Toyota Motor Corporation has experienced record profits for three straight years. However, Toyota’s president, Akio Toyoda, informed the media that the company must brace for a big profit plunge. This dim outlook for potential profits is predicted to hit all of the Japanese car companies, such as Mazda, Nissan, Honda, and Subaru. This is mainly due to the fact that the Japanese yen appreciated 6% compared to the U.S. dollar last fiscal year and is expected to continue this appreciation into the next fiscal year, which ends on March 31 of 2017. This is not only decreasing the demand for Japanese car exports, but it is decreasing the exports of American-made cars manufactured in Japan.
Much of the reason that Japanese manufacturers have experienced so much success in the recent years is because of an “exchange rate tail wind”, as Toyoda worded it. Foreign exchange rates are swinging back towards a spectrum that is not favorable for the Japanese automakers. These automakers, in response to this change in the foreign exchange rate, are continuing to localize the production of their cars by building more of them in the markets where they are sold. Toyota expects such a large decrease in their profits because they only 72% of their vehicles that are sold in the U.S. are made in North America, as opposed to Honda’s 97% and Nissan’s 81%. Honda is attempting to create an “optimal balance of imports and exports” in order to increase their “resilience against fluctuating exchange rates” according to its Executive Vice President, Tetsuo Iwamura. Toyota’s higher import rate has them projecting a 40% plunge in its profits for this year. If Toyota is not able to move more of their manufacturing centers to North America in order to avoid having to export with an appreciated yen, this prediction will certainly come true.