Japan's Weak Yen Hampers Used Car Dealers Amid Foreign Competition

In Japan, bankruptcies among used car dealerships are increasing despite strong demand due to higher inflation. The surge in bankruptcies is attributed to a weak yen, which benefits foreign dealers who can buy cars at auctions at a lower price. This has resulted in a 56% rise in bankruptcies in the first five months of the year, nearing a record high set in 2009.

Inflated used car prices and a weak yen have led to a surge in bankruptcies among Japanese used car dealerships. Despite strong demand, the number of bankruptcies in the first five months of 2025 has increased by 56%, nearing a record high set in 2009. This trend is primarily attributed to the weak yen, which allows foreign dealers to purchase cars at auctions at a lower price, thereby undercutting local dealers' profitability.

The weak yen, a result of higher inflation, has made Japanese used cars more affordable for foreign buyers. This has led to a significant increase in the number of bankruptcies among domestic used car dealerships. The Manheim Used Vehicle Value Index, cited by Morgan Stanley's Adam Jonas, showed that prices jumped nearly 2% month-over-month in June and more than 6% year-over-year, driven partly by tariffs on new and used cars [1].

The tariffs, which were doubled to 50% by President Trump in May, have had a significant impact on the supply and demand dynamics of the used car market. The uncertainty surrounding these tariffs has also contributed to the elevated prices. Consumers have responded by front-loading their purchases and pre-buying ahead of the full implementation of tariffs and the removal of electric vehicle tax credits in September.

Despite the challenges faced by domestic dealers, the used car market in Japan remains robust, driven by strong demand. However, the increasing number of bankruptcies indicates that the market is becoming more competitive, with foreign dealers leveraging the weak yen to their advantage. This trend is likely to continue, given the ongoing inflation and the uncertainty surrounding trade policies.

Analysts remain optimistic about the potential benefits for car dealers that sell both used and new cars. Morgan Stanley's Adam Jonas has recommended several overweight-rated stocks, including CarMax and Carvana, to play the trend [1]. However, the performance of these stocks varies. Carvana has surged more than 73% in 2025, while CarMax has lagged, declining more than 18% [1].

In conclusion, while the used car market in Japan faces challenges due to the weak yen and tariffs, it remains a dynamic and competitive space. The increasing number of bankruptcies among domestic dealers highlights the need for these businesses to adapt to the changing market conditions.

References:
[1] https://www.cnbc.com/2025/07/10/these-used-car-stocks-can-benefit-as-tariffs-leave-the-station-says-morgan-stanleys-adam-jonas.html