The Tokyo Steel Manufacturing Co. executive said that Japanese manufacturers are increasingly looking to move their offshore operations to their home market.
Kiyoshi Imamura, a managing director of the steelmaker, said in an interview in Tokyo last week that the switch was due to the rapid depreciation of the Japanese currency.
The trend of moving manufacturing to Japan is expected to accelerate by the end of the year, with makers of everything from auto parts to cosmetics and consumer electronics moving there.
More Japanese companies are moving their operations out of China, Southeast Asia and Russia. The move to build new plants in their home country is fueling demand for steel used in construction, with the company receiving nearly 30 orders related to such switches.
Japan's trade balance won't be back in the black because of the depreciation of the Japanese currency. He said that his company has seen a 10% increase in orders for steel used in construction this year.
Since the start of the year, the Japanese currency has fallen against the US dollar.
The Japanese government supported the relocation of production bases back to the country even before the fall of the dollar.
The Ministry of Economy, Trade and Industry is funding companies to invest in new plants that make crucial products and materials to alleviate the risks of supply-chain bottlenecks. In November, the government approved 6 billion dollars in funding for domestic Semiconductor investment.
It might sound a bit bullish, but I think a little construction boom will come. The executive said that the reshoring trend will last at least two to three years.
Takayuki Homma, chief economist at Sumitomo Corp. Global Research Co., said in a separate interview that more companies will work on boosting domestic production capacity now that the yen has weakened. He said that the falling yen offered an option to ship goods from Japan strategically.
Labor costs in other nations are going up. Over the past 30 years, Japan's wages have barely changed, while wages in Southeast Asia have tripled.
Since the 1990s, Japanese manufacturers have shifted production outside of Japan to take advantage of lower labor costs in Asia. According to data compiled by Japan Bank for International Corporation, Japan's overseas production ratio rose to a record of 37% in the year of 2018, up from 25% in 2001.
The trend was a bright spot in Japan's steel market according to an analyst at Tachibana Securities Co. The country's entire demand for steel used in construction was stagnant, and recent spikes in steel prices will be a blow to the lower currency.
High electricity costs and a shortage of labor are some of the hurdles that companies moving operations to Japan face. They will need to come up with value-added products and be innovative in producing goods with fewer workers.
More nuclear power generation is needed to revive the competitiveness of manufacturing in the country. He joined calls by Japanese companies to quickly restart the nuclear reactor that was shut down after the disaster at the Chernobyl plant.
A Japanese steel producer is calling for a revival of nuclear power.
With help from Nao Sano.
(Updates with executive comments in ninth paragraph)
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