Rising Yen Hasn’t Lowered Prices of American Goods

About a year ago, Japan, Britain, France and West Germany agreed to help the United States sell more of its goods abroad.

They agreed to raise the value of their currencies in relation to the dollar--in theory lowering the cost of exported American products. The American goods, according to the plan, would become more competitive, more would be sold, and the huge U.S. trade deficit would be reduced.

But it has not worked in Japan. Since the agreement was struck, the yen has risen about 60% against the dollar, but the U.S. trade deficit has continued to grow. Last year’s deficit with Japan was about $50 billion, a third of the global U.S. deficit of $150 billion, and this year it is expected to rise to roughly $60 billion.

Japan’s trade surplus continues to rise despite an “action program” announced by Prime Minister Yasuhiro Nakasone’s government that calls, among other things, for reducing tariffs on many imported products, and despite Nakasone’s appeal to his people to “buy foreign.”

The problem is that the yen prices of U.S. goods here--high by U.S. standards--have not declined. There are exceptions, but in general the yen prices have remained the same; some have even gone up.

A single California orange purchased recently in a Tokyo supermarket cost the equivalent of $3. Papayas from Hawaii cost up to $10 apiece. A lime, bearing a Stars and Stripes sticker, was $2.66, and a 500-gram package of cranberries--about a pound--was almost $4, up almost 100% from a year earlier.

A combination of factors has conspired to keep prices up and the foreign supplier’s share of the market more or less stable. Among these factors are quotas aimed at protecting local producers, a complicated distribution system, equally complex import procedures, the absence of strong consumer lobbies--and greed.

The retail prices of American products in Japan seem to defy the laws of supply and demand. A spokesman for Kikkoman, the exclusive agent here for Ocean Spray, America’s largest marketer of cranberries, said that the import price of cranberries has not gone up and that supplies are plentiful.

He admitted that the gap between the import price and the retail price has produced windfall profits and that none of these had been passed on to the consumer.

“Cranberries are a new product in Japan,” he said, “and we spent enormous amounts promoting a kind of cranberry drink. Sales are down now, so the higher (profit) margin is helping us recover our initial investment.”

A clerk at Tokyo’s National supermarket said the price of frozen cranberries had been raised recently because “we forgot to raise it two years ago when wholesale prices went up.”

American orange exporters must contend with a different problem--a strict quota that is renegotiated every year. In the case of papayas, a single importer controls the entire Japanese market, as with cranberries.

At Tokyo’s Narita Airport, one can literally watch the price of imported cherries going up. There are unloading and loading fees, inspection fees, a charge for cold storage, even a payment to the Organization for Safe Fruit Imports. In the 24 hours needed to get imported cherries through the airport, the price goes up by more than 30%.

William Smiley, the agricultural officer in the state of Washington’s Tokyo office, said some stores had lowered their price for cherries and added that “everybody is pleased with imports this year.”

But the representative of a major import firm, who insisted on not being identified by name, said that much of the supply of cherries brought in this year was sold to retailers at the same price as last year, or close to it.

“Supermarkets could have unloaded cherries at nearly half the present price and still made a profit,” he said. “None chose to do so.”

He estimated that many supermarkets are charging 45% above the wholesale price. They justify this, he said, by pointing out that American cherries can be brought into Japan only during a four-week period starting in early July, after most of the Japanese cherry crop has been sold.

Demand far outstrips supply. According to Smiley, the Washington state official, “American cherries are available only in big cities; there are vast areas of Japan where no one has ever tasted the fruit.” For now, most U.S. cherries landed here come from Washington, but next year California cherries will be allowed in, starting sometime in June.

Another factor contributing to high prices is the complex distribution system. Because of the high cost of land and a law protecting small shopkeepers, there are few supermarkets in Japan. Moreover, supermarkets are often built on rented land, and many have no supply depot and must rely on middlemen.

Some, like the Kinokuniya and National supermarkets in Tokyo, cater only to the upper class, people with incomes of $130,000 a year and up. And these are where most American products are sold. This has given them a luxury image, importers say, and if the price comes down, so will the image.

Behind the high price of oranges, which Japanese customarily buy as gifts, is the quota system. A reporter asked Bob Harz of the export department at Sunkist Growers in Sherman Oaks how it is that oranges can leave California at 40 cents a pound and be priced at $8.95 a pound in a Japanese supermarket.

