Japan's big manufacturers led by Panasonic Corp and Nissan Motor Co Ltd are speeding up their shift overseas, in a sign corporate Japan sees the strong yen as a long-term handicap rather than a temporary blip.
A sluggish home market and energy shortages following the widespread nuclear power shutdown sparked by the March 11 earthquake and ensuing atomic crisis are also tipping the balance toward investment abroad.
Panasonic is planning its first solar factory outside Japan, sources said on Friday, while Suzuki Motor Corp said it was seeking to double auto production at its joint venture in China by 2015.
Rival automakers Toyota Motor Corp and Nissan also said on Thursday that exchange rates were forcing them to consider changes in their own production plans.
I think we are reaching the limit for manufacturing in Japan, said Yuuki Sakurai, president of Fukoku Asset Management in Tokyo.
In future, companies may be registered in Japan and have their head office here, but it could be that most people they employ are not Japanese and most of their production doesn't take place in Japan.
The Japanese currency was trading at about 77 yen to the dollar on Friday, compared with levels around 90 yen two years ago.
The euro has tumbled to about 104 yen, compared with about 134 yen in November 2009, slashing the value of overseas revenues brought home to Japan by export-reliant firms. Manufacturers say there is little prospect of increasing procurement in euros to offset the pain.
Panasonic, for example, has said the strong yen will cut annual operating profit by 28 billion yen ($363 million) this year.
Panasonic's new solar plant in Malaysia is set to cost 40-50 billion yen, according to sources, with news of the investment coming just weeks after the firm revealed it was dropping a plan to convert a TV panel plant in Japan for solar panel production.
Shares in Panasonic fell 0.9 percent to 686 yen on Friday, compared with a 1.2 percent fall in the Nikkei average.
We were considering increasing solar production capacity by converting our No. 3 panel plant, Panasonic President Fumio Ohtsubo told a news conference last month.
But there was no reason for an aggressive expansion at this plant, given that the exchange rate situation is completely different from two years ago, and that we have grave concerns about power shortages, he added. All things considered, there is more merit to manufacturing overseas than in Japan.
NEW POWER GENERATION
Mandatory peak usage cuts this summer on large customers of power companies Tokyo Electric Power Co, the operator of the crippled nuclear plant in Fukushima, and Tohoku Electric Power Co forced many companies to invest in their own power generation equipment and adjust working shifts.
The government has said power should suffice for the winter, despite the lack of active nuclear capacity, but admits a bigger challenge looms in summer next year.
Nissan Chief Executive Carlos Ghosn called for fixed exchange rates in a speech in New York, at which he also said the company may be forced to shift more of its manufacturing overseas.
We need just one thing, Ghosn told the Japan Society in New York. Fix the exchange rate. Fix it.
The yen's strength has raised questions about the rationale of rival Toyota's commitment to producing at least 3 million cars in Japan each year and President Akio Toyoda said on Thursday the company may need to deepen alliances to tackle the problem.
Fukoku's Sakurai said even Toyota could find it itself struggling to fulfill what it has long seen as an obligation to maintain employment in Japan.
Rival companies are spreading their production, and in this day and age, how far can they stick to an obligation like that? he said.
Shares in Nissan fell 2.5 percent, Toyota closed down 2.3 percent and Suzuki dropped 2.7 percent on Friday.
Camera and printer-maker Canon Inc is among the few major Japanese firms saying it will not change its production strategy drastically because of the high yen, instead relying on increased automation to cut costs at its domestic plants.
But chief financial officer Toshizo Tanaka said in an interview last month he had changed his earlier view that the yen's strength would be short-lived.
I think rates may stay as they are for quite a while against both the euro and the dollar, he said. What is happening in Europe is not a cyclical downturn but structural, a financial crisis, so it will take a long time to recover. ($1 = 76.985 Japanese Yen)
(Additional reporting by Reiji Murai; Editing by Joseph Radford)