Japan Has Strong Yen For Investing Abroad

THE United States was pushing Japan again this week at a meeting in Vancouver, British Columbia, to open its market further to imports, this time for autos and parts.

Threats of punitive tariffs -- on more than $1 billion of Japanese goods in this case -- may be necessary to get a deal.

''The trade arena has always been a tough arena,'' Renato Ruggiero, the new head of the World Trade Organization told the Associated Press Wednesday. ''The language is purposely tough.''

But even if Japan were to fully liberalize its domestic market, it would only trim that nation's international payments surplus by perhaps $10 billion to $20 billion, calculates William Cline, an economist with the Institute for International Economics in Washington. That's far less than Japan's current account surplus of about $130 billion. This measure shows that Japan's earnings from exports, tourism, and foreign investment far exceed its payments in these areas.

Japan's huge surplus, Mr. Cline says, stems largely from its high savings rate. Those savings exceed the amount Japanese business or the government want to borrow to invest within Japan. So the Japanese invest the surplus savings abroad one way or another.

This makes good sense, holds Richard Hokenson, an economist with the brokerage house, Donaldson Lufkin & Jenrette in New York. ''The fundamental reason for yen strength is the fact that Japan has the fastest-aging population during the decade of the 1990s.''

Unlike most other industrial nations, Japan did not have an increase in births following the end of World War II. Indeed, Japan had a major post-war baby bust, Mr. Hokenson notes. So soon there will be many, many retirees and relatively few workers. Thus, Japan needs to invest in assets overseas that will provide the income to purchase goods abroad that it will no longer be able to produce in sufficient quantities domestically.

Those working today can build a store of some long-lasting goods -- such as housing -- that can be used when they retire. Their savings can be invested in productivity-enhancing plants, machinery, equipment, or education that will make it easier for the younger generation to produce goods and services needed in the future by both workers and retirees.

But it is not possible for a present generation to store up consumer goods for when they retire 10, 20, or 30 years in the future. Today's food would be rotten, the cars outdated. Where would you store all the bedding and clothing needed for retirement years? So the working generation in a country always must supply the bulk of goods and services for the retired generation -- unless retirees have foreign sources of goods.

In the US, the Social Security trust fund has taken on mythical importance for many contemplating retirement. They lament use of the fund to finance the federal deficit. But the real damage to future retirees' prospects is if the deficit reduces the investment that boosts productivity and living standards.

Japan, by using some excess savings to invest in the US, has made up to some extent for any lack of investment funds in the US, with its low savings rate.

Japanese investors aimed at making money. But billions went into real estate that plunged in value. Investors also were hurt by the drop in the dollar's value against the yen. Japanese losses, according to some estimates, have been in the hundreds of billions of dollars in the last few years.

Cline makes another point -- that the trade-weighted average exchange rate of the dollar has fallen only a little. The dollar is down more than 17 percent against the yen, about 13 percent against the German mark, 7 percent against industrial country currencies overall, but much less against its trading partners overall. It has risen substantially against the currencies of Mexico, Canada, Britain, and Italy.

The yen at 84 to $1 is ''about right,'' he says, even if at that exchange rate the per capita gross national product of a Japanese is $47,500 compared with about $25,000 for an American -- or a Florida grapefruit costs $5.35 in Tokyo. If purchasing power of the yen is taken into account, however, the average Japanese has about 72 percent the living standard of an American.

At the moment, Cline expects the US current account deficit to climb from $157 billion last year to $200 billion this year.Japan Has Strong Yen For Investing Abroad

THE United States was pushing Japan again this week at a meeting in Vancouver, British Columbia, to open its market further to imports, this time for autos and parts.

Threats of punitive tariffs -- on more than $1 billion of Japanese goods in this case -- may be necessary to get a deal.

''The trade arena has always been a tough arena,'' Renato Ruggiero, the new head of the World Trade Organization told the Associated Press Wednesday. ''The language is purposely tough.''

But even if Japan were to fully liberalize its domestic market, it would only trim that nation's international payments surplus by perhaps $10 billion to $20 billion, calculates William Cline, an economist with the Institute for International Economics in Washington. That's far less than Japan's current account surplus of about $130 billion. This measure shows that Japan's earnings from exports, tourism, and foreign investment far exceed its payments in these areas.

Japan's huge surplus, Mr. Cline says, stems largely from its high savings rate. Those savings exceed the amount Japanese business or the government want to borrow to invest within Japan. So the Japanese invest the surplus savings abroad one way or another.

This makes good sense, holds Richard Hokenson, an economist with the brokerage house, Donaldson Lufkin & Jenrette in New York. ''The fundamental reason for yen strength is the fact that Japan has the fastest-aging population during the decade of the 1990s.''

Unlike most other industrial nations, Japan did not have an increase in births following the end of World War II. Indeed, Japan had a major post-war baby bust, Mr. Hokenson notes. So soon there will be many, many retirees and relatively few workers. Thus, Japan needs to invest in assets overseas that will provide the income to purchase goods abroad that it will no longer be able to produce in sufficient quantities domestically.

Those working today can build a store of some long-lasting goods -- such as housing -- that can be used when they retire. Their savings can be invested in productivity-enhancing plants, machinery, equipment, or education that will make it easier for the younger generation to produce goods and services needed in the future by both workers and retirees.

But it is not possible for a present generation to store up consumer goods for when they retire 10, 20, or 30 years in the future. Today's food would be rotten, the cars outdated. Where would you store all the bedding and clothing needed for retirement years? So the working generation in a country always must supply the bulk of goods and services for the retired generation -- unless retirees have foreign sources of goods.

In the US, the Social Security trust fund has taken on mythical importance for many contemplating retirement. They lament use of the fund to finance the federal deficit. But the real damage to future retirees' prospects is if the deficit reduces the investment that boosts productivity and living standards.

Japan, by using some excess savings to invest in the US, has made up to some extent for any lack of investment funds in the US, with its low savings rate.

Japanese investors aimed at making money. But billions went into real estate that plunged in value. Investors also were hurt by the drop in the dollar's value against the yen. Japanese losses, according to some estimates, have been in the hundreds of billions of dollars in the last few years.

Cline makes another point -- that the trade-weighted average exchange rate of the dollar has fallen only a little. The dollar is down more than 17 percent against the yen, about 13 percent against the German mark, 7 percent against industrial country currencies overall, but much less against its trading partners overall. It has risen substantially against the currencies of Mexico, Canada, Britain, and Italy.

The yen at 84 to $1 is ''about right,'' he says, even if at that exchange rate the per capita gross national product of a Japanese is $47,500 compared with about $25,000 for an American -- or a Florida grapefruit costs $5.35 in Tokyo. If purchasing power of the yen is taken into account, however, the average Japanese has about 72 percent the living standard of an American.

At the moment, Cline expects the US current account deficit to climb from $157 billion last year to $200 billion this year.