FINANCE-JAPAN: Nations Watch as Yen Climbs Vs Dollar

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, Sep 29 1999 (IPS) - A cold response from the G-7 to Japan’s request for joint intervention to curb the surging yen has disappointed top politicians here and will delay a recovery in the Japanese economy, analysts say.

“The high yen is a threat to the Japanese economy at this stage. While the strong yen may boost cheaper exports to Japan, a slump in the Japanese economy does not necessarily translate these short- term benefits to a better situation,” explained Kazufumi Tanaka, of the Japan Export Trade Organization, a quasi-governmental trade group.

Trade analysts explain that the high yen would not necessarily mean higher investment in Asia and increasing imports to Japan, as was the result in the first high yen period between 1985 and 1988 when the Japanese currency rose almost 22 percent.

The yen has stengthened by about 15 percent since July, trading at 106.10 against the dollar on Wednesday.

“This time it is a different situation because Japanese companies have already relocated much of their manufacturing into Asia. What is worrying is that with exports falling, Japanese companies would be further forced to reduce fresh capital spending,” explains Tanaka.

Indeed the Finance Ministry reports that imports from Asia in August fell 4.6 percent to 226.3 billion yen, the first downturn in three months.

Hanwa Securities in South Korea said last week in the Korea Times that the positive impact of a high yen on Korea’s exports has been dwindling because of Japanese companies’ ability to adapt quickly to the new situation.

According to researchers, Korea will in fact have to develop strategies for coping with rising payments of yen-based loans and the burden arising from importing Japanese components.

Rising unemployment and depressed business investment in new plants and equipment, a key engine of growth, are considered benchmarks of the sorry state of the Japanese economy.

Japan’s banking system, another cause for worry, is also showing no signs of a turnaround. The Mainichi Shinbun, a leading daily, reported on Friday that bank debt is still estimated to be as high as Yen trillion yen.

The International Monetary Fund echoes Japan’s concerns when Hubert Neiss, director of the IMF’s Asia-Pacific operations said in Tokyo recently that the rising yen marks an “important risk” to the Japanese economic recovery.

Experts see the yen rising further to hover around 100 to the US greenback till the end of the year at least, a situation that’s already seeing negative effects in the export sector.

Japan’s economy is being buoyed by its strong public spending and the export earnings of Japanese companies. Domestic spending, while seeing some increase in areas such as computers, is still in a slump as consumers worry about the worsening job situation.

Major automakers estimate a 10 billion yen loss a year for every one yen rise to the dollar. Auto exports to Europe and the US plunged 17 per percent to 4.22 trillion yen in July as a result of the strong yen, according to Finance Ministry reports.

Japan’s Petrochemical Industry Association said that ethylene exports for the rest of this year are unlikely to maintain robust growth as a result of the high yen.

The Association reports however that demand in Asia will continue because of a lack of suppliers in the region.

Top government officials and Japanese analysts are not happy with the lack of intervention on the part of the United States to stem the rise of the Japanese yen that recently grew to a three-and-a- half year high against the American dollar.

The G-7 meeting of industrialised countries was held in Washington on Saturday where Japan’s Finance Minister Kiichi Miyazwa and experts had hoped rich countries would work closely to stabilize the exchange market.

Instead, Tokyo was offered only sympathy by the major industrial nations. Finance ministers issued a statement that they “shared Japan’s concern”.

The record 25.18 billion U.S. dollar US trade deficit in July — about a third of which held by Japan — released by the Commerce Department last week, is also an added pressure on the dollar.

Foreign buying of the yen by investors who hope to benefit from growing signs of a recovery in the Japanese economy, saw the yen traded at around Yen 105 this week, pushing the Japanese currency to a record high against the euro and a seven-month high against the US dollar.

Despite excessive buying of the dollar by the Bank of Japan (BOJ) in a bid to keep the yen down, the Japanese currency hs hovered at 106 to the US, up from the earlier average of around 120 in August and 140 to the dollar a year ago.

Business commentator Mamoru Yoshida points out that the high yen comes at a time of high interest rates and rising oil prices, which are having a negative impact on the global economy.