Japanese Firms Feeling Pinch of Soaring Yen : Everything From Expense Accounts to Purchasing Plans Affected by Rise
Toyota Motor Co., reputed to be Japan’s richest company, now buys only one-way air tickets for employees it sends abroad on business trips. They purchase their own return trip tickets overseas and are later reimbursed.
Tickets purchased in Japan must be paid in yen, at an exchange rate fixed by an international airline agreement at 296 yen to the dollar. Those bought in the United States sell for dollars, each one of which now costs only about 160 yen.
Foreign tourists, hotel managers say, are eating more spaghetti and noodles and less steak and sukiyaki. They are also avoiding such places as coffee shops in hotel lobbies, where a single cup of coffee now costs 990 yen--or $6.19--with no refill.
These are a few signs of the impact that the explosion in the yen’s value has had on foreign tourists in Japan and Japanese businesses alike.
Prime Minister Yasuhiro Nakasone lately has been besieged by demands from Japanese businessmen that the government do something to relieve their suffering from dwindling export profits. Now, Nakasone, too, has joined the chorus of those complaining that the yen has risen too far and too fast.
On May 7, Nakasone told Parliament that he would consider formulating a supplementary budget financed by issuance of more national bonds this fall to combat the deflationary effects of the yen’s appreciation. That represented a reversal of the position he had taken only a month before, when he rejected any additional deficit spending.
May Reduces Surpluses
The rising yen is likely to have more impact soon.
Satoshi Sumita, governor of the Bank of Japan, said last Wednesday that there is no doubt that the yen appreciation will halt the still-continuing monthly growth in Japan’s trade surpluses and eventually reduce them.
Foreign financial analysts say Japanese companies are likely to increase purchases of parts from Taiwan, Hong Kong and South Korea in an attempt to hold down the dollar price of their exports. In contrast to the yen, the currencies of other Asian nations have fluctuated little against the dollar, making their products nearly 50% cheaper in competition with Japanese goods than they were last fall.
Japanese economists foresee a boom in direct overseas investment by manufacturers seeking to lower costs by transferring some of their production to cheaper offshore bases. They also predict a sharp rise in imports of materials for manufacturing, such as chemicals and steel, as well as parts.
But when compared to the extent of the yen’s appreciation--nearly 50% since last September--the changes so far are not as dramatic as might have been predicted.
Despite the plummeting value of the dollar, for example, Japanese continue to buy U.S. Treasury bonds in record amounts. Japanese citizens were reported to have purchased about $4 billion of the $9 billion in 10-year Treasury notes issued through bids May 7 and nearly $6 billion of the $9 billion worth of 30-year Treasury bonds issued May 8.
Neither Toyota nor any other auto maker has yet suffered a decline in exports, nor have any of the auto firms boosted imports of parts or announced additional overseas manufacturing investments.
Kenichi Yamamoto, president of Mazda, said in a news conference May 8 that he wanted to increase overseas procurement of parts. But a Mazda spokesman, who asked not to be identified, acknowledged that Yamamoto’s statement was an expression of philosophy, not a plan.
Parts manufacturers in South Korea and Taiwan, the Mazda spokesman said, still fail to offer assurances of either the quality or delivery schedules that Mazda needs.
“To the contrary,” the Mazda official said, “our business of supplying parts to South Korea and Taiwan is expanding.”
Japanese exporters have not yet raised prices of goods sold abroad to the extent needed to maintain earlier yen earnings from exports.
Before the finance chiefs of the United States, Japan, West Germany, France and Britain agreed in New York last Sept. 22 to lower the dollar’s value to help reduce the American trade deficit, Japanese manufacturers got 242 yen for each $1 worth of goods they sold abroad. Now, they must sell nearly $1.50 worth of the same products to obtain the same yen income.
Auto makers, however, have raised their dollar prices by less than 10%.
Although spokesmen for both Toyota and Mazda said another round of price increases is now being considered, none of the auto makers is expected to pass on all of the costs of the appreciation to foreign consumers.
A spokesman for one major American airline, who asked that he and his firm not be identified, said no significant changes have occurred in tourist travel to Japan so far. Air fares for tickets purchased in the United States have not increased, he pointed out.
Fewer Japanese businessmen, however, are traveling first class, and executives of some smaller Japanese firms are joining group tours to go overseas, he added.
Only a few small export firms have gone into bankruptcy. Overall production has declined, but only slightly. No increase in unemployment has been reported. Annual wage increases averaging about 4.5%, only slightly lower in percentage terms than last year, already have been implemented throughout all industries. And no signs of real depression have appeared.
Little Change in Bonuses
A survey taken by Sanwa Bank in early May, for example, showed that 89% of wives of salaried workers expected their husbands’ June bonuses to equal or exceed last June’s bonuses. In Japan, twice-a-year bonuses, which labor and management negotiate, are considered part of regular pay and often amount to one-third of a worker’s annual income.
Sumita predicted last Wednesday that Japan’s economy will not suffer anything like the damage that has been predicted by some businessmen and politicians. On May 7, the central bank governor even declared that Japan’s economy could cope with the exchange rate that prevailed then (about 165 to the dollar) if the rate stabilized and if structural reforms were carried out.
