Japan's currency crybabies
U.S. should oppose rate manipulation by China or Japan
James B. Treece is industry editor for Automotive News. He was Asia editor, based in Tokyo, for 12 years.
Japanese automakers are whining about the yen again.
Those crybabies should admit that the pendulum swings and stop complaining when it swings against them. They were certainly quiet enough when it swung in their favor for most of the past decade and a half.
Both Toyota Motor Corp. President Akio Toyoda and Nissan Motor Co. CEO Carlos Ghosn have appealed to newly elected Prime Minister Shinzo Abe to intervene in currency markets to push the yen's rate more to their favor.
In other words, because the free market in currencies hasn't produced results they like, they're asking for Japan's government to skew that market and thereby make their companies more competitive against U.S., Korean and other rivals.
To some Americans, dollar-yen exchange rates and currency manipulation may seem like esoteric issues that don't have much bearing on the fundamental competitiveness of automakers.
That's naive. The yen's rate is absolutely critical to Japanese automakers' business. If it weren't, Ghosn and Toyoda wouldn't make as big an issue of the yen rate as they do.
And if it matters to Toyota and Nissan, it matters to General Motors, Ford Motor Co. and Chrysler Group, too. The United States objects to China's currency manipulation. It shouldn't stand by idly if Japan gets back in that game.
At the start of the year, Nissan CEO Carlos Ghosn told reporters in Japan that he considers an exchange rate of 100 yen to the dollar “neutral territory.” A rate below that has brought complaints from him and others. A rate above it, silence.
Photo credit: BLOOMBERG
At the start of the year, Ghosn told reporters in Yokohama, Japan: "We are way long from what I consider a neutral territory" of about 100 yen to the dollar. He implored Abe: "Please bring it back to the neutral territory so that we can do our job without a handicap."
Let's explore that "neutral territory" claim.
The numbers in the dollar-yen trade and the usual terms of a "strong dollar" or "weak yen" can be confusing. So I'll simplify.
Over the past 40 years, the yen rate vis-a-vis the dollar -- i.e., the number of yen you get for each $1 -- has declined steadily to around 85 now from about 300 in 1974.
The higher the yen rate, the better as far as Japan's automakers and other exporters are concerned. That means they get more of their own currency for every dollar in U.S. revenue. The lower the number, the fewer yen they get. Because their costs for vehicles built in Japan, such as labor and engineers' pay, are fixed in yen, a currency-driven drop in revenues hurts -- a lot.
Let markets decide
But just because your company's profits are hurting doesn't mean the yen rate is wrong. There is no more a "neutral" value for the dollar-yen rate than there is a "neutral" value for the Dow Jones Industrial Average. The correct number is whatever the market says it is.
Nonetheless, Japan's auto industry has been complaining ever since the yen rate dropped below 90 in June 2010.
When Ghosn says that the 100 yen rate represents "neutral territory," though, he's implying that anything much below that is out of line. So what was the reaction of Ghosn and other Japanese auto company executives when the rate was off from 100 in the other direction?
For years, silence.
In eight years during the decade from 1997 to 2007, the yen rate was between 113 and 145. It was, in essence, 13 to 45 points above that "neutral territory" level for eight years. During that time, the Japanese auto industry was mum about currency rates, which were inflating their profits.
From October 2008 to June 2010, the rate was between 90 and 100. It fell below 90 in June 2010, prompting the industry to start complaining, and dipped briefly to a low of 78 last year.
To summarize, for eight years the rate was 13 to 45 points above 100, and the Japanese industry was quiet. For about 30 months, it has been 10 to 22 points below 100, and Japanese automakers' top brass are clamoring loudly for the government to come to their aid against the invisible hand of the currency markets.
Despite that hypocrisy, Japan's whiners may get a receptive hearing from Abe, whose rise marks a return to power of Japan's Liberal Democratic Party, says Clyde Prestowitz, one of the most informed commentators on U.S.-Japan relations.
Prestowitz studied at Keio University in Japan in the 1960s, lived and worked in Tokyo as a business consultant in the 1970s and served as one of the chief negotiators with Japan in the Reagan administration during the 1980s. With the exception of one roughly two-year period, the Liberal Democratic Party ruled Japan over that entire time. So he got to know that party.
"Economically, the LDP has always at heart tended to be mercantilist and protectionist," Prestowitz wrote in a recent commentary. It also "has consistently pursued policies of manipulating the yen," he wrote, "as an indirect subsidy to exports and an indirect tariff on imports."
Now Abe wants to stimulate the listless Japanese economy. How? "He wants to drive up exports and get back to trade surpluses by again manipulating the value of the yen," Prestowitz said. "This, of course, would increase Japanese exports, especially to America, while holding down Japanese imports."
China vs. Japan
And Washington, which has complained about China's blatant currency manipulation, may turn a blind eye to Japan's manipulation, Prestowitz warns. Why? It wants Japan in its corner as a counterweight to China on the world stage.
Prestowitz concluded: "As in the past, the United States continues to subordinate its economic interests to its geopolitical objectives."
And, he might add, Washington's geopolitical objectives take precedence over a fair global automotive market.
You can reach James B. Treece at email@example.com.