• Kyodo


Data released by the government in January showing Japan posted its first trade deficit in 31 years in 2011 has prompted much soul-searching in domestic industries and sparked fears the country might soon lose its status as one of the world’s major exporters.

Home electronics, long a cash cow for domestic manufacturers, already are mostly produced at overseas plants, while the strong yen has also pushed carmakers — another major driver of economic growth — to increasingly relocate assembly lines abroad.

The domestic automotive industry is being “gutted,” said Toshiyuki Shiga, chairman of the Japan Automobile Manufacturers Association.

Some industry observers warn that with major exporters increasingly shifting production overseas, Japan’s trade balance may drastically deteriorate in the near future.

“The automotive industry should earn money abroad to protect (Japanese) workers’ jobs (at domestic plants),” said Toyota Motor Corp. President Akio Toyoda.

“This may sound irrational but I am determined to make it happen, come what may.”

Toyoda has vowed that the carmaker will continue to produce around 3 million vehicles a year at domestic plants to assist the broader economy, even though it would be more profitable to increase production at overseas affiliates, as profits from their exports are not slashed by the soaring yen when repatriated.

Last year, domestic auto production ground to a complete standstill for about a month after the March 11 earthquake and tsunami, but output picked up rapidly and notched an annual trade surplus of around ¥7 trillion, though the figure was down 13 percent from a year earlier.

The yen’s record appreciation against the world’s major currencies is also enabling German and South Korean carmakers to capture greater market share, thanks to the weakness of the euro and the won.

“(Toyota) is shying away from carrying out structural reforms of its operations,” said Takaki Nakanishi, an analyst with Merrill Lynch Japan Securities Co., referring to the automaker’s stubborn continuation of production at domestic sites.

But despite Toyota’s best efforts, the hollowing out of Japan’s automotive industry continues apace and is raising broader doubts about whether domestic manufacturers will stick to their avowed policy of turning out high-end products at home.

In the automotive sector, Honda Motor Co. is making a hybrid version of its NSX sports car in the United States, while Nissan Motor Co. is building electric vehicles in North America and China.

Even Toyota is aiming to source more parts from South Korea and other overseas suppliers, while its overseas plants are procuring key components locally, including engines and transmissions, instead of importing them from Japan — a severe blow to domestic parts makers.

Consumer electronics makers are also shuttering domestic plants and shifting manufacturing abroad, given the absence of new business opportunities at home.

Sony Corp. now produces more than 70 percent of its products overseas, turning out TV sets in Malaysia and China and digital cameras in Thailand.

Material and parts makers are following suit.

“Since car and home electronics makers are shifting operations abroad, suppliers of their product materials like us have no choice but to do the same,” said Asahi Kasei Corp. President Taketsugu Fujiwara.

JAMA’s Shiga warned that it may not be easy to reverse the current trend. “Once we lose our manufacturing base in Japan, there is no turning back even after the yen has weakened,” he cautioned.

Infrastructure-related exporters, meanwhile, are facing problems of their own.

In mid-January, East Japan Railway Co. and Central Japan Railway Co. dispatched their top officials to New Delhi to pitch shinkansen technology to India. But the railways are under no illusions about the strength of their global rivals.

“Our competitors used to be American and European companies, but now the Chinese, South Koreans and Russians are trying to win contracts through predatory pricing,” said Hitachi Ltd. President Hiroaki Nakanishi, whose company produces railway vehicles.

In addition to established firms such as General Electric Co. and Germany’s Siemens AG, manufacturers in other parts of Asia also have started to pose a significant threat.

In response, the government and the private sector have decided to join forces to help Japanese companies land overseas infrastructure development contracts.

Prime Minister Yoshihiko Noda visited India in December as part of this drive, accompanied by an entourage of a dozen or so Japanese business leaders.

Economy, Trade and Industry Minister Yukio Edano also traveled to Thailand and Myanmar last month with a group of corporate executives to pitch Japan’s advanced technologies.

But such efforts may be in vain, as other countries are even more robust in supporting their domestic companies bidding for various infrastructure projects around the world.

The government has identified infrastructure-related exports as one of the main pillars of its strategy for economic growth.

But it has been accused of failing to spell out detailed steps for reviving domestic industry so far.

Hitachi’s Nakanishi has also criticized the government for not moving to join the Trans-Pacific Partnership free-trade agreement sooner, saying his company’s fortunes hinge on Japan’s participation in the U.S.-led regional trade initiative.

“The government’s inaction is hurting Japanese exporters,” said Yukihiko Shimada, a senior analyst with SMBC Nikko Securities Inc.

“The government should revamp the existing framework as soon as possible, so that the state and the private sector can increase joint promotion of infrastructure exports.”

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