The high value of the Japanese currency is contributing to a major restructuring of Japan’s economy. Japanese businesses are increasingly transferring more of their manufacturing abroad to offset the stronger yen, which makes Japanese goods more costly and less competitive in global markets. Toyota Motor Corporation will produce a record 57% of its output abroad this year, up from 48% five years ago. The company will begin for the first time mass-producing its Prius outside of Japan at a plant near Bangkok. Carlos Ghosn, Chief Executive of Nissan Motor Corporation, has previously stated that Japanese firms must respond to the surging yen by sourcing more products outside Japan in order to be competitive. Nissan will make a record 71% of its cars abroad this year, up from 66% last year. Nissan is also the first Japanese auto maker to mass-market a foreign-made car in Japan. This summer the company began importing a compact model it produces in Thailand. Sony Corporation’s television business showed a profit in the April-through-June quarter, partly because the firm has increased overseas production. Sony did 20% of its television manufacturing abroad last fiscal year and is aiming for 50% for the fiscal year ending March 31, 2011. Although this production shift by Japanese manufacturers puts less pressure on the Japanese government to dampen the value of the yen, the loss of manufacturing jobs in Japan will hurt governmental efforts to combat deflation by getting the country’s consumers to spend.

QUESTIONS FOR DISCUSSION:

1. Explain why Japanese businesses are transferring more of their manufacturing abroad.
2. Discuss the advantages and disadvantages to the economy of Japan that more of its domestic manufacturers are shifting manufacturing abroad.
3. Identify structural reforms Japan could implement to create incentives for its manufacturing firms to increase investment in Japan.
4. Discuss why the value of the South Korean won is becoming more important to Japan.

SOURCE: Sanchanta, M. (2010, October 25). Japan firms send work overseas. Wall Street Journal, pp. B1, B6. (Retrievable online at http://online.wsj.com/article/SB10001424052702303864404575572221423014704.html)

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