end of year		46,909			56,721

“Other” primarily includes reversal of allowance for credit loss due to the collection of finance lease receivables.

The table below shows the finance lease receivables segregated into aging categories based on the numbers of the days outstanding:


	Yen in millions
	March 31,
	2024		2025
Current		3,057,602		3,340,414
Past due less than 90 days		60,316		67,627
Past due 90 days or more		25,506		29,928

Total		3,143,424		3,437,970

The table below shows the net movement of the allowance for credit losses on wholesale receivables and other dealer loans.


	Yen in millions
	For the year ended March 31, 2024
	Expected credit loss for 12 months			Lifetime expected credit loss						Total
	Expected credit loss for 12 months			Financial receivable not credit-impaired			Credit-impaired financial receivable			Total
Allowance for credit loss at beginning of year		14,640			4,582			5,399			24,622
Provision for credit loss, net of reversal		6,362			2,539			1,130			10,031
Charge-offs		—			—			(204	)		(204	)
Other		(3,521	)		(1,191	)		1,475			(3,236	)

Allowance for credit loss at end of year		17,481			5,931			7,801			31,213


	Yen in millions
	For the year ended March 31, 2025
	Expected credit loss for 12 months			Expected credit loss for the entire period						Total
	Expected credit loss for 12 months			Financial receivable not credit-impaired			Credit-impaired financial receivable			Total
Allowance for credit loss at beginning of year		17,481			5,931			7,801			31,213
Provision for credit loss, net of reversal		10,856			3,746			1,448			16,050
Charge-offs		—			—			(698	)		(698	)
Other		(3,641	)		(2,658	)		(2,475	)		(8,774	)

Allowance for credit loss at end of year		24,697			7,018			6,076			37,791

“Other” primarily includes reversal of allowance for credit loss due to the collection of wholesale receivables and other dealer loans.

Toyota charges off the credit - impaired finance receivables when Toyota considers that all or part of it will not be collected. The amount of receivables related to financial services which has been charged off but subject to ongoing collection activity was not significant for the years ended March 31, 2024 and 2025.

The balances of the wholesale receivables and other dealer loan receivables portfolios by credit status, as well as loan commitments and financial guarantee contracts, as of March 31, 2024 and 2025 are as follows.

The wholesale and other dealer loan receivables portfolio segment is segregated into the following credit qualities below based on internal risk assessments by dealers.

Performing: Account not classified as either Credit Watch, At Risk or Default

Credit Watch: Account designated for elevated attention

At Risk: Account where there is an increased likelihood that default may exist based on qualitative and quantitative factors

Default: Account is not currently meeting contractual obligations, or we have temporarily waived certain contractual requirements


	Yen in millions
	March 31, 2024
	Expected credit loss for 12 months		Lifetime expected credit loss
	Expected credit loss for 12 months		Financial receivable not credit-impaired		Credit-impaired financial receivable		Total
Wholesale and other dealer loan
Performing		4,741,270		—		—		4,741,270
Credit Watch		61,078		132,721		—		193,799
At Risk		—		45,231		4,258		49,489
Default		—		—		21,209		21,209
Loan commitments		11,129,604		115,327		781		11,245,712
Financial guarantee contracts		3,200,368		36,964		—		3,237,333

Total		19,132,321		330,243		26,247		19,488,811


	Yen in millions
	March 31, 2025
	Expected credit loss for 12 months		Lifetime expected credit loss
	Expected credit loss for 12 months		Financial receivable not credit-impaired		Credit-impaired financial receivable		Total
Wholesale and other dealer loan
Performing		4,478,021		—		—		4,478,021
Credit Watch		213,400		143,979		—		357,379
At Risk		—		54,774		2,003		56,776
Default		—		—		10,360		10,360
Loan commitments		10,288,422		188,448		1,024		10,477,894
Financial guarantee contracts		2,234,393		24,001		—		2,258,395

Total		17,214,236		411,202		13,387		17,638,825

For the year ended March 31, 2024 and 2025, the amount of finance receivables the terms of which were modified due to deterioration in credit conditions was not significant for any portfolio of finance receivables, and the amount of payment defaults on finance receivables so modified were not significant for any portfolio of such receivables.

(3) Liquidity risk

To secure cash on hand necessary for carrying out operations, Toyota appropriately borrows from financial institutions and issues corporate bonds and medium-term notes or commercial paper, and there is a risk of failing to execute the payment on due date because of deterioration of fund procurement environment etc.

Toyota manages liquidity risk by monitoring the fund demand of each group company as appropriate, preparing a monthly-based funding plan, and comparing it with the daily cash flow. In addition to holding sufficient cash and cash equivalents in order to secure liquidity and stability of funds, to prepare for emergency situations such as sudden fund demand and market liquidity deterioration, a commitment line has been set up.

The amounts of

non-derivative

financial liabilities and derivative financial liabilities by a remaining contract maturity period are as follows:

As of March 31, 2024


	Yen in millions
						Maturities
	Book value		Contractual cash flows			Within 1 year			Between 1 and 3 years			Between 3 and 5 years			Later than 5 years

Non-derivative financial liabilities
Short-term debt		1,387,832		(1,398,947	)		(1,398,947	)		—			—			—
Commercial paper		4,100,127		(4,222,660	)		(4,222,660	)		—			—			—
Long-term debt		30,611,253		(33,286,908	)		(10,862,374	)		(13,051,900	)		(6,770,969	)		(2,601,665	)
Lease liabilities		462,568		(517,763	)		(83,145	)		(115,664	)		(74,847	)		(244,107	)

