Asia Times: EDITORIAL: Low yen is not the answer



	June 25, 1999	atimes.com

Japan Economy

EDITORIAL: Low yen is not the answer

Since June 10, the Bank of Japan has on several occasions intervened in thecurrency markets to drive the yen lower. On Monday, some $5 billion wasspent even though the yen rate was already 120 and falling.

And if that wasn't enough to convince currency dealers that a lower yen isJapanese policy, in a rare move Vice Finance Minister for InternationalAffairs Eisuke Sakakibara called a small group of reporters to his officeat the end of the day to confirm that the intervention had taken place andto warn that more could be in the offing: ''A tripartite system for foreignexchange policy cooperation is in place. If needed, we [Japan, the U.S. andthe euro-zone] will cooperate."

So, Mr. Yen (whose term in office will likely be extended next month, sad tosay) is at it again - and the reasons for his activist interventioniststance are not difficult to discern: Japan's trade surplus plunged 31.5 percentyear on year in May for a second consecutive monthly decline, the decreasedue to a steep fall in exports to Europe and rising imports from Asia. Mostnotably, exports were down 11.8 percent year on year for the eighth consecutivemonth of decline while imports dropped 3.3 percent for the 17th straight month of fall.

Hence a low yen is called for to support export performance, and - we presumethe calculation is - the U.S. and EU will not object as Japanese surplusesare dropping. And, after all, the G-8 has said it wants Japan to recover atalmost any cost.

Ugh! and yikes! And don't take too seriously Finance Minister KiichiMiyazawa's assurances that the BOJ interventions were intended to prevent''market fluctuations'' and that Japan intends ''neither to benefit theexport industry nor to promote economic growth.'' Yon Miyazawa doth protest too much.

The problem with these BOJ interventions and a lower yen is not so muchthat there is something terribly wrong with stronger Japanese exports.Those could and should indeed make a substantial contribution to recovery.

The problem arises from the attempt to achieve export growth through thevehicle of monetary policy. That sends all the wrong signals and amounts toan artificial and likely short-term boost, not based on increasedcompetitiveness of Japanese industry in structural terms.

Structural improvement, however, presumably is precisely what the Obuchi government nowwants the Japanese private sector to focus on, even at the acknowledgedexpense of some further job losses as restructuring proceeds.

Moreover, for those restructuring exercises to succeed in the longer run,not only downsizing is required. Industry has to develop a whole newrange of products and services in the information technology and otherhigh-tech sectors. Should this task once again be set aside as brief relieffrom higher exports reduces its urgency, it would be nothing short ofa disaster for the Japanese economy's future health.

So, we strongly recommend that Finance Minister Miyazawa and BOJ GovernorMasaru Hayami rein in the ill-advised Sakakibara tactics and stay thecourse toward in-depth restructuring, a course now barely charted and already in danger ofbeing skewed by spurious short-term gain.

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©1999 Asia Times Online Co., Ltd.