Cracks in the Barriers

To export-minded Japanese, the prospect of another revaluation of the yen, which would raise the price of the country's goods in foreign markets, looms as a threat of almost Fujian financial proportions. Japanese products, after all, lost some of their competitive edge in last year's Smithsonian monetary realignments, during which the yen was revalued against the dollar by more (16.89%) than any other currency. Japanese businessmen want to avoid another such jolt at all costs. As a result Japan's trading partners, who have long sought to reason and cajole Tokyo into removing some of its formidable trade barriers, are finding that a mere hint of revaluation can work small wonders.

One of the latest to use this tactic is Treasury Secretary George Shultz, who in October suggested that the International Monetary Fund impose penalties on any nation that piles up giant surpluses in dealings with the rest of the world, and refuses to do anything to reduce them (TIME, Oct. 9). Japanese newspapers interpreted his speech as an attempt to push Japan into revaluing the yen, and their screaming headlines touched off a brief panic on the Tokyo Stock Exchange. Result: the Japanese government took prompt action to bring in more imports and give less encouragement to exporters.

Prime Minister Kakuei Tanaka ordered a 20% slash in tariffs on most imports of industrial and mining products. The average Japanese tariff will come down to 9.5% on consumer goods. In addition, the Tokyo government will let in more goods (computers, leather products, many foods) that are restricted by import quotas, and will make low interest loans to importers first rather than to exporters, as had previously been its policy. The government also has invoked an ordinance compelling companies to form cartels to restrict exports of products deemed to be winning foreign customers too rapidly.

Most Japanese businessmen, worried about another revaluation, favor even stronger measures, especially a surcharge on exports. But Tanaka, who is up for re-election in December, is reluctant to take that stand and risk angering special interests in the business community. So, his program may well not stop the pile-up in Japan's reserves, which the U.S. and other nations view as evidence of unfair Japanese trade practices. Japan's reserves are officially estimated to be $16 billion, but adding in money that the government has deposited in foreign banks and invested in U.S. securities brings the actual total closer to $22 billion. Whether Tanaka's program will succeed is uncertain.

Last week, sensing a possible Japanese revaluation, European money dealers exchanged massive amounts of dollars for the yen, driving it above its official limits in relation to the greenback. Thus foreign moneymen, and even some Japanese, continue to think that revaluation is inevitable.

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