This graph shows the currency exchange rate between Japanese yen and US dollar over the last five years.
Key Takeaways for Decision Makers
CONTRACTORS: It is important to keep an eye on the currency exchange rate as it can be a good guide on when to buy used equipment at a bargain.
FINANCE: For more accurate pricing and valuation of equipment, it is recommended to check the currency exchange rate.
Currency exchange rate plays an important role for firms that export goods and import raw materials as it can make the value of their exports either cheaper or more expensive. In general, depreciation in a currency will make exports cheaper and benefits exporting firms, while an appreciation makes exports more expensive and reduces the competitiveness of exporting firms. There has been a 36.15% drop in the value of the Japanese Yen (JPY) against the US Dollar (USD) since 2012 giving Komatsu an opportunity to develop a favorable pricing strategy. Suppose a new dozer from Komatsu costs ¥8,000,000(yen) and sells for ¥10,000,000 in the US market. In 2012, the price of the Komatsu dozer in US Dollars would be $130,000. However, in 2015, the price of the same dozer would be $83,000, a $47,000 difference in price; therefore, as long as Komatsu keeps the price above $83,000, Komatsu will earn more than ¥10,000,000 and reap greater profitability per sale.
This graph shows the volume distribution between Caterpillar and Komatsu from 2012 to 2014.
For 2012 dozer models, Caterpillar had more than 7 times the resale volume of Komatsu. However, for 2013 dozer models, Caterpillar lost most of this edge and only had 1.6 times the resale volume of Komatsu. This corresponds with when the value of the Japanese Yen started to decline, giving Komatsu a competitive advantage in terms of price. This trend was preserved as the value of JPY has continued to decline after 2013. For 2014 dozer models, Komatsu finally exceeded Caterpillar in resale volume. That is quite a shift in market volume considering that just 2 years previous Caterpillar had 7 times that of their competitor Komatsu.
Although currency exchange rate and resale volume do not have a direct relationship, there are possible explanations for how they are related. One of them is that new models possibly have pushed used equipment prices down. For instance, if Komatsu offers discount or additional features on new dozers, it will make new models more attractive to buy and eventually push used dozer prices down which will lead to higher sales for used equipment. Another explanation is that parts for used equipment have become cheaper, making used equipment more attractive to buy. Lastly, a higher resale volume of Komatsu dozers could have driven down the price because they are flooding the market.