High Yen Pinches Japanese Firms And Starts to Cost US Customers
THE rising yen is unpleasant news for importers of Japanese autos, copiers, cameras, electronics, and other goods.
Since January, the yen has appreciated by about 17 percent against the dollar. On Tuesday the yen rose to its highest level since World War II as currency speculators figured the Clinton administration wanted a strong yen to diminish the massive trade deficit between the two countries.
When the yen is strong, Japanese imports in the United States are more expensive and US exports to Japan are cheaper. At least that is the theory. However, "the simple theory has to be adjusted a bit," says Bill Sterling, manager of international economics at Merrill Lynch & Co. In practice, Japanese companies are reluctant to lose market share and instead squeeze their profit margins. "But, there's no doubt the thrust of things - the cost of Japanese goods is heading up," Mr. Sterling says.
This is the case for automobiles. Since the end of the last model year (October 1992), Japanese manufacturers have raised their prices about 3 percent. The Honda Accord costs 5.8 percent more, the Mazda 626 is up 7.4 percent, Nissans are up from 1 to 2.5 percent, and Toyotas up from 1 to 3 percent. Although Japanese carmakers have raised prices 1 to 2 percent in 1993, increases have not fully reflected the yen's jump in value.
"The Japanese will lose a lot of market share if they try to pass the yen appreciation through," says Susan Jacobs, president of Jacobs Automotive in Little Falls, N.J. She estimates their market share could tumble as much as 4 to 5 percent if they raise prices to reflect the currency change.
In fact, price increases may have already cost customers. According to Ford Motor Company estimates, Honda's April market share fell to 7.5 percent from 8.8 percent last April, Toyota has slipped to 8.7 percent compared with 9.5 percent, and Mazda has slid from 3.5 to 2.9 percent. Bucking the trend, Nissan's share is up from 4.6 to 5.3 percent. Together, Japanese cars have lost 2.4 percent of the US market.
Joel Pitcoff, research and analysis manager for Ford, says the shift represents the cumulative effect of price changes over five or six years. "So many people were comparing import products and relying on their impression that they were price competitive with and equal to domestic products," he says. Once people actually looked, they found Japanese cars cost $1,500 to $2,000 more.
For example, a Ford LX 4-door with automatic transmission and air conditioning has a sticker price of $11,786. A comparably equipped Toyota Corolla Deluxe costs $14,773. A Honda Civic Deluxe runs $13,941.
A key test for Japanese manufacturers will come this fall when they introduce 1994 models. "I've heard the price hikes will be greater in the fall," says Jacobs.
This would mark a real change for the Japanese who have usually swallowed currency changes in order to maintain market share. "You must look at the sustainability of the exchange rates to decide if they are artificial," explains Daniel Seto, an economist at Nikko Securities Company International Inc. Mr. Seto says he expects most Japanese companies will be hesitant to raise prices since they do not have much marketing flexibility due to the weak Japanese economy. This appears to be the case in consumer e lectronics.
At the summer trade show of the Electronic Industries Association, most Japanese televisions, cassette recorders, and camcorders appear to be competitively priced. "We have not heard or seen any price increases," says spokeswoman Cynthia Upsun.
HOWEVER, the Japanese may be forced to raise prices for a number of reasons. US companies may press dumping lawsuits if they feel Japanese are selling products in the US "at an unfair value." The Japanese companies also might report losses once they bring lower-value dollars home. "Every time the yen goes up in value, our analysts slash their profit forecasts," Sterling says.
If the Japanese do lift prices, economists will be watching to see if US companies raise their own. "Some of the disappointing inflation news for the first four months may be reflecting some of the pricing behavior of US firms as a result of the falling dollar versus the yen," Sterling speculates. "We may be creating a price umbrella and future inflation headaches."