you're watching "world business today" on cnn. toyota has just posted its first post quarterly results since the earthquake and tsunami that hit japan on march 11th. toyota made a net profit of just 1.1 billion yen in the first quarter, the financial yen began on april 1st. that's $14 million. a disappointing result certainly, but not as bad as a loss, i guess, which many analysts had been predicting. so let's put toyota's first earnings in some sort of context. this is how things looked a year ago. these are toyota's earnings in japanese yenful last year, 194

billion yen. that's about $2.25 billion. that was despite recalls of more than 6 million vehicles in the previous two quarters. now, the second and the third quarters you see here profits more modest. and then a slump to just 25 billion yen in the final quarter of 2004. that was after the earthquake and the tsunami damage. remember, the final quarter is the first three months calendar year. here we are today, q1 2011. 1.1 billion yen. that's down so much. it was a miserable result. certainly a lot of challenges facing toyota at the moment. let's go to kyung lah now who is in tokyo to give us more on toyota's perspective. kyung, any life there in toyota? >> i didn't quite catch the tail end of that andrew, but i can

tell you in that earnings announcement today there was certainly a seriousness in the air, and part of the reason for that seriousness is because of what they were announcing, that their income, if you think of it as far as simply income year on year, even though they did make money in the last quarter, it was a drop of almost 98.9%. so it was not good news that they were sharing, and the reasons why is not just on what's happening with all the events here in japan, that being the earthquake and tsunami, but we've also seen -- and it's not doing toyota any favors -- the surging yen versus a falling u.s. dollar. a toyota executive basically said that toyota could not keep up with the trends of the currency and said it was simply too tough for manufacturers to bear. here's what he said. >> translator: i understand that it is our fate to adapt to ever-changing exchange rates,

but this situation where the yen has passed 80 yen and is now at 76 yen, for us exporters, it's extremely tough. >> how we see this play out not just for toyota but some of the other exporters in japan's economy, the electronics companies, the other automakers but toyota feels it most acutely. their estimate is every time they feel a shift in the yen, one move versus the u.s. dollar, toyota loses an estimated 385 million u.s. dollars. so now all eyeses on japan are turning to the bank of jachl they meet on friday amid heavy speculation that perhaps there could be some monetary easing. andrew? >> kyung, i think i read that they were at a break even of around 76. now, if that's toyota's story,

obviously it plays out across japan incorporated, particularly the exporters. what does this then mean for the japanese economy as a whole as we go through the rest of this year? >> i am having a little trouble hearing you, but i think you're asking about the impact on the overall japanese economy. and the overall impact, if you look at it from what all the economists are saying is that if you erase about 5% out of corporate profits as the estimate from last year, that's 5% less than the corporations can reinvest into the economy. and then if you have an environment where the exporters -- and it's very much an export-driven economy, have to operate in a dollar world where the dollar is continuing to sink, then what it's going to do for japan is it's going to urge and push ahead a hollowing out of corporate japan, the production of japan, and that, in essence, means jobs. and so that's why we're starting

to hear people within japan's government saying that something has to be done about this currency because at the end of the day, if there are fewer jobs in this economy, fewer corporations who want to hire japanese workers fro deuce something, that's going to hurt the bottom line here of every japanese citizen. >> kyung, thanks so much for that. kyung lah joining us live from tokyo. thanks again, kyung, for that. as kyung was saying, toyota's problems certainly have not been helped by the strength of the japanese currency. take a look at this chart. this shows you the performance of the japanese yen against the u.s. dollar. it shows the u.s. dollar weakening against the japanese yen since the beginning of toyota's financial year in 2010. if you look at this,ite gone from up here it was something like 94 yen to the u.s. dollar all the way down to 77 yen against the u.s. dollar. now, that is a gain for the yen of 21%. almost a fifth higher in just 15

