The Japanese yen has gained 15% in value against the dollar since the United States, Japan and three major European trading nations decided in September on the need for a weaker dollar in order to help make American goods more competitive.
You would have to look pretty hard to find a subject more boring but of greater effect on the national pocketbook than the international value of the dollar.
When the dollar's exchange value rises, U.S.-made goods become more expensive in other countries while foreign goods become cheaper here. When the dollar weakens, the opposite is true: The going price for American-produced wheat or computer software goes down in other countries while foreign-made autos, TV sets, machine tools and wine become more expensive in America.
And, just like the theory says, Japanese producers of autos, steel, computer chips and other items are beginning to raise their prices on exports to this country as a result of the yen's rising value against the dollar. At least some European exporters, as a result of their own currencies' gains against the dollar, are expected to post higher prices sometime in 1986.
The question now is whether the good news will continue--and, if it does, whether U.S. firms will use the opportunity to recover lost ground against imports, or blow the chance by raising their own prices in order to pump up short-term profits.
If American companies raise their own prices instead of going for expanded shares of the market--and, unfortunately, it appears that many will--one unhappy result will be the re-igniting of inflation. Another consequence will be the lost opportunity to restore some of the manufacturing jobs that have been lost in the long slide toward a "de-industrialized" America.
As things stand, this country buys far more from other countries than it manages to sell to them. In 1984 the trade deficit hit $122 billion. In 1985 the figure is expected to be a mind-boggling $140 billion. The Japanese alone account for about a third of the total.
Japan's outstanding trade performance, of course, has been built on more than a favorable exchange rate for the yen. Other elements include the high quality of Japanese products and the skill and dedication of Japanese workers and managers. Perhaps most important is the nature of the Japanese economic system, which is structured to encourage savings and discourage consumer spending, to nourish exports and discourage imports, to target market opportunities in other countries and make low-cost financing available.
To quote economist Lester Thurow of the Massachusetts Institute of Technology, "Japan relies on exports to keep its economy running . . . . In 1981 and 1982 there were quarters when domestic Japanese sales were falling but the economy was still growing" because of rising exports.
When these exports hit the American and European economies, however, they hurt local producers and cause unemployment. Japan's trade edge has now passed the point of toleration by other countries.
Under heavy pressure from Washington, Japanese Prime Minister Yasuhiro Nakasone seems to be trying to lower the barriers, both legal and psychological, to foreign goods and services. But resistance from entrenched interests is strong.
Even if Nakasone succeeded totally in providing foreign exporters with the level playing field they demand, trade analysts doubt that U.S. sales to Japan would increase by more than $5 billion to $10 billion. Without some parallel corrections on the Japanese export side, the problem will not be solved.
The Japanese government's program to encourage expansion of the domestic economy, thereby making Japan less dependent on exports, is a step in the right direction. Most experts, however, say that the effort is too feeble to have much effect.
The most effective step that has been taken so far is in fact the pumping up of the yen versus the dollar. It remains questionable, though, whether either the U.S. or Japanese government will be able and willing to bear the pain required to hold the dollar to an appropriate level.
Keep in mind that the huge deficit in the U.S. federal budget is financed, in major part, by the surplus trade dollars earned by the Japanese and invested in U.S. Treasury offerings.
When the Japanese raise interest rates in order to slow the outflow of the yen and increase its international value, they devalue the dollar holdings of Japanese investors and apply the brakes to the Japanese economy generally.
As for the United States, it can make do with a smaller inflow of Japanese investment money only if it brings the huge federal budget deficit under control. The recently enacted Gramm-Rudman bill is supposed to supply the required discipline. But, given President Reagan's aversion to tax increases and Congress' aversion to spending cuts, it may not work.