Canon to haul capacity back home as yen continues slide

Thu Jan 9, 2014 8:11am EST
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By Sophie Knight and Reiji Murai

TOKYO (Reuters) - Canon Inc is shifting capacity back to Japan in an apparent vindication of Prime Minister Shinzo Abe's yen-weakening policies, which have made it more profitable for some Japanese manufacturers to produce and export from home.

In the wake of the 2008 financial crisis, the world's largest camera maker was caught out by its reliance on domestic production by a soaring yen - which devalued its overseas earnings and increased labor costs - forcing the company to produce more overseas.

It is now set to reverse that shift, boosting jobs and factory operations in Japan in a move that will delight proponents of Abe's economic policies and erode the competitive advantage enjoyed by rivals such as Nikon Corp, which has long made the majority of its cameras overseas.

Canon will raise the proportion of products made in Japan to 50 percent within the next three years from 42 percent now, Chief Executive Fujio Mitarai told Reuters in an interview on Thursday, after saying he was "looking forward" to a further slide in the yen.

"Right now we have spare capacity at home because we gradually moved production overseas," said Mitarai, referring primarily to cameras and photocopiers. Canon cut back production at home from over 60 percent before the 2008 crisis to 40 percent in 2009.

The move is designed to make manufacturing more flexible and Canon will leave the option open to push production back overseas should the yen strengthen again, Mitarai said, adding that the company has no plans to build new factories in Japan.

The impact of Canon's strategy will be reflected in the company's balance sheet in the months ahead. For the financial year ended December 31, Mitarai sees operating profit as likely flat against a forecast of 11.2 percent growth, and sales up around 7 percent versus guidance of 7.8 percent. The company reports its results for fiscal 2013 on January 29.

Last year, the yen fell 21.4 percent against the dollar and 26.4 percent against the euro as the Bank of Japan launched an aggressive monetary easing program.   Continued...

Canon Inc Chairman and CEO Fujio Mitarai participates in an interview with Reuters at the company's headquarters in Tokyo January 9, 2014. REUTERS/Yuya Shino