Japanese Automakers Face Endaka

Topics: Foreign exchange market, Japan, Exchange rate Pages: 3 (1041 words) Published: November 5, 2008
Japan’s Automakers Face Endeka

In the early 1980s the Japanese auto industry was strong and profitable. The oil shocks that hit the world in ’73 and ’79 created a need for small and fuel efficient cars. At that time this was the exact specialty of the Japanese manufactures. With efficient and well designed cars producers as Toyota, Nissan, Honda and Mazda. Compared to the competitors the Japanese manufactures created a cost advantage per car of $1,500 to $2,000 due to labour differences, technical efficiencies and not least the lower exchange value of the yen.

During the early ‘80s the dollar had strengthened tremendously against the yen due to high US interest rates (and thereby big demand for dollars) and inflow of foreign capital. A strong dollar led to increases in the US trade deficit. The “Japanese invasion” by the auto manufactures was tough competition for the US producers, which also showed in the growing trade deficit.

The finance ministers of the five leading industrialised countries; Great Britain, France, West Germany, Japan and the US coordinated an intervention of their respective foreign exchange markets to “correct the imbalance in the market”. These countries shared a growing interest in lowering the value of the dollar relative to the yen as this would eliminate trade imbalance between the US and Japan and lessen protectionist demands. Furthermore, it would finally result in higher exports not only for Japan but also for all other countries. The next day the Japanese government exchanged $3 billion for yen in the New York and Tokyo markets. Endaka had hit. In the short run, exporting firms and firms that didn’t manage to sell dollars forward suffered huge losses. (However, in the long run this reform would increase the Japanese purchasing parity and in that way be favourable). Endaka severely affected the Japanese auto manufactures. Their competitiveness dropped as the dollar price of the cars was suddenly much higher. In order to...
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