Let’s look at two op-eds, one from a credit rating agency writing for the NYT and the other an economist from Goldman Sachs. The former is arguing for a stronger yen while the latter, apparently, for a weaker yen. While each of their concerns is not exactly an antithesis to the other, both are touching on the issue of a trade-dependent Japan.
Akio Mikuni, writing for the NYT, suggests going back to the 17th century when the Japanese were lavish spenders – providing strong domestic demand and a significant amount of capital its economy could use while simultaneously increasing the citizens’ purchasing power. Over the past several months, the Japanese yen has been trading at under a hundred per dollar – far from its average prior to the beginning of the crisis. For such an export-dependent country, dollar reserves are growing but he argues, echoing sentiments of a prominent scholar in the past, one cannot eat dollars. His comment is effectively suggesting that Japan move away from its current export-driven economy to one that relies more heavily on local demand.
In the op-ed, he writes:
In the short term, moving away from our long-cherished export model will be painful. We should brace ourselves for factory closings, bankruptcies and mergers. The remaining manufacturing companies will have to shift their orientation. While many have been intent on selling competitively priced goods abroad, now they will need to come up with unique products that can command premium prices.
I find his view interesting. I used to frequently wonder why a country so advanced, developed, and rich has a currency that can only purchase a hundredth of the dollar. True, a shift in model is a radical recommendation, one that might received with mockery by others. And I’m not sure anyone is ready for that shift. This suggestion though carrying some merits is going to need a truly brilliant set of minds to be able to pull off a change in model that has been in place for as long as I can remember.
Read Mikuni HERE.
The other op-ed written by Jim O’Neill is looking at the currency’s weak fundamentals, which push him to argue that the current ¥95/dollar is more appropriate at ¥195. He writes:
The past US trade report showed the US trade deficit with Japan fell to $1.9bn in May, the lowest since February 1984. That month, $/yen traded in a ¥232-¥235 range. For much of my career, while the $/Deutschemark and subsequently $/euro relationship always reflected more of a “financial flavour”, $/yen was usually driven by trade-related flows. If that is still the case, the yen deserves to be nowhere near where it currently trades.
Given a deteriorating current account balance, balance of payments and the discrepancy O’Neill pointed above, he asks at the closing of his op-ed: Should the yen not be closer to ¥195 than ¥95?
The entire Jim O’Neill op-ed HERE.