Japanese Will Have To Move More Manufacturing To America

Bloomberg recently pointed out that Honda Motor (NYSE: HMC) has a profit advantage over many of its Japanese manufacturing peers because it decided to build products in the United States more than two decades ago. The price of the yen, which seems to get worse for Japanese exporters every day makes those firms with factories inside the US lucky

Japanese corporations such as Sony (NYSE: SNE) and Toyota (NYSE: TM) face the prospect of losing money on almost every product that they export to the US. The have to decide whether the price of the yen will remain about where it is for a number of years or move back in a more favorable direction. With slow GDP growth, Japan’s current central bank policy, and the distinct possibility of multi-year deflation, the yen’s position against other major currencies, particularly the dollar, may not change much at all, at least not in the foreseeable future.

The Japanese monetary problem will almost certainly cause the largest exporters of goods from the country to consider putting more of their manufacturing capacity inside American borders. There is some irony in that. Three decades ago, when the cost of labor in Japan was still lower than in the US, the Asian nation was accused of taking jobs from American companies that could not match its costs to make cars and electronics That, along with its import and monetary policy, tipped the Japanese export dynamics much in its favor. The situation is very like the one that the US faces with China.

The tables have turned now for big Japanese companies. Keeping manufacturing and labor in Japan is a distinct disadvantage. Soon many Japanese products will be stamped with the label “Made in America”

Douglas A. McIntyre