Strong Yen Could be Next Problem For Japan Automakers

Strong Yen Could be Next Problem For Japan Automakers

By Bill Visnic October 5, 2009

Tough selling to still-wary American consumers might be a problem at the lower end of Japanese automakers' list if currency exchange rates continue their current trend. A soaring yen and a drooping dollar are raising red flags for the bottom line in corporate Japan.

Late last week -- after the yen hit a near high for the year at just more than 88 yen to the dollar -- Honda Motor Co. Ltd. president and CEO Takanobu Ito expressed concern about the yen's ongoing strengthening. Although Honda and many other Japanese automakers, such as chief rival Toyota Motor Corp., produce the preponderance of their vehicles sold in the U.S. inside North America, revenue earned in dollars still must be erodingly converted to yen.

With the global automotive sales environment tenuous and the economies of most large auto-buying nations still sputtering, Takanobu said in an Associated Press report that the currency exchange situation is helping push Honda to a "danger zone" that is hampering fragile recovery efforts.

Meanwhile, Toyota, after some 70 consecutive years of profitability, lost about $5 billion last year and is expected to report a similar loss for its 2009 fiscal year when it is wrapped up in March. The ever-strengthening yen is one factor pressuring Toyota's earnings.

Since early spring, the dollar has declined nearly 10 percent versus the yen and the euro -- and exchange rates were a topic of high interest at a recent meeting of G7 nations, most of which are concerned the slumping dollar will restrain recovery for their struggling economies.

At that same meeting, Japan Finance Minister Hirohisa Fujii insinuated his country -- which has in the past weathered accusations of unofficially tamping down the yen's value -- said Japan would not hesitate to intervene if exchange rates appeared to be moving drastically against the yen. The minister had initially worried economy watchers after initially taking office in September when he insinuated he favored a monetary policy that fostered a strong yen.

Bloomberg reported that Japan hasn't actively played in the foreign-exchange market since its central bank acted to sell a large quantity of yen in 2004.

Honda, for one, may already be taking action to help mitigate the yen's influence on the equations. Last month Honda began exporting to Mexico and Latin American and Caribbean nations Civic compact cars produced at the company's less-than-a-year-old plant in Greensburg, Indiana. -- Bill Visnic, senior contributing editor

Honda Civic photo courtesy of American Honda Motor Company, Inc. 

Bill Visnic:  is an AutoObserver Senior Editor. Follow @AutoObserver on Twitter