Toyota and Honda increasing factory capacity in Japan

Brad Setser points to a WSJ article to the effect that "Toyota has invested three times as much in Japan as in North America over the past three years. Honda is building its first auto factory in Japan in nearly three decades. " The context of Setser's discussion is that exchange rates result in greater profits for these two companies from cars manufactured in Japan and sold in the US than from cars produced at US plants and sold in the US. The WSJ article notes that "Toyota has increased shipments to the U.S. of Japanese-made vehicles from 762,000 in 2004 to 1.27 million last year."

The key to this lies in the fact that a portion of the cash cost of producing cars at US plants has to be remitted from the companies' Japanese accounts to their US operations. So the weak yen increases the total cost per car produced in the US. The revenue per car sold in the US is the same whether it is produced in Japan or the US.

I don't see this as really being a political issue in the US as long as Toyota and Honda don't actually cut production at their US plants. Since both companies are gaining market share vs the Detroit automakers I don't think that they would need to cut US production. Certainly, the US trade deficit with Japan has and will increase as this trend continues, but the US focus on China at this point has really put Japan on the back burner as far as trade issues go.