Yen’s Surge Rattles Japan’s Business World

The sudden surge in the value of the yen is being greeted calmly by government officials here, but some business leaders are worried that a strong national currency will further undermine Japan’s floundering economy.

The rising yen will cut into already weakened corporate earnings, hurt exports and delay Japan’s economic recovery, analysts said.

Government officials gave no indication Thursday that they would intervene to support the value of the dollar against the yen. Bank of Japan Gov. Yasushi Mieno said the yen’s rise is positive in the long run because it will help reduce Japan’s massive trade surplus.

Exporters, however, expressed serious concerns. It “damages corporate business stability and will prevent an early business recovery,” Toyota’s President Shoichiro Toyoda said. Japan’s largest exporter of motor vehicles estimates its profit falls by $50 million each time the dollar exchange rate drops by one yen.

The yen weakened slightly against the greenback in New York Thursday--finishing at 120.49 yen to the dollar--after rising to a record high on Wednesday as investors fled the currency turmoil in Europe and sold off U.S. investments. In Tokyo on Thursday, the yen closed at 120.25 to the dollar.

Caution about the yen’s surge was reflected in Tokyo Stock Exchange trading Thursday. The strong yen pushed stocks up in the morning, with investors speculating that the government would lower interest rates to exert control over the currency’s rapid rise, brokers said.

However, investors pulled back in the afternoon as concern emerged that a stronger yen could deepen the economic downturn, brokers said. Shares of exporting concerns, such as high-tech firms, were hit by a selling wave on the firm yen. The 225-share Nikkei average ended at 18,609.95, up 327.23 points, or 1.79%.

A continued sharp increase in the yen’s value could trigger a “yen recession” as many exporters, particularly small, low-technology companies, suddenly find their products too expensive in world markets.

In 1985, when the yen rose sharply after the Plaza Accord--an agreement between the major economic powers to intervene in order to bring down the value of the dollar--Japanese companies used a combination of price increases and cost reductions, including moving production offshore, to counteract the low dollar. Companies also boosted sales in the then-booming domestic market.

Now, however, a weak American economy will make it difficult for Japanese companies to sharply raise prices. Meanwhile, the weak domestic economy means the companies cannot count on higher domestic sales. With profits already razor-thin, exporters may be forced to further slash investment and research spending to avoid losses.

“Three years ago, Japanese exporters could compete at a 120 to 125 yen-to-the-dollar rate,” said Masao Susaki, general manager of economic research at the Bank of Tokyo. “Now they are much weaker.” Susaki says the yen will continue to strengthen for some time, and companies should be prepared for a rate of 115 yen to the dollar.

Recent reports from the Bank of Japan show the economy continuing to weaken, contrary to previous government forecasts of a recovery this fall. Japanese economists are now predicting that the recovery won’t begin until next spring at the earliest.

Analysts believe that the high yen and the danger of a free fall in the dollar will put pressure on the Bank of Japan to reduce its discount rate.

But Japan’s chief economic planner said that monetary policy should be independent of what he termed “extremely temporary” currency changes. Takeshi Noda, head of Japan’s Economic Planning Agency, reiterated the view of many economists here that the yen’s advance is acceptable as long as it doesn’t proceed at too rapid a pace.