By on May 1, 2010

If anybody will again blather about a “weak yen” that has been “manipulated by the Japanese government,” then I’ll personally come visit, with the intent to insert a sock in the mouth. For reasons explicable only to forex mavens, the currency of the economic basked case Japan keeps on getting stronger. Japan’s car manufacturers think this will continue, and they are taking precautions. More precisely, they are taking production out of Japan.

Japanese companies are getting ready for a dollar buying 90 yen and less in this fiscal year. (For those not versed in currencies: That’s a strong yen …) This would be a great time for American car makers to export to Japan – if the Japanese would just buy American cars.

For Japanese exporters, a strong yen is a disaster.

To counter this, Honda will increase the number of cars assembled in India, China and other emerging markets, says The Nikkei [sub] .

Mitsubishi will shift component manufacturing abroad.

Hirose Electric, maker of electronic parts, will increase their production abroad.

More companies are expected to follow. A big beneficiary will be China, as their currency is pegged against the dollar, alleviating any currency risk. Despite the rhetoric, this is not expected to change anytime soon, at least not in a drastic way.

Speaking of China, the critics of the dollar peg need to be careful of what they wish for: One reason for the humongous dollar reserves the Chinese hold is that they have to buy dollar-denominated securities to maintain the peg. With the peg gone, no pressure to buy dollars, and the dollar will get cheaper. Prices at Wal-Mart will rise, inflation will come knocking, while car exports to Japan will be even more attractive. If the darned Japanese would just take a liking to American cars.

Going up? Picture courtesy koreatimes.co.kr
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18 Comments on “Strong Yen Drives Japanese Auto Makers Out Of The Country...”


  • avatar
    Juniper

    As the Japanese population continues to age I see a big surge in Chinese built Buicks in Japan.

  • avatar
    Michal

    The only reason for the yen’s high value versus the dollar is the carry trade. Traders borrow money in yen, paying just a couple of percent and reinvest that money in higher yielding currencies, like the US (Treasuries) or Australian dollar.

    Some readers may have noticed that whenever world stock markets fall the yen rises in value on the day, and when markets rise the yen falls. Its all due to traders buying or selling yen to repay loans or grab new ones. Why wouldn’t you borrow money at 2% in Japan and stick it in a 5% bank account in Australia? Free money on the table.

    Of course, it’s a dangerous game to play if exchange rates rapidly move and the seesaw of rising yen/falling yen is disrupted.

    Japan has a government debt of 200% of GDP. A rapidly aging, and now shrinking, population. The country has essentially been in a slow decline for 20 years and deflation is rife despite 0.1% central bank rates. There is no reason for the yen to be strong apart from support from the carry trade.

    • 0 avatar

      Right on the carry trade. But this is old hat, most positions of the carry trade have been unwound. For some reasons, the JPY and the USD are considered as safe haven currencies, and whenever there is a crisis, there is a flight into those currencies.

    • 0 avatar
      Michal

      It does amuse me that the Yen is turned to in a ‘flight to quality’ when markets go pear shaped. This is a country that once had a 15% savings rate in the 1980s, but is now in low single digits and falling fast. It’s a country where the government has borrowed more than 50% of this year’s budget, for the first time since World War 2! The 200% GDP public debt doesn’t seem to worry anyone either as the government borrows all its money internally (sub 2%pa). If they had to borrow internationally at normal interest rates, the country would be bankrupt.

  • avatar
    stationwagon

    this article gives me the idea of starting an american kei car manufacturing corporation. the way we will differentiate ourselves from the other kei car makers. Is by making utra high-tech efficient luxurious kei cars. Will put in a DVR-like object that will download and store shows or movies through services (3rd party services, I assume Japan has a more advanced version of Hulu) the driver is subscribed to. The car will also have the quiet yet strong air conditioning, and highly customizable interior lighting. The car will also be built with easy modification as goal. That way people will be able to modify their car to their liking. The car will also have a built in personal/entertainment/ computer, and leather seating of course. the car will have the best fit and finish; And a Rolls-Royce car interior and ride. We will also offer very basic models, emphasizing sportiness or a luxury interior(but no electronics). For a low price. I’ll also out a hot plate and microwave and mini-toaster oven as an option. So you can have nice warm meal at the end of your drive.

