In what some may consider a strange move, the Japanese government has purposefully devalued the yen -- enough to cause the currency to lose 20% of its value against the dollar over the past year. For Toyota (TM -3.23%) the move has been a boon for business. But it's been bad news for American automakers such as General Motors and Ford (F 0.69%) -- and now Ford's stepping up its attack on the yen. Here's what you need to know.

Photo: autovia.com, via Wikimedia Commons. 

Ford vs. the yen
 As fellow Fool John Rosevear put it:

At the beginning of 2013, one dollar bought about 86 yen. Now, a dollar would buy almost 99 yen. That means that every dollar earned by a Japanese company in the U.S. is worth more money at home. And that means the Japanese companies can charge fewer dollars for their products and still have a nice profit when those dollars are converted to yen. 

To put it simply, Toyota can charge less and make more money because of the devalued yen, thus giving Toyota a leg up on the competition.

That's important for a number of reasons. First, for mid-sized cars, Toyota's Camry has been America's best-selling car for years. But thanks to its Fusion, Ford has made considerable gains to claim that title. And in 2012, Ford's Focus beat Toyota's Corolla for the No. 1 spot in its segment.  

Second, Ford is struggling to keep up with supply and demand in large part because it had to close 16 factories during the Detroit vehicle debacle. On one hand, the need for increased supply is great, as it means sales are booming, but on the other hand, it means that -- thanks to significant vehicle inventory in Japan, made possible by the devalued yen -- Toyota can capitalize on Ford's weak supply by flooding the market with cheap Camrys.

"The industry is growing, and capacities are a little tight in North America," said Joe Hinrichs, Ford's president of operations, in an interview. "Where is the extra available capacity going to come from? If Japan's one of those places, in lieu of more manufacturing in the U.S., the American worker does lose in that proposition." 

The battle for China
Further, while American auto sales are important, China represents a significant opportunity for growth. According to researcher R.L. Polk & Co., sales of the Focus rose 153% in China, making it the No. 1 market for the car. In addition, Ford stated that last year, the Focus outsold the Corolla in global sales, making it the No. 1 selling vehicle -- a claim that Toyota disputes. Regardless of who's right, with the yen having dropped in value, Toyota can manufacture vehicles in Japan for less. As such, it can export and sell them for less.

Toyota's vehicle sales have been slow in China for a number of reasons, but according to Forbes:

A quintessential trait of Chinese consumers is that they are value seekers. They will search hard for the best deals, to make sure they get good value for their money. That means they will spend a lot of time researching products and comparing prices.

If Toyota drops its vehicle's price enough, it may be able to spur Chinese growth. That would probably have a negative impact on Ford's growth.

What to watch
Price cuts can drive vehicle sales, and Toyota is in a prime position to capitalize on the devalued yen, not only in America, but also on a global scale. This is bad news for American automakers such as Ford and GM, because they can't compete with the same price-slashing power, without significantly affecting their margins. Consequently, Ford is leading the charge against the Japanese government's yen manipulation. So far, its efforts have had little to no impact on Japan's currency decisions, but that could change with U.S. government involvement. Maybe.

Regardless, this ongoing development is something to watch, as it could affect auto sales -- positive for Toyota, not so much for Ford and GM.