Weak yen builds pressure on firms to bring manufacturing back to Japan

Name: Japanese yen plunges to 32-year low as government steps in to prop currency
Uploaded: 2022-10-26T01:00:12.000Z
Duration: 2 min 7 s
Description: Japanese yen plunges to 32-year low as government steps in to prop currency

Tokyo to offer economic package to boost domestic manufacturing as firms reassess overseas operations due to global health crisis, Sino-US tensions

Japanese firms may be looking reduce overseas costs, increase production at home but China still a ‘critically important growth market’, analyst notes

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A man walks by monitors showing the Japanese yen’s exchange rate against the US dollar (left) and Japan’s Nikkei 225 index at a securities firm in Tokyo on Monday. Photo: AP

Julian Ryallin Tokyo

Published: 9:00am, 26 Oct 2022

Japanese governments have in recent years called on companies to bring their manufacturing facilities home from China due to deepening geopolitical concerns and, in the early stages of the global coronavirus pandemic, overstretched supply chains. Tokyo is now adding a third reason: the weak yen.

Prime Minister Fumio Kishida on Monday indicated that the government would extend more assistance to firms seeking to reduce their costs and other exposures in China and return to manufacturing in Japan.

At a meeting of the Diet’s Budget Committee, he said a new economic package would include measures to financially support the construction of domestic production facilities for goods in key sectors including semiconductors, vaccines and large-capacity storage batteries.

Details of the package will be announced by next week and coincide with a growing number of domestic firms reassessing their operations overseas as a result of the disruptions caused by the global health crisis and, specifically in the Chinese market, deteriorating Sino-US ties allied with concerns that a conflict could erupt over Taiwan.

JVC Kenwood Corp is relocating production of in-car navigation systems from China and Indonesia to Japan, dramatically ramping up capacity at its plant in Nagano prefecture. An official of Iris Ohyama Inc, which manufactures household goods and appliances, told Jiji Press that the Sendai-based firm shifted output of around 50 plastic components for its products back to Japan from China last month. The official linked the decision to soaring energy prices.

Clothing producer World Co is similarly manufacturing more in Japan, with output rising from 40 per cent of its products made in the country in the past to 90 per cent now, while Hitachi intends to double the proportion of appliances it makes in Japan and then exports to foreign markets to 10 per cent of its total output by the end of March next year.

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Japanese yen plunges to 32-year low as government steps in to prop currency

With financial support available, more companies may also opt to consider manufacturing more at home, economists agree, although they have no intention of burning their bridges with the critically important Chinese market entirely.