  • avatar
    Jack99

    This article goes into more depth as to why American cars don’t sell well in Japan.

    http://www.google.com/search?sourceid=chrome&ie=UTF-8&q=protected+japanese+car+market

     
     
    “How Japan has Maintained The Most Protected
    and Closed Auto Market In the Industrialized World ”

    1. Japan, the 3rd largest automobile market in the world, after China and the U.S., is also the industrialized world’s most closed and protectionist market.

    2. Japan’s Closed Market isn’t natural or an accident – it was created deliberately, by
    government policy.

    • Following the closure and banishment of US auto firms from Japan during the WWII, US firms were not allowed to return to establish operations in its aftermath.

    • Instead, Japan’s designated the creation of a major world class automotive industry its number one National Industrial Policy strategy and provided every benefit, incentive and protection from competition that it could.

    • In the 1970s, Japan finally opened its market to limited import participation, lowered its prohibitive tariffs and investment restrictions, but did so after it had created a massive and robust industry and controlled nearly 100% of its market.

    • Japanese automakers then set off on a major policy of export expansion, and secured a firm and rapidly growing foothold in the open U.S. market Imports from Japan now represent over 15% of the US auto market.

    3. When Japan officially ‘opened’ its market, it perfected the art of using non-tariff barriers as huge obstacles to all foreign companies trying to do business in Japan to keep imports to a minimum.

    • U.S. companies or other foreign ‘transplants’ were not allowed to be built in Japan by under Japan’s strict investment laws;

    • Each individual imported car was required to be brought to the Ministry of Transport for two days for inspection before approval for sale; (Imagine having a million cars receive such treatment…)

    • Japan’s exclusive ‘keiretsu ‘arrangements between government and Japanese automakers prevented US and other foreign auto companies from doing business in Japan;

    • Japanese auto distribution system was stacked against importers- existing auto dealers were forbidden to sell foreign autos or to partner with foreign automakers.

    • Japan has used automotive technical regulations as a means to protect local markets by creating excessively difficult and costly regulatory and certification requirements, with little or no safety or emissions benefits;

    • The tax system in Japan was designed to benefit domestic over imported motor vehicle types;

    4. In 1995 the US Threatened Tough Retaliation against Japan and Signed a Market Opening Agreement with the Japanese Government

    • All of these pressures came to a head in the mid 1990s, when the USTR, at the direction of President Clinton threatened to impose 100% tariffs on Japan’s luxury autos, if the government did not agree to fully open its market to U.S. auto and auto parts.

    • This major agreement, called the l995 MOU, was seen as a major success at the time in securing Japanese agreement to a free and open market. When the 1995 MOU was signed, total auto import share in Japan was 5%. Today, 15 years later, it is less than 4%.

    5. Can US automakers compete in Asia?

    • For thirty years, the Japanese government has argued that US automakers would not produce vehicles that meet their consumer’s tastes or quality standards. Yet, next door, in China, now the world’s largest auto market, the number one automaker is a US
    company, General Motors, which sold 1.3 million cars and trucks in 2009.

    6. Currency Manipulation to gain a competitive advantage

    • In recent years Japan has regularly and actively intervened in global exchange rate markets, purchasing massive amounts of dollars and “jawboning” in order to “push down” the value of its own currency to give its exports a price advantage.

    7. Why the issue of Japan’s exclusion of US cars in its Cash for Clunkers program is important. There are two important reasons:

    • Principle: Japan has rigged its market to uniquely protect and benefits its own for decades now. When the US government created its “Cash for Clunkers” program last summer, it was very carefully constructed to be open and welcome to all automakers, foreign and domestic. Half of the benefits went to Japanese auto companies. But when Japan opened its own similar program, it deliberately designed it to exclude US and most other imported automakers from participating and benefiting. This is wrong in principle, wrong in the spirit of commitments made to the G7 to not erect new protectionist measures during this economic crisis,, and wrong on any basis of fair play

    • Opening Japan’s Market: The fact that the efforts of US auto and auto parts suppliers over decades, and successive Congress and Administrations have failed to succeed in making Japan a genuinely free and open auto market, that does not mean we should simply give up. Japan’s dominance of its home market gives it vast unfair advantages in the US and other markets where we compete. Leaving this situation unchallenged affects our own manufacturing competitiveness here in the US. more strongly than securing
    additional exports to Japan.

    • 0 avatar
      wmba

      Yeah, well, this yet another example of conspiracy theory, regurgitated as if the US were being singled out for blatant discrimination. You should live in Canada and see how the US prevents our exports of things like softwood lumber and beef to you, under ridiculous pretexts and despite the fact that both countries are part of NAFTA. Bullshit through and through, and typical of how countries always complain about someone else and conveniently overlook their own sins.

