Japan Pressured By US and Europe Over Trade Surplus
ABASHED at its ballooning trade surplus, Japan is stymied over how to deflate it.
Attempts of the past decade, such as restraining auto exports, raising the value of the yen, or launching import campaigns failed to slow the giant Japanese export machine for long.
Japan's global trade surplus in January was up nearly 40 percent from a year earlier. Last year's total surplus hit a record $106.6 billion, up 38 percent from 1991.
Attempts by the Bush administration to alter the unusual business practices in Japan that blunt foreign competition have been largely fruitless in the face of strong resistance among Japanese companies against meddling with success.
After President Clinton complained about the trade imbalance to top Japanese officials last week, a fresh urgency has come over Tokyo to overcome its embarrassment of riches before it provokes a protectionist streak in Washington and before Tokyo hosts the G-7 summit of major industrial nations in July.
"Japan still treats the United States as an economic colony," said a high-ranking Democratic leader of Congress on a visit to Tokyo early this month.
The US is not the only nation irked at Japan.
"It will be very difficult to explain to European public opinion, with unemployment at 10 percent, that Japan, with inflation of 2 percent and unemployment about 2 percent, needs to accumulate a huge trade surplus with the rest of the world," said Jean-Pierre Leng, ambassador in Tokyo for the European Community. He called the trade surplus a "time bomb," noting that the EC-Japan imbalance rose from $19 billion in 1990 to $32 billion last year.
Business leaders, too, are critical of the trade imbalance and market access in Japan. Few US financial and semiconductor companies have been able to penetrate this market. One option: a higher yen
Speculation that Japan might swiftly strengthen the yen, which would make its exports more expensive and imports cheaper, caused the yen/dollar exchange rate to jump from 124 to 119. But after Japanese officials rejected the idea, the currencies stabilized. Japanese Finance Minister Yoshiro Hayashi, who met with US Treasury Secretary Lloyd Bentsen last Friday, did say the yen-dollar rate will be "closely watched." His comment was seen as government approval for only a gradual rate shift.
"The yen's gradual appreciation, reflecting Japan's [solid] fundamentals, is a desirable tendency," Yoshiro Mori, Japan's minister of international trade and industry, told reporters. "But a too rapid or speculative hike of the yen could damage currently ailing Japanese industry."
"The authorities' mouths have been open, [but] their hands are tied," stated Salomon Brothers economist Robert Feldman.
The last time that the government forced the yen to rise markedly was in 1985 as a result of a multilateral pact known as the Plaza Accord, which was aimed at reducing Japan's surplus. But that yen hike triggered a short recession, and then a speculative "bubble" in land and stock prices that finally burst in 1991-92, leaving the Japanese economy in the present recession. Fiscal stimulus considered
Instead of a yen boost, officials hope to right the trade balance by raising domestic demand with more government spending, an income tax cut, and a drop in the official interest rate.
But the effect of any pump-priming might come too late to satisfy Japan's foreign critics. And the finance ministry opposes a tax cut because it would reduce the fiscal discipline that the ministry believes Japan needs to cope with a fast-aging society in the next decade. Japanese officials doubt if their steps can raise the economic growth rate to the goal of 3.3 percent by July, from the present near-zero growth.
In the meantime, Japanese officials are threatening to retaliate against possible White House trade sanctions.