Word: yen
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Dates: during 1980-1989
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DESCRIPTION: U.S. dollar vs. Japan's yen and West Germany's mark. Color illustration: Uncle Sam, turning his back on the dollar, reads Stock reports in newspaper...
That, at least, is the theory. In practice, the mechanisms have been more complex and less effective. Since early 1985, the dollar has declined by about 50% against major currencies like the Japanese yen and the West German mark. Yet the U.S. trade deficit is as high as ever. Admittedly, it takes time for consumers and businesses to change their buying habits, and an improvement in the trade balance may be in the pipeline. But several forces are holding the deficit up. For one thing, foreign manufacturers have shown a dogged determination to hold down their U.S. prices to maintain...
...foreign, since U.S. manufacturers do not make the machines. Indeed, as long as the American appetite for imports remains, a perverse effect takes place: as the price of foreign products increases, Americans spend even more dollars for the same volume of goods. Meanwhile, they earn fewer yen, francs and marks for U.S. products that do sell well abroad, like Boeing aircraft and IBM computers. As a result, the trade deficit actually increases in dollar terms...
...market's sturdiness was particularly impressive in the face of a sliding U.S. dollar, which fell 2% to 3% last week against major trading currencies. At one point the dollar traded in New York at 137.20 yen, a 40-year low, and 1.721 West German marks, the lowest in seven years. The drop apparently represented a Reagan Administration plan to abandon its policy of holding the currency steady in favor of allowing it to enter a managed decline. Many economists believe the dollar must fall 10% or more to help ease the U.S. trade deficit by making American goods more...
...prop up the price. Worse, the Federal Reserve was forced into the high-interest-rate policy that proved to be poison to world stock markets. And still the Louvre values could not be sustained. ( Last week the dollar fell to new lows against the West German mark and Japanese yen; foreign governments seemed willing to buy only enough U.S. currency to cushion, not stop, the decline...