As Factories Vanish, Japan Seeks to Fashion a New Economy

The carry trade unwind is killing Japanese manufacturing..

"The weak yen made us lazy," says Junichi Suga, the company's executive managing director. "During those years, we shouldn't have eased our effort to shift production abroad." The company aims to boost overseas production to 60% of sales within the next year, from 40% in recent months.

For Japan, Nippon Chemi-Con's move realizes an inevitable shift: Its cherished tradition of manufacturing may finally move away from its high-cost market to lower-cost neighbors, leaving hundreds of thousands of Japanese workers jobless as the country struggles to reinvent its economy.

In the 1990s, as China took on more manufacturing work once done in Japan, many Japanese feared their industries would be "hollowed out," with executive offices remaining at home while jobs moved abroad. But the past six years sparked a manufacturing renaissance, helped by cheap temporary labor, surging demand for Japanese products and a weak yen -- which made the price of exports competitive.

Exports soared, reaching a record 16.5% of the overall economy in July-September 2008, after ranging between 8% and 10% during the 1980s and 1990s. Companies rushed to open factories at home, saying complex products, evolving technologies and the danger of manufacturing secrets leaking out made it important to keep factories close to headquarters.

http://online.wsj.com/article/SB123966524083015163.html