The Buck Stops--Cold--as Yen Continues to Surge
Pity the poor American tourist who decided this was the summer to visit Japan.
In a country where it has long been traumatic to buy things with dollars, the latest plunge in the U.S. currency to historic lows against the yen has made this experience seem almost surreal.
A modest-sized room at Tokyo’s Okura Hotel, for example, now costs $400 a day, and hotel room rates on the average are up more than 20% since February. Coffee at a restaurant is now $5 a cup, up $1 from six months ago; a movie ticket costs $3 more. A gift box of two top-quality honeydew melons now runs $180, and a three-hour round-trip train ticket to the ancient capital of Kyoto will set you back $250.
As money traders around the world shift dollars into yen, the U.S. currency is approaching a landmark, where one penny equals one yen, a far cry from the 126 yen the dollar fetched only one year ago. And it is worlds away from the $1-for-360-yen level, where the currencies remained fixed for more than 25 years after World War II.
On Wednesday, the dollar inched closer to the historic point, closing at 101.60 in New York. In early trading today in Tokyo, the U.S. currency was trading at 101.30 yen per dollar.
The latest surge in the yen stems from Japan’s record foreign trade surpluses, expected to reach $150 billion this year, and its reluctance to lower interest rates at a time when rates worldwide are falling--a stance that makes assets valued in the Japanese currency worth more than other holdings.
But the power of the yen goes much deeper than that. It reflects the incredible growth of Japan from the ashes of a World War II defeat and, more recently, America’s relative decline as an economic superpower.
Economists are divided on how much higher the yen will climb, noting that Japan is under pressure at home and from the United States to ease interest rates in order to stimulate its economy, a move that could weaken the yen. The rising yen could also put pressure on Japan to cut its trade surplus by stimulating its domestic economy to encourage imports.
Japanese ministers held an emergency meeting early today to decide how to react to the soaring yen.
At a time when U.S. theaters are showing “Rising Sun,” a movie regarded by many as critical of Japan, and there is growing impatience with Japan’s huge trade surpluses, the high cost of travel to Japan could further undermine the U.S.-Japan relationship. “Fewer Americans will go to Japan, and that can’t help American attitudes,” says Sheila Johnson, author of the book “The Japanese Through American Eyes.”
The muscular yen also gives a big boost to Japan’s relative economic strength compared to the rest of the world. Valued at 100 yen to the dollar, Japan’s economy produced $4.7 trillion worth of goods and services last year. That is not far from America’s $6 trillion. Japan’s per capita gross national product was $38,000 last year, the highest among industrialized nations.
On the downside, Japanese makers of automobiles and consumer electronics are in shock as they watch the rising yen shave away their hard-earned profits. Some Japanese economists argue that the strong yen is slowing Japan’s economic recovery and its ability to absorb more American imports.
And while the strong yen benefits some U.S. exporters, American consumers accustomed to buying high-quality Japanese televisions, stereo equipment, videocassette recorders and other gadgets at competitive prices are paying more.
As for Americans living in Japan, life by necessity is more modest. They walk to avoid the $6 for a short cab ride and do without the $5 cup of coffee after a simple $12 lunch. They avoid serving anything as fancy as lasagna at a party for six. The ingredients of cheese, meat, tomato sauce and noodles alone cost $250.
The $300 withdrawn from the cash machine at the beginning of the week has a way of evaporating in just a couple of days. No wonder Japanese cash machines allow you to withdraw up to $8,000 at one time.
Many foreign companies are pulling back expatriates from Tokyo because they can’t afford the $10,000-a-month rents and the $16,000-a-year tuition to send children to international schools. A growing number of foreign mothers without such benefits are choosing to teach their children at home.
Although the average Japanese hardly notices the impact of the high yen, many are vacationing overseas, where excursions are suddenly cut rate. Already they are being warned that overseas travel may be cheap but that it comes with risks.
A recent television special focused on the low cost and high risks of traveling overseas in this strong yen era. Viewers were asked to call in with their experiences.
One businessman described how he and two colleagues hired a taxi to take them on a city tour in an unnamed American city. After he was paid the agreed sum, the taxi driver looked distraught and began to talk of his sick kids. “What could I do, I gave him a $100 bill,” the businessman said. When he got back to his hotel he discovered that the driver had tricked two colleagues into giving similar-sized tips.
The yen’s remarkable journey began in the aftermath of World War II when occupation authorities fixed an exchange rate of 360 yen to the dollar, apparently for no better reason than that there were 360 degrees in a circle.
Although there were almost immediate complaints from American textile makers that the yen was undervalued, it was official American policy to strengthen Japan by encouraging Japanese exports.
A strong Japan would not have to rely on American subsidies to feed itself. As late as 1948, it was costing America close to $1 billion a year to keep Japan’s war-devastated population fed. An economically self-sufficient Japan would also be a bulwark against communism.
Americans, lulled into a romantic vision of Japan by such novels as James Michener’s “Sayonara,” flocked to Japan in the late 1960s. With the dollar strong, travelers could stay in inns, have food brought to their rooms, soak in tubs and still have money to spare to buy a few woodblock prints or antique dishes as souvenirs.
But by the 1960s, Japan had changed dramatically. Its ability to storm American markets was taking hold. By 1965, Japan had 85% of the American market for motorcycles. Other products followed. Less than two decades after the end of the war, Japan was exporting more to America than it was importing.
Japan’s successes began to take their toll on American industry. The undervalued yen was proving to be a powerful weapon in the hands of increasingly competitive Japanese manufacturers.
Then-President Richard Nixon, responding to rising frustration over the unfair exchange rates, in 1971 unilaterally scrapped the fixed exchange-rate system. Complaining that Japan’s $2-billion trade surplus with America was “tearing at the fabric” of U.S. industry, he let the dollar drop against the yen in what was labeled here the “Nixon Shock.” By 1973, the dollar’s value had fallen to 271 yen from 360 yen two years before.
It was too little, too late. Japan had already moved on to more sophisticated products. In 1974, when the global oil crisis hit, American consumers bought millions of Japan’s fuel-efficient cars. And Japan began laying the foundation for a massive shift into high-technology products.
By 1985, Japan’s trade surplus had climbed so high that the leaders of the industrialized world decided to coordinate efforts to push up the value of the yen. In 1985, the yen stood at 238 yen to the dollar. A year later it was at 168 yen.
The high yen along with a soaring stock market and climbing land prices ushered Japan into a new era of wealth. Japan acted like a hard-working family that suddenly found a pot of gold in its back yard.
Japanese investment in America soared, as Japanese began to comparison shop and found American assets cheap. High-tech companies, movie studios, office buildings and golf courses were acquired in a frenzy of buying.
Near the end of 1989, Japanese officials began to worry that the speculative boom was getting out of control. They stepped on the brakes by boosting interest rates. The stock market plummeted. The decline in stock prices, and later land values, uncovered a multitude of financial wrongdoing.
Despite political scandal and a souring economy, the yen continues to rise. Exports have continued to grow in spite of a stagnant world economy, with record trade surpluses driving the yen still higher.
For Americans living in Japan, this has placed a premium on being resourceful--and frugal.
The Rev. Kenny Joseph, for one, teaches a seminar to Southern Baptist missionaries in Japan called “Entrepreneurial Evangelism: Enduring the Endaka (high yen).”
He advises young preachers to take on side jobs, such as teaching English for $25 an hour or conducting weddings in quickly constructed chapels in hotels and wedding halls to defray $5,000-a-month living expenses for the average missionary.
* STOCKS SOAR: Dow Jones broke the 3,600 barrier as stock markets worldwide reached new highs. D1.
