why would a weak Yen lead to a flood of imports (i.e. automobiles) and more profit for Japanese automakers?

Question

A hypothetical example might be useful.

Answer 1

Auto manufacturers are based in numerous countries and have manufacturing plants in even more.

For example, Honda Motor is based in Tokyo, Japan and has manufacturing plants in the US, Japan, Canada, Brazil, Thailand and other places around the world. Honda competes in multiple auto types from sub-compact to full size, pick-up and SUVs.

A weaker Yen relative to other currencies like the US dollar and the Euro makes the profits, once translated back into Yen, higher. For example, Honda's worldwide profit of US$5.082b was 597.033b Yen when translated at 117 Yen:US$. However, the Yen is weaker now. All else being equal, Honda would have made 3% more profit just by having the Yen at 121. In the real world, it doesn't quite work this way as revenues are in local currencies and costs are denominated in a mix of local currencies (wages, depreciation) and US dollars (steel, plastics and other commodities) - whereby a weaker Yen may or may not have a beneficial effect based on sales mix and car cost composition.

Furthermore, a car manufactured in Japan that cost 2.93m Yen to make would have sold for US$25k with the Yen at 117 but US$24,174 (3% cheaper) at no effect in margin by having a 3% weaker currency. Car margins are pretty thin. So a 3% price cut simply through weaker currency could lead to a significant advantage against similarly stocked cars.

All said and done, currencies have to change significantly in order to make a dramatic differential in import volumes. Usually, automotive sales are more of a function of models, functionality and quality than just pure cost (albeit cost is a big variable).