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Economy

Japanese companies fire up production at home

TOKYO -- Although it is much weaker now, a strong yen is at the top of Japan Inc.'s list of six barriers to doing good business, followed by high corporate tax rates, delayed trade liberalization, energy-related restrictions, labor regulations and rules governing greenhouse gas emissions.

     Two years have passed since the yen's downtrend began and it is now moving at about the upper 110 yen line against the dollar. Its fall has helped improve profitability of exports and statistics indicate Japanese companies are starting to encourage domestic production.

     The question is, however, whether the government can create measures sophisticated enough to prevent companies from moving production and jobs overseas again.

Silver lining?

A small change appeared in Japan's trade balance for last December -- exports rose, while imports fell, for the first time in six quarters. According to an estimate by the Cabinet Office, the country's exports for the three months through December increased 2% from the previous quarter, while imports were down 0.7% on a seasonally adjusted basis.

     In December, the yen fell below 119 against the dollar, down 43% from two years ago. This helped companies boost profits by nearly 50% in yen terms by selling the same products overseas. Nissan Motor, for example, is to make its Rogue compact SUV for North America at its plant on the island of Kyushu in southwestern Japan and start exporting it in fiscal 2015. An official at the automaker said the company is confident that its domestic production will be profitable in line with the weak yen. Nissan suspended domestic Rogue production in autumn 2013.

     Japanese companies have also begun moving production for goods sold on the domestic market to Japan from other Asian countries, said Hiroshi Miyazaki of Mitsubishi UFJ Morgan Stanley Securities. Economists are paying close attention to this trend.

     Ministry of Economy, Trade and Industry data showed the import penetration ratio, which indicates the proportion of imported goods to those available in Japan, was 23.8% in November for nondurable consumer goods, including daily use items. The figure fell slightly from 25.2% in June and July. Imported producer goods accounted for 29.4%, after peaking in June at 31.2%. Companies appear to be transferring overseas production to Japan, choosing to make small products to start, as they are less affected by changes in the production environment.

Labor worries

However, if a lot of investment is needed companies will not be able to move production sites quickly. Imported durable consumer goods, such as home appliances and cars, accounted for a high of 18.4% of imported goods in October. The number could climb further.

     Another source of concern is Japan's labor market. A Ministry of Internal Affairs and Communications labor force survey showed the number of people employed in manufacturing stood at 10.2 million in December, a fourth straight month of year-on-year decline. It is likely it will take a while before local workers are confident that employers are bringing production back home.

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