#yen

Everybody is talking about how much the Euro is losing against the dollar. At closer look, it is not alarming. Even during normal times I have seen lower Euro rates than the current $1.27. But wait until you look at the Euro from a Japanese perspective. (Like the one I have at the moment, sitting in a pittoresk cabin half way up Mount Fuji that could use better heat.) The anemic euro might discourage people like me from coming to Japan. What it really does is discourage Japanese automakers from exporting to Europe. A lot has been said about the strength of the Yen against the dollar. It’s nothing compared to the Euro. Against the Euro, the yen turned into Godzilla. This has Japanese automakers extremely worried. They don’t really know what to do about it.

It looks like Carlos Ghosn is tired of talking about the inaction of the Japanese government with regards to the killer yen. He told his people to start packing. The Nikkei [sub] reports today that Nissan will stop making in Japan newly developed cars for export from Japan. New cars will be produced at overseas plants.

“Under current foreign exchange rates, there can be no shipments from Japan of totally new projects,” Nissan’s COO Toshiyuki Shiga said. According to the report, anything with a new chassis that is intended for foreign markets will begin its life in those foreign markets. Says The Nikkei:

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.

Again and again, Japanese automakers had been warning that they cannot stomach the strong yen, and that it will eventually cost jobs. Today, the yen stood at 76.6 to the dollar, and Japanese carmakers are packing.

If anyone again mentions that the Japanese manipulate their currency to get an unfair advantage in international markets, then I will strangle him. Or make him pay my Tokyo restaurant, taxi, and even subway bills in converted dollars. Strangling would be the more humane punishment.

Nissan CEO Carlos Ghosn has an even more painful option in store: He’ll leave the island. “If the Japanese government wants to really safeguard and develop employment, then something has to be done,” Ghosn told Reuters editors Paul Ingrassia and Kevin Krolicki in an interview in New York.

Around the time of the founding of the United States, the Mexican state of Guanajuato became home to of the one of the biggest silver mines in the world, which produced as much as 2/3rds of the world’s supply of silver at its peak. Today it’s not precious metal that’s driving Guanajuato’s booming economy, but cars, as the world’s automakers flock to Central Mexico. Between 2005 and 2008, GM, Ford and Michelin dumped $1.8b into production in the state, and the expansion is still picking up steam. In the last year, Volkswagen invested $800m in engine production capacity in Silao, Pirelli built a $210m facility and Mazda just revealed it would build a new compact car plant there in June. Toyota is said to be the next to set up shop in Guanajuato, but for the moment Honda is the latest automaker to announce new operations in Guanajuato, as Automotive News [sub] reports the Japanese automaker will spend $800m on an assembly plant there. Honda, which is fleeing a strong yen which has battered Japanese exports, will start building 200k subcompacts per year in 2014. Clearly Guanajuato’s got it’s automotive mojo flowing… but are the days of new Japanese transplant factories in the US over? Is it only a matter of time before the coyotes start smuggling Detroiters into Silao, Celaya, and the Puerto Interior??

In an (especially for Japanese tastes) strongly worded joint statement, Toshiyuki Shiga. Chairman of Japan Automobile Manufacturers Association, and Koichiro Nishihara, President of the Confederation of Japan Automobile Workers’ Unions threw down the gauntlet to the Japanese government. Executive summary: “We are sick as hell of the high yen and we can’t take it anymore. Do something, or kiss those jobs sayonara.”

Unless you plan a trip to Toyko, you probably aren’t concerned about the exchange rate of the yen. Is a Japanese car on the list of your possible purchases? Then you should be concerned. Those prices will go up.

Despite the riproaring profit numbers, there is trouble in Toyota City. The ever appreciating yen is gobbling up ToMoCo’s profits. Message from Toyota to the Japanese government: “Do something, or we leave.”

Honda is finally doing something against the ever stronger yen: They are selling more cars to make up the difference. Honda’s CFO Yoichi Hojo told The Nikkei [sub] today that his company can make profits, even with the yen at its current near-record high against the dollar, if it can increase its global sales by 200,000 vehicles per year. The figure is already in their current budget. In the current fiscal, which ends March 31,2011, the want to sell 3.615m vehicles worldwide, modestly up from 3.392m a year earlier. They’ll probably do better.

As the Japanese Yen reaches new highs against the US Dollar, so does the anxiety in Japanese boardrooms. How does an export-heavy country like Japan cope with an ever appreciating currency? That’s the topic of conversation at Nissan HQ. The Wall Street Journal reports that Nissan’s COO, Toshiyuki Shiga, is concerned. Extremely concerned.

Did we mention that there is a steady drumbeat by Japanese companies that openly think about, or deny (with huge qualifications) moving more and more production outside of Japan? Did we imply that a lot of this noisy thinking might be targeted at the current Japanese administration with which the carmakers are as much at odds as a carmaker can be with an administration that comes with full union backing and is full of former union officials? (Oops, never mind.) Anyway, Japanese carmakers are accusing their government of losing the war of the soft currency (led by the U.S. that lets its dollar slide while accusing others of manipulating their currencies – a good offense beats any defense.) Now the rhetoric is getting less circumspect.

For a while, TTAC has been tracking a strange story: Instead of exporting cars, Japanese carmakers (or should we call them factorymakers?) increasingly resort to exporting car factories. The higher and higher yen makes exports prohibitively expensive. On the other hand, a higher and higher yen buys more and more production capacity abroad. From Nissan to Mitsubishi, there is a chorus that sings the song that suddenly, people in low wage countries can make high quality cars. Now nobody would assume that Japanese carmakers plan a wholesale desertion of the land of Nippon, right? Wrong.

Today, we find an odd statement in The Nikkei [sub]: Toyota denies that they will leave Japan. At least not now …

You know who is really freaked about the stronger and stronger Japanese yen? Mazda. Mazda is considered the Japanese manufacturer with the highest exposure to currency swings. Mazda builds 70 percent of its vehicles in Japan. In the first half of 2010, Mazda exported nearly 80 percent of its Japanese output. Ouch. A year ago, a dollar bought 110 yen. Today, it buys only 84. As the yen continues its march upwards against other currencies, Mazda is enacting emergency cost reduction measures to protect their profits from being gobbled up by a steadily advancing yen on its earnings. Here is the plan:

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.