A SUPER YEN MAY DO WHAT POLITICIANS CAN'T
In most countries, if an antibusiness socialist/pacifist/isolationist politician suddenly becomes President or Prime Minister, one thing happens immediately: its currency plummets. Not so in Japan.
When Tomiichi Murayama became Prime Minister in June, the yen went into orbit. Weird? Not really. Japanese traders know something often lost on Washington--it doesn't much matter which politicians preside in Tokyo. Economic policy is made by a permanent class of bureaucrats and their big business allies, with politicians kibbitzing from the sidelines.
The Clinton Administration had hoped reform-minded politicians would open up Japan to further American investments and goods. Perhaps someday. But with the ouster of the reformers, Washington is now backing off from a tough negotiating stance to give the new politicians "time." This is a big mistake.
The Super Yen offers the best opportunity in years for a successful American trade initiative. The yen is becoming so expensive that it is eroding the ability of the business and bureaucratic elite to keep Japan's economy more closed as compared to America's and Europe's. The forces against oligopoly and for deregulation are growing daily.
To stay competitive, Japanese corporations are hollowing out. An exodus of manufacturing to dollar-linked Southeast Asia is under way, as companies import cheaper components.
The only way for Japan to solve its yen crisis is to more than double the import penetration of its economy to the U.S. and European averages of 14% from its current level of 6%--exactly what Washington has long been advocating. Deregulation would accomplish that by increasing the supply of lower-priced imports. That would not only boost Japan's domestic demand but also raise its growth rate, providing jobs for the growing army of "window-watchers" who have nothing to do in big corporations. That is why Keidanren Chairman Shoichiro Toyoda, head of Toyota, is calling for deregulation.
For two decades, the U.S. has pushed on the closed doors of Japan's economy, only to be pushed right back by its bureaucrats and businessmen. But now internal economic trends in Japan are working to the U.S.'s advantage. With the Super Yen already pushing open the door to the Japanese economy, Washington trade negotiators should really lean into it.