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Changing Role of the Yen Is Worth a Debate

June 19, 1988|JAMES FLANIGAN

TOKYO — What's the real issue looming in U.S.-Japan relations, as President Reagan and Prime Minister Noboru Takeshita talk about beef and citrus exports at the economic summit opening today in Toronto?

Far more than sirloin and oranges, it's the buying power of the Japanese yen. Three years after the agreement to shift currency values to make U.S. goods more competitive, the situation is curious.

The strong yen--which has doubled in value since 1985--has made Japan enormously wealthy. The country is investing around the world, it has more foreign assets than any other nation, and its citizens are reminded daily by posh stores opening in Tokyo that they can buy foreign goods for a song.

Meanwhile, the dollar is in fragile health, and many Americans are coming to see its weakness as a mixed blessing--an aid to exports, perhaps, but also a bargain sticker for foreigners buying U.S. businesses and real estate. And such doubts will grow unless America properly weighs the benefits and drawbacks of its Asian ally's new status.

For Japan is ready to see the yen play a leadership role as a key currency for world trade that other countries can hold as a store of value. That reserve currency position is now held almost solely by the dollar.

But, gee, says Japan in effect, the dollar's been so unstable lately. "In recent years, the dollar dropped very fast," notes Takashi Iijima, research director at Japan's powerful Ministry of Finance. "So it is necessary to have a supplementary international currency--the yen or the D-mark (deutsche mark) perhaps."

Just helping out, he explains. "If the dollar is the only reserve currency, then the U.S. government bears the whole responsibility for its value. But if there are other currencies, the responsibility of the U.S. government is more or less decreased."


And Japan's responsibility increased. "It does not mean," adds Iijima, "that Japan or West Germany would allow economic management without discipline."

An unpleasant reminder there of diminished U.S. economic stature. But Japan didn't ask for the currency shift. The country was criticized in the past for holding the yen down to help exports; now it is criticized for letting it rise and helping investment. "That's Catch-22," says Finance Minister Kiichi Miyazawa.

"The yen as world currency has come without our knowing or preferring it," says Miyazawa. "So we are now belatedly preparing for that stage by liberalizing our money market."

Japan is spreading the use of its currency in international bond issues and also encouraging its citizens to travel and invest abroad.

That's where mixed blessings for Americans come in. Eight million Japanese tourists, encouraged by $1,600 duty-free allowances to bring home foreign goods, won't be a problem. Shops in Los Angeles and New York are hanging out the welcome signs.

But real estate investment could be a problem. Circulars distributed with daily newspapers in Tokyo these days advertise five-bedroom houses for $300,000 in Laguna Niguel and San Clemente. The Japanese are amazed; $300,000 buys a broom closet in Tokyo, where a 700-square-foot apartment can go for half a million.

The problem? Distorted markets and rising taxes. Already Mayor Frank Fasi of Honolulu is calling for a law directed at Japanese house buying because, while some homeowners reap rising prices, other home buyers are priced out of the market, and all homeowners suffer rising taxes. Miyazawa agrees that the Japanese should restrain themselves "in an area like Hawaii, where our presence is getting to be a bit scandalous."

Other American feathers are sure to be ruffled when Japanese foreign investments include takeovers--which, says a Tokyo banker, will surge in the next few years. Japanese companies invested $30 billion abroad last year, including $1 billion in China and $12 billion in the United States.

So what should the United States do? It should weigh benefits and problems dispassionately. On residential real estate, better than passing a law would be pressure on Japan to reform its outdated tax and land ownership system, which discourages buying and selling of land and houses. The reason ordinary Japanese plunge savings into U.S. real estate is that they have few opportunities to do so at home.

But we should not see problems where there are none. If Japanese companies move to America because they can't ship competitively from Japan, isn't it the American market that benefits and Japanese companies who take the risks? Surely U.S. industry should be able to compete with a home-court advantage.

As for feelings of diminished economic stature, well, to the extent the dollar's weakness is caused by the budget deficit, fix the deficit.

Finally, Japan should remember that it did not get rich without help. In the 1980s, the United States bought the goods of Japan and Asia with such willingness that it almost single-handedly created new prosperity. If now Japan takes Asia's imports while the U.S. takes a breather for some budget housekeeping, that would demonstrate real leadership--and be far more useful for the world economy than arguing about beef and oranges.

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