As the Williamsburg meeting opens, interest in it here is sinking toward zero. The real question is what comes next. There the Japanese interest, not to say anxiety, is sharp.
The preparations for Williamsburg seem to have been successful in steering the discussion away from the trade issues that divide the United States and Japan. At a short meeting of seven heads of government, in front of several thousand news reporters, nobody wants to open up controversies to which no one has an answer.
But after Williamsburg, in less spectacularly public circumstances, there's a list of subjects that are going to have to be discussed. According to one authoritative view here, the most important of them is monetary policy and the exchange rates.
The precise amount is a matter of argument, but there is no doubt that currently the yen is low and the dollar high in terms of each other. The reasons lie in the flows of international investment and speculation. But the effects are drastic.
A low yen keeps the prices of Japanese exports low in foreign markets, and more fiercely competitive than ever, while a high dollar means high prices for U.S. goods abroad. Not only are the present rates out of line, measured by the things that they can buy, but they keep moving against each other with great volatility.
In Japan as in most industrial countries, the constituency for stable exchange rates is, above all, the manufacturing industries. As an economist here observed, a company can knock itself out to shave production costs by 1 percent, only to see all its efforts nullified in a single afternoon by a random swing in the exchange markets.
But there is no more agreement here on remedies than there is in Washington or New York. The Japanese government does not consider it realistic to talk--as the French have been doing--about a return to the fixed- rate system that collapsed a decade ago.
The serious debate is over intervention. Theoretically, governments can intervene in the exchange markets by buying and selling currencies. In practice, it is not at all clear that even governments have the resources to counteract the tremendous tides of private money now running through the international banking system.
If you go to government or corporation offices, you are likely to hear the case for concerted stabilization by an alliance of governments to hold rates at least within a broad band. According to this view a display of determination by the most powerful governments, working together, would daunt speculators and serve to steady rates.
If you visit banks and financial specialists, you are more likely to be told that attempts at intervention are merely a very fast way to lose a lot of public money without accomplishing much. According to this logic, the only real hope for stability is to get inflation rates down in the major trading countries--the Japanese rate is now close to zero--and remove the inflation differentials that offer opportunities for speculation.
In any event, there is little hope of any dramatic improvement soon. That's unfortunate, because the misaligned and unstable yen-dollar rates are contributing powerfully to the pressure for protectionist legislation in the United States, and to the charges of unfair Japanese trading practices.
If the yen is undervalued in terms of the dollar by 10 to 20 percent, it gives a price advantage of perhaps $750 to $1,500 to a Japanese compact car sold in the United States--a devastating handicap to the American competition.
To take the long view, the misalignment of the currencies is temporary in the sense that it is likely to remedy itself over the coming years, if not in the next few months. One cause of it is the high American budget deficit and the high interest rates that it generates-- which, let's hope, will not persist forever. On the Japanese side, the yen is depressed by the heavy outflow of capital investment.
There's a widespread opinion here that investment opportunities are currently better elsewhere in the Pacific basin, including North America, than in Japan. That thought startles Americans, who are accustomed to complaining about the state of their own economy while reading about the resilience of Japan's. But money is moving out of Japan this year--although, again, the trend won't last forever.
It would be a grave reproach to these seven powerful industrial countries if they allowed a temporary currency misalignment to result in a permanent structure of trade barriers. But that is the direction in which things are now moving.
Regarded from this side of the world, Williamsburg appears to be in some danger of turning into a symbol of political evasion. The seven great powers of the industrial world have invented a system of international trade that has made them rich beyond all expectation. But they are now beginning to realize that they have not yet found a way to govern and manage it.