months. that gives you an idea what the exporters are facing. even though the yen weakened very slightly and they reached an agreement on the debt problems it's gain add bit of ground again and analysts expect the yen to stay strong certainly and remain at that level. now if japanese experts like toyota, it seems unlikely to go away any time soon. charles. >> right. let's check on the -- change gears and check on the business traveler's forecast. our meteorologist jennifer delgado is at the cnn weather center. a very gloomy start we're having in august. probably different for other parts of the world, isn't it, jen? >> absolutely. very gloomy in the caribbean, charles. that's because we have a tropical storm. it newly formed just yesterday. right now i'd say it's located 450 kilometers to the east of puerto rico. if you notice as we go through the next 72 hour, not expecting

much strengthening on it. along the path we're going to be dealing with some very heavy rainfall and that includes parts of haiti as well as the dominican republic. right now we have a tropical storm warning any place you're seeing blue. that means expect tropical storm conditions within the next 36 hour. if you're traveling across the region, expect weather to deteriorate as we go through the next two days. you can see on the satellite imagery. you can see the convection starting to flare up, moving toward the west. again, weather is going to be searing as we go through the next essentially hours for puerto rico and for other parts across caribbean. you can see the track of the potential storm system, moving to the south of the dominican republic. now, as we look across parts of europe, we're expecting a chance today for some severe storms to pop up, and this will last all the way through wednesday morning. so if you're traveling in through areas anywhere in the orange or red, anywhere from spain up through france as well

as switzerland, you'll have a chance for strong winds as well as hail. in fact, i was already tracking rain moving through southern parts of france as we speak. temperatures are going to be quite warm. we're not just talking about across parts of spain and portugal. look at numbers here. today we're expecting a high of 26 degrees. 26 in glasgow. look at this number in london. 27 degrees. charles, i know you've probably been enjoying the warmer temperatures over the weekend. looks like today, another hot day. showers moving through parts of england. nonetheless, let me show you some images from yesterday, showing you how people dealt with warm weather. you're looking at kids hopping in the warm water, cooling off, saying hey. they're enjoying the the last few weeks of summer and rightfully so. i love summer. can't stand winter. but, hey, at least we sometimes get back to summer pretty quickly. charles. >> okay. jennifer delgado, thanks for joining us live.

>> thank you. now if political analysts are correct the u.s. washington debt deal is hours away from becoming law and there are spending cuts. that's causing many americans a lot of worry. we'll hear from them straight ahead. i have astigmatism. so my old contact lenses would sometimes move out of place and blur my vision. my eye doctor said there's great news for people with astigmatism. acuvue® oasys for astigmatism. he said it's the only lens of its kind designed to realign naturally with every blink and created with hydraclear® plus. i'm seeing more clearly, crisply, comfortably,

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from cnn london, i'm charles hodson. >> and i'm andrew stevens at cnn hong kong. welcome back. you're watching "world business today." >> all right. let's go straight over to the stock markets here in europe now, open for 91 minutes, and we're continuing to see

declines. a lot of volatilities here still. these markets are basically 10% lower than they were back in february with a high -- actually the lowest level since october of last year, up by only a third of a percent in the case of the ftse and the paris cac 40 less than that by a quarter. swiss market, which is playing catch-up to some of the selling we saw on monday, closed for a swiss national holiday, that's off by more than 2%. so what with the u.s. manufacturing coming in very disappointing, a lot of uncertainty surrounding the future debt rating status of the united states and the debt problems, not only there, but also here in the euro-zone. really we're looking at a very, very weak couple of days, continuing to be a weak session on the stock markets here, andrew. >> yeah, very similar story in asia as well. a few stories also undermining

stocks. almost all of monday's gains across asia reversed. relief other the washington debt deadlock has given away to gloom. the fundamentals are weak manufacturing out of the u.s., which hit exporters around asia, strong yen chrk is making life hard for the sector in japan. nikkei at 1.2. virtually 1.3% yesterday has now disappeared. likewise with hong kong shanghai down 1%. australia also down by 1.4%. there's also news out today, charles, that there's speculation that both china and india are planning to increase their interest rates further in the next month or so and that's going to cast it over the markets there. >> indeed. okay. interesting to see how that's going to affect the dollar. now, in u.s. markets, a weak report on manufacturing, quickly

