Hoya Corp. kept its Pentax camera factory in Tochigi Prefecture open as rivals steadily moved manufacturing overseas to cut costs, yet it couldn’t compete as the yen surged against the dollar and euro during the global economic slump.
The company paid suppliers and workers in yen, sold products in dollars and euros, and converted revenue into yen. Six straight quarterly losses eventually prompted Hoya to close the last domestic Pentax plant in June as the yen rallied against the dollar.
“The rise in the yen is definitely one of the biggest triggers that convinced us to accelerate our move offshore,” said Hiroshi Hamada, Hoya’s chief operating officer. “There was no reason to keep high-cost manufacturing in Japan.”
Lens-maker Hoya is one of 13 companies — including Komatsu Inc. and Panasonic Corp. — shutting or downsizing Tochigi factories in the past year. The strengthening yen, weakening domestic demand and second-highest corporate tax rate among the world’s major economies are spurring an exodus of manufacturers to Vietnam, the Philippines and China, companies and analysts say.
About 740,000 Japanese manufacturing jobs disappeared last year through November, the statistics bureau said. More than a third of factory capacity sits idle, trade ministry figures show.
Japan’s industrial output is 19.8 percent below its prerecession peak, with the country shipping 35 percent fewer goods in November than the peak of ¥7.6 trillion ($82 billion) in March 2008.
“Corporate Japan is voting with its feet,” said Jesper Koll, now head of equity research at JPMorgan Chase & Co. in Tokyo. “They’re going overseas. The hollowing out of Japan is being turbocharged.”
Profits from overseas operations at Japanese companies exceeded domestic earnings for the first time in fiscal 2008, said the Japan External Trade Organization, a government-funded organization focused on luring investment. Foreign operations generated 52.5 percent of earnings, according to JETRO’s analysis of 890 listed companies.
The yen surged 14 percent since Lehman Brothers Holdings Inc. filed for bankruptcy protection in September 2008, the most among 16 major currencies tracked by Bloomberg. It reached a 14-year high of 84.8 against the dollar on Nov. 27 and has gained 20 percent against the euro since January 2008.
A stronger currency erodes the value of repatriated earnings and makes Japanese exports more expensive for foreign buyers.
Overseas markets are more lucrative as domestic demand slips because of declining wages — down 14 percent since peaking in 1997 — and an aging, shrinking population. More than 20 percent of Japanese are over 65, and the population will decrease by 3.2 percent this decade, according to the National Institute of Population and Social Security Research.
Japan’s 39.5 percent corporate tax rate for large firms is second-highest behind the 40.8 percent levied by the United States, according to the Finance Ministry.
“There’s less incentive to keep, stay or do business in Japan, especially the factories,” said Masafumi Yamamoto, chief foreign-exchange strategist at Barclays Capital in Tokyo. “That movement should continue.”
Last month’s ¥7.2 trillion government stimulus package didn’t promote long-term growth, said Yasukazu Shimizu, senior market economist at Mizuho Securities Co. in Tokyo.
Manufacturing is 40 percent of Tochigi’s economy — twice the national average. Before the recession started in November 2007, there were three job openings for every two applicants, according to the labor ministry.
Now there are three applicants for every opening in the prefecture.
Komatsu, the world’s second-biggest maker of construction equipment behind Caterpillar Inc., closed a dump-truck assembly plant there. China surpassed Japan as Komatsu’s biggest market for construction and mining machinery in the quarter ended June 30.
Komatsu forecasts full-year profits of ¥35 billion as sales decline by 6.5 percent.
Panasonic Communications Co., subsidiary of Osaka-based Panasonic Corp., the world’s biggest maker of plasma TVs, shut its fax-machine factory in June. The parent company says cost cuts, including 15,000 jobs, will help narrow a net loss for the current fiscal year to ¥140 billion from the earlier estimate of ¥195 billion.
“We wanted to increase efficiency,” Panasonic spokesman Akira Kadota said. “It made sense to consolidate our operations.”
Shuttered shops abound in Utsunomiya, a city of 500,000 where Tochigi’s government established an unemployment center in a converted store. It has advised more than 12,000 people since April, manager Chiaki Yashiro said.
“There isn’t anything out there,” said Yuuji Takashi, 53, who lost his job at an auto parts plant early last year. “They’re sending it all to China.”
Toyota-based Toyota Motor Corp., which makes more than half of its cars abroad, plans to suspend one domestic assembly line and add capacity in China and India, its fastest-growing markets. Domestic car sales are down 25 percent since the 1990 peak of 5.1 million, according to the Japan Automobile Dealers Association.
The surging yen helped tip the scales, Toyota Vice President Takeshi Uchiyamada said in October.
“We’re affected by the exchange rate,” Toyota spokesman Paul Nolasco said. “We deal with that by building as much of our product as close to our customers as possible.”
The Pentax factory peaked in the 1970s, with 1,500 workers making 35-mm single-lens reflex cameras. Hoya’s Hamada moved all camera production offshore helping its Pentax division to return to profit with operating income of ¥1.19 billion last quarter. Continuing to manufacture in Japan was “stupid,” according to Hamada.
“It was a waste,” he said.