Explainer: Why the weak yen isn't a big boost for Japan Inc anymore
22/09/2022 11:49
By Satoshi Sugiyama and Maki Shiraki
TOKYO, Sept 22 (Reuters) - The weak yen was once a cause
for celebration for Japanese companies as it meant they could
sell cars and cameras cheaper abroad and saw fatter profits when
earnings were brought home.
These days, it's not so straightforward - a point that was
clearly driven home on Thursday when Japan intervened in the
currency markets to buy yen for the first time in nearly a
quarter of a century. urn:newsml:reuters.com:*:nL1N30S30X
The intervention was aimed at shoring up the battered
currency, which has been hammered by a surging dollar, and
driven up the price of everything from food to fuel.
For Japan's manufacturers, the weak yen is less of a benefit
than it was decades ago, company officials and manufacturers
say, as companies have steadily boosted overseas production and
supply chains.
Here's some background on how the evolving dynamics of the
world's no.3 economy have altered Japan Inc's reception of a
weaker yen.
WHAT'S CHANGED FOR JAPANESE COMPANIES?
Almost a quarter of Japanese manufacturers' production is
carried out overseas, according to the latest trade ministry
data. That compares to around 17% a decade ago and less than 15%
two decades ago.
Around two-thirds of the cars that Japanese makers sell
annually are now made abroad, according to Reuters calculations
based on data from the Japan Automobile Manufacturers
Association.
Two decades ago, cars made overseas accounted for less than
40% of sales.
Companies are also moving away from the
manufacture-and-export model of old as technology has changed
their businesses. Hitachi Ltd 6501.T , for example, is
increasingly focused on providing digital solutions to customers
globally rather than just hardware.
WHAT'S THE DOWNSIDE RISK?
The weakness in the yen has driven up the cost of fuel and
other commodities for manufacturers at home. Critically, it is
also hitting household spending and consumer confidence in the
domestic market - adding to the pain for a creaking economy.
The recent rapid declines - the currency has lost about 20%
versus the dollar since the start of this year - also make it
difficult for companies to plan for the future.
The weak yen drives up the cost of acquiring businesses
overseas, although that could be less of a concern for many
cash-rich Japanese firms. At the same time, the weak yen makes
Japanese companies cheaper targets for foreign buyers.
WHAT'S THE OUTLOOK FOR COMPANIES?
Many manufacturers, including automakers, say that one of
the benefits of producing more in local markets is less
sensitivity to currency swings.
Even though there may be concerns about producing in certain
markets - such as China - it seems unlikely that the trend
toward offshore production will reverse in any meaningful way
soon.
Companies also point to the higher cost of raw materials as
a demerit.
For retailers, the weak yen has been particularly painful,
as it drives up costs, including for energy and food.
(Reporting by Satoshi Sugiyama and Maki Shiraki; Additional
reporting by Tetsushi Kajimoto, Shinji Kitamura and Ritsuko
Shimizu; Editing by David Dolan & Shri Navaratnam)
((david.dolan@tr.com; +81 3 6441 1526; Reuters Messaging:
david.dolan.thomsonreuters.com@reuters.net))