By on December 3, 2011

For quite some time, Carlos Ghosn had been the booh-leader against the strong Japanese yen. At the sidelines of the Tokyo Motor Show, he launched into his so far strongest worded tirade against the “abnormal” yen. He told the Japanese government to learn from the Swiss, and to basically peg the yen to another currency.

Currently, about half of the Japanese auto production is exported. At a loss or at the very least at no profit. No sane business person will invest into a country with no return, says Ghosn. Investments and jobs will go elsewhere:

“The main problem we are facing today is the uncompetitive value of the yen. The yen is not so much a problem for the Japanese carmakers. The yen is a problem for Japan. Japanese makers are moving production little by little outside of Japan.  The car industry employs between four and five million people in Japan, and more than half of the industry works for export. If the car industry goes, a substantial part of employment is going to go with it.”

What the strong yen does is strengthen the industries  of Thailand, China, Mexico, or other emerging export bases. Ghosn had said this for quite some time. The answer was that the Japanese government is helpless, that no amount of quantitative easing seems to be able to stem the strengthening of the yen. This time, Ghosn says what should be done:

“People say there is no solution.  Wrong! Wrong! Look what the Swiss have done. Switzerland is a great benchmark of how a small country has drawn a line in the sand. They said: Enough is enough, we will not allow the Swiss Franc to rise above a certain level against the Euro. Everybody laughed, but they stuck with it. What we are encouraging is that the government of Japan takes the same stance. If Japan draws a line in the sand, the market will listen.”

If the Japanese government will not listen to the plight of its carmakers, carmakers won’t suffer, Japan will:

“Japanese car makers will survive this. They already are global. What we are saying is this: If there is nothing that is done, don’t blame us for the consequences.”

In other words: Follow the example of Switzerland, which had a similar problem with its rising currency, until it was effectively pegged against the Euro. Or watch the Japanese industry collapse to  Swiss size.

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33 Comments on “Ghosn To Japan: Do Like Switzerland, Or Become Like Switzerland...”

  • avatar

    If everybody starts pegging, depending what is pegged to, for Japan assume usd, we’re back to the stability of Bretton Woods. Bwahhhah?

    Btw, in the last pic, both fitting to his position visavis the topic and just in time for the holiday, he looks like the Grinch!

  • avatar

    Japan’s desire to run a trade surplus butts heads with its desires for a weaker currency. A trade surplus should, all things being equal, strengthen a currency, and there comes a point when depressed interest rates can’t do enough to weaken the currency. They have reached that point.

    If Japan wants to have a fundamentally weaker yen, then it needs to start importing more goods, and its government should bolster the growth of a consumer economy that desires imports. That may entail Japanese companies setting up shop abroad, and shipping goods back to Japan at lower prices.

    Which may be what Ghosn is really pushing for. I doubt that he’s particularly motivated to stay in Japan for the sake of it. But that is a politically difficult position to take; blaming the currency for the move makes the job easier.

    (It would also help Japan if the US would stop maintaining policies that weaken the dollar over the short run. But there isn’t anything that Japan can do to change Fed policy.)

    • 0 avatar

      Yea the biggie here is that Japan is exporting to countries that are hemorrhaging their currencies to devalue their debts and… well… to not face the predicament Japan is in by attracting outside investors. This global economic system we are in is basically a race to the bottom and while in the short term it might not be a good move for Japan I can’t blame them.

      Plus their main imports are all the materials for the goods they export. So if they weaken their currency the stuff their raw materials will become more expensive for them, not really solving the problem. It’s not like China where they mine their own materials and have more control over the price of them.

      Ghosn may be looking long term though. Japan’s long term indicators are not good, especially as far as the labor pool goes. The elderly are becoming a bigger part of the population as young people are losing interest or the means to create families. And the gov’t is a bit over its head debt wise. Not really a good environment for a business. This might all just be a diversion TBH.

  • avatar

    Ghosn seems to be doing a lot of leaping around and “yelling” lately. I agree with Pch101’s assessment of the situation re Japan.

    Ghosn has it in for Nissan Canada this week too. From the Globe and Mail:

    “Nissan Motor Co. Ltd. chief executive officer Carlos Ghosn delivered a sharp criticism of his company’s Canadian unit, declaring that the auto maker’s 5-per-cent market share is “absolutely unacceptable” and needs to be doubled.

    In an interview at the auto maker’s global headquarters in Yokohama, Japan, Mr. Ghosn said he can’t understand why vehicles that have grabbed 26 per cent of the market in Mexico and 8 per cent of the U.S. market have captured only 5 per cent of sales in Canada.”

