U.S. Officials Critical of Low-Interest Loan Program : Japan to Aid Firms Hurt by Yen’s Rise

The Japanese Cabinet moved Friday to implement a controversial new law that will make low-interest loans available to small Japanese firms whose export businesses have been damaged by the rise of the yen against the dollar.

Only a day earlier, U.S. Trade Representative Clayton Yeutter had condemned the law as unfair and in violation of the General Agreement on Tariffs and Trade, which forbids export subsidies. Yeutter said the United States would take retaliatory steps.

Apparently with the American position in mind, Michio Watanabe, the minister of international trade and industry, issued a statement after Friday’s Cabinet meeting saying that the new law “contains absolutely no export-promoting intent” but that “some countries have misinterpreted this point.”

The law’s objective, Watanabe said, “is to encourage export industries to shift their focus from the foreign to the domestic market.”

The law, which Parliament enacted on Feb. 14, provides $1.7 billion for long-term, low-interest loans to the small firms that have been affected by the change in the yen’s relative value. In the past five months, the yen has appreciated by 24% against the dollar. A stronger yen makes Japanese products more expensive abroad.

Makoto Kuroda, director of the ministry’s bureau on international trade policy, told foreign correspondents that interest on the loans will be 5.5% instead of the market rate of 6.8%. He said the firms eligible for the loans accounted for $111 billion in sales last year, including exports of about $22 billion.

Kuroda said the “subsidy effect” of the loans cannot amount to more than $21.7 million, even if all of the loan money is used. In making the loans, he said, the trade ministry will give preference to firms planning to convert export production to production for domestic consumption.

Monetary Value

He would give no estimate of the monetary value of other measures authorized by the new law--extension of loan payments, funds for plant modernization, special tax credits and loan guarantees.

Kuroda said he is aware that the U.S. government might file a complaint against Japan under Article 301 of the 1974 Trade Act, which calls for retaliation against unfair trading practices.

Yeutter, in testimony to the trade subcommittee of the House Appropriations Committee, and other U.S. officials criticized the law as an attempt to wipe out the effects of the yen’s appreciation.

Last Sept. 22, the finance ministers of five advanced countries, including the United States and Japan, agreed in New York to work together to increase the value of all major currencies against the dollar in an attempt to reduce the U.S. global trade imbalance.

The dollar’s value against the yen, at 242 yen per dollar in September, has since fallen sharply, closing at 183.35 yen per dollar Friday on the Tokyo foreign exchange market.

At its meeting Friday, the Japanese Cabinet also agreed to draw up new policies designed to stimulate the domestic economy, which the ministers agreed will suffer from the yen’s appreciation. The new policies are expected to be announced within a month or so.

State Minister Masumi Ezaki told Parliament that the yen’s appreciation had “gone too far, too fast” and that an exchange rate in the 190s would be acceptable both at home and overseas.

He acknowledged that Japan had argued before Sept. 22 that yen appreciation was needed to correct its trade imbalance with the United States, which reached $49.7 billion last year. But he told reporters that a “30% appreciation in five months is certainly too big.” Japanese industry, he said, “cannot adapt itself to such a rapidly changing situation.”