(Bloomberg). Japanese companies are looking more and more to relocate their operations offshore to their home markets, says a Tokyo Steel Manufacturing Co. executive.

According to Kiyoshi Inamura, managing director at the steelmaker in Tokyo, the reasons for this change are the rapid weakening of the yen, tight supply chains, geopolitical risk and shifts in wages. 

He said that Japanese manufacturers of all things related to manufacturing are among those who have moved to Japan. This trend is expected to continue into the next year.

Imamura claims that Japanese firms are shifting more operations from Japan to China, Russia and Southeast Asia. According to Imamura, the move to create new steel plants in Japan is driving demand for construction materials. The company has received nearly 30 orders for such switches. 

“The yen has fallen so much that Japan’s trade balance won’t be back in the black — under such circumstances, companies judge it’s better to do manufacturing in Japan,” Imamura said. According to Imamura, his firm has witnessed orders for steel construction materials rise by 10% so far in this year’s compared to last year.

Even before the yen’s tumble this year, the Japanese government has been supporting relocation of domestic companies’ production bases back to the country. 

To help companies invest in crucial materials and products to reduce the risk of supply-chain disruptions, the Ministry of Economy, Trade and Industry funds them. A total of 774 billion yen (or $6 billion) was approved by the government in November for funding domestic semiconductor investments. 

“Now that the yen has weakened, it’s no surprise more companies will work on boosting domestic production capacity,” Takayuki Homma, chief economist at Sumitomo Corp. Global Research Co. stated in another interview. The falling yen, which was increasing export margins, was “offering an option to ship goods from Japan strategically,” he said. 

Rising labor costs are another factor. Imamura said Japan’s wages have barely changed over the past 30 years, while wages in Southeast Asia have roughly tripled over the same period.

Price spikes

Takeshi Irisawa, an analyst at Tachibana Securities Co. in Tokyo, agreed the trend was a bright sport in Japan’s steel market. Still, he noted the country’s entire demand for steel used in construction was stagnant, and recent spikes in steel prices “will be a setback, making it a little difficult for the lower yen” to be a big driver for Japanese production in the short term.

The companies moving operations to Japan also face other hurdles, including high electricity costs and a shortage of labor due to the nation’s shrinking and aging population, said Homma. The companies will have to innovate in order to produce goods efficiently with fewer employees and come up with high-value products. 

Imamura stated that the nation needs more nuclear power to regain its manufacturing competitiveness. In Japan, there are calls for nuclear reactors to be restarted quickly after the Fukushima accident a decade ago. This comes as the nation struggles with high energy costs.  

Check out this article: Japanese Steel Produces Call for Faster Nuclear Power Rebirth

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