Japanese Automakers: Sayonara, Japan

Japanese automakers will move their production elsewhere if the yen keeps rising. This is what Toshiyuki Shiga, chairman of the Japan Automobile Manufacturers Association, told The Nikkei [sub] in a very blunt interview. Shiga, who is also the COO of Nissan, said that power shortfalls and the strong yen are the biggest impediment to Japan’s most important industry.

The industry can work around the power shortages. Last weekend was the first when Japan’s automakers worked. They will instead take Thursday’s and Friday’s off, putting less strain on the grid. That system would work better if other industries would come to similar arrangements, but it works.

As far as the currency goes, the manufacturers can just watch and be sweat even more than what is caused by air-conditioning set to 82 F. Today, a dollar bought 80 yen. That won’t get you far in Japan. Not even to the next subway station.

Said the Chairman of Japan’s Automobile Manufacturers Association:

“It is strange that the government has allowed the yen to rise so high. Ever since automakers’ supply chain systems were damaged, the companies have been thinking about whether they should try to restore their supply chains to their pre-disaster conditions or instead turn to overseas suppliers.”

“It would not be surprising if some Japanese firms changed their procurement methods if things continue as they currently are.”

“No Japanese manufacturer can generate a profit from exports at an exchange rate of 80 yen to the dollar.”

“For years, Japanese carmakers collectively continued to turn out around 10 million vehicles domestically, and that did a lot to help keep the jobless rate from rising to the two-digit level. But people should not be so optimistic as to believe that automakers would never pull out of the home country.”

To make matters worse for the Japanese industry, a free-trade agreement between South Korea and the EU just took effect, helping Hyundai and Kia even more. The Japanese government could end its foot-dragging at least on that front.

As far as the currency goes, the governmental hands are pretty much tied. The oldest trick in the book is to lower interest rates. If Japanese interest rates would go any lower, you would have to pay the bank for taking your money. Quantitative easing? Japan invented quantitative easing, and look what that did to their currency.

Think about it: Here is a country that never recovered from the crash following the big 1990s bubble. It was hit by what some say was the force of a thousand times the power of all nuclear bombs on earth. Yet, people around the world are buying its currency. Makes you wonder about what’s going on around the world.