The yen's advance toward a 15-year high against the dollar has made it unprofitable to manufacture economy cars in Japan to be sold abroad. In response, Toyota Motor Corp., the largest exporter of vehicles to the US, is attempting to cut production costs for Yaris and Corolla cars.
In an interview on August 6, Atsushi Niimi, executive vice president for global manufacturing, said that with the current exchange-rate situation, it will not be feasible, in terms of a business model, for it to build Corolla or Yaris in Japan and export them. He added that the company is working very hard to lower the cost costs to keep the appeal of these cars.
Toyota and its domestic rivals have all felt the impact of the surging yen, which is up by at least 3% against each of the world's 16 major currencies in 2010.
Demand for the relative safety of the Japanese currency has increased due to speculation that Europe's sovereign debt crisis will get worse and that there will be a slowing down of the US economic recovery. Toyota fell 1.4% to close at 3,070 yen in Tokyo trading.
Masatoshi Nishimoto, a Tokyo-based analyst at consulting company IHS Automotive, said that the Japanese carmakers are considering production shifts out of Japan.
He explained that since small compact cars have lower profit margins, they are more susceptible. On Aug. 6, the yen traded at 85.02 yen against the US dollar, the strongest since November 27. This year, the currency is up more than 8% against the dollar and more than 14% against the euro.