Newspaper article THE JOURNAL RECORD

Japan Adds Europe to List of Trade Problems

Newspaper article THE JOURNAL RECORD

Japan Adds Europe to List of Trade Problems

Article excerpt

The drop in the Tokyo stock market earlier this week, attributed partly to fears of turmoil in the Soviet Union that could weaken the outlook for Japanese involvement in Eastern Europe, knocked down the yen and lifted the dollar.

The weakening yen is likely to worsen the huge United States trade deficit with Japan and intensify the increasingly bitter dispute between the two countries.

But the Japanese may be facing troubles in Europe as well. Kenneth S. Courtis, market strategist and chief economist of the Deutsche Bank in Tokyo, said the yen was undervalued against the European currencies as well.

He said he thought the yen ``could rise to the 150s against the dollar'' from its current 145, and said he feared that a serious trade crisis was boiling up between Japan and the United States and Europe this year.

While pressing Japan to open its markets to correct the trade imbalance, Carla A. Hills, the U.S. trade representative, has been putting heavy stress not on currency values but on ``macroeconomi factors,'' especially the high United States budget deficit and low national savings rate, and the high Japanese savings rate.

Hills said in an interview on Wednesday that the decline in the dollar after 1985 had little effect on the trade imbalance because ``Japan has maintained its export prices near their 1985 levels, to avoid losing market share.'' In a news conference earlier this week, Hills said: ``When the yen gets stronger or the yen gets weaker, the trade balance does not change.''

But Edward M. Bernstein, the first research director of the International Monetary Fund, said he considered that the undervaluation of the yen had been crucial to Japan's persistent balance-of-payments surpluses, not only with the United States but with the rest of the world. This, to him, suggests a serious and universal exchange-rate misalignment, because of the yen.

Abolishing Japanese import barriers, though desirable, would do relatively little toward cutting the United States trade deficit, Bernstein said.

He regards the increase in the American budget deficit since 1981, the last year the United States had a surplus in its balance of payments on current account, as a factor in the trade deficit, but finds it only half as important as the fall in the personal savings rate since 1981.

That rate, historically steady at about 7 percent of disposable personal income, plunged from 7.5 percent in 1981 to a low of 3.2 percent in 1987. It recovered partly in 1988, to 4.2 percent, and in 1989, to 5.4 percent.

With this improvement in its savings rate, and the decline of the dollar after 1985, the U.S. trade deficit did improve with other countries, but not with Japan.

The American deficit peaked in the third quarter of 1987 at an annual rate of $162. …

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