Japan: Strong yen to “move production out of Japan” – CEO image

Although the yen has fallen slightly after monetary easing by the Bank of Japan in February, large manufacturers are pessimistic over its likely future course.

When the yen climbs, it reduces the value of exporters’ overseas profits when repatriated to Japan.

Nissan Motor Co (7201.T) is planning to move output of its Infiniti brand outside Japan, likely to North America or China, Chief Executive Carlos Ghosn said on the sidelines of the New York auto show on Wednesday.

Many of those Japanese companies are “moving production out of Japan,” Ghosen said.

Eighty-two (yen to the dollar) is better than 76,” a near-record level, Ghosn told reporters at the New York International Auto Show. But the Japanese currency still is far from what he considers a fair level of around 100 yen to the dollar.

Nissan is in the midst of moving production of its Leaf electric car to the United States for the US market. That will help cut costs, Ghosn explained.

Toyota, Asia’s biggest carmaker, based last fiscal year’s profit forecast on an exchange rate of 78 yen to the dollar, and says it loses about 32 billion yen in operating income for every 1-yen gain against the U.S Dollar.

With the yen strong compared with the dollar, it makes sense for Japanese automakers such as Nissan, Honda and Toyota to ramp up production in the U.S.

Exchange rates, of course, can change.

“Could something crazy happen to change the equation? Yes,” says Kim director of industry analysis at AutoPacific.

But, “based on where things are now,” exporting from the U.S. “definitely seems to be the right move for automakers.”