Section 2. 50th Anniversary and Coping with the Strong Yen

Item 1. Surging Yen

Signing of the Plaza Accord and yen appreciation

In January 1986, Toyota Motor Corporation's (TMC's) cumulative production volume in Japan reached 50 million vehicles, the first time a Japanese automaker achieved this figure. However, there was no time to celebrate because the Japanese economy was facing immense turmoil. As a result of the G5 summit held in New York in September 1985, where finance ministers and central bank chairpersons from the five countries signed the Plaza Accord, designed to depreciate the U.S. dollar by intervening in currency markets, the Japanese yen began to appreciate rapidly in relation to the U.S. dollar.

The dollar-yen exchange rate, which had previously been hovering at around 240 yen to the U.S. dollar, fell below 200 yen by the end of 1985 and then further, to 160 yen by May 1986. This rapidly appreciating yen forced Japanese automakers several times to raise the prices of the cars they were exporting, primarily to the United States, reducing their competitiveness. TMC was no exception. Its global export volume for 1986 fell by 5.3 percent from the previous year to 1.87 million vehicles, bringing to an abrupt halt the company's sales growth toward 2 million vehicles.

TMC's financial results also suffered a direct hit from the strong yen. For the fiscal year ended June 1986, TMC's sales revenue increased by 4 percent, thanks to an increase in sales in Japan. However, the profit-reducing impact of the strong yen amounted to 290 billion yen, decreasing operating income by 34.9 percent to 329.3 billion yen and ordinary income by 24.6 percent to 488.3 billion yen. This marked a huge drop from the record high profit TMC had reported the previous year and the first fall in profit since the new TMC was established through a merger of Toyota Motor Co., Ltd. and Toyota Motor Sales Co., Ltd. in 1982. The operating income for the second half in particular, when the yen began to appreciate, was down by more than 60 percent from the same period of the previous year, showing the highest ever negative impact of foreign exchange fluctuations on TMC's financial results.

The dollar-yen exchange rate fell below 150 yen by January 1987, causing TMC to again report a profit decline for the fiscal year ended June 1987. Annual bonus negotiations with the labor union for that year were stormy, with TMC in the end agreeing to a bonus equivalent to 6.0 months' salary in response to the union's demand for 6.1 months. This was the first time in the 20 years since 1967 that TMC could not meet the labor union's demands. Both the company management and the union had to make compromises in order to ride through the difficult business environment.

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