Sometimes, strength is a weakness. Especially in currencies. The still surging Yen makes Japanese Exports expensive and unprofitable. Despite a lot of talk from their elected officials that the Yen is too high, manufacturers are thinking it will go higher. This could significantly alter the export-heavy Japanese industrial landscape. Case in point. Suzuki and a plot of land.
Suzuki had a great idea: They wanted to go into the industrial park business. The plan was to buy 100 acres of land between Suzuki’s Sagara plant and the port of Omaezaki. That port is Suzuki’s major export hub. Space in the industrial park was to be sold or rented out to affiliated parts makers. Everything was supposed to be up and running in 2014. Did we mention before that the biggest beneficiaries of just-in-time development are real estate developers? No profit this time: The project has been scrapped. Suzuki is writing off $3m in surveying costs, and told parts manufacturers to continue making parts wherever they are.
According to the Nikkei, “the yen’s advance played a part in convincing the automaker to give up the project because exports will likely remain weak if the Japanese currency stays strong.”
Currencies work in wondrous ways: The U.S. has pressured China to give up their dollar peg. They did that to some degree. As a result, China doesn’t have to buy boatloads of dollars anymore to maintain the peg. Instead, they are going heavily into the Yen, because the Chinese also think it will go further up. Just by the mere fact of the Chinese buying into the Yen, the Yen continues to go up. Lower demand for dollars makes the dollar go down. It’s heading south as I type this. This makes US exports cheaper. That creates jobs if the U.S. still has something to export. It also makes imported goods more expensive. Not just Japanese cars. Everything at Walmart. Everything the U.S. imports en masse. This creates inflation: Everybody pays the price to bail out the economy.
PS: If some idiot still mentions that the Yen is being manipulated and way too low, please do me a personal favor: Sock him. If nobody is watching.