ECONOMIC SUPERPOWERS AT ODDS : NEWS ANALYSIS : As Yen Rises, Japanese and U.S. GDPs Go Head-to-Head : Currencies: A forecast that Japan’s economy will surpass America’s by 2000 almost came true on April 19.
The powerful yen has backed off a tad from its recent high, but on April 19, the economy of Japan came within an eyelash of surpassing that of the United States.
That was the day the yen soared to a record 79.75 to the dollar, driving Japan’s gross domestic product in inflation-adjusted terms to within two-tenths of a percentage point of equaling the value of all goods and services produced in the United States.
Not counting inflation, Japan still has a way to go to catch up with the United States. But a prediction made in the early 1960s by the late futurologist Herman Kahn that Japan’s economy would surpass America’s by the early 21st Century is remarkably close to fruition.
In some quarters, Kahn’s forecast is still greeted by the same scorn and derision it received three decades ago. But although in some respects Japan’s shoulder-to-shoulder posture with Uncle Sam is misleading, in other ways it marks a turning point.
In 1985, at the time of the so-called Plaza Accord when the Reagan Administration decided to drive down the dollar’s value, one dollar was worth 240 yen and the Japanese economy was only a third the size of that of the United States. But at the 83.95 yen-to-the-dollar rate that prevailed Friday on the New York Foreign Exchange, Japan’s 1994 GDP stood at 83% of America’s in nominal terms.
Should the yen gain in value to reach an exchange rate of 69 to the dollar--a level that some predict is a matter of months away--Japan’s GDP would match that of the United States at $6.74 trillion.
Is this meaningful?
“The very idea that the economy of Japan, with half the population and one twenty-fifth the land of the United States, could stand shoulder to shoulder with America’s (economy) is preposterous,” said Shizuo Kamijo, manager of the equities department of Sanyo Securities.
Kamijo--one of the few in Tokyo who has taken notice of how close Japan came last month to catching up with the United States in inflation-adjusted terms--used the comparison in a report he issued to Sanyo’s customers to emphasize his view that the yen is grossly overvalued.
Many American economists agree that the yen’s appreciation has bloated the statistical size of the Japanese economy far beyond its real strength. High prices and poorer housing deny the Japanese the average standards of living in the United States, they say.
Indeed, a recent announcement by McDonald’s of Japan that it was cutting the price of its plain hamburger by 38% served to underscore just how exorbitant prices have become with the yen’s gain in strength.
Citing savings in import bills because of the yen’s appreciation, McDonald’s cut the burger’s price from about $2.53 to $1.56. But in the United States, the plain hamburger costs only about 59 cents.
At home, Japanese find they need 181 yen to buy products that could be purchased in the United States for $1, according to the Organization for Economic Cooperation and Development.
But the fact that Japanese earn more than Americans also means they can better afford to pay higher prices. (Japan surpassed the United States in per capita GDP in the late 1980s.) And they also tend to find bigger bargains than Americans when traveling or investing overseas.
For example, a pool of Japanese TV stations just signed an agreement to pay $75 million to televise the 1996 Atlanta Olympics. In dollars, that figure amounts to 30% more than Japan paid for rights to telecast the Barcelona Olympics. But in yen, it represents a savings of $29 million.
Indeed, the international clout that the high yen gives Japan is often ignored by economists, who downplay the significance of Japan’s soaring GDP by citing the high prices Japanese pay at home, according to Eamonn Fingleton, author of the new book “Blindside: Why Japan Is Still on Track to Overtake the U.S. by the Year 2000.”
“The yen’s internal purchasing power is largely irrelevant for anyone interested in Japan’s growing influence in the global economy,” Fingleton wrote in the March-April edition of Foreign Affairs magazine. He pointed to Japan’s position as the world’s largest aid donor and its being the nation with the biggest pool of savings in the world.
And despite having only half the population of the United States, Japan matches or exceeds the United States in the size of industries such as semiconductors, automobiles and steel. In shipbuilding, Japan dwarfs the United States.
Moreover, not all of the yen appreciation has been created by speculators.
For nearly two decades, Japan has been suffering about 3% less inflation annually than the United States--and just to keep the real value of the dollar and the yen constant, the yen needs to appreciate 3% each year, Japanese analysts have noted.
Japanese, for their part, increasingly view exchange markets as reflecting a decline in the U.S. economy rather than as a sign of their own country’s economic strength.
In an editorial May 3, the Asahi newspaper referred to “the relative decline of the American economy, as symbolized by the ceaseless fall in the value of the dollar. It is even losing the status of a nation whose currency serves as an international standard of exchange.”
Toyo Suzuki, manager of the over-the-counter section of the equities department of Sanyo Securities, expressed hope that the yen might once again follow the zigzag path it has taken in the past. Each time the yen has doubled in value against the dollar previously, it has suffered a temporary setback, he noted.
“That would suggest that in the future, it could go back to 100 yen to the dollar,” Suzuki said.
Den Fujita, Japan McDonald’s president, suggested another possibility. If the Japanese government fails to take “bold measures” to open Japan’s markets to imports and bring down the trade surplus, he said the yen could go to 50 to the dollar by 1999.
Calculating at that exchange rate, Japan’s GDP would become 1.4 times larger than that of the United States.
* SUPER YEN Most Japanese haven’t reaped great savings from the inflated yen. D5
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Big Yen, Big Economy
The dramatic rise of the yen against the dollar means that Japan’s economy is approaching that of the United States. At 69.64 yen to the dollar, the value of the two countries’ gross domestic products would be statistically equal.
Yen Per Dollar
Japan’s GDP as a percentage of U.S. GDP
Sources: Japanese Economic Planning Agency, Nomura Research Institute, U.S. Commerce Department, Sanyo Securities.