deflated the earlier rally we saw. we did see that pushing the markets high, but once the report came out on u.s. manufacturing, they were lower, particularly the s&p 500 and the nasdaq. the techs and the broader market off by nearly half a percent, just edging down there for the blue stocks of the day. looking ahead to tuesday, again, negative -- negative picture again. you can have a look at the futures market, off by about 0.4%. you don't have to take my word for it. >> yes, indeed. that's after they plan to pass the final grant of the u.s. debt plan. that happens a few hours from now. the house of representatives approved it last night. it's anticipated president barack obama will sign the new bill into law before tonight's debt limit deadline. the government will avoid a default, but we have yet to learn whether it will avert a u.s. credit downgrade. so is this political compromise

the best possible outcome? pauline choiu for that question to david stockman, a former u.s. budget director under ronald reagan. >> i think it's actually the worst possible outcome because it neither seriously cuts spending nor does it even dress the desperate need for more revenue. the republicans have been making a big deal all afternoon about the spending cuts, but $750 billion over ten years, let me tell you, is a rounding error. it's one half of 1% of gdp when the deficit gap is 10%. so it doesn't even begin to address the problem. furthermore, it's backloaded the spending cuts so far into the disstalkt future you can't each see them in the fall. it only cuts $25 billion in the next two years. most of the cuts, $500 billion,

occur in 2017 and beyond, which is to say not only after the next election, but after the 2016 election as well. so the question is who are they trying to fool? this isn't real. this isn't spending cuts. and yet they stand there and say we don't have to have revenue because we've cut spending when we haven't. on the other hand, i think the president folded like a lawn chair for the second time. he should be fighting for tax cuts since he doesn't believe in spending cuts of any magnitude, and yet he walked away and allowed this travesty of a bill to be passed. so it's just kick the can -- >> so you say -- so you say it's the worst possible outcome and you think we're going see this all over again in the near future. i'd like to go back in history a little bit and compare some of the parallels from today and from the 1980s when you were budget director under reagan in the early '80s. there are some similarities.

back in the '80s we had a deep recession. unemployment was over 10% and reagan raised taxes reluctantly. today we've got unemployment at 9.2% in the u.s., a very sluggish growth, and we've got disappointing gdp numbers last week in the u.s., but we don't have any tax hikes in this bill. so are you saying that that's a huge mistake here? >> yes. i think it is a terrible mistake. ronald reagan was for tax cuts more than any other american president we've had, but at the end of the day he realized we can't run a credit card budget, we can't borrow our way to prosperity, and when we faced this massive ballooning deficit in 1982, not withstanding the recesssive economic conditions you described so well, he reluctantly went ahead, the tax increase was signed. it was the equivalent of $150

billion a year at the present time, and yet he felt we had to do it because we had no choice. and that is totally different than the kind of republican you have today. today's republicans are credit card republicans. they're not reagan republicans. and their position is totally irresponsible and is really a shame that they try to rewrite and reinvent history when the facts speak so clearly, as i think we've outlined them here. >> well, washington's debt showdown cost american tax pairs more than $1.7 billion. that's the amount of additional interest that the u.s. had to pay to investors on monday to sell treasury bills to finance its operations. but what about the consequences of spending cuts resulting from this new plan? some of america's seniors who depend on social security and medicare are woifred. >> very worried because i put a lot of time into social security and medicare, and that's why i

depend on medicare because where it is now, if i didn't have med character i wouldn't be able to go do the doctors and stuff, so i'm very seriously concerned about that. >> i am concerned because i've never seen this country turn its back on seniors. that's how i feel. no raise, no cost of living, nothing's going down, everything's going up. i'm very concerned about it. >> the economy is already hurting. it's going be hurting a lot more. i'm worried about the stock market. whatever we have in our 401(k) o anything is going to go down. it's already down. we haven't recouped from the last drop. >> now, those were some senior citizens in the city of orange in new jersey. it still needs approval from the senate, but even if that does happen, there are concerns that the u.s. still might lose its prized aaa credit rating. here's what the agencies are saying in the light of what's happened. moody's says it remains our expectation that the government

