Abstract for: Exchange Rates and Reshoring
Under the super yen appreciation since 2011, Japanese manufacturers accelerated overseas production to avoid exchange loss in exports. This tendency stirred concerns about the deindustrialization phenomenon which was referred as ‘hollowing-out of industry’. However, yen depreciation in the late 2014 turned the situation around. The weak yen is prompting some Japanese firms to bring overseas production back home, raising expectations the ‘reshoring’ trend may slow down the ongoing industrial hollowing out of Japan. This 'reshoring' phenomenon has been observed in the United States in recent years, but this is the first taste of reshoring to Japanese economy. This paper investigates the mechanism of 'reshoring', using a system dynamics model. Simulation analysis of yen depreciation scenario reveals the limit of reshoring. Bringing back manufacturing is not as easy as the public believes, because manufacturers enjoy the highly developed global supply chain.