Japan's vaunted automakers may soon stop building cars in their homeland for export as a soaring yen combines with Mother Nature's mood swings and an aging population saps the strength of the Nipponese domestic market, driving the companies across the oceans and far from their birthplace.

Last week, Nissan Motor Company Ltd. (Tokyo: 7201) CEO Carlos Ghosn said that the automaker was seeking to minimize exports from Japan. The very same day, Honda Motor Company Ltd. (NYSE: HMC) announced that it planned to stop exporting hybrids and instead produce them solely in the markets where they are intended to be sold. In 2011, Honda discontinued production of Civic model cars in Japan in favor of international production. And even Mazda Motor Corporation (Tokyo: 7261), which has been slow to set up plants outside of Japan, has recently broken ground on new factories in Mexico to produce Mazda 2 and 3 cars as well as engines.

These moves are a bitter pill for Japan and its foundering economy - and also a peek into Japan's future. Just a few decades ago, when Japanese companies were audaciously acquiring such international icons as Pebble Beach Golf Course and Rockefeller Center, Burberry, Aquascutum, Sun Chemicals and Columbia Studios, fears were rife in the West that Japan was going to dominate the global economy, eclipsing the U.S. in importance and innovation.

Nobody raises those concerns anymore. As Japan's automakers begin the process of closing the door on their domestic operations, they will leave a bedraggled economy that last year fell behind China to No. 3 in Gross Domestic Product and offers little reason for optimism. By all accounts, Japan's GDP will continue to shrink inexorably as its population ages and the dynamism of its domestic market weakens.

Partly it's a hedge against currency; it's also to be closer to customers, said Robert Cole, Professor Emeritus at the University of California Berkeley Haas School of Business and visiting researcher at Japan's Doshisha University. And the domestic market is not growing anymore. They (automakers) must go global.

The Big Bad Yen

If anything is accelerating the move by automakers to leave their Japanese operations behind it is the strength of the country's currency. The Yen hit a record low of 75.31 to the dollar last year and has fallen almost 32 percent in the past five years. A strong yen makes Japanese exports less competitive globally and cuts into the value of overseas earnings when repatriated into yen. According to analysts, for each yen that the dollar loses in value, Toyota Motor loses about 30 billion yen in earnings per quarter.

The pressure has increased on Japanese manufacturers across the board in recent years to move manufacturing overseas because of the sky-high yen, said James Lincoln, Mitsubishi Chair in International Business and Finance at the University of California Berkeley Haas School of Business.

Earlier this month, as part of an alliance with Renault and Daimler, Nissan broke ground on a new factory in Decherd, Tenn., which will employ 400 employees. The company also announced that it would take a $450 million stake in Russian car company OAO Avtovaz, maker of Lada-brand cars. The Russian market is the fastest growing automotive market in Europe.

Nissan is likely to extend its global footprint even further in the near future. CEO Ghosn said that if the exchange rate remains at its current levels the company would be forced to move more of its production overseas, including its luxury Infiniti brand models. Without a doubt, we will have to do it, Ghosn said, at 79 yen or 80 yen, most of the growth is going to take place outside Japan, if not all of it.

The Supply Chain Ouroboros

Last year's string of natural disasters laid bare another set of critical vulnerabilities for automakers with factories in Japan. The Japanese earthquake and tsunami, and the subsequent nuclear disaster in Fukushima Prefecture as well as torrential flooding in Thailand disrupted supply chains for all of Japan's car companies and set back their production schedules by months.

Toyota and Honda, in particular, were hard hit as their Japanese factories and those of their suppliers were idled for long periods, delaying the launches of critical new models, like the Honda CR-V. Toyota's net income for fiscal year 2012, which encompasses the disasters and recovery period, fell 44 percent, to $3.56 billion and its worldwide production fell 8.4 percent in 2011. Last year, Honda lost 0.8 percent of its marketshare globally and its production fell 20.1 percent.

To better protect its global supply chain - in other words, to hedge against natural disasters and to avoid being overly dependent on any one region - Toyota has invested $565 million in U.S. and Canadian manufacturing facilities since February, hiring almost 1,000 employees and increasing North American capacity by 100,000 vehicles, 120,000 transmission and 100,000 engines annually. Meanwhile, Honda has decided to manufacture the Acura NSX in Marysville, Ohio and the Honda Fit at a new plant in Mexico. Between these two factories, Honda is ponying up more than $1.3 billion.