will continue with timely debt service and that our review for downgrade will more likely than not conclude with a confirmation of the aaa rating, ail beit with a shift to the negative outlook. fitch was more tight lipped. they said we will comment only after a final deal is approved. the other agency credit company standard & poor's, they were the one to threaten the downgrade of the rating of the u.s. debt. one has already downgraded the u.s., not once but twice. it's china's only independent global credit rating firm. and our senior international correspondent stan grant explains, the reason for the downgrade are both economic and political. >> reporter: he has poured over the u.s. financial books, and he doesn't like what he sees. he once worked as an accountant for a chinese firm on wall street, but now he says he's lost faith in america's economy and its political system.

>> translator: the two political parties acted in a very irresponsible way and it quickly exposed a negative impact of the system in the economy. >> reporter: he heads up china's only independent national credit ratinging agencagency. while the big three, moody's, fitch, and standard & poor's, he's watched them downgrade it once. he says he's marking america down again. our duong rating of the u.s. reflecting reall. >> reporter: the people who work here pride themselves on being independent. it's not controlled by the chinese government and will make the hard calls where other international credit ratings agencies will not. >> translator: people are used to credit ratings by the big three, but a financial crisis has proved them wrong. they can no longer show their

responsibility of rating the world. >> reporter: downgrading the u.s. could hurt china, any damage to u.s. financial credibility could cost china billions of dollar. analysts say china has big reserves of cash and committed to low currency and high export growth is tied to the u.s., like it or not. >> there aren't that many other markets that are as deep or as liquid as other treasuries. in fact, there are none. so when they accumulate reserves, this is really the only place they can put them. >> he has a warning. china needs to start looking elsewhere to put its money. stan grant, cnn, beijing. now there's news of further job cuts of hsbc just as the banking giant reports $9 billion in profits. one of the bank's top executives tell us what those changes will mean. the nascar nationwide se,

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headquarters there off hsbc, one of the more unusual looking buildings. you can see it right in the heart of hong kong. that used to be the global headquarters until hsbc moved to city of london about 19 years or so ago. welcome back. you're watching "world business today." let's stay with hsbc because it's been a stock we've been watching. on monday the bank reported a better than expected earnings. this is how investors have responded to that today here in london. hsbc shares are trading. last time i looked, gain of nearly 1.5%. now, in hong kong, a little bit earlier, hsbc's stock closed about 1.25%. this is london here. but in term of hong kong, 1.25% higher. so markets are clearly giving a welcome of sorts to the bank's

latest plans. well, those investors might be pleased that buying the stock but not everyone would be so keen on what they're planning. the bank says it will slash 25,000 jobses worldwide over the next two years. that is despite those strong first half earnings. in addition to 5,000 positions that were already being trimmed, the hsbc says it plans to add more positions in asia and in latin america, especially there in hong kong and in brazil. the company says it's all part of a strategy to cut its expenses by $2.5 million, andrew. >> certainly a sign of the ti s times, isn't it. now hsbc's job cuts won't win any friending where it is. but the bank's joe gulliver says the obligation is to shareholders and not public opinion. >> our duty is they have a

long-term sustainable business that benefits our shareholders. i would imagine many people in this room share that. and therefore so will our customers and therefore the general public opinion in a place like hong kong coincides is actually in a place like hong kong, most of the public are actually shareholders in hsbc and most of the public will welcome anything we do that boosts the share price. the negative impression that the banks have left in the public at large. hsbc took no debt from any company anywhere in the world. stuart gulliver there, the ceo of the bank. so as charles was saying, it is refocussing its attention now on countries where it can play to its strengths and also play to the strengths of both economies. economies, of course, clearly the ones in asia and south america.