[Corey]

It took all of a couple minutes to find this:

The impact of the yen’s exchange rate, with a 50 percent surge against the dollar in the past five years, is entering“non-linear” territory, where gains have a deeper impact on business decisions, according to Jens Nordvig at Nomura Holdings Inc. The trend is already seen in moves by companies from Toyota Motor Corp. (7203), which has boosted foreign output to 58 percent of the total from 49 percent five years ago

“The Japanese government needs to quickly take action to combat the strong yen -- it’ll be impossible to reclaim domestic auto manufacturing jobs once they’re shifted overseas,” Akio Toyoda, the president of Toyota, told reporters in Tokyo Nov. 7.“Japan’s automobile industry may experience not only a‘hollowing out,’ but a collapse.”

from http://mobile.bloomberg.com/news/2011-11-09/yen-emulating-franc-places-toyota-led-japan-rebound-in-jeopardy

The yen has risen by some 17% against the dollar over the past two years, even as Japan has repeatedly intervened to stem the rise. Toyota isn't the only Japanese auto maker struggling with the surging yen when it comes to exported vehicles; Honda and Nissan also are feeling the impact. But of the three, Toyota retains the largest Japanese production base, meaning its costs are most sensitive to yen appreciation, notes Credit Suisse analyst Christopher Ceraso.

As Morningstar points out, each one-yen rise against the dollar is about a 32 billion yen ($417 million) hit to Toyota's operating income—more the double the impact on Honda. Moreover, at current levels of roughly 76 or 77 yen per dollar, Japan's output of vehicles like compact cars for the U.S. market is rendered unprofitable.

from http://online.wsj.com/article/SB10001424052970204368104577139123595062492.html

Toyota officials have said that at exchange rates below 80 yen to the dollar, the company loses money on subcompact exports such as the Yaris. The dollar and euro weakness against the yen reduces the price competitiveness of Japanese exports in overseas markets and erodes the value of foreign profits on corporate Japan’s balance sheets.

Toyota still makes in Japan nearly half the vehicles it sells globally, leaving it more exposed to currency risk than Japanese rivals Nissan Motor Co. and Honda Motor Co., which make about a third of their respective output in Japan.

At current exchange rates, the company forecasts a parent, or unconsolidated, loss of ¥80 billion yen, which would mark its first dip into the red in reported after-tax income.

from http://dollarcollapse.com/inflation/currency-wars-%E2%80%9Cstrong-yen-is-destroying-japanese-industry%E2%80%9D/

"This issue has gone beyond the capacity of one company to address,” Mr Toyoda told a gathering of European journalists on Wednesday, adding that it was “impossible to make a profit” exporting vehicles from Japan at current exchange rates.

from http://www.ft.com/cms/s/0/a5df927c-1b63-11e1-8b11-00144feabdc0.html#axzz1oyfiuzhA

This year’s albatross for Toyota involves the soaring value of the yen, a man-made disaster over which Toyota has no control. Thanks to weak economies outside of Japan, the yen has been gaining value against the dollar, the Euro and other important currencies, as seen here in the dollar’s plunging value against the yen.

It’s not a good scenario for an exporter like Toyota, which pays for much of its car production in high-valued yen and sells most of its cars in lower-valued currencies. Either customers pay more for a Toyota than the equivalent Chevy or Volkswagen, or Toyota eats some of the costs. For the most part, Toyota has been eating costs.

from http://ycharts.com/analysis/story/but_for_the_mighty_yen_toyotas_annus_horribilis_wo uld_be_a_distant_memory

Now here is what you are saying:

Originally Posted by dsgerbc

Exchange rates are only marginally important, otherwise we'd be all driving Chinese cars already.

Originally Posted by dsgerbc

Companies with large exports typically have pre-arranged long-term currency swap agreements with banks/financial sector. So short-term fluctuations in exchange rates don't matter. Over the long-term countries with consistently appreciating currency (if there was such a thing) would experience a slowdown in wage growth, negating the effect of nominal exchange rate. So yeah, exchange rate movements are secondary. Especially in business that's not labor intensive, such as car production.

Originally Posted by dsgerbc

^I'm fully aware of what's going on in Japan and in the auto industry. Some people just like to blame things on the exchange rate. Decision to build a factory overseas is the same as 'outsourcing' here in US. It works until it doesn't, and then you're stuck. I didn't say exchange rate isn't important at all, but it's waaaay a secondary factor (because short-term you can hedge your business from fluctuations and in the longer run other prices adjust, bringing _real_ exchange rate back in line). Exchange rate might've been a tipping factor in the linked article, but the weight of the issue alone is likely small. Transportation costs in a world of high oil prices are likely to factor a lot more into the decision. And anyone who bases long-term strategic decisions on a directional forecast of the exchange rate is stupid. Exchange rates are almost unpredictable, and the best forecast for X years into the future is where the exchange rate is today.

Exchange rate movement quickly hurt exporters when they are:
a) small and can't justify establishing financial hedges (not true for auto-manufacturers)
b) price things in export markets according to domestic price X exchange rate. Nobody in auto business does this. Most cars are "priced to market".
c) banks walk-out on pre-arranged rates. This happens, but not too often.

Over the longer run, if exchange rates persist (and hedges at old rates expire), they will bite, but the firms should have plenty of time to prepare, alter cost structure and otherwise mitigate the issue.

At least if people read this thread now the information is here for them to conclude you are delusional by themselves.