Weak Yen Boosts Japanese Auto Exports

TOKYO – The Japanese yen’s slide of more than 10% against the dollar in the past 12 months to reach a 38-year low may be propping up profits for Japan’s export-driven automakers. But the resulting rising production input import costs are causing pain for the country’s auto parts suppliers.

The currency fell from ¥141.78 against the U.S. dollar on July 23, 2023, to a record low of ¥161.89 on July 3, 2024, but since recovered to reach ¥156.83 on July 22, 2024, according to data from www.xe.com, part of money transfer business Euronet Worldwide. 

For Japan’s car export and manufacturing sector, which accounts for a 13.9% share of the country’s manufacturing GDP and a 2.9% share of overall GDP, according to the U.S. International Trade Admin., a weaker yen has financial advantages, especially as Japan’s car exports are increasing.  

Some 7.55 million passenger cars were produced in Japan between April 2023 and March 2024, up from 6.81 million year-on-year or 10.7%, according to data from the Japan Automobile Manufacturers Assn. (JAMA). Over the same period, Japan exported 4.05 million passenger cars, up from 3.38 million year-on-year, according to the same data. 

The U.S. was Japan’s largest market for car exports in 2023, valued at $41.07 billion, according to Delhi, India-based global trade data provider TradeImeX.  

https://www.tradeimex.in/blogs/Japan-car-exports

Second was Australia ($8.21 billion), followed by China ($6.61 billion) and Canada ($5.23 billion). 

Imports of American vehicle brands totaled 18,958 in 2023, up 3.8% year-on-year, but accounting for only 7.6% of the total foreign-brand vehicles imported, according to the Japan Automobile Importers Assn. (JAIA).

https://www.jaia-jp.org/cms/wp-content/uploads/pdf_data_2024iamj.pdf 

Leading automakers in Japan reported record sales in fiscal 2024 (year ended March 2024), partly due to the depreciation of the yen. Aichi Prefecture-based Toyota reported ¥45.1 trillion ($294 billion) in global sales revenue, an all-time high and a rise of 21.4% year-on-year, as well as an annual net profit of ¥4.9 trillion ($32 billion). https://global.toyota/pages/global_toyota/ir/financial-results/2024_4q_summary_en.pdf

In a media statement, the company credits the growth to the weak yen and strong sales of hybrid vehicles. Tokyo-headquartered Honda enjoyed a 20.8% increase in global consolidated sales revenue to ¥20.4 trillion ($131 billion) over the same period, which it attributes partly to “positive foreign currency translation effects” in a company note. 

Honda N-Box mini-car top-selling vehicle in Japan.

“Generally, a weaker yen helps large Japanese companies with global operations because it boosts the value of repatriated overseas profits. Due to the yen’s drop, Japan’s corporate profits have risen to their highest levels since 1954,” Nanzan University researchers Mahbubul Alam Chowdhury and Mizanur Rahman Khondaker say in a June 2023 study shared with WardsAuto. https://nanzanu.repo.nii.ac.jp/record/2000008/files/nanei3801_02_chowdhury%20mahbubul%20alam_khondaker_mizanur%20rahman.pdf

However, the benefits of the weak yen are being offset by the rising costs of raw materials, auto parts and energy, which is being keenly felt by auto parts companies.  

“The country’s huge automobile industry has not been able to take (full) advantage of the exchange rate because of constraints on acquiring semiconductors and other necessary components due to lingering supply chain issues from the COVID-19 pandemic,” according to Chowdhury and Khondaker. 

Indeed, only 4% of the 15,000 Tier 1 to Tier 4 auto parts suppliers nationwide have been able to pass on the full additional cost induced by the weak yen to the consumer, says Tsunetaka Yasujima, president and CEO of Tokyo-based automotive industrial and business consultancy Yasujima Trading, citing a February study by his company. Some 15% of respondents have passed on 80% or more of the additional weak-currency-related costs, 21% have passed on 50% of these extra costs, 23% have passed on less than 20% of the cost and 12% have not been able to pass on the cost at all.  

Smaller companies in the auto industry are being more negatively affected by the weakening yen, according to a July report by the Japan Chamber of Commerce and Industry that shows 54% of SMEs are disadvantaged by the growing cost of raw materials, fuel and energy. https://www3.nhk.or.jp/news/html/20240701/k10014497541000.html 

Meanwhile, for U.S.-based automakers and parts suppliers, Yasujima says a weaker yen and stronger dollar is “a favorable development” as it will result in cheaper imports from around the world. But he notes U.S. auto suppliers’ ongoing shift to procure more parts from countries signed up to the United States-Mexico-Canada Agreement (USMCA) could limit the positive impact. 

While the weaker yen makes cars exported from the U.S. to Japan more expensive, American automakers, though, can expect “little impact” from the yen’s depreciation since exports of U.S. cars to Japan have long been low, he adds.  

And currency is not the largest factor impacting American automakers: “U.S.-based automakers are finding it difficult to produce cars and procure and supply parts due to labor shortages and rising labor costs in the U.S.,” says Yasujima. “Mexico has a growing concentration of automotive-related companies acting as a production base for vehicles destined for the U.S.”  With the yen showing little sign of strengthening, the status quo is expected to continue.