The yen was trading in the range of 80-90 to the dollar for the past couple of years, before its recent correction, meaning the yen was strong while the dollar was weak. But what got it there?
The yen was consistently trading at 110 to 120 to the dollar for nearly a decade, whereupon the 2008 Lehman Brothers bankruptcy shocked the global economic system. The dollar weakened horribly as U.S. banks suffered huge losses and the U.S. economy stalled.
During the global economic doldrums, Japan and its yen became comparatively strong, and the yen zoomed to 80 to the dollar.
Today, the American economy is in recovery, and Japan is finally taking steps to get its own economy in shape.
Japan's Abenomics measures to boost its economy rely on loads of new public debt -- in a country with a larger budget deficit than the United States'. They have strengthened its economy but weakened its currency. Hence the dollar is rebounding against the yen.
So what does this mean to the auto industry?
Detroit loves to harp that every time the yen weakens by 1 yen against the dollar, that means $350 million in extra profit for Japanese car companies. A 10-yen swing means $3.5 billion more in the black for Japan Inc., which, to be fair, has been borne out in recent earnings reports.
But look again at the chart. Anyone who has taken an Econ 101 course can draw the 25-year trend line. The yen is right around where it should be.
We're hearing lots of currency-manipulation talk from protectionists, but none of them were asking us to take it easy on Japan when the dollar plummeted 40 percent against the yen back in the mid-'90s, and again a few years ago.
For the past five years, the Detroit 3 have basically had a free shot at stealing profit and market share from Toyota, Honda and Nissan. Now that opportunity has run its course, and the trend line shows that the playing field has once again leveled -- if you call that sharply sloping trend line level.
But, really, it's much ado about nothing. Foreign exchange rates don't matter much to a Japanese automaker such as Honda, which builds 90 percent of its U.S.-sold cars in North America. That's how Japanese automakers hedge against currency fluctuations.
All of Detroit's teeth gnashing about unfair exchange rates distracts from the real issue: Compete on product, and let the best car win.