Japan firms face overseas production dilemma

By Shingo Ito ,AFP

TOKYO — The “Made in Japan” brand is at a crossroads as more firms face a tough choice over whether or not to move production overseas to escape the impact of the relentless rise of the yen, say analysts.

According to the Ministry of Economy, Trade and Industry, some 46 percent of large manufacturers it surveyed in August said they would move production bases abroad if the yen stays around 76 yen against the dollar for half a year. Currently near 77 yen to the greenback, the unit’s strength risks causing the “collapse” of the Japanese auto industry, Toyota executive vice president Satoshi Ozawa said last week. Toyota’s first half net profit dived 72 percent partially due to the impact of the strong currency.

For the maker of the Prius hybrid, every one yen rise against the U.S. dollar can wipe tens of billions of yen from annual operating profit. In the year ended March, Toyota made around half of its cars in Japan, more than rival Nissan.

The nation’s biggest automaker, along with other Japanese giants such as Sony, Mazda, Honda and Canon all reported recent quarterly earnings that saw profits eroded by the impact of the strong yen and the March disasters.

A strong Japanese currency hurts the nation’s key export sector by making goods made in Japan less competitive abroad and cutting into repatriated overseas earnings.

Prime Minister Yoshihiko Noda has spoken of his fear of industrial “hollowing out” as companies threaten to take jobs overseas. Japan’s efforts to intervene in markets to weaken the yen have had little lasting impact. “Industrial hollowing is now more serious than in the past as Japanese firms are forced to move to secure profit,” said Takunori Kobayashi, an economist at Daiwa Institute of Research. For semiconductor foundry and data storage firm Elpida Memory, the shift of 40 percent of the firm’s production from its home in Japan to Taiwan is an imperative move as a high Japanese unit erodes profits.