Vienna University of Economics and Business Administration
Institut für Quantitative Betriebswirtschaftslehre und Operations Research
Foreign Exchange Risk and Introduction to Law of International Commerce
International Business Administration

Japanese carmakers face Endaka - Case Study

by

Doina Maria Florea

1. TABLE OF CONTENTS

2. INTRODUCTION  3

3. PROBLEM ANALYSIS 3

4. FIRST ROUND OF ENDAKA 4

5. THE 1990S AND SUPER-ENDAKA 5

6. CAR MANUFACTURERS OVERWHELM THE RECESSION  5

7. CONCLUSION 9

8. OUTLOOK 10

9. BIBLIOGRAPHY  12

2. Introduction

In 1995 the Japanese yen entered a new phase: that of Super-endaka. Already for over a decade Japanese exporters were fighting against the unwelcome influence of the rising yen on their business. But in order to understand the phenomenon of superendaka the reader must go back in time to New York, September 1985.

3. Problem Analysis

In September 1985 the finance ministers of the world’s largest capitalistic economies – Britain, France, West Germany, Japan and the US - met at New York’s Plaza Hotel to discuss the development of the dollar relative to the yen. As a strong dollar had led in the early 80s to an increase in the US trade deficit followed by a strong inflow of foreign capital, protectionist theories started developing both in Republican and Democratic camps. Thus, all participants shared a growing interest in lowering the value of the dollar relative to the yen as this movement would eliminate the U.S. / Japan trade imbalance and lessen protectionist demands. This development would suit everyone because it would finally result in higher exports not only for Japan but also for all other countries. In order to make this happen, all countries agreed to coordinate an intervention into their respective foreign exchange markets. Japan’s government was said to have exchanged $3 billion for the yen in the New York and Tokyo markets the very next day. Shoichior Toyoda, president of the Toyota Motor Corporation, compared the first anniversary of the Plaza Accord to Isshuki - Japanese for the first anniversary of someone’s death- and called it the birthplace of Endaka - Japanese for a high yen. In 1985 the $ traded at yen 240, one year later to Yen 150.¹
In response to the rising yen, Japan’s government began to reform the economy. Exports were to be given less emphasis than they had been awarded in the past. This step seemed quite logical but it was obvious that going this direction would have a radical effect on export-oriented companies. In 1985, net exports comprised 3.5% of Japan’s GNP¹, making Japan the most dependent country on trade in the world. (Shimokawa, 1995). This reform would increase the Japanese purchasing parity and would be favorable in the long run. In the short run however, firms relying strongly on exports would suffer losses, this including the automobile sector and thus the Big 4 Japanese car makers- Toyota, Nissan, Honda and Mazda. By 1985, Japanese imports justified for 20% of passenger car sales in the U.S. and 10% of sales in Europe². Back in Japan, export sales accounted for 58% of the total vehicle production, making the Japanese auto industry one of the most export-reliant manufacturing sectors in the world. Japan’s fuel efficient and well-equipped automobiles were the most popular within the U.S. and Europe and Japanese automakers were enjoying and largely period of prosperity by the mid 80s.

4. First round of Endaka

With Endaka at the horizon, things took another turn. It became more and more difficult for Japanese carmakers to profit from cost advantages due to due to labor differences and technical efficiencies. In the first round of Endaka, the Japanese automobile industry reacted by using a combination of tools like cost cutting, moving manufacturing facilities abroad, raising prices and diversifying products. During the 1986-1988 period, Japanese auto companies had a net return on sales of 2.4%, conversely U.S. auto companies benefited with a 4.1% net return on sales. According to reports, Endaka was very effective for the U.S. auto companies directly after the Plaza Accord. (Shimokawa, 1995).
By using the above-mentioned combination of tactics, Japanese automakers were able to survive Endaka. Five years after Endaka first hit, Japan’s automakers had concurred 41% of the American market. This kind of achievement was quite remarkable during the time of highly strong yen and showed the world how ambionated the Japanese autoindustry was to succeed.

5. The 1990s and Super-Endaka

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1 www.oanda.com, accessed on 08.06.2007

1 www.nytimes.com, accessed on 08.06.2007

2 www.ft.com/cms/s/3956be30-1372-11dc-9866-000b5df10621.html, accessed on 08.06.2007