No longer will Japan export its way out of recession. Or so Japanese officials have said, as they solemnly pledge to help buoy the world economy by increasing domestic spending and importing more goods from abroad.
So why should Tokyo be trying to drive down the value of the yen in an apparent effort to boost its export machine? That's what some economists are asking after massive intervention in currency markets by the Bank of Japan, which has sold billions of dollars worth of yen in recent weeks. The Clinton administration, which tends to regard such intervention as foolish, is also voicing disapproval of the Japanese moves.
Tokyo's actions have apparently been aimed at keeping the dollar-yen exchange rate from slipping much below the 120 level. Economic policymakers in Tokyo fear that a stronger yen, which would make Japanese exports more expensive, might damage the country's hopes for escaping its long slump. Currency traders have driven the value of the yen upward recently on signs that an economic recovery is underway, but almost every time the yen appreciates the central bank has sold large quantities of the currency, which closed yesterday in New York at 122.53 per dollar.
"A strong yen at this early stage of recovery is unfavorable to the economy when the recovery is still fragile," said Haruhiko Kuroda, Japan's new vice finance minister for international affairs, in a interview published this morning in the Nihon Keizai Shimbun, Japan's leading economic daily.
The Japanese yen selling drew a rebuke this week from Lawrence H. Summers, the newly installed Treasury secretary. "Manipulating currencies is not the approach that produces long-run prosperity," Summers said in a CNBC interview Wednesday evening. "So what we would encourage Japan to do is to focus on . . . domestic-demand-led growth."
Summers didn't accuse Tokyo of trying to export its way to recovery, and he didn't suggest that Washington would object if market forces caused the yen to weaken. But his comments reflected a long-standing Treasury view that intervention is often futile and draws energy from actions needed to change economic fundamentals. By distancing himself from the Japanese currency moves, he also made it clear that, despite hints from Tokyo that Washington might join in intervening, U.S. officials aren't interested in doing so.
Some independent analysts argue that the administration ought to be tougher on Tokyo. C. Fred Bergsten, director of the Institute for International Economics, charged that it is "outrageous" for Japan to deliberately seek a lower yen when it is running a huge trade surplus ($118 billion in the fiscal year ended March 31), and when the United States is posting record trade deficits ($164 billion last year). Tokyo ought to be taking steps to shrink that imbalance, Bergsten asserted, but a weaker yen would only make it worse by increasing Japanese exports and reducing Japanese purchases from other countries.
"The Japanese are sort of going back to the old tried-and-true strategy of exporting their problems to the rest of the world," Bergsten said. "They say, `We can't let our recovery be nipped in the bud by a rising yen.' But the whole objective is to gain recovery with domestic demand" rather than increased exports.
Some other economists, however, take a more benign view, among them Gary Saxonhouse of the University of Michigan, who has often defended Tokyo's policies against what he views as unfair criticism.
The Japanese government, Saxonhouse noted, has run up gigantic budget deficits in its efforts to stimulate domestic demand and is justifiably worried that the stimulative impact will be canceled out by a rising yen that dampens exports.
"I agree with Secretary Summers, though, that the Japanese have to think hard about how they're going to sustain the recovery with domestic demand," he said.
Meanwhile, the world's other major currency, the euro, is also weakening against the dollar as economic growth on the continent continues to lag behind growth in the United States. The euro closed yesterday at $1.0222, near its all-time low. German Finance Minister Hans Eichel was quoted by news services as saying the euro's weakness is "no problem" and "good for exports."
CAPTION: Treasury Secretary Lawrence H. Summers criticized yen selling.