Total		36,561,780		(39,426,278	)		(16,567,126	)		(13,167,564	)		(6,845,816	)		(2,845,772	)

Derivative financial liabilities
Interest derivative		238,503		(237,685	)		(74,298	)		(103,424	)		(54,923	)		(5,040	)
Currency derivative
In		—		1,127,763			150,390			433,343			362,638			181,391
Out		193,686		(1,370,175	)		(222,251	)		(519,535	)		(427,529	)		(200,860	)

Total		432,189		(480,098	)		(146,158	)		(189,617	)		(119,815	)		(24,508	)

Total		36,993,969		(39,906,376	)		(16,713,284	)		(13,357,180	)		(6,965,631	)		(2,870,280	)


As of March 31, 2025
	Yen in millions
						Maturities
	Book value		Contractual cash flows			Within 1 year			Between 1 and 3 years			Between 3 and 5 years			Later than 5 years

Non-derivative financial liabilities
Short-term debt		1,552,166		(1,565,387	)		(1,565,387	)		—			—			—
Commercial paper		3,912,303		(4,012,371	)		(4,012,371	)		—			—			—
Long-term debt		32,795,058		(35,293,975	)		(11,209,068	)		(15,485,265	)		(6,190,498	)		(2,409,143	)
Lease liabilities		533,351		(630,013	)		(102,412	)		(159,500	)		(94,354	)		(273,747	)

Total		38,792,879		(41,501,746	)		(16,889,239	)		(15,644,764	)		(6,284,852	)		(2,682,891	)

Derivative financial liabilities
Interest derivative		196,389		(220,341	)		(83,505	)		(108,063	)		(22,712	)		(6,061	)
Currency derivative
In		—		1,047,528			73,959			759,648			66,990			146,931
Out		123,493		(1,196,751	)		(130,116	)		(840,065	)		(74,389	)		(152,181	)

Total		319,881		(369,564	)		(139,663	)		(188,480	)		(30,111	)		(11,311	)

Total		39,112,760		(41,871,310	)		(17,028,902	)		(15,833,244	)		(6,314,963	)		(2,694,201	)

As described above, Toyota raises funds through the issuance of corporate bonds and medium-term notes, and commercial paper. These funding mechanisms comply with the regulations of each respective country, and Toyota qualifies as an eligible issuer. Depending on the individual debt registration statement, this allows us to issue medium-term notes without a predetermined issuance limit, or to raise funds within a specified issuance limit.

The unused amount of funding with established issuance limits is as follows:


	Yen in millions
	March 31,
	2024		2025
Corporate bonds and medium-term notes		6,477,572		6,011,789
Commercial paper		1,241,053		1,241,283

Total		7,718,625		7,253,072

As of March 31, 2024 and 2025, Toyota has unused amounts of commitment lines from financial institutions of ¥5,507,761 million and ¥5,503,689 million, respectively.

As of March 31, 2024 and 2025, the balance of credit limits and other

non-contractual

credit facilities with major banks is ¥47,000 million and ¥53,000 million, respectively.

(4) Foreign exchange risk

Toyota is subject to foreign currency exposure through transactions in foreign currencies related to purchases, sales and financing activities associated with conducting business worldwide. Toyota is exposed to fluctuation risks related to future profitability or assets and liabilities regarding operating cash flows denominated in foreign currencies and various financial instruments. The most significant foreign currency exposure is primarily caused by the U.S. dollar and the euro.

Toyota uses derivative financial instruments including foreign exchange forward contracts, foreign currency options, interest rate currency swap agreements, and others, to manage the exposure to foreign currency exchange rate fluctuations.

Toyota uses

Value-at-risk

analysis measurement (“VaR”) to assess the risk of exchange rate fluctuation. Potential impact of

pre-tax

cash flows on

VaR-integrated

foreign currency positions (including derivatives) for the years ended March 31, 2024 and 2025 is as follows:


	Yen in millions
	VaR
	Year-end		Average		Maximum		Minimum
For the year ended March 31, 2024		411,300		403,025		413,800		389,000
For the year ended March 31, 2025		465,300		441,800		465,300		408,500

The Monte Carlo simulation method is used for Toyota’s VaR measurement, and measurement is based on a 95% confidence interval and a

ten-day

holding period.

(5) Interest rate risk

In the course of conducting business activities, Toyota is exposed to interest rate risk due to fluctuation in market interest rates as it procures and invests funds necessary for working capital and capital investment. To maintain a desirable level of exposure related to interest rate fluctuation risk and minimize interest expense, Toyota conducts various financial instruments transactions.

Sensitivity analysis of Toyota’s interest rate risk associated with holding financial instruments if the interest rate increases by 1% is as follows. In this analysis, all other variables are assumed to be constant.


	Yen in millions
	For the years ended March 31,
	2024			2025
Impact on income before income taxes		(49,799	)		(104,706	)
Impact on other comprehensive income, before tax effect		(221,420	)		(235,959	)

(6) Market price fluctuation risk

Toyota is exposed to risks arising from increased costs due to commodity price fluctuations, such as iron and steel, precious metals and

non-ferrous

alloys used in the manufacture of automobiles. Toyota controls the price risk associated with the purchase of those commodities by maintaining inventory at the minimum level.

Toyota is exposed to stock price fluctuation risk because it owns shares of companies that have business relationships mainly for promoting smooth business activities. Toyota periodically reviews the fair values and financial situations of the business partner companies and, taking into consideration the relationship with them, continually reviews the holding status. The impact on other comprehensive income, before tax effect when the declared price of equity financial assets (shares) in active markets changes by 10% for the year ended March 31, 2024, and 2025 is ¥364,120 million and ¥305,475 million, respectively.