In Far East, Yen Heads South : Retreat From Postwar High Gives Hope to Japan’s Exporters

After surging to a postwar high last year, the yen lost a lot of its steam this week, giving Japanese exporters hope of relief from the brutal hammering they took as the currency rose about 20% against the dollar.

The yen traded at about 113 yen to the dollar this week--its weakest level in nine months. In trading here Friday, the yen closed at 112.48 to the dollar; in New York, it closed at 111.90. Last year began with a relatively weak yen and strong dollar. That is, it took about 125 yen to buy a dollar. But the exchange rate came close to 100 yen to the dollar in August. At less than 110 to the dollar, Japanese companies selling products overseas saw their profits decline and lost market share because their goods were too expensive.

Some observers believe the current retreat of the yen is likely to continue, boosting exports and helping to revive the stagnant Japanese economy.

Japan’s troubled automobile industry would be one of the biggest beneficiaries of a weaker yen.

“The yen situation was totally absurd” in 1993, Toyota Motor Sales USA President Shinji Sakai told reporters gathered this week for the North American International Auto Show in Detroit. “It’s starting to finally settle down.”

It is far from clear, however, which way the yen will go. The weakening so far is still not enough to make life easy for Japanese exporters. In a Japanese government survey last year, only 21 of 527 companies said they could make money on exports with the yen stronger than 110 to the dollar. But most exporters said they would be comfortable with the yen in the range of 115 to 120 to the dollar.

Many analysts say such a weakening is unlikely. “Washington will never allow the dollar to rise above 115 yen,” said Shokichi Takumori, senior analyst at Sakura Bank. “Their target range may well be 105 to 115 yen. The dollar will probably not come anywhere near 115 yen for a while yet.”

Japanese economic growth is a key policy goal of the Clinton Administration, because it would create greater demand for U.S. exports to Japan. But the United States wants Japanese growth encouraged by expansionary fiscal policies, such as tax cuts and public spending that promote domestic demand, not export-led growth supported by a weaker yen.

U.S. Treasury Secretary Lloyd Bentsen put at least a temporary brake on the yen’s weakening with a speech Wednesday at the Brookings Institution in Washington, in which he warned, “Allowing the yen to slide is not an acceptable way out of recession for Japan.”

“We want to see Japan’s (trade) surplus reduced significantly, and this will require strong domestic demand in Japan, more open markets, and exchange rates that reflect the underlying cost competitiveness of Japan and its trading partners,” Bentsen said.

Chief Cabinet Secretary Masayoshi Takemura quickly took issue with Bentsen, noting that the dollar has been gaining against other currencies as well. “Exchange rates are a reflection of economic fundamentals,” Takemura said.

Forces pushing a further weakening of the yen include expectations of higher interest rates in the United States and lower interest rates in Japan, which makes holding dollars relatively more attractive than yen. Also, Japan’s worldwide trade surplus has begun to shrink, which eases economic pressures for the yen to strengthen.

Other, more political factors, could push the yen the other way.

The bilateral U.S. trade deficit with Japan remains severe: $6.1 billion in October, the latest month for which figures are available. Little progress has been made in “framework” trade talks on further market-opening measures in Japan, which are intended to ease the imbalance.

Also, the seven-party coalition that controls Japan’s government has been unable to agree on a package of economic stimulus measures, which, by promoting more rapid recovery, might help pull in more U.S. imports.

Some observers believe Washington could try to force the value of the yen upward if it appears the Japanese government is ineffective in reducing the bilateral trade surplus by other means.

The Yen’s Declining Value The Japanese yen, which surged to post-World War II record against the dollar in August, has weakened considerably in recent days - good news for Japanese exporters who havve seen products decline because of the strong currency.

Yen per, dollar week closes in New York

Jan. 7 1994: 111.9, down 0.75

Source Dow Jones