The weak yen was once cause for celebration for Japanese companies, as it meant they could sell cheaper cars and cameras overseas and made bigger profits when profits were brought down. home.
These days it’s not that simple a point that was made abundantly clear on Thursday when Japan stepped into the currency markets to buy the yen for the first time in nearly a quarter of a century.
The intervention was aimed at bolstering the battered currency, which was hammered by a rising dollar, and drove up the price of everything from food to fuel.
For Japanese manufacturers, the weak yen is less beneficial than it was decades ago, company officials and manufacturers say, as companies have steadily boosted production and supply chains abroad.
Here’s some insight into how the evolving dynamics of the world’s third-largest economy have altered Japan Inc’s reception of a weaker yen.
WHAT HAS CHANGED FOR JAPANESE COMPANIES?
Nearly a quarter of the production of Japanese manufacturers is carried out abroad, according to the latest data from the Ministry of Commerce. This compares to around 17% ten years ago and less than 15% two decades ago.
About two-thirds of the cars Japanese automakers sell each year are now made overseas, according to Reuters calculations based on data from the Japan Automobile Manufacturers Association.
Twenty years ago, cars made abroad accounted for less than 40% of sales.
Companies are also moving away from the manufacturing and exporting model of yore as technology has changed their business. Hitachi Ltd (6501.T), for example, is increasingly focusing on providing digital solutions to customers around the world rather than just hardware.
WHAT IS THE DOWNSIDE RISK?
The weak yen has pushed up the cost of fuel and other raw materials for domestic manufacturers. Critically, it also hits household spending and consumer confidence in the internal market, adding to the pain of a creaking economy.
Recent rapid declines in the currency have lost around 20% against the dollar since the start of this year, which also makes it difficult for companies to plan for the future.
The weak yen is pushing up the cost of acquiring businesses overseas, though that may be less of a concern for many cash-rich Japanese companies. At the same time, the weak yen makes Japanese companies cheaper targets for overseas buyers.
WHAT PROSPECTS FOR COMPANIES?
Many manufacturers, including automakers, say one of the benefits of producing more in local markets is less sensitivity to currency fluctuations.
While there may be production concerns in some markets like China, it seems unlikely that the offshore production trend will reverse significantly anytime soon.
Companies also point to the higher cost of raw materials as a downside.
For retailers, the weak yen has been particularly painful, as it drives up costs, including those for energy and food.
Category: FinanceAsia, Japan
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