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No. 23 — June 18, 1999

 

Feature Article

INTERNATIONALIZATION OF THE YEN: A MINISTRY OF FINANCE PIPE-DREAM? by Marc Castellano

Summary

The yen is the lifeblood of the second-largest economy in the world but commands little clout beyond the borders of the insular powerhouse that is Japan. Because the currency's role in the international monetary system is limited and is by some measures even declining, Tokyo has initiated an effort to promote the yen's use in the global marketplace.

The recent drive, spearheaded by the Ministry of Finance, was begun in 1998, mostly as a reaction to the East Asian financial crisis and the impending introduction of the euro. Sensing that the time was ripe, Tokyo began promoting the yen actively through aid programs and in multilateral forums. In addition, the financial sector, key to attracting investment and spurring international interest in the yen, was undergoing a major overhaul. Tokyo's Big Bang financial market reform, inaugurated in April 1998, included landmark initiatives designed to increase the strength and quality of the financial sector.

Notwithstanding such commendable efforts, particularly those geared toward liberalizing and diversifying market transactions, tremendous barriers stand in the way of Tokyo's grand plan for the yen. The dollar is deeply entrenched as the dominant currency in the international monetary system. Incentives to change the status quo, even in such regions as East Asia that have strong economic links to Japan, are weak. MOF faces at best a formidable task that will require not only a significant adjustment to the established global economic system but also a shift in geopolitical alignment.

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Weekly Review

JAPAN REGISTERED STARTLING GROWTH IN FIRST QUARTER by Douglas Ostrom

After Taichi Sakaiya, chief of the Economic Planning Agency, said that he initially had found Japan's latest gross domestic product statistics unbelievable, almost all private-sector analysts joined the chorus of skeptics. Certainly, EPA's June 11 announcement that the economy had expanded 7.9 percent on a price and seasonally adjusted basis in the January-March quarter was a great surprise to practically everyone. Growth at this rate would be astonishing at any time, but it was especially remarkable coming in the wake of five straight quarters of contraction and in light of the consensus that the economy, at best, had eked out a small gain in the first quarter. Although many analysts argued convincingly that the latest GDP figures lacked credibility, the numbers also suggested that previous assessments of Japan's economy had been too gloomy.

 

TOKYO AIMS TO BRING DOWN HIGH-FLYING UNEMPLOYMENT RATE by Jon Choy

Having "solved" the nonperforming-loan crisis and hoping to build on the momentum created by the economy's unexpectedly strong showing in the first three months of 1999 (see previous article), the administration of Prime Minister Keizo Obuchi along with the ruling Liberal Democratic Party and its Liberal Party ally have set their sights on easing the impact of ongoing economic reforms and corporate restructuring on Japanese workers. Breaking with tradition, Mr. Obuchi has proposed that the central and local governments take a direct and active hand in creating jobs for displaced workers. The cabinet adopted a LDP-drafted plan June 11 that could generate as many as three-quarters of a million new jobs and necessitate a supplemental budget of about ¥500 billion ($4.2 billion at ¥120=$1.00). While some business leaders and organizations lauded this initiative, analysts and fiscal conservatives reacted skeptically.

 

JAPAN TO PLAY ACTIVE ROLE IN KOSOVO "CIVIL PRESENCE" by Barbara Wanner

Japan intends to take part in the Kosovo peacekeeping process by participating in the planned international "civil presence" in the war-torn Yugoslav province, Foreign Minister Masahiko Komura stated June 10. Tokyo also will boost economic assistance to ease the plight of returning ethnic Albanians as well as to help neighboring Albania and Macedonia, whose financial and infrastructural resources have been taxed nearly to the breaking point by the massive influx of Kosovar refugees over the last four months or so.

 

JAPAN REMAINS WORLD'S LARGEST AID DONOR by Marc Castellano

Japan ranked first among the world's top aid donors in 1998, the sixth consecutive year it achieved this position. Tokyo provided nearly $10.7 billion in net official development assistance, according to preliminary figures released June 10 by the Paris-based Organization for Economic Cooperation and Development (see Table). That total represented a nominal dollar gain of 14.2 percent from 1997's figure. In real or yen terms, Japan's net ODA disbursements surged 23.1 percent. That jump occurred despite the yen's appreciation to an average of ¥130.9=$1.00 in 1998 from ¥121=$1.00 the year before. It reflected a huge boost in contributions stated in yen.

 

NOTES

The International Trade Commission handed the American steel industry a resounding victory June 11 in its controversial crusade against "predatory" foreign rivals. All six commissioners agreed that Department of Commerce-calculated sales of unfairly priced carbon hot-rolled steel products from Japan had some type of negative impact on the operations of domestic mills (see JEI Report No. 19B, May 14, 1999). Five concluded that dumping by manufacturers like Nippon Steel Corp., NKK Corp. and Kawasaki Steel Corp. had materially injured the 24 U.S. firms making hot-rolled steel, including a number affiliated with the Japanese mills guilty of illegal pricing. The other commissioner found that made-in-Japan imports — which represented 3.6 percent of U.S. apparent consumption in 1998 counting hot-rolled steel used in-house by the producer or 8.1 percent if just open-market shipments are included — could cause business problems for this country's mills.

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