 We've talked a lot, and I mean a lot about Nintendo Switch 2 rumors over the last few years and the most recent ones concerning an internal delay to March of 2025. The reason for this being rumored to be about everything from the game lineup not being quite ready to even the idea of combating scalping. Of course, there isn't any official delays. The system hasn't even been confirmed yet. Only that new hardware does exist. However, with no public announcement beyond a few sparse mentions of we're always working on new hardware and the current account system being forward compatible, there hasn't actually been a traditional delay. It's rumors about rumors, and yes, they do come from some pretty credible sources this time around. Still, this is about something more than just rumors. If that's where the story ended, I wouldn't be making this video today. But it turns out there is quite possibly more at play. A reason people didn't consider until very recently thanks to another fellow YouTuber. A financial one. One that makes so much sense I can't seem to get it out of my head. This YouTuber completely sold me and has gained a new fan and subscriber. We're talking about a little known channel called Nintendo Forecast. From near as I can tell, what he attempts to do on his channel is use tangible data to make forecasts on Nintendo's future performance, moves, game announcements, etc. As the channel name says, he forecasts Nintendo and he openly admits they are a very unpredictable company. Still, he likes to dive deeper into actual data rather than just rely on the rumor mill for making some fun videos. He did a Switch 2 release date video recently that I quite enjoyed, but one of his latest videos is the one that got me thinking the most. You see, one thing I haven't paid a lot of attention to when discussing the internal delay of Switch 2 is current currency exchange rates. Nintendo Forecast went ahead and did that very thing in a recent video he calls Delaying Switch 2 avoided this. What did it avoid? As it turns out, quite a bit. Now in a previous video when I covered Nintendo's latest financial report, I did note something Nintendo actually said out loud. Their profit levels looked so great, not because their hardware and software sales were better, but in large part due to a favorable exchange rate or to put it in another way due to the depreciation of the yen. But what does that even mean? In Nintendo forecast video, he explains it quite well. It just means that the yen was losing value compared to foreign currency such as the euro or United States dollar at a much faster rate than those currencies were losing their own value. Since Nintendo gets close to 80% of their sales outside of Japan, this led to a big boom in profits when converted into their home currency. Now that's nice, but what does any of this have to actually do with Switch 2? Well, I'll let Nintendo focus explain it from his video. The depreciation of the yen is a double-edged sword. On the one hand, a weekend means that sales in foreign currencies are worth more to Nintendo and since 79% of Nintendo's sales are made outside Japan, that's a very good place for the company to be. On the other hand, purchases from abroad are that much more expensive. Nvidia is an American company, although much of their production is heavily rooted in Taiwan where the new Taiwan dollar is also at historically very strong levels against the yen. Meanwhile for Nintendo Switch, much of the manufacturers in Southeast Asia, they already migrated their production of Switch from China to Vietnam in 2019 but the Vietnamese dong is also much stronger against the yen than it was five years ago. That's not such a problem if your console is old when you're making fewer of them but if Nintendo wants to have a huge number of Switch 2 consoles early on to prevent scalping and ensure they make an aggressive start to the next generation, right now is an expensive time to make that investment. However, timing is everything and here's when Nintendo has a chance to really win big or to lose catastrophically. The depreciation of the yen is currently largely self-inflicted because Japan has a very different situation from much of the rest of the world. While the rest of the world is trying to choke off inflation from running rampant, Japan's inflation has been stagnant for years and their fear is actually deflation, the goods will get ever cheaper meaning consumers decide to wait and wait choking off markets. But Japan's inflation is heading towards target figures and there is wide expectation that the tide will turn. When will it turn? You guessed it, the end of 2024. So what does this mean for Nintendo's strategy? Well, in an ideal world they'd probably be chucking stuff out there like there's no tomorrow to benefit from the advantageous market conditions but you can't just flick a switch and have the switch to appear. To ramp up production would take months and moreover, new games technology generally has a lower margins. Nintendo has always been determined that it should make a profit on its hardware and never get into the situation of having the hardware be a lost leader. Nevertheless, switch two units stand to be significantly less profitable in their own right early on even before you consider the change in labour costs from outsourcing the manufacturer during times of an unfavourable exchange rate. Here's the massive danger that Nintendo face, essentially it's a financial pincer movement. If they were to manufacture huge amounts now while the foreign labour costs are high, they could find that by the time they get these consoles to market conditions have changed and they're now selling them for much lower margins because the yen has rebounded against the world currencies, they lose out on the costs of manufacture and they lose out of the profit at sale. Whether or not this could render the switch to the first unprofitable console at least for its first few months is impossible to say without knowing the precise details but at the very least it would be uncomfortable for a corporation that has always prided itself in knowing the value of what it sells. You can just imagine long-time Nintendo veterans studying the data and looking on with horror at the very idea that this long-held principle could be compromised because of an imprudent financial strategy born out of rushing the new console to market. Yeah, isn't that quite fascinating? So while we understand this led to them having huge profits, what we didn't really understand is this also means that any purchases they are making would be quite expensive right now and purchases would include parts and assembly of a new system. And if they buy parts and assemble now then the yen gets more valuable by the end of the year when the system was planned to be released. This would essentially mean that Nintendo's profit margins could be very marginal if not gone entirely at launch or they could push manufacturing back a little bit, produce units after the yen rebounds, keep a decent profit margin in early 2025, then simply price drop switch and some other games this holiday to maintain some sales and profitability. If you think about this, it's actually a pretty savvy business move. Obviously this may have nothing to do with the rumor delay and may just be an additional side benefit. That or maybe they are already mass producing units right now and this entire argument isn't even relevant. It's not as if we know what Nintendo is doing. They are literally the most unpredictable company in the video game space. Every time you think you know and have them figured out, they do an about face and hit you with the unexpected. So sure, this is plausible business reasons for a delay and not one you would ever likely see them address directly even in their investors meetings. Though this would be a move that would actually protect investors by ensuring a much more profitable launch for the next system. Let's say the system launches in 2025, March in particular and the rumors were all true. Nintendo would have simply delayed unit production by only 3-4 months pushing the launch back just a handful of months in order to turn in around and make 50% or even better profit margins than they would this year. That indeed should make everyone happy. Well, at least if you are invested in Nintendo. Obviously, none of this takes into consideration the consumer angle. But if Nintendo has a massive launch year, software wise, I feel Switch 2 likely takes off out the gate. Regardless. Now folks, obviously this is a lot of legwork and a lot of work put in by Nintendo focused. I highly encourage you go over and subscribe to his channel for future deep dives like this. I wanted to draw some extra attention to it because I find the talking point to be quite fascinating and I wanted to add some of my commentary in there as well. We might be discussing this further on a live stream at some point today, but I really really really wanted to bring this forward to all of you guys. So hopefully you enjoyed this video and if not, then I don't know. I'm doing what we can around here to produce some content you guys hopefully find to be fascinating. Thank you for tuning in and I'll catch you in the next video.