Looks like a weak dollar really can lift employment, at least once in a while.
According to The Wall Street Journal, Honda Motor plans to shift a lot more of its manufacturing abroad, and that includes doubling the capacity of a Civic plant in Greensburg, Indiana.
“Honda’s shift is indicative of the broad impact the yen is having on Japanese auto makers facing a currency that has strengthened by nearly 40% in the last four years,” the Journal reported. “The dramatic strengthening of the yen makes it particularly hard to make money on small cars because profit margins are already thin.”
The dollar-yen-trade relationship has always been one of the more confounding mysteries of modern economics. “Every time the dollar declines . . . we are told by the experts that ‘this time’ the trade deficit with Japan will surely go away,” Peter Drucker noted in Managing in a Time of Great Change. “But if for a whole decade the inevitable does not happen, one should stop promising it. In fact, the cheap-dollar policy of U.S. governments in the past 10 years has rested on totally wrong assumptions regarding the Japanese economy. Japan, rather than the United States, is the beneficiary of a cheap dollar.”
According to Drucker, this was because Japan did business with many other non-U.S. trading partners in dollars, and cheap dollars made for high purchasing power.[EXPAND More]
“In its total trade accounts—that is, in merchandise and services and trade combined—Japan actually spends more dollars abroad than it earns from exports,” Drucker pointed out. “The weaker the dollar, the fewer yen Japan needs to spend to procure the dollars it requires for its foreign accounts.”
But are the experts, at long last, right? After all, for most exporting nations, a trading partner with a weak currency is a serious danger. And this was something Drucker readily admitted. “Exporters from countries with large export surpluses are endangered in their existence—or at least in their solvency—by the instability of national currencies, and especially by the instability of the dollar,” Drucker wrote in Managing in Turbulent Times. “Their income is largely in currencies that are either inherently weak or deliberately manipulated to be weak for domestic political reasons.”
What do you think: Is the yen now too strong for Japan’s own good?[/EXPAND]