This NY Times article highlights how a strong yen has harmed Japan’s industry, but the retirees and consumers like it. A weak yen makes Toyotas and Hondas cheap to foreigners. A strong yen has the opposite impact.
Increasingly, however, business leaders point to a problem that is at least partly within the government’s power to control: a high yen that has made Japanese products, from televisions to memory chips, prohibitively expensive abroad. In an echo of a debate that raged in the United States in the 1980s, the government faces growing criticism for doing almost nothing to rein in the yen, despite alarm that the record-high currency is dealing crippling blows to the country’s once all-important export machine.
One big reason, analysts and some politicians say, is simple, if generally left unsaid: A high yen benefits Japan’s rapidly expanding elderly population, even if it hurts other parts of the country.
The U.S. strong dollar policy has similar impacts.
Japan has manipulated its currency to keep the yen value down, especially in the 1980′s but also in the recent decade.
Toyota and other national champion industries were built, in large part, on a cheap yen. When the “Japan, Inc.” issue was at the forefront in the 1980′s, the Reagan Administration negotiated the Plaza Accord, which forced Japan to do certain things like revalue the yen upward 90%. Yes, you read it right, 90%!
You can read the article here. Currency value matters. China knows it. South Korea knows it. Etc.
The solution to the problem of impact of high currency exchange rates on consumers on fixed incomes is to quit mickeying with the system, let currency values flex with the market to keep the economy in good balance, and use tax revenue gains to increase support for those dependent on public assistance as justified.
Prendl’s formula is reflected in Article 4 of the IMF. It requires all members — Japan and China included — to allow exchange rates to fluctuate so as to eliminate imbalances in the flows of trade and international payments. Those are the rules of the system since the 1940s. The question has always been, how can they be enforced. Thus far, the answer is, they can’t be.
That suggests that for the near and medium term the only way to deal with undervalued currencies is to countervail the subsidy effects. That’s no a solution, but it might keep American manufacturing alive until one can be negotataed.
It seems we negotiate but they just tell us how it is going to be. Things need to be flipped around but I don’t see politicians having the courage to do so. My own Senator is scared of it, by his own words. He also sucks at holding banks responsible for the kind of things that bankrupted most of them. We don’t have political leaders managing the country, we just have sock puppets.
Tom T.