Japan Trade Surplus May Be Up, Boost Yen

Signs of a resurgent Japan trade surplus have raised concerns on both sides of the Pacific, and there were signs Thursday that a dramatic surge over the last 19 months in the dollar’s value against the yen may be coming to an end.

A weaker yen this year has boosted the global competitiveness of Japanese exports and made it more difficult for foreign firms to sell in Japan. Now, a growing number of influential voices are saying the trend--which began after the dollar hit a post-World War II record low of 79.75 yen in April last year--has gone far enough.

Finance Ministry official Eisuke Sakakibara, who is widely credited with a key role in engineering the yen’s weakening to the 112-per-dollar range, was quoted Thursday as saying: “We’re not thinking of leading the yen any weaker. Looking at the fundamentals, the phase of the one-way correction of the yen’s strength is ending.”

Sakakibara, who heads the ministry’s International Finance Bureau, also said Japan’s economy is stronger than most market investors think.

After wire services reported his remarks, the dollar quickly fell to 112.01 yen, down from 113.88 yen in late New York trading Wednesday. By end of trading Thursday, it had dipped to 111.60 yen in New York. The dollar had hit a 42-month high of 114.92 yen on Oct. 29.

Later Thursday, C. Fred Bergsten, head of the Washington, D.C.-based Institute for International Economics, regarded as an influential voice on what U.S. exchange-rate policy should be, forecast that the dollar’s value against the yen will dip sharply.

Bergsten warned that Japan’s trade surplus would expand substantially in about a year if the dollar were to remain around 115 yen. He said it would be best for the exchange rate to move close to 100 yen to the dollar.

Indeed, trade figures released in Tokyo on Wednesday for the first 20 days of October indicated that a steady decline in Japan’s trade surpluses may already be ending. These preliminary statistics showed that the trade surplus may have grown in October for the first time in 22 months.

The benefits of the weaker yen for export-oriented Japanese firms was reflected in a half-year financial report released Thursday by Sony Corp. In the most recent quarter, ended Sept. 30, consolidated net income tripled compared with the same three-month period of last year, to hit $312 million. Sony said that in the current fiscal year, which ends March 31, it expects its profit to nearly double, to about $950 million.

Sony attributed its rapidly rising profit to “strong overseas sales growth due mainly to the yen’s depreciation and continued cost-cutting efforts.” Global sales and operating revenue were up 17% in the quarter ended Sept. 30, compared with the same quarter last year, it said.

The average exchange rate from July through September this year was 108 yen to the dollar, compared with 93 yen per dollar for the same period last year. Firms such as Sony benefit from a weaker yen because it not only makes Japanese exports less expensive in dollars, and thus more competitive overseas, but also makes them more profitable in yen.

In making its predictions for the full fiscal year, Sony said it was basing its forecasts on an exchange rate averaging 110 yen to the dollar. Sumio Sano, a Sony managing director, described a yen-dollar exchange rate in this general range as “very comfortable” for the firm.

Other firms have also made recent announcements reflecting the impact of the weaker yen. Honda Motor Co. said recently it may shift production of its Accord wagon back to Japan from the United States. Nissan Motor Co. recently announced a 2% to 3% cut in export prices on top of 3% cuts made this spring.

Many Japanese firms have been seeking to increase export volumes rather than simply boost profits from the effects of the weaker yen. Matsushita Electric Industrial Co., for example, recently reported that the yen’s depreciation could have boosted parent-company profits for the first half of this fiscal year by about $118 million, but that it instead gave out about $64 million in price reductions, realizing about $54 million in extra profits because of the weaker yen.