      There were thousands of Austin Minis in Japan in the ’80s and ’90s, and VW, Mercedes and BMW sell thousands of cars a year there today. I’ve said it before, if product is any good or offers something people want, they’ll buy them regardless of import “restrictions”.

      The Germans apparently overcame the Japanese import “restrictions” without any particular trouble, why couldn’t Detroit? Because the Big 3 would rather stand up on their hind legs and complain loudly as they did, rather than getting on and doing something constructive. They’d rather invent a conspiracy theory than make decent vehicles and allow demand to work as it should.

      It’s been documented many times here on TTAC about how Detroit didn’t give a damn about their home market customers for decades and produced junk, and yet magically, we’re supposed to believe that the Japanese kept these clunkers off their market for reasons other than the product was crap and ill-suited to conditions. Minis aren’t great “cars” and sold really well in Japan back when they were still British Leyland, because people WANTED them.

      This set of excuses may have some validity, but basically reflects the fact that Detroit sat on its ass while other people got on with their jobs. IBM, Apple, Coca Cola, Macdonalds, Microsoft etc., etc. are US export kings. Detroit doesn’t even register as an exporter.

    • 0 avatar
      Michal

      Japan loves all things American. McDonald’s is popular. The youth crave the clothes, music, movies and culture. Yet the cars of America never made it big in Japan. Could have something to do with American cars being larger and thirstier than their compact Japanese equivalents in the 1970s and 1980s…

      The USA only supports Free Trade when it suits them. Australia signed a free trade agreement with the US early last decade but Australian sugar still faces high tariffs and import quotas. Can’t have the corn lobby being upset.

  • avatar

    @Jack99:

    “[in China] the number one automaker is a US
    company, General Motors, which sold 1.3 million cars and trucks in 2009. ”

    Whatever happened to Volkswagen?

  • avatar

    In the last 3-4 years, most of the Japanese brand products I bought were made in China.
    @Bertel,
    If I remember correctly around 15 years ago the largest importer in Japan was Honda. They were selling in Japan more cars made at their US plants than any foreign company. Any idea who the title goes today to and where the cars come from?

  • avatar
    windswords

    Bertel,

    While Japan may want to increase production overseas because of a strong yen, somehow I get the feeling that this does not mean wide ranging shutdowns of Japanese plants and unemployment like we have in America. Maybe I’m wrong but I don’t get the feeling that Honda, Toyota, or Nissan will shut down a Japanese plant and move the production to Brazil or India. Increase production, sure. Transfer production? Not so much. If you hear of that happening, it will be worthy of a blog post.

  • avatar
    VLAD

    For some reasons, the JPY and the USD are considered as safe haven currencies, and whenever there is a crisis, there is a flight into those currencies

    IMO that is a short term bet caused by the hedge fund and anglo banking cartel attack on the PIIGS and indirectly the Euro.
    On fundamentals, long term, some apparent safe havens are demographically doomed

  • avatar
    chanman

    Some cheery reading: http://spikejapan.wordpress.com/

    As for shifting production, they don’t have to do it all at once – Toyota already has factories all over the world. If they cut Japanese production later, then it amounts to the same thing, doesn’t it?

    As an aide, full-time and part-time workers are treated differently, and the likelihood is that the part-time staff will get the axe while the old-timers stay on.

  • avatar
    John Horner

    Exporting cars to Japan isn’t a very promising prospect for anyone. A shrinking, aging population on a small, crowded set of islands hardly makes for an enticing target market.

    China, India, Eastern Europe, South America and even Africa are all far more interesting markets going forward than is Japan.

    BTW, these trends are also part of why the smart Japanese companies are essentially moving themselves off the islands piece by piece going forward.

  • avatar
    bmoredlj

    I like to compare the yen with the US cent, not the dollar. The yen is hovering around parity with the cent, with 1 yen = 1.0594 cents. The yen was once itself split into 100 sen, but these days, that would be as pointless as splitting a penny 100 times. Would it make sense to rescale the yen so that a yen became a sen, 100 sen made a yen, and 1Y equaled +/- $1? Or create a new unit – ‘hyakuyen’, made of 100Y its current value, which would equal +/- $1. Ah whatever. I guess it won’t change the fact when I visit Japan this summer with my dollars, I’m probably gonna get hosed.

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