Last Wednesday, the Nomura Research Institute released its newest economic forecast predicting a decline in growth for fiscal 1986, which ends next March 31. But it foresaw a dip of only 1.1 percentage points to 3.3%.
Investments by non-manufacturing industries, which now constitute an important chunk of total investment in Japan, are still strong, consumer spending is active and profits among non-manufacturing firms are expected to exceed the levels of a year ago.
A banner year for domestic prices also is expected. The Nomura Research Institute predicted that wholesale prices will plummet by an unprecedented 9.2% while consumer prices will increase only 0.7% during fiscal 1986.
The big pinch, Sumita and other analysts said, will come in corporate profits.
Japan’s top 40 exporting corporations are expected to suffer an average decline of 30% in profits, compared to fiscal 1985, according to a survey published last Tuesday by the Japan Economic Journal, a leading financial daily.
“The situation is severe,” said a spokesman for Canon, a leading maker of cameras and office equipment. More than 70% of Canon’s earnings come from exports.
The newspaper survey estimated that Canon’s profit will decline to 25 billion yen ($156.3 million) from 42 billion yen ($262.5 million) last year.
“Every time the dollar weakens by one yen, we lose more than $6 million,” the Canon spokesman said.
But no large firm, except those in industries already regarded as depressed for structural reasons unrelated to the yen’s recent appreciation, was reported facing the prospect of losses for the year.
Expecting a boon from the appreciation were utility companies, which the Economic Journal’s survey predicted will enjoy an average increase in profits of 20%, and makers of prefabricated homes, for whom the newspaper forecast a 10% increase in net earnings.
Much of Japan’s electricity is generated from imported coal, oil and natural gas, while housing companies are expected to increase sales if the Japanese government implements long-promised policies aimed at generating internal demand.
The Ministry of International Trade and Industry last Thursday approved a reduction in electricity and gas rates effective for a 10-month trial period beginning June 1. Tokyo-area residents will pay about $10 per month less in utility fees.
The rate cuts, however, are coming more than nine months after the savings from the yen’s appreciation in import costs began and do not reflect the full impact of windfall profits brought by a decline in oil prices.
As they did in the 1970s, when dollar devaluation and oil shocks struck Japan, manufacturers are tightening their own belts and demanding that their Japanese suppliers cut costs, too.
The Mazda spokesman said the Hiroshima-based auto firm has asked its parts suppliers to increase their productivity by 50% in the next two and a half years--10% every six months beginning in June. He said the request carried an implied threat that Mazda would cut the prices that it pays to suppliers by 10% every six months whether productivity gains are achieved or not.
Cut Paper Work
Toyota, where assembly lines already are highly efficient, is asking its white-collar workers to cut their paper work and time spent in conferences by 50%, a company spokesman said.
Cutbacks in investment also are being carried out. Mazda, for example, has abandoned plans to develop a new 550-cc engine displacement “midget car” for sale in Japan, and Toyota has dropped plans to add a third assembly line to one of its factories.
Sumita, the Bank of Japan governor, expressed concern that the yen’s appreciation was dampening investment enthusiasm to the point that an increase in domestic demand would be delayed despite the urgings of both American and Japanese government officials that import growth be spurred.
Although nearly all analysts agree that the expensive yen is here to stay, no one is certain about the level it will achieve when exchange rates stabilize.
The Nomura Research Institute, in its Wednesday forecast, predicted that the yen’s value would average 160 to the dollar for the entire year--a forecast that presumes still more gains for the Japanese currency. Only last Monday did the yen, which started the year at an exchange rate of 200 to the dollar, reach 160 for the first time.
Peter A. Cohen, chairman of Shearson Lehman Bros., which is opening a securities office here today, predicted Thursday that the yen would not rise much above 160 to the dollar.
“The yen has strengthened a great deal more because of speculation than might be justified,” he said, adding that the yen “probably should be in the range of somewhere between 160 and 180 to the dollar.”
It may be a while before the ultimate impact of the yen’s appreciation can be determined.
The spiral of the currency’s value has come too fast to allow manufacturers to make long-term decisions, such as those involving overseas manufacturing, Japanese businessmen said.
Kenjiro Hayashi, a director of the Nomura Research Institute, predicted that direct overseas investment would increase from last year’s $6.5 billion to only slightly more than $10 billion this year but--after executives have time to plan--would move to $20 billion next year.
Already, Sumita said, Japan’s exports have fallen in quantity--a development that he said was now contributing to employment in the United States and Europe, “which Americans and Europeans should appreciate.” He acknowledged, however, that the country’s monthly surpluses were still climbing in dollar value and would not stop increasing for about a year, partly because lower oil prices were cutting Japan’s import bill by more than $12 billion this year.
Nomura predicted that a turnabout in trade would come in the last quarter of this year. He foresaw, however, that for the year as a whole Japan’s global trade surplus would reach $72 billion, compared to $56 billion last year.
Times staff writer Andrew Horvat in Tokyo contributed to this story.