    Etc., etc. The reader’s comments after the article are pretty good. Nissans are not competitive with the other makes in a market where small cars are popular already, and prices are too high. Canadians are fed up paying 30% more for the same damn car as Americans pay. If Ghosn wants market share, then he knows what to do. Lower prices. That isn’t rocket science.

    • 0 avatar

      I liked this bon mot from the Globe article:

      “We have all the small products, fuel-efficient [cars], the electric car. We have every single car which is needed by the Canadian market. So you can understand why there is some impatience at the level of the headquarters to see our performance in Canada going up.”

      Reminds me of the “Perception Gap” talk coming out the the pre bankruptcy GM back in the day.

      Can anyone name one current mainstream high volume model in Nissan’s current lineup that stands out in some way and gives a buyer a compelling reason to choose it over its direct competitors? Maybe Nissan should start by making some high quality cars that people want to buy.

      As for pegging the Yen – Japan’s economy is over ten times the size of Switzerland, I’m not sure it would be as easy to fix their currency…

      • 0 avatar
        Chicago Dude

        “As for pegging the Yen – Japan’s economy is over ten times the size of Switzerland, I’m not sure it would be as easy to fix their currency…”

        It’s very easy. Do what China does.

        The Bank of Japan can simply offer unlimited Yen on the currency markets at the desired peg. Nobody can sell at a higher rate because no rational party would pay more than the BoJ ask.

        The only question becomes what to do with the foreign currency. All they have to do to maintain the peg is keep it out of the currency markets. So you buy all the overseas commodities you desire directly and re-sell in your local market to local firms. If you have any foreign currency left, buy sovereign bonds at the auction or from a primary dealer – not on the open market.

        If that isn’t enough, then go ahead and buy sovereign bonds on the open market. Create Yen out of thin air, buy foreign currency on the currency markets, and dump it into the bond market. Your only desire is to keep that foreign currency from coming back to you, so you buy bonds from people that are likely to take that money to some other country. NOT YOUR PROBLEM.

      • 0 avatar

        Given that compact cars are dominant here, whereas in the States it’s mid-sized, I’m not surprised Nissan sales are lower. The Altima is better when compared to the mid-sized competition than the Sentra is versus the other compacts. The Mazda 3 is quite popular, so that’s a lot of sales not going to Nissan.

  • avatar

    You can’t get something for nothing. When you peg a currency, you will be favouring one group of local interests over another. You need to have adequate reserves and ready to accept that it will limit options in dealing with trade imbalances.

    For any one country to say “let’s be like Switzerland” is like a company saying “let’s be like Apple”, and even Switzerland can’t be like Apple for ever. The problem with the Swiss is that people has been flowing into their country because of the Euro crisis, which drives up the value of the CHF. To peg it at a lower rate than market demand means that reserves have to be used… this can’t go on forever if the Euro doesn’t stabilize….

  • avatar

    Japan would love to be Switzerland, as Switzerland is the most competitive economy in the world. Japan only ranks 8th.

    • 0 avatar

      Most competitive economy? Who the heck decides that?

    • 0 avatar

      There’s a world of difference between quality of life and competitiveness. Were it not for the banking services, Switzerland wouldn’t rank as high in GDP.

      • 0 avatar

        Does quality of life include worrying about your job and future because you’re not competitive?

        It would be great to have a happy-medium, but especially now, I’d rather be skilled and be able to hold-my-own in a competitive world.

      • 0 avatar

        And were it not for the rest of the worlds’ governments insistence on harassing the heck out of their own citizens, the Swiss banking sector wouldn’t be nearly what it is. IOW, Switzerland’s economy, in it’s current incarnation, is not a model that scales well.

        Being better run than most other countries, Switzerland would probably be pretty well of even with a smaller financial services industry, however. Just with a different composition of industries.

  • avatar

    Bertel, are you the photographer?

  • avatar

    Agree with everything said on this thread so far. Japan (or Germany or Korea for that matter) cannot have it both ways. It would be too good to be true. I mean they lost WW2 then won WW3 (global economy) but eventually will lose again – they cannot suck blood out of their host forever. On the other hand weakening currency will not keep jobs in Japan – look, USD is weakened beyond the means and interest rates are zero like forever but jobs still moving out of US or taken over by immigrants.

    • 0 avatar

      The flip side is that the rest of the Euro countries had the opportunity to take advantage of the efficiencies that a single currency can bring and reform the way they do business and government/society to get a lot closer to Germany’s level.

