Rising Yen Threatens Japan’s Economic Recovery : Trade: Strong currency could thwart domestic growth. U.S. study accuses Tokyo of maintaining the most restrictive trade barriers in the world.
The yen, boosted by trade tensions between the United States and Japan, is again rising rapidly, raising new fears that Japan’s economic recovery will fizzle.
The currency has been gaining strength, in part, in anticipation of a report released in Washington Thursday that set the stage for serious trade sanctions against Japan. The report, necessary before the United States can invoke the so-called Super 301 trade law, accuses Japan of maintaining the most restrictive trade barriers in the industrialized world.
Before the report’s release, the yen rose for the fifth consecutive day in Tokyo trading Thursday to close at 102.80 yen to the dollar--within striking distance of its strongest postwar value of 100.40 yen to the dollar, which was reached last summer.
The yen also has been steadily gaining ground on speculation that Washington may seek to boost the yen further, which has the effect of raising the price of Japanese exports and making foreign imports to Japan less expensive. Over the long term, such a shift would help cut Japan’s huge trade surplus with the United States, which hit $59.3 billion last year.
But the immediate worry is that the strong yen may damage the Japanese economy just when it appears to have bottomed out.
Industrial output in February, for example, grew 0.2% from January--less than many had hoped--but still a welcome rise. In other signs that the worst may be over, manufacturers’ inventory levels fell 1% in February and shipments showed a 1.2% rise, according to government figures released Thursday.
But the recovery could be choked off if the strong yen cuts the profits of export-oriented companies. The yen’s advance will hurt both the Japanese and the global economies, said Hideaki Kumano, vice minister for international trade and industry.
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Japanese stock investors responded to the strong yen and Wednesday’s selloff on Wall Street by pushing the 225-issue Nikkei index down 447.99 points Thursday, or 2.29%, to close at 19,111.92. It had lost 149.83 points, or 0.76%, the previous day. The index rebounded 197.04 points, or 1%, to close morning trading today at 19,308.96, helped partly by a slight weakening of the yen, which finished the morning at 103.05 yen to the dollar.
Traders expressed concern that if the yen gets too strong, it will choke off the foreign investment that has been the driving force behind a moderate stock market rally the past three months.
The United State’s rejection of Japan’s proposed package of economic stimulus and market-opening measures released on Tuesday also contributed to the yen’s strengthening and the stock market’s decline.
Criticism of the Japanese package was followed Thursday by the Clinton Administration’s ninth annual National Trade Estimate, an inventory of global trade barriers. The Administration devoted 44 pages in an inch-thick report to detailing trade barriers maintained by Japan.
The study will be used by the Administration as it pursues a reopening of trade negotiations with Japan. At the end of September, if the talks aren’t successful, the United States could identify Japan as a “priority country” under the Super 301 trade law.
If that happens, the Super 301 process would give the Administration the flexibility to impose high tariffs, quotas or other measures if Japan’s trade barriers are not removed.
Most analysts believe that if U.S.-Japan trade tensions lessen over the coming months, the yen is likely to reverse course.
The yen’s strength “does not reflect fundamentals,” said Jeffrey Young, economic analyst at Salomon Brothers Asia Ltd. “We are looking for the yen to weaken from here.”
