Land of the Rising Yen

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Little more than a year ago, Japanese companies seemed invincible in the American market. Because the dollar was so strong, Japanese products were relatively inexpensive in the U.S., and Americans seemed to have an insatiable appetite for Toyotas, Sonys and Nikons. But now that the dollar is diving, the prices of Japan's goods are suddenly on the rise in the U.S. As the dollar hit a record postwar low of 174.60 yen last week, Japanese manufacturers fretted that their exports would be devastated, and rival American businessmen broke into broad smiles.

In Tokyo, Prime Minister Yasuhiro Nakasone urged his Cabinet to devise emergency measures to aid the worst-hit Japanese firms and pledged to do more to calm down the dollar-yen exchange rate. On the following day, the Bank of Japan briefly intervened in the foreign-exchange markets, buying dollars to support the value of the U.S. currency. But no one could be sure that the bank would succeed, and a sense of helplessness came over many Japanese executives. Said an official of NEC, a leading Japanese electronics manufacturer: "It is like groping our way in the dark. All we want now is for the exchange rate to stabilize."

That may not happen for a while. The dollar has been falling partly because of the meeting last September of the finance ministers and central bankers of Japan, Britain, West Germany, France and the U.S. The officials agreed to help the U.S. reduce the value of its currency in an effort to trim the dangerously high American trade deficit, which hit a record $148.5 billion last year. These industrial powers, known as the Group of Five, were convinced that bringing the dollar down could help avert a trade war. At the time, the U.S. Congress was particularly incensed about America's $50 billion deficit with Japan.

The Group of Five plan was a success: the dollar has fallen against all major currencies since the September meeting. Most important, it has declined by 27% against the yen, and the protectionist pressures in Congress have declined. But the Group of Five now seems to be in no hurry to stop what it started. The central banks, with the exception of the Bank of Japan, are making no attempt to discourage private foreign-exchange traders from continuing to push the dollar down.

That means mounting trouble for Japanese companies that depend upon export sales, since they must charge customers more dollars to receive the same number of yen. In a report last week, the Japanese Ministry of International Trade and Industry revealed that manufacturers of cars, computers, semiconductors, cameras, color television sets and videocassette recorders were planning to raise prices further in the U.S., adding to recent increases. Toyota, the largest Japanese automaker, has marked up its price tags by an average of 7% since the beginning of the year. A Toyota Cressida now costs $17,480, up 11.4% from $15,690. In the same period, the price of a Honda Accord LX has increased by 17%, to $12,469. Last week Nissan Motor U.S.A. announced price hikes of about 3% on some of its 1986 cars and trucks.