The Ministry of Economy, Trade and Industry (METI) has conducted a survey on what kind of impact does the steep appreciation of the yen have on Japanese enterprises, how Japanese enterprises deal with the strong yen and how the government should deal with it.
The survey results have been summarized and hereby published.

• Survey period:

  From August 22 (Monday), 2011 to August 26 (Friday), 2011

• Target enterprises:

  61 large manufacturers
  83 small and medium manufacturers and 10 small and medium non-manufacturers

• Survey items:

  Assumed exchange rate, and decrease in operating profits upon one-yen appreciation
  Impact of the current strong yen on corporate profits, and how the enterprises deal with the strong yen
  Current situation of invitation of Japanese enterprises from foreign countries
  How the government should deal with the strong yen, etc.

(1) Impact of the strong yen (Large manufacturers)

• At an exchange rate of 76 yen to the dollar, 15% of enterprises will suffer a significant profit decline (i.e. profit decline of 20% or more compared to the previous year). Assuming that the above exchange rate continues for half a year or longer, 32% of the enterprises will suffer a significant profit decline.
• As for measures against the exchange rate of 76 yen to the dollar, 67% responded that they will “reduce cost by management effort, product design change, etc.”, accounting for the largest percentage; 65% responded that they will “hedge risk by exchange contract”. Assuming that the exchange rate of 76 yen to the dollar continues for half a year or longer, more than 50% responded that they will increase procurement volumes of raw materials and parts from overseas and 46% responded that they will “transfer production plants and R&D centers overseas”.
• At an exchange rate of 110 yen to the Euro, 9% of enterprises will suffer a significant profit decline (i.e. profit decline of 20% or more compared to the previous year). Assuming that the above exchange rate continues for half a year or longer, 12% of the enterprises will suffer a significant profit decline.
• As for measures against the exchange rate of 110 yen to the Euro, 49% responded that they will “hedge risk by exchange contract”, accounting for the largest percentage; 43% responded that they will “reduce cost by management effort, product design change, etc.” Assuming that the exchange rate of 110 yen to the Euro continues for half a year or longer, over 40% responded that they will increase procurement volumes of raw materials and parts from overseas and 31% responded that they will “transfer production plants and R&D centers overseas”.
• As for the invitation from foreign countries for overseas operation, 18% of the enterprises responded that they have “received invitations”.
• As for measures that the enterprises request to the government, 87% responded that they request “reduction of effective corporate tax rate”, accounting for the largest percentage; 63% responded “continuous foreign exchange intervention”, 58% responded “promotion of economic partnership”, 50% responded “stable supply of electricity” and 47% responded “assistance for production plants and R&D centers”.

(2) Impact of the strong yen (Small and medium enterprises)

• At the current level of the strong yen, over 70% of the enterprises will suffer a profit decline. Assuming that the current level of the strong yen continues for half a year, over 80% of the enterprises expect a profit decline.
• As the major causes of profit decline, requests for discount and increased competition with foreign enterprises, etc. are pointed out.
• Many enterprises consider cost reduction by management efforts, etc. and transactions on a yen basis as the measures against the current level of the strong yen. If the current level of exchange rate continues, more enterprises will consider an increase of overseas production ratio.
• Some enterprises are receiving invitations from foreign countries for overseas operation. Invitations received by Japanese enterprises are mainly from Asian countries, especially China.

* For the details of the interview results, please see the attached reference materials.

The research results published this time are as indicated in the following materials.

• Reference 1: “Survey concerning the impact of the current strong yen on the industry (Large manufacturers)” (PDF:252KB) Updated on September 13, 2011
• Reference 2: “Survey concerning the impact of the current strong yen on the industry (Small and medium enterprises)” (PDF:395KB) Updated on September 13, 2011

September 1, 2011

Macro Economic Affairs Division, Economic and Industrial Policy Bureau
Research Office, Small and Medium Enterprise Agency