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Toyota Motor Corp. is telling domestic parts suppliers to slash prices or face being replaced by overseas rivals as the yen’s value appreciates, four sources involved with the discussions said.

Toyota, which loses ¥34 billion in operating profit for every ¥1 appreciation against the dollar, told parts makers it intends to increase procurement in emerging markets in cases where domestic suppliers can’t match overseas prices, according to the sources, who declined to be identified because the talks are private.

The automaker seeks to cut costs to compensate for the yen’s climb as it boosts output in Japan to normal levels after the March 11 earthquake and tsunami damaged factories and caused parts and power shortages.

Toyota made the demand to its 219 largest domestic suppliers, including Denso Corp. and Aisin Seiki Co., at a meeting held at the end of August in Nagano Prefecture, the sources said.

Toyota spokeswoman Amiko Tomita declined comment on the automaker’s discussions with parts makers about prices.

Toyota suggested Japan-based suppliers should procure more parts from overseas as one way to reduce their prices, the sources said. The company requested to reduce prices by as much as half to some of its suppliers, according to one of the sources.

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