As the Japanese yen has been reaching record highs on foreign-exchange markets, cheers and catcalls are echoing around the world. In Tokyo, where preparations are under way for next weekend's economic summit, Japanese Prime Minister Yasuhiro Nakasone has been hearing ``boos'' from within his own party.
The Japanese yen has appreciated by some 43 percent against the US dollar since February 1985. Many Japanese companies, particularly of medium and smaller size, are having a difficult time exporting. They charge that Mr. Nakasone is being ``too nice'' to the Americans in regard to the yen.
With elections possible for June 22, Nakasone faces a battle for leadership of the Liberal Party and needs to show that his economic policies are working. The prime minister has indicated that he would like to see the yen weaken from its current ratio of approximately 168 to $1 to about 180.
Many economists in the United States, however, are shouting ``hurrah'' over the yen's strength. They say President Reagan should not join Japanese efforts to stem the rise of the yen.
``The Japanese are running a $60 billion trade surplus,'' says Martin Feldstein, former chairman of President Reagan's Council of Economic Advisers. ``It is not surprising that the yen is strengthening. We should do absolutely nothing to try to arrest it.'' He points out that a stronger yen will encourage US exports to Japan and discourage Japanese exports to the US.
C. Fred Bergsten, director of the Institute for International Economics in Washington, says he would like to see the yen appreciate further to 160 to $1. He maintains that the Japanese government may not be as concerned about the strength of the yen as the fuss in Tokyo suggests. The consensus of a group of Japanese economic institutions, he notes, holds that even if the yen climbs to 150 or 140 to the dollar, Japan will enjoy a trade surplus of around $50 billion in 1989. ``The Japanese are thus saying their economy is quite competitive with the yen even stronger than it is today,'' he concludes.
But not all American observers are pleased with the plunge in the dollar's value against the yen. Last week bond prices dropped sharply because of concerns that Japanese investors will sell off some of their massive dollar bond investments. The stock market was hit by similar concerns.
Federal Reserve Board chairman Paul A. Volcker said last Wednesday that the possibility of the dollar's decline becoming precipitous ``always concerns me,'' because it would boost the price of imports and thus help rekindle inflation.
Washington sources say that Treasury Secretary James A. Baker III has been hoping that the stronger yen will start to discourage Japanese exports and encourage American exports in time to help the Republicans in the November election. But lately the Reagan administration has ceased its public efforts to promote an increase in the value of the yen.
European financial leaders have not been so restrained. Nigel Lawson, Britain's chancellor of the exchequer, and Gerhard Stoltenberg, West Germany's finance minister, called for a stronger yen while visiting Washington earlier this month. European businessmen are facing stern Japanese competition in many markets, including those at home, and would like some relief.
Instead of backing a revaluation of the yen to reduce trade surpluses, Mr. Baker is urging the Japanese to boost the pace of their domestic economic growth and to restructure their policy to encourage domestic consumption rather than exports. Techniques to accomplish this might include subsidies for home buyers, income tax cuts, or reduced working hours.
The Japanese, however, have been resisting this pressure. Prime Minister Nakasone has made the reduction of Japan's budget deficit a key element in his economic policy. So he has been reluctant to cut taxes or boost government spending, as the US would like.
Moreover, the Bank of Japan has followed a strict monetarist policy in recent years, maintaining the growth of the nation's money supply at a steady pace. This has reduced inflation and at the same time steadied economic growth. The bank does not want to change that policy by easing monetary policy dramatically.