Cruising through the opulent, marbled Tokyo branch of Barneys New York, Keiko Saijo exults in the bargains. She has just picked out an imported dress shirt that's going for 16,000 yen ($184), down 25% from the last time she looked. "The prices are really coming down, and the choice of products is getting much better," says the twentysomething office temp. She bubbles on about how cosmetics from Chanel and Christian Dior are getting cheaper, too.
Saijo, along with most Japanese consumers, is taking advantage of the high yen, or endaka. The currency's rise--about 20% over the past year--means many imports are getting cheaper, encouraging Japanese to buy more of them than ever. And as Japan's exports are increasingly expensive and hard to sell, the country's stubbornly high trade surplus with the rest of the world is declining for the first time in years.
Few non-Japanese have noticed this decline, however, because Japan's surplus, expressed in dollars, has barely budged. In April, it was down by 2% from a year earlier. But in yen terms, the surplus declined by 20%. The volume of imports also surged by 18%. "There clearly has been an underlying structural change," says Geoffrey Barker, head of research at Smith New Court Securities (Japan) Ltd.
Problem is, these positive signs don't spell relief for U.S.-Japan tensions. U.S. exports to Japan grew at about 16% in the first quarter, but Japan's exports are much larger and grew at about 10% for the same period, according to the U.S. Commerce Dept. That means the $66 billion U.S. trade deficit with Japan may barely budge this year. "A small acceleration of imports to Japan isn't going to do the trick," says Larry Chimerine of the Washington-based Economic Strategy Institute. "You gotta have big changes to reduce the deficit."
Reflecting its continuing frustration, Washington looks ready to impose 100% tariffs on Japanese luxury cars in June in retaliation for Japan's refusal to further open its car and car-parts markets. Eastman Kodak Co. on May 18 petitioned Washington to investigate and remedy "decades of anticompetitive trade practices in the Japanese market" for photographic film and paper. And U.S. negotiators are threatening sanctions in an aviation dispute as well.
ASIAN FACTOR. One reason trade tensions have not eased: Of the increased U.S. exports to Japan, a high percentage are "reverse exports"--products made by Japanese companies in the U.S. and shipped to affiliates back home. Toyota Motor Corp. says its purchase of U.S. auto parts for assembly in Japan increased from $1.1 billion in 1993 to $1.5 billion in 1994 but won't disclose what percentage came from affiliates. Moreover, many U.S. exports to Japan are still handled by Mitsui Co., Mitsubishi Corp., and other large trading companies. The Japanese "are going to have to source more from abroad, but from whom?" says Mark Mason, a Japan expert at Yale University's School of Organization & Management. "Increasingly it seems it will be from their own operations that have moved abroad."
Then there's the Asian factor. Reflecting Japan's deepening ties with its neighbors, exports from 12 Asian nations to Japan are growing more than twice as fast as U.S. exports, according to DRI/McGraw-Hill. The Asians also are reaping bigger gains in selling manufactured goods.
That's why the Americans are pushing to sell more sophisticated products. Rather than exporting raw lumber, for example, the emphasis is on housing. Last year, sales of foreign "kit" and prefab houses in Japan doubled to 3,000 and should reach 5,000 this year, worth roughly $60 million. Half of those will come from the U.S.
Overall, demand for imports has surged most noticeably for chemicals, fabricated metals, machinery, apparel, and cars, according to the Japanese government. Through April, sales of imported cars soared by 42%, to 111,744. That's still pretty paltry in a market of more than 6 million cars a year, and almost 27% of the imports were Japanese makes. But there's no doubt that foreign cars eat less dust than they used to.
PC DIVIDEND. Also catching on with the Japanese are American personal computers. Their market share has grown during the past year by about 10 percentage points and now stands at 35% to 40%, says Frank Sanda, president of Apple Japan Inc.: "The demand is overwhelming. We're growing at 30% year on year and now have better than a 20% market share, which is double what we have in the U.S." But unfortunately for the U.S. trade deficit, Apple's computers are assembled in Singapore.
PCs aside, much of Japan's appetite is for less sophisticated goods such as imported beer, food, and compact disks. Foreign beer tripled in market share last year, to 6%. Selling at $2.30 or less per 8-ounce can, imports have forced the price of Japanese brews down to $3.05 from $3.33.
Despite bad weather, food stores have managed to hold vegetable prices and profits steady by turning aggressively to imports made cheaper by the currency shift. Vegetable imports, for example, are growing rapidly.
While fixing dinner, Japanese can listen to cheaper CDs, thanks to endaka-linked price-chopping by Tower Records Inc., the U.S.-based chain that operates 23 stores in Japan. On Apr. 8, Tower slashed its prices by more than 10% for chart-topping CD imports. "Our customers are very happy," says Marketing Manager Shinichi Fujisaki. The result: Tower's CD sales volume has leapt by 15%, he says.
Ever since the Plaza Accord of 1985, which brought a dramatic surge in the yen, Washington has counted on endaka to help reduce Japan's global trade surpluses and ease access to its markets. Until recently, that expectation has been unfulfilled. Now, evidence suggests the yen may have finally climbed high enough to make a difference. The bitter irony is that it may be too little, too late to head off trade brinksmanship across the Pacific.