March 15, 1995
Right on the Money
In journalism you sometimes have to say: "I was wrong." For instance, I thought that the U.S. invasion of Haiti last fall would turn out much worse than it has, and so far, fortunately, I've been wrong.
But there are also times when you should say, "I was right." For me this time has come with the Japanese yen.
For ten years or more, non-Japanese observers have debated whether Japan's economic juggernaut has finally hit the wall. Those who think the miracle is over say that Japan's people are tired of their belt-tightening and that big Japanese companies are too cumbersome for the agile new information age. But above all they say that the steady rise of the yen's value will price Japanese exporters out of business, as Toyotas and Sonys become too expensive for foreigners to buy.
Ten years ago, one U.S. dollar was worth more than 250 yen. Over the next two years, the dollar's value against the yen plummeted - to 220 yen, then 180, then 120. And at every step of the way a chorus of Japanese and American observers said: This is it! NOW Japanese exporters will face too great a price handicap. NOW American imports will be an irresistible bargain in Japan. NOW the trade imbalance will go away. But the dollar kept falling - below 90 last week - the yen kept rising, and the patterns of trade were virtually unchanged.
Throughout this process there has been a renegade, alternative view. According to this theory, the higher the yen goes, the stronger - not weaker - Japan's industries will ultimately become. This view is spelled out in a new book called Blindside, by the Tokyo-based writer Eamonn Fingleton, and it's one that I too have espoused. It has many components but its central idea is that the Japanese economy is organized in a way that channels the yen's new buying power largely into industrial investment. This in turn lets Japan's exporters keep pushing their costs down, through productivity increases, even faster than the yen goes up. And this Japanese strategy has worked. Last year, despite the sky-high yen, Japanese car companies expanded their share of the U.S. market.
A new round of hand-wringing stories is now coming out of Tokyo, telling us how "worried" Japanese manufacturers are about their yen's "troubling" new strength. You can take this at face value if you want, and assume that Japan is on the ropes. Or you watch for its comeback, along with me - remembering that I'm the one who's been right.
Copyright © 1995, by James Fallows. All Rights Reserved.