These moves have the additional benefit of cutting down on distribution costs for vehicles that otherwise would have to be shipped to, for example, North America for sale.

Honda has always operated under the principle that we want to build products near our customers, said Jeffrey Smith, assistant vice president of corporate affairs for American Honda Motor Company.

With its new plants in Mexico, Mazda plans to assemble cars for the U.S., Mexican and South American markets and to take advantage of Mexico's many free trade agreements. Mexico has more free trade agreements than any other nation in the world besides Israel.

It allows manufacturing for markets that can be hard to reach overall, Mazda's Amestoy said.

Through Mazda's longstanding relationship with Ford Motor Company (NYSE: F) - Ford owns about 2 percent of Mazda - Mexico is one of the few places outside of Japan in which the automaker has already developed a substantial presence. When Mazda first entered the Mexican market, some six years ago we could have sold Mazdas as food processors, recognition was just that low, Amestoy said. Now Mazda has roughly 3 percent market share in Mexico.

The Old Man and the Machine Press

Playing into the need for Japanese automakers to retool their global manufacturing strategies is the disturbing demographics in the home country. Japan's population is expected to shrink by one-third by the year 2060 when people over 65 will make up 40 percent of the total. By 2050 the median age in Japan is expected to be around 55 while life expectancy is already 83. As these trends play out, auto sales in the country will no doubt decline as well.

In lockstep with Japan's aging population is a growing shortage of engineers, who are critical in the design and development phase of new vehicles. In part, young Japanese are not drawn to the engineering jobs that their parents once prized because the promise of a life-long career and top-flight benefits no longer exists in the country's corporations. But also Japanese schools have changed, focusing more on liberal and fine arts, while test scores are dropping in math and science, majors that used to produce the best engineering candidates.

Additionally, there is a sense in the country that today's Japanese youth do not view working hard as a sacred obligation or their jobs as the be-all and end-all of their lives, attitudes that their elders famously held. Many twenty-something Japanese prefer to live with their parents rather than move out and start careers in manufacturing.

There's a lot of wailing and gnashing of teeth in Japan about the younger generation, and some of it may be justified, Lincoln said.

Lacking sufficient qualified engineers, Japanese car companies are moving R&D operations overseas.

We have the capability here in the U.S. to completely develop products soup to nuts, said Honda's Smith. In recent years, the percentage of Japanese associates has decreased significantly in Honda's U.S. development team as more Americans have assumed very high positions in the company, according to Smith. An American now leads Honda's U.S. R&D operations and three of the seven members of the executive operating committee are Americans.

In many ways, Japan is an insular country. Its companies tend to have strong loyalties to their communities and local governments. Most Japanese do not speak a second language and few go to Western universities and especially business schools. Moreover, Japanese immigration policies work against diversity by, for example, outlawing unskilled workers from other countries.

The conflict between Japan's traditionally strong insularity and the demands of a global economy has weighed for a long time on the nation's car companies - and breaking out of Japan's shadow could be the best thing for these businesses, experts argue. For example, Japan-centric sentiments have made it virtually impossible for many domestic automakers to understand what consumers outside of the country want to buy, Lincoln said.

Toyota has done well because the cars are so solidly built, he noted. No one has ever accused Toyota of making cars that look interesting.

The Sun Is Setting

The Japanese automakers are deadset on leaving Japan because the numbers - from currency to customers - are so convincing. As Nissan's Ghosn pointed out when the company reported its fiscal year 2011 earnings on May 11: We have increased sales by more than 650,000 cars in a year that has been really crippled by at least one major disaster and another significant one -- the one that hit Japan and Thailand. So, I think the growth -- the global market share increase -- was the most significant result.

To many, though, the separation from Japan was set in motion, its inevitability cemented, in 1982 when Honda opened up the first U.S.-based Japanese automotive factory in Marysville, Ohio. From that moment, the future - that is, today - was sealed.

It's an evolutionary process, not a reactive situation, Honda's Smith said. This is not new, we are just continuing on a direction we set out on more than 30 years ago.