Word: yen
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When American businessmen complain about unfair Japanese competition, high on their gripe list is the value of the yen. Many executives contend that restrictions in the Japanese financial system have kept the yen artificially cheap compared with the dollar, and thus have made it easier for Japanese manufacturers to keep prices low when selling their products abroad. In a speech in Detroit earlier this month, Chrysler Chairman Lee Iacocca declaimed, "The Japanese yen is undervalued by at least 15%, and everyone in Washington agrees on that...
Heedful of these complaints, the Reagan Administration has been trying to coax the Japanese into allowing the yen to rise in value. The task has not been easy. As one American economist points out, the Japanese Finance Ministry "likes to study every issue for a decade or so." But now, after a series of meetings in Washington, Tokyo, Hawaii and Rome, a deal appears to have been struck. It is expected to be announced this week...
...latest initiative toward boosting the yen began last fall. Meeting in Tokyo, President Reagan and Japanese Prime Minister Yasuhiro Nakasone pledged to seek ways to end economic friction, particularly concerning the value of the yen. But little progress was made until the end of March, when Treasury Secretary Donald Regan went to Tokyo and bluntly scolded the Japanese at a fist-thumping news conference...
...tough talk apparently made an impact. So did the U.S. suggestion that a greater role for the yen in world finance would mean that Japan would become the second largest shareholder in the World Bank, a prestigious position long sought by the Japanese. At a meeting of economic officials in Rome last week, the two nations wrapped up most of the final details for an agreement...
...deal extracted by the U.S. is based on the theory that if the yen becomes a more freely traded international currency, its price will go up. Despite Japan's size and enormous trading balances (1983 merchandise surplus: $31.6 billion), the yen is not easily used in international finance. Japan's central bank restricts overseas lending and controls the interest rate on yen deposits. As a result, the yen accounts for only about 3% of the currency reserves held around the world; some 85% are in dollars and the rest in West German marks...