View from Tokyo: A deficit of goodwill in land of the rising yen

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The Independent Online
Don't be deceived by terminology: while economists in the West talk about the last few years of recession as 'severe', even 'devastating', and refer to the prospects of recovery being 'strangled' or 'stopped dead', in Japan the economic conditions are, according to the gentle words of last week's report from the Economic Planning Agency, 'sluggish overall'.

In real terms, Japan is enduring its worst recession since the end of the war, with no recovery in sight. And 'sluggish overall' counts as a more ominous and sombre classification than the term 'readjustment period' that had been used for the past two years to describe the collapse of share and property prices, the plunge in corporate profits, the mountain of banks' bad debts and the gradual but relentless increase in unemployment.

But just as companies cannot bring themselves to consider the odious notion of mass lay-offs so, too, bureaucrats do not like to openly use overly negative language in describing the recession.

One statistic that has escaped the 'overall sluggish' classification, however, is Japan's trade surplus, which continues to spiral upwards. Figures for the 1993 calendar year just released show it has increased 13 per cent to dollars 120bn. Exports grew twice as fast as imports as companies tried to export their way out of the recession. The fact that even with such a trade surplus the recession continues is merely a symptom of how deep the country's economic ills are, and how much more needs to be done to stimulate domestic demand.

But dollars 120bn is still a lot of money, and not surprisingly the rest of the world - led by the US, with the EC not far behind - is knocking ever louder on Tokyo's door to open its markets further to foreign goods.

The US, in particular, which has an annual trade deficit of dollars 50bn with Japan, is growing increasingly impatient over trade barriers. Even though the Clinton administration has been willing to give the new reform-minded government of Morihiro Hosokawa, the Prime Minister, some slack to push through its reform policies, the trade drums have been beating louder and louder in past months.

US gets tough on realities of deficit

Last weekend Lloyd Bentsen, the US Treasury Secretary, said during a brief visit to Tokyo that unless trade negotiations between Japan and the US made substantial progress before a scheduled visit by Mr Hosokawa to Washington in two weeks, the US would have to re-examine its trade relationship with Japan - a mute threat to allow the yen to rise again against the dollar.

Last summer the US allowed the yen to rise to 100 against the dollar before the Federal Reserve intervened to drive it back down: it is now hovering around the 110 level.

'I do not mean that to be a threat. But we are just facing the realities of the situation,' said Mr Bentsen.

'Japan is out of step. It has the lowest penetration of manufactured imports, and it has the lowest foreign investment levels among the major nations.'

Despite his hardline stance, trade talks between the two sides in Washington ended with little progress last week.

The US has focused on specific industries, and produced figures to show foreign penetration of the markets in Japan is significantly lower than elsewhere in the G7 nations. In insurance, foreign penetration is 2 per cent in Japan, compared with 10-34 per cent in the rest of the G7. In car parts, it is 2 per cent against 16-60 per cent elsewhere, and in telecommunications only 5 per cent of Japan's market is controlled by foreign companies, compared with a G7 average of 25 per cent.

The US has been repeatedly frustrated in the past at unfulfilled promises from Japan to open its markets. But Washington's suggestion that numerical target quotas for imports be set in individual industries is strongly resisted by the Japanese as a regressive move to managed trade.

Economists say that unless there are breakthroughs in trade talks in the next two weeks, the yen is likely to soar again, possibly breaking the 100 level for the first time.

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