ECONOMY-JAPAN: Yen’s Fall Hurts Some, Helps Others

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, Apr 5 2001 (IPS) - Japanese businessman Tomohiro Shimoyama, head of the apparel wholesaler Tomo Goods, says the plunging yen makes him feel almost suicidal these days.

“I am totally panicked,” said the smartly dressed businessman, who imports clothes and handbags from Hong Kong and China. He sees his sales dropping to an uncontrollable low and squeezing him out of the market if the yen hovers at its current low for longer or drops further in the future.

“The competition is so grueling that I just cannot afford to even raise my prices by even one yen if I want to keep my buyers,” Shimoyama said. “So, for the moment I will just not place new orders till the exchange rates stabilise.”

The Japanese currency was sold at 124.78 yen to the U.S. dollar Thursday morning, slightly recovering from 126.65 Wednesday morning but still recording a 30 percent depreciation compared to the average rate applied for the past two years.

The steep drop — some traders are predicting a fall to 140 yen to a dollar– has shaken the Japanese business community that is increasingly dependent on cheap imports to survive in the global market.

“The time when exports sustained the Japanese economy is over,” said Akira Kadota, spokesman for Matsushita Electric Co. “Today we are talking about keeping afloat in the global market and the mega-competition that goes with it.”

Kadota explains that companies have to rely on outsourcing, which is why it is important to have exchange rates to be stable.

But if the yen’s fall has made imports more expensive, it is seen a positive factor for exports. Indeed, there is talk that it could be a way to help export-dependent Japan, the world’s second largest economy, get out of its economic slump.

Despite the woes of importers, the Japanese government is not showing signs of reversing the currency drop.

Some analysts point out the weaker yen will help arrest deflation in Japan, because deflationary pressure is boosted by an influx of heretofore low-cost foreign goods. “By pushing prices of imports up, there will be more money in the market,” pointed out Koichi Ishiyama, an economic commentator.

News reports this week quoted Taro Aso, Japan’s economy and finance minister, as saying that Washington, at a March summit with Tokyo, had thought about agreeing with Japan to allow the yen to weaken.

Also this week, the ‘Wall Street Journal’ newspaper reported that U.S. President George Bush might tolerate a weaker yen to help Japan’s economic recovery — but on condition that Tokyo would cure its banking crisis.

But after his return from Washington where he met U.S. President George W Bush, Prime Minister Yoshiro Mori told the Japanese parliament that he has no plans to use the new currency low to boost Japanese exports.

The Japanese government last week unveiled proposals to set up a private-sector fund to buy banks’ share portfolios, and cut taxes to spur stock investment. The stimulus package is slated to be released Friday.

Japan has to juggle different factors in the fall of the yen. A weaker yen will help Japan’s exports by boosting the value overseas, but it could also boost trade surpluses. While this would help national interests, it carries the risk of irritating ties with the United States, which Tokyo would want to avoid.

“It is undesirable for the yen to weaken sharply,” Zembei Mizoguchi, head of the international bureau at Japan’s Finance Ministry, told reporters this week. Analysts say the Japanese government prefers an orderly decline and would like to stem a rapid drop.

Not least, the yen’s fall has caused jitters among Asian economies. Singapore, Thailand and Indonesia have seen their currencies fall in recent weeks to their lowest levels in the past two or three years, and are worried about dampening Japanese demand for their goods.

Although critics say the entry of large amounts of foreign goods add to deflationary risks at home, Isamu Wakamatsu, who is in charge of Asian economies at the Japan External Trade Organisation (JETRO), says the growing outsourcing trend among Japanese companies has also played a big part in propping up the Asian economy.

Statistics indicate that imports, mostly from China, South Korea, Taiwan and the Association of South-east Asian Nations (ASEAN), hit a record high in 2000, reaching 150.78 billion dollars, or up 29.4 percent compared to 1999.

Internet-related products, mostly semiconductors for computers, and mobile phones topped the list of imports at 12 percent, followed by apparel at 11 percent.

Wakamatsu believes the pattern of Japanese companies moving production or buying from cheaper Asia to keep prices competitive will not change despite the weak yen.

But he warns that if the yen continues to be low, there could be a slowdown in regional trade affecting both Japan and Asia’s economic recovery. “For instance, a ten percent drop in exports to Japan would slow a much- needed recovery in export-dependent Asian economies,” he pointed out.

At the same time, the yen’s decline makes it cheaper for Asian countries to buy goods like machinery from Japan.

Economists say the poor outlook ahead has cast a pall over an economic recovery that Japanese want to see.

GDP growth for the Japanese fiscal year that ended March is estimated to hover around one percent, and analysts expect a lower rate in the following year. Likewise, the Bank of Japan’s ‘tankan’ survey of business confidence on Monday showed that investors dumped the yen following a plunge in business confidence.

“Worried consumers will not spend, forcing Japanese companies to lower prices on goods. This will affect the Asian manufacturer who will be forced to meet smaller orders and also lower prices,” contended Wakamatsu.

Kadota from Matsushita says a prolonged weak yen will probably encourage high-technology companies to make more of their products in Japan.

“The current situation is that Internet related high-end products, such as our technology for mobile phones, are manufactured in Japan rather than Asia. This could be the trend in order to save costs,” he said.