Japan steelmakers move offshore operations to Japan

According to a Tokyo Steel Manufacturing Co. executive, Japanese manufacturers are increasingly looking to move offshore operations to their home market.

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Kiyoshi Imamura, managing director of the steelmaker, said in an interview last week that the switch is due to the weakening yen, global supply-chain constraints, geopolitical risks and shifting wages patterns.

He said that the trend is expected to accelerate towards the end of the year as manufacturers of everything from automobile parts to consumer electronics are moving to Japan.

More Japanese companies are moving operations out of China, Southeast Asia and Russia, according to Imamura. The move to build new plants in their home country is fueling demand for steel used in construction, with the company receiving nearly 30 orders related to such switches, he said.

The yen has fallen so much that Japan's trade balance won't be back in the black under such circumstances, companies judge it s better to do manufacturing in Japan, Imamura said. He said that orders for steel used in construction have gone up by 10% this year, compared to a year ago.

The yen has fallen about 11% against the US dollar since the beginning of the year, exacerbating rising prices for Japan's imported commodities.

Even before the yen sank this year, the Japanese government had been supporting the relocation of domestic production bases back to the country.

The Ministry of Economy, Trade and Industry is funding companies to invest in new plants that make essential products and materials to alleviate the risks of supply-chain bottlenecks. In November, the government approved 774 billion yen $6 billion in funding for domestic semiconductor investment.

Now that the yen has weakened, it is no surprise that more companies are working on boosting domestic production capacity, according to Takayuki Homma, chief economist at Sumitomo Corp. Global Research Co. said in a separate interview. He said that the falling yen, which was increasing export margins, was offering an option to ship goods from Japan strategically.

Surging labor costs in other nations are also a factor. In the past 30 years, Japan's wages have barely changed, while wages in Southeast Asia have tripled over the same period, according to Imamura.

Takeshi Irisawa, an analyst at Tachibana Securities Co. in Tokyo, agreed that the trend was a bright spot in Japan's steel market. He stated that the country s entire demand for steel used in construction was stagnant, and recent spikes in steel prices will be a setback, making it a little difficult for the lower yen to be a big driver for Japanese production in the short term.

High electricity costs and a shortage of labor due to the nation s shrinking and aging population are some of the obstacles that the companies moving operations to Japan also face, according to Homma. They will need to be innovative in both producing goods with fewer workers and coming up with value-added products.

Imamura said further nuclear power generation was essential to revive the competitiveness of manufacturing in the country. He joined calls by Japanese companies to quickly restart nuclear reactors that were idled after the Fukushima disaster more than a decade ago, as the nation grapples with rising energy costs.

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