      The same with America, which has been using the ability as the reserve currency to borrow cheaply to live beyond its means (close to zero savings for a long time, substantial current account deficits).

      Yeah, lots of imbalances have built up, and there’s plenty of blame to go around on all sides.

      • 0 avatar

        Yeah that is what I meant. In post WWII world order US plays role of global consumer and rest of the world as of global producer. Germany, Japan, Korea, China all want to export to US but God forbid not otherwise. Europe and Asia force US to borrow more and then more and more to consume all the crap they are producing. It looks like American citizens can have high standard of living without producing anything. Like Bush said – to be patriotic we have to consume more, not produce more or save more. It cannot last forever there are consequences to trade imbalance. As if forcing US citizens into more debt is not enough now White house is going to bail out Europe, of course followed by California and other insolvent US states. I do not see much difference between Bush and Obama. Only difference is that Obama will bring US to default faster than Bush would and I am glad that Americans elected Obama – lets done with as soon as possible, reset financial system it and move forward to new bubbles.

      • 0 avatar

        The flip side is that the rest of the Euro countries had the opportunity to take advantage of the efficiencies that a single currency

        That “efficiency” is the very feature of the euro that led to the current crisis. Introduce an overvalued currency to an underdeveloped economy, and you will invariably produce some kind of bubble.

  • avatar

    Ghosn would have a point if there was a strong economy that Japan could ride. There isn’t. All are weak and look to be that way for the forseeable future. It very may well be that if the Euro takes its predicted nosedive that *Japan* will be the flavour of the month as the money flees. Wouldn’t that be a kick in the teeth?

    The Central Banks of the world are just hanging on at this point waiting for the other shoe to drop. He can whine and moan all he wants, nothing is going to happen.

  • avatar

    Butthead: Huh huh huh huh. He said, “pegging”

  • avatar

    Nothing could stop the Japanese government to print yen and devalue its currency…other than the fact this would dilute its own population holdings. 90% of Japan’s public debt (13.5 trillion dollars worth) is held by the Japanese people and Japanese institutions.
    Generally speaking, nothing can stop a determined government in its quest of devaluing its currency and generating inflation.
    The yen devaluation will happen anyway. Unfortunately, Japan has decided this will happen via destruction of manufacturing base and export reduction.
    Jawboning is not going to work. The market sees trough their bluffs. Japan can’t have the cake and eat it too…

  • avatar

    Financing Japan sized deficits and debt rollovers at an affordable rate, won’t be particularly easy if investors starts getting seriously worried about the yen weakening.

    Even Japan’s much vaunted domestic savings base won’t direct all their savings to zero percent bonds in a collapsing currency forever. Despite stereotypes, I doubt their patriotism extends all the way to suicide, financial or otherwise.

    Besides, pretty soon everyone in Japan is retired anyway. The country is about as fertile as a barren moonscape. And about as accessible for immigrants.

    • 0 avatar

      Financing Japan sized deficits and debt rollovers at an affordable rate, won’t be particularly easy if investors starts getting seriously worried about the yen weakening.

      Virtually all of the Japan’s public debt is financed domestically. The exchange rates make little difference for Japanese public debt for that reason; unlike the US, they have no need to sell debt abroad in order to balance a trade deficit.

      Still, Japan is against a wall. It’s a mature economy with limited resources and an aging population that demands the impossible combination of a perpetually strong export sector and a perpetually weak currency, which faces increasingly powerful low-wage competition from other nations. Something is going to have to give, eventually.

  • avatar

    Say I am Japanese and to make profit I take low interest loan in Japanese bank, exchange it to $$ and deposit it in bank in country with higher interest rate, basically making money from nothing. To solve this paradox – when I exchange $$ back to yens – I have to buy yens back at higher rate. Therefore yen inevitably becomes stronger over time.

  • avatar

    Been away for awhile, Japan can’t do anything to change it’s future (neither can the US or Europe (with the possible exception of Germany, Switzerland, Austria and Netherlands) for that matter, Goto the finance professor web page and watch the parts on LTCM (how to turn $3 billion into a half trillion $ bet that goes bad) and the asian financial crisis of 97′ and 98′ and it’s like a 35mm negative that the US and Europe turned into a freaking IMAX feature, they can devalue and pump money right now, Japan’s problem is it started that process 30 years ago and has run it’s course, devalue you’re people or industry (real industry, not finance or medical that just sucks wealth without creating) or government and in the end it’s all three.

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