Why A Strong Yen Means More U.S. Jobs

Jun 19, 2012
Originally published on June 22, 2012 5:11 pm

The cost to build a Toyota Prius hasn't changed much in the past five years — if you measure the cost in Japanese yen. But if you measure the cost in dollars, it's a different story. In 2007, it cost Toyota about $16,000 to build a Prius. Now, it's more like $24,000.

That's because the value of the yen has risen relative to the dollar. In 2007, $1 bought 124 yen; today, $1 buys just 79 yen.

Toyota and other Japanese car makers haven't passed that higher cost on to U.S. consumers, partly because it would be awful for sales. Instead, the companies have cut back on incentives for buyers, limited exports of cars from Japan, and cut material costs in cars. Auto analysts and critics have pointed to the push to control costs as a reason Consumer Reports downgraded the Honda Civic (this was a big deal among car people).

At the same time, the strong yen (among other factors) has Japanese automakers looking to build more cars in the U.S. Toyota plans to add more than 3,000 jobs in the U.S., and increase production at it assembly and engine facilities in the U.S. Nissan has said that within a few years, 90 percent of the cars it sells in the U.S. will be made here.

The strong yen also means goods made in the U.S. can be sold more cheaply in Japan. American carmakers have never had much of a presence in Japan, where domestic car makers control more than 90 percent of the market. But with American cars growing smaller and the strong yen helping prices, this may be a moment for American manufacturers to start building a market in Japan.

As we've noted before, "weak currency" sounds bad, and "strong currency" sounds good. But for economic growth, the opposite is often true.

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The past few years have been good for U.S. automakers. That cannot be said of Japanese car brands. Toyota, Honda and Nissan are only now recovering from last year's earthquake and tsunami, and there's another challenge: the yen. Japan's currency is strong and that means the companies can't bring in as much profit from overseas sales, so Japanese car makers are looking for solutions, solutions that could have a positive effect on the U.S. economy.

NPR's Sonari Glinton reports.

SONARI GLINTON, BYLINE: Japan hasn't been a cheap place to manufacture goods in a long time. Relatively speaking, they have a highly paid skilled and unskilled workforce. In the last six years or so, things have gotten increasingly more expensive, especially in the car business. Alec Gutierrez is an analyst with Kelley Blue Book.

ALEC GUTIERREZ: In the mid-2000s, a Prius in Japan could be produced for anywhere from maybe 16 to $17,000, whereas today, you're looking at productions costs of anywhere from 24 to $25,000.

GLINTON: Now, it's not that Japanese wages have skyrocketed. They haven't. What has gone up is the value of the yen, and it's showing no sign of going down anytime soon. The Japanese car companies are trying not to pass that cost on to American consumers, but Gutierrez says that doesn't mean shoppers in America won't feel it.

GUTIERREZ: What you're looking at is reduced availability because ultimately Japanese exports will be somewhat limited. You're looking at fewer incentives, and you're looking at a reduction in the willingness of most franchised Toyota, Honda, Nissan dealers to negotiate on these vehicles.

GLINTON: Those are some of the downsides for American consumers. But what's also happening is that most of the Japanese car companies are looking to dramatically reduce the number of cars they export from Japan to the U.S. So if they're not going to import cars, what is a global car maker from Japan to do? Ed Miller is with Honda. He says the answer is build more cars in North America.

ED MILLER: We're paying our associates in dollars. We're buying our parts in dollars. And we're selling them to the customers and collecting dollars at the dealership. So if you've been able to cordon off, you know, the global currency markets in that way, that just brings you a whole lot of stability.

GLINTON: Four Japanese companies - Honda, Toyota, Nissan and Subaru - build cars in the U.S. Honda has the highest percentage of cars assembled here. It's in the high 80s. It's expanding and the company is upgrading almost all of its assembly and engine plans. Subaru announced plans to grow North American production in the next five years. Nissan says within a few years, 90 percent of the cars it sells in the U.S. will be made here.

This year alone, Toyota has added more than 3,000 jobs, and Toyota's Steve Curtis says more are coming.

STEVE CURTIS: I mean, we support local economies. We create jobs. We invest directly in the marketplace where we do business. So all of those things are a benefit and, of course, you protect yourself to a degree from foreign currency exposure.

GLINTON: But until the companies can ramp up production in the U.S., they continue to be squeezed budget-wise.

REBECCA LINLAND: The manufacturer will skimp in places that they hope you won't notice.

GLINTON: Rebecca Linland is with IHS Automotive. She says skimping is affecting the quality of many imported brands, especially in the car interior.

LINLAND: And it's things like insulation, so maybe that door doesn't make quite as nice of a thunk as it does in a more expensive vehicle. Maybe you hear the road a little bit more because the windows don't fit as well or there's not as much insulation in the doors or the front of the vehicle.

GLINTON: And Linland says this is all happening at a time when American car brands are getting better. Sonari Glinton, NPR News. Transcript provided by NPR, Copyright NPR.