Japan Should Just Peg the Yen and Move On: The Ticker
It's time for Japan to do what it's been itching to try for a decade now: peg the yen.
No issue distracts economic officials in Tokyo more than exchange rates. Japan needs to rebuild after the March 11 earthquake and tsunami, boost growth, reduce debt and prepare for an aging population. Yet officials spend too much time obsessing over the yen's 21 percent surge the past two years. So, why not just fix it the currency at whatever level would make Japan Inc. happy and move on to more important issues?
If Tokyo is worried about a backlash, forget it. Investors aren't freaking out over Switzerland's move to put a lid on the franc, China-style. The International Monetary Fund is too busy trying to save the euro to bash Japan. And what is America going to say while it does all it can to devalue the dollar? Let the next round in the global currency war begin.
It all shows how far we are from the good old days of 1997, when we thought the Asian crises was as bad as things could get. Then-Malaysian Prime Minister Mahathir Mohamad was demonized for pegging the ringgit. Yet in the post-Lehman Brothers world, conventional economic thinking is an ever-changing concept.
Were Japan to peg the yen, for example, it would have to choose a currency: the dollar or the yuan. Two years ago, the idea of Japan linking to China would have been beyond fanciful. Yet China is now Japan's most important trading partner and the U.S. consumer is indefinitely in retrenchment mode.
Of course, that might be a peg before its time. Even Hong Kong, which is technically a Chinese city, refuses to scrap its link to the dollar. It's a reminder that China, for all its growth, scale and potential, is still a developing economy.
Pegging the yen wouldn't be the answer to all that ails Japan. That requires bold restructuring of a rigid and aging economy that has been losing its groove for 20 years now. But if pegging frees policy makers to tackle the headwinds holding Japan back, the end may justify the means.
(William Pesek is a Bloomberg View columnist.)