Power of Weak Yen

 

Japanese manufacturing companies are making the most of the weak yen for new business opportunities. Specifically, they are cutting the prices of their products and investing more in R&D at the same time thanks to the depreciation of the yen.

Toyota has agreed with major Japanese steelmakers such as Nippon Steel to decrease the prices of automobile steel sheets for the period of April to September this year. The price cut, the first in two years, is based on the decrease in the prices of imported raw materials caused by the weak yen.

In the agreement, Toyota is supplied with automobile steel sheets at a per-ton price about 3 percent lower than that applied last year. This means the automaker has room for additional markdown. Toyota has paid an average incentive of US$2,500 per car in the U.S. market since the second half of last year, when the yen began to depreciate in earnest.

The markdown is a bad news for Korean carmakers in that they have capitalized on relatively cheaper prices. The actual price difference between the Toyota Camry and the Hyundai Sonata narrowed from US$1,700 to US$192 between July 2012 and December 2013.

Toyota is also expected to speed up its sales expansion in emerging markets like China, Russia, and Brazil to catch up with their Korean rivals. The company is striving to raise the ratio of emerging market sales to 50 percent by 2015 by supplying less expensive models in quantity.

According to the Association of European Businesses (AEB), Toyota sold 38,000 cars in Russia during the first seven months of this year to record a year-on-year sales growth of 10 percent and increase its local market share to 7.1 percent. During the same period, the total car sales in the Russian market fell 10.0 percent to 1.411 million units. Only Toyota and Nissan increased their sales there during the seven months.

Unfortunately for Korean enterprises, the recent agreement between the carmaker and steelmakers could result in improved price competitiveness of Japanese electronics manufacturers, shipbuilders and many more, as well as Honda and Nissan, in that steel takes a very large portion in the manufacturing industry. Besides, Japanese corporations are becoming more and more aggressive in investment and overall business strategies on the back of the weak yen to pose an increasing threat on their Korean counterparts.

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