“We sell to anyone who has a quota,” Harz said. “What they do with the oranges after that is outside our control.”

The orange quota system, which was adopted in the 1950s, is a gold mine for anyone lucky enough to have a piece of it. A Tokyo fruit trader said in an interview that “many quota-holders just double the price per carton and sell to someone who has no quota.”

The quota was intended to restrict the flow of dollars out of the country at a time when Japan was poor. Today it tends to keep California oranges at the upper end of the citrus market.

A part of the problem involves the fact that, years ago, the Japanese government encouraged farmers to grow tangerines and now feels obliged to protect farmers against high-quality, low-priced imports of American oranges.

According to the Tokyo fruit trader, oranges could be sold here at 46 cents each and still return a profit of 30% to the market owner, despite the huge rake-offs by quota-holders. He conceded, though, that he has “never seen oranges at those prices.”

A U.S. Embassy report that deals with importing American fruit juices--here, too, a quota is involved--says that “there is no incentive to cut prices since sales cannot be expanded with lower prices.” It pointed out that importers had cut some prices by 10% to 20% but that retail prices were about the same as last year.

The same sort of cost-price anomaly applies to non-food imports. For example, the Yanase company, which sells General Motors autos, announced that it has lowered retail prices by an average of 7.5%. It now sells the Chevrolet Camaro for just under $29,000, around twice the price in the United States.

Tokyo supermarkets occasionally put imported products on sale, but most American residents do not wait for such events.

“It now makes sense to fly to Hong Kong and do one’s shopping there,” said Valentine Thaler, wife of an American businessman in Tokyo. One item that Thaler stocked up on during a recent trip to the British crown colony was American soap. Her favorite brand was available for roughly a third of the sale price in Tokyo.

Despite the prime minister’s appeal to “buy foreign,” the Japanese consumer has simply shown little interest in American products. Japan’s two main consumer organizations have not even done a comprehensive survey on prices of imported goods. Consumer interest seems centered more on obtaining lower utility rates, based on the lower cost of imported coal and oil, and in lowering the price of basic food items, many of which--noodles, for instance--are made with imported grains.

The government’s Economic Planning Agency has surveyed the prices of imported goods, but it says raw materials are not a major factor in retail prices. It says that wages, which are going up, are more to blame.

According to a survey conducted by the agency several years ago, a 10% reduction in the import price of a foreign raw material resulted in only a 0.6% decrease in the retail price of the finished product derived from it.

“You see, most of the value-adding is done in Japan,” said Masashi Namekawa, section chief of the agency’s import bureau. “Wages in Japan are not affected by the lower value of the dollar.”

Aside from the reluctance of retailers to pass on windfall profits, there is an absence of American and other foreign finished products in the marketplace. Only 27% of Japan’s imports are finished products. By comparison, finished goods constitute 69% of imports to the United States, 67% of imports to Britain and about 59% of imports to West Germany and France.

Japan has been criticized for not working to bring in more finished goods, but often, as in the case of automobiles, the market became saturated by the time barriers were lowered. Thus, when the Japanese government eliminated tariffs on imported cars and relaxed inspection rules, the share of U.S. cars in the Japanese new car market actually declined. It is now below 0.5%.

Of about a dozen American products examined for this article, only one conformed to expectations. Canned peaches have both declined in retail price and substantially increased their market share--to 31% from 18%. In the case of most other U.S. products, no substantial increase has taken place in market share in the past year despite a decrease in import prices.

The planning agency has threatened to punish importers found guilty of unfair trading practices. But failing to pass on windfall profits to consumers is apparently not considered unfair. “So far no one has been found breaking the law,” an official of the agency said.

Meanwhile, some Japanese have taken matters into their own hands by learning how to import American products without the help of any middleman. They rely instead on the mail-order catalogue and the English-Japanese dictionary. And customs officials have tended to cooperate. Very strict with commercial importers, they often assess only a token duty on imports ordered by individuals.

This handful of individuals has received considerable attention in the press and some praise from the government. And their numbers are growing. In parts of western Japan, “importing clubs” are being formed to swap information. But their impact has been slight.