Panasonic is considering bringing some of its manufacturing back to Japan, in what would be a rare reversal of Japanese companies offshoring production to China and other Asian countries with lower production costs

Last updated: May 22, 2014 4:27 pm

Panasonic considers bringing production back to Japan

By Jennifer Thompson and Jonathan Soble in Tokyo

Panasonic is considering bringing some of its manufacturing back to Japan, in what would be a rare reversal of Japanese companies offshoring production to China and other Asian countries with lower production costs.

Kazunori Takami, president of the Osaka-based group, said in a presentation to investors this week that he is thinking about reshoring production of some household appliances such as cookers, washing machines and air conditioners, in response to a weaker yen.

The final decision would depend on the exchange rate, a spokeswoman for the company said on Thursday.

Any move by Panasonic to boost production in Japan will be welcomed by the Japanese government, which is hoping that the yen’s depreciation over the past 18 months – a result of the policies of the Bank of Japan, and the economic reforms of prime minister Shinzo Abe – would entice Japanese companies to invest domestically.

The weaker yen has boosted the profitability of many Japanese companies, as it enables them to repatriate foreign earnings at more favourable rates. The 20 per cent fall in the yen’s value against other major currencies since late 2012 accounts for about one-third of the year-on-year operating profit gains made by Japanese manufacturers last quarter, according to Mizuho Research analysts.

However, a weaker yen also makes imports more expensive. Half of Panasonic sales are in Japan, compared with 28.8 per cent for Sony, and a quarter for Toyota.

Japanese carmakers, in particular, see little incentive in expanding domestic production because of a weaker yen.

“We’ve been investing in India, Thailand and Indonesia, and we won’t suddenly bring production back to Japan just because the yen is cheaper. Taking a long-term view, we will accelerate overseas production, no question about it,” Osamu Suzuki, chief executive of Suzuki Motor, said a year ago.

Companies have also been reluctant to increase capacity in Japan in part because of traumatic memories of the last cycle of yen depreciation a decade ago. Then, car and electronics makers built expensive new factories in Japan that soon turned into massive financial burdens when the yen surged a few years later.

The multi-billion-dollar restructuring that Panasonic endured in 2012-13 was a legacy of its investments in Japanese television production capacity.

Such experiences are likely to put limits on reshoring this time around, though there are signs that domestic business investment is picking up. Overall capital spending by Japanese companies increased 4.9 per cent last quarter, accelerating from 1.4 per cent in the last three months of 2013.