A high Japanese official said here over the week-end that the 22 per cent appreciation of the yen last year had created an industrial profit squeeze leading to great anxiety among Japanese businessmen.
Vice Minister of Finance Michiya Matsukawa predicted in an interview that the shrinkage in Japanese corporate profits to be reported shortly after the end of the Japanese fiscal year March 31 would amount to more than the 22 per cent increase in the value of the yen.
Matsukawa was here on what he describedas a goodwill mission, visiting Treasury Secretary W. Michael Blumenthal, Federal Reserve Board Chairman Arthur F. Burns, and various officials at the World Bank and International Monetary Fund.
He said that the profits squeeze could have profound political and social significance in Japan, because it would cause a re-examination of the traditional Japanese system of maintaining the level of employment despite declines in business activity.
The so-called "lifetime employment" pattern in Japanese society - one of the sources of strength in the post-war growth period - has been considered a substitute for the elaborate unemployment compensation and social security systems of the West.
Matsukawa said that as a result of the yen-oriented profits squeeze, "hidden unemployment" raises the real jobless rate in Japan to between 5 and 6 percent, about the levels now prevalent in Europe.
The government of Prime Minister Takeo Fukuda has just introduced legislation in the Japanese Diet to ease the new unemployment problem. Under the bill, a new employer or a person thrown out of work for yen-related causes will be paid a subsidy of one-third to one-half of the additional salary burden for a 90-day period.
Matsukawa said it was hoped the legislation will "calm down the anxiety" among workers and restore the confidence of the business community. But there is considerable business pressure on the Government to prevent the rate of the yen, now 240 to the dollar, from climbing any higher.
Matsukawa praised the economic agreement reached earlier this month in Tokyo between Special Trade Representative Robert S. Strauss and Ambassador Nobuhiko Ushiba.
He said the communique was "a happy result, because if (negotiations) had failed, we don't know the extent of difficulties we would have to face because of rising protectionist sentiment."
Nevertheless, he predicted that it will be difficult for Japan to fulfill one of the major commitments of the Strauss-Ushiba communique, a 7 percent Japanese growth rate in 1978. But the Japanese government takes the target seriously, "and the budget has been adjusted to achieve that result," Matsukawa said.
He admitted that Japan had been reluctant to include a specific numerical growth number in the communique, but that the final decision to put it in "was a unilateral decision of the Japanese government."
As a consequence of the appreciated value of the yen, and the commitment to stress economic growth at home, Matsukawa predicted that the Japanese current account surplus - $10 to $11 billion last year - would drop to about $6 billion this year.
Among other topics, Matsukawa said that his government was concerned about the depreciation of the dollar, not only in terms of the yen, but generally. he noted that the United States ascribes part of the reason for the dollar's recent weakness to the greater real economic growth rate here, compared to Europe, which attracts imports and thus adds to the U.S. trade deficit.
"But I'm skeptical that's the only reason," Matsukawa said. He suggested that the United States may also be suffering from the loss of a quality edge in some of its exported products. "At a time a country is running deficits, it needs to be cautious," the Japanese minister said. "American businessmen have to take care not to fall into the British sickness."