Japanese Manufacturers Tackling “Super-strong Yen” (October 3, 2011)

post date : 2011.10.03

【Watch Japan Now vol.7/FPCJ】

October 3, 2011

Japanese Manufacturers Tackling “Super-strong Yen”

On August 19 the yen briefly hit a post-war record high of 75.95 against the US dollar in New York trading. The historically “super-strong yen” trend has been continuing in the foreign exchange market, severely affecting the Japanese economy, particularly the manufacturing industry. According to the results of a survey released by the Ministry of Economy, Trade, and Industry on September 1, forty six percent of the large manufacturing companies surveyed and 17 percent of the small and medium-sized manufacturing companies surveyed responded they would move production plants and R&D facilities to foreign countries if the current strength of the yen, the level of 76 yen to the dollar, continues for six months or more. Concerns are rising about the hollowing out of Japanese industries.

Amid such a historically high appreciation of the Japanese yen, however, Japanese manufacturers are making their best efforts to sustain domestic production and employment by revising their own production systems. Here we introduce some such efforts based on Japanese media reports.

The biggest automaker, Toyota Motors Corp., announced in July this year that it would turn the Tohoku region, which was hit by the Great East Japan Earthquake, into its “third production center in Japan” after the Chubu and Kyushu regions. The company says Tohoku will particularly become a development and manufacturing base for compact cars. According to Japanese media reports, Toyota is planning to build an engine plant in Miyagi Prefecture, the first one in the Tohoku region, creating an efficient system where the entire process of compact car production, from R&D to production, will be completed within the region. As one of the concrete efforts toward turning Tohoku into a manufacturing base for compact cars, Toyota will start producing a new model of small hybrid car in the region within this year, and, in the future, the newly-built plant will provide an engine for the model. On September 24, the chairman of Toyota, Mr. Fujio Cho, addressed a meeting in Sendai City, Miyagi Prefecture, saying “The disaster showed us strongly that people in the Tohoku region have the temperament to keep plugging away. If their characteristics are turned to automobile production, we will be able to compete with our rivals in the world and finally win. I am really counting on you,” the NHK Online reported on September 25.

On the other hand, Nissan Motor Corp., Japan’s second-biggest carmaker after Toyota in production numbers, is aiming to cut costs and maintain domestic production by moving its production to the Kyushu region, which is characterized by a concentration of the motor industry and closeness to Asian countries. With its goal of “maintaining domestic production of one million units a year,” Nissan recently announced that it would spin off its Kyushu plant, which produces nearly half of the automaker’s annual domestic output, into a separate company in October this year. Nissan says the new affiliate is expected to procure up to 90% of parts and components of cars manufactured there from local suppliers and Asian countries. As many as forty seven first-tier part suppliers are gathered around the plant, and South Korea is only about 200 kilometers away. Nissan is trying to be more cost competitive by increasing the use of parts from within Kyushu and from Asian countries such as China and South Korea. According to the SankeiBiz on September 21, Nissan is aiming “to realize cost-competitiveness profitable despite the super strong yen,” and planning to increase its domestic production from one million to 1.2 million units per year.

Small and medium-sized businesses are no exception. In September this year, Japanese media reported that an association of 18 small and medium-sized mold manufacturers in Tonami City, Toyama Prefecture, will jointly build a manufacturing plant in Indonesia. The news is now attracting attention because that is a new approach to attract the demand of the rapidly growing Asian market when each company is too small to advance into foreign markets on its own. The association says domestic production will be maintained as in the past, and one of the association leaders told theSankeiBiz (September 13) “In Japan, we will further develop our technological capability and specialize in a high-tech custom-made molds.” It is expected that this project will become a virtuous circle where profits from foreign markets will lead to job security and further technical development in Japan.

Mr. Yasuhide Yajima, a senior researcher at the Nissei Research Institute, points out in a Mainichi Shimbun article on September 14, “Faced with the unprecedentedly strong yen at this time, small and medium-sized companies can’t just sit back and wait for the Government to take action as in the past. It is time for the Government to consider how to circulate the money companies have made in overseas markets back into Japan rather than maintaining its traditional policy of just protecting businesses remaining in Japan.