SEARCH BLOG: CURRENCY
Are currencies being manipulated by Japan and China to support their trade policies?
With China, it's a no-brainer. The world acknowledges that is the case and China's official policy of pegging the yuan to the dollar is the mechanism.
Japan doesn't have that official policy, but look at the data:
Since 1987, the yen has fluctuated in a narrow value band versus the dollar despite tremendous growth in Japanese exports that should have raised its value versus the dollar (compare the trend prior to 1987).
Perhaps the automobile manufacturers have a good case. From Forbes.com:
U.S. automakers claim that the Japanese government is suppressing the value of the yen to an artificially low level to give its manufacturers an edge. GM’s Wagoner has complained loudest about inaction on the administration's part on this issue. Automakers believe currency exchange rates should be established in the floating market, not by government intervention.
Favorable exchange rates provide a huge profit windfall for companies like Toyota Motor (nyse: TM - news - people ), Nissan Motor (nasdaq: NSANY - news - people ) and Honda Motor (nyse: HMC - news - people ), while making it that much tougher for GM, Ford and Chrysler to compete.
"If GM, Ford and Chrysler were fully competitive with the Japanese in every other respect, the exchange rate would still put them at a crushing disadvantage," says Laurie Harbour-Felax, author of a study that analyzes Detroit's competitiveness.
The study finds that for every one-point change in the value of the yen against the U.S. dollar, Japanese automakers gain or lose $174 per vehicle. So this year's depreciation of the yen from 107 to 118 has resulted in a windfall of $10.5 billion for Japan’s Big Three automakers. GM says Toyota alone gets a $3,000 advantage on small cars and $9,000 on Lexus luxury cars. That money is plowed back into research and development, as well as new factories, including some in the U.S.
Indeed, when Toyota recently reported a 36% profit gain, to $6.7 billion, for the six months ended Sept. 30, the company said favorable currency rates accounted for an unexpected $1.6 billion gain. Japanese automakers say their companies are seeking to minimize exposure to currency swings by building plants in North America