The Strong Yen and Prospects for Further Crisis

INTERVIEWER This winter Japan will likely confront an uncertain energy situation again. On top of that, we’ve got to deal with an excessively strong yen and rising fuel prices. Japanese manufacturing could face yet another crisis when all these factors come together. How do you intend to overcome these difficulties?

SHIGA The toughest challenge we face is the strong yen. As a nation grows more powerful and its people lead richer lives, it’s only natural for their wages to rise, pulling up the strength of the country’s currency. As the currency grows stronger, labor-intensive industries that add relatively little value lose their competitiveness, and they drain away overseas. This in turn helps to enrich the countries that were a bit lower on the economic ladder. A nation that has grown wealthy, meanwhile, may boost its imports to excessive levels. When its trade balance goes into the red, its currency’s value also falls. This makes it competitive once again on the world stage, and it can grow its exports. This is my basic view of how the global macro economy tends to function.

As this cycle progresses, there’s an undeniable industrial shift toward making products with higher added value. There’s no need to go out of our way to protect the industries that fall behind in this process. While there are certain traditional industries that are worth keeping alive even if they aren’t particularly competitive, we don’t need to extend this protection to normal industries as well. Once an industry loses its competitiveness, market forces push it out of the picture. Then we see the birth of new industries to form the core of the economy. These are all well-understood principles.

Generally speaking, this sort of industrial shift takes place over time, with uncompetitive industries making way for new, vigorous ones. As this takes place, the new industries improve their productivity and technologies. What we’re seeing today, though, with the rapid appreciation of the yen, is a total upending of this process. With the currency so strong, no Japanese industry can remain competitive. Japan is home to 120 million people, and 54.8 million of them are in the workforce. Around a fifth of these—10.4 million people—are employed in the manufacturing sector. If manufacturing vanishes from Japan’s shores, where are these millions of people going to find new work?

There are those who argue that manufacturers should just head overseas if the yen gets too strong for them to remain in Japan, or that sectors like agriculture, medical and nursing care, and childcare will pick up the employment slack. But these sectors cannot make room for more than ten million new workers. Japan will need new key industries. These might be environment-related industries, and they might be in the IT field. But today, the key industry is automobiles. And we can’t be so irresponsible as to pull up stakes and go overseas without a new key industry to hand off the baton to.

If you were to tell me to go out there and turn my company into one that could survive even at an exchange rate of 50 yen to the dollar, there would probably be a way to achieve it. But while Nissan Motor would stay afloat, it would no longer be the Japanese company Nissan Motor. And that’s something that I think must be avoided at all costs.

One thing that really worries me is that there’s no broadly shared sense of how serious the situation is. If the yen remains at this level for five more years, Japan is going to see its industry hollowed out completely. When manufacturing is no longer viable here, what are we going to do to support a country of this size? I can’t shake this unease about our future.

INTERVIEWER Listening to your comments today, I get the sense that the auto industry is almost a reflection of the nation as a whole. In this connection, could we finish with your thoughts on what makes Japanese cars special?

SHIGA I think it boils down to the sense of hospitality that we extend as automakers to the people who ride in our cars. When you get into one of our vehicles, we want you to be enveloped in a sense of pleasure. This is the sort of experience we want to deliver with the cars that we craft.

We also provide what we like to call the pleasure of driving: the joy you feel when you get behind the wheel. Japanese cars have a lot to offer in other areas, too—their painstaking consideration for the environment, like you see in the eco-friendliness of our zero-emission vehicles or our products’ low carbon output across the board, and their high level of safety. In fact, Japan’s automakers deliver unique quality in every aspect of their products.

Hospitality. The pleasure of driving. The environment. Safety. Quality. I think these are the five factors that ensure Japanese autos will remain attractive to drivers around the world.

(Translated from a November 17, 2011, interview in Japanese. Interviewer Harano Jōji is representative director of the Japan Echo Foundation. Photos by Kawamoto Seiya.)