Commentary: Japan redefines 'cooperation'
William Pesek Jr. Bloomberg News Monday, August 11, 2003
MANILA The economies of Brunei, Cambodia, Laos, Myanmar and Vietnam have something intriguing in common: Each produces less annually than the ? trillion, or $76 billion, Japan has spent since January weakening the yen.
.
The irony is that these countries constitute half of the 10 countries with which Japan wants to build closer economic ties. Finance Minister Masajuro Shiokawa came to Manila last week to bolster trade and cooperation with the 10 members of the Association of Southeast Asian Nations.
.
Yet with Japan spending the equivalent of entire Southeast Asian economies to make its exports more competitive, Tokyo clearly has a unique definition of "cooperation" in mind. Japan's currency policies are a sensitive issue here in Southeast Asia and they may only become more controversial.
.
Tokyo's beggar-thy-neighbor approach is hardly good news for Asia's economies. Holding down the yen means Japan grabs a bigger share of the region's export business. And there are two reasons efforts to lower the yen may increase as the year unfolds.
.
First, China's currency policy may encourage Tokyo to weaken the yen more aggressively. The yuan is pegged to the dollar, and China has become more competitive over the last 12 months as the dollar has slid 14 percent versus the euro. Chinese officials are making it clear they are not about to let the yuan rise.
.
Second, a U.S. recovery isn't panning out as hoped. That could weaken the dollar still further at a time when many Asian stock markets are offering two, three or four times the returns investors got in the Dow Jones industrial average and Standard Poor's 500 so far this year.
.
Shiokawa couldn't have been happy with events in Manila last week. He came to the Philippines hoping Southeast Asian finance ministers would support his desire to see China's currency rise. They didn't.
.
Japan isn't alone in hoping China will revise the yuan's exchange rate. The Bush administration also appears to be losing patience with an undervalued yuan. U.S. Treasury Secretary John Snow has been raising the issue more and more in speeches and interviews. So are U.S. industry groups.
.
Yet it strikes currency observers like David Gilmore of Foreign Exchange Analytics as odd that the United States is far less critical of Japan, where tens of billions of dollars have been bought this year to prevent the yen from rising.
.
"Not only has this unprecedented intervention distorted the dollar-yen relationship but it has impacted and distorted the U.S. Treasury market," Gilmore explains. Dollars bought by Japan to cap the yen end up invested in U.S. government debt. Tokyo has helped fuel what many view as a bubble in the U.S. bond market.
.
Japan's weak-yen policy arguably does more harm to Asian economies than China's: At least China's booming economy is buying a growing share of exports from its neighbors. As the yen slides, officials in Bangkok, Jakarta, Manila, Seoul and elsewhere also feel pressure to lower their own currencies.
.
That may not lead to 1997-like currency devaluations, but it distracts governments from fixing the underlying cracks in economies. Besides, it is a terrible waste of money: Central banks are spending billions of dollars on currency intervention that could be used more productively elsewhere.
.
An end-justifies-the-means-argument could be made here. Japan is by far Asia's biggest economy and if a weaker yen boosts growth there, the entire region will benefit. That might be true if Tokyo were acting to shore up its economy like ridding banks of bad loans. A lower yen is Japan's only consistent policy these days.
.
A major theme of last week's Asean meeting was cooperation on currencies. Asian governments also want to create a liquid regional bond market and perhaps a euro-like single currency someday.
.
Yet how possible is that if the region's biggest economy, which boasts its only international currency, continues to devalue its way to growth? Not only does it set a bad example for smaller, less developed economies, but it also limits export growth elsewhere in Asia.
.
When it comes to economics, countries tend to act in their own self-interest. Japan, it could be argued, is just more successful at manipulating its currency than neighbors who would do the same thing if they could. But then why bother putting on a cooperative face with Southeast Asian officials?
.
Finance ministers here have caught on to the duplicity of Japan's Asia policies. They know Tokyo wants closer trade ties with Southeast Asia and the benefits that come with it. But they are also aware that Tokyo is more than happy to undercut far less affluent economies with a cheaper yen.
.
There is little public griping about Tokyo because Asians don't want to bite the hand that feeds them. Many countries here benefit from Japan's overseas development assistance program, which offers billions of dollars in aid. Yet resentment may grow over Japan's beggar-thy-neighbor currency strategy. And it should.
< < Back to Start of Article MANILA The economies of Brunei, Cambodia, Laos, Myanmar and Vietnam have something intriguing in common: Each produces less annually than the ? trillion, or $76 billion, Japan has spent since January weakening the yen.
.
The irony is that these countries constitute half of the 10 countries with which Japan wants to build closer economic ties. Finance Minister Masajuro Shiokawa came to Manila last week to bolster trade and cooperation with the 10 members of the Association of Southeast Asian Nations.
.
Yet with Japan spending the equivalent of entire Southeast Asian economies to make its exports more competitive, Tokyo clearly has a unique definition of "cooperation" in mind. Japan's currency policies are a sensitive issue here in Southeast Asia and they may only become more controversial.
.
Tokyo's beggar-thy-neighbor approach is hardly good news for Asia's economies. Holding down the yen means Japan grabs a bigger share of the region's export business. And there are two reasons efforts to lower the yen may increase as the year unfolds.
.
First, China's currency policy may encourage Tokyo to weaken the yen more aggressively. The yuan is pegged to the dollar, and China has become more competitive over the last 12 months as the dollar has slid 14 percent versus the euro. Chinese officials are making it clear they are not about to let the yuan rise.
.
Second, a U.S. recovery isn't panning out as hoped. That could weaken the dollar still further at a time when many Asian stock markets are offering two, three or four times the returns investors got in the Dow Jones industrial average and Standard Poor's 500 so far this year.
.
Shiokawa couldn't have been happy with events in Manila last week. He came to the Philippines hoping Southeast Asian finance ministers would support his desire to see China's currency rise. They didn't.
.
Japan isn't alone in hoping China will revise the yuan's exchange rate. The Bush administration also appears to be losing patience with an undervalued yuan. U.S. Treasury Secretary John Snow has been raising the issue more and more in speeches and interviews. So are U.S. industry groups.
.
Yet it strikes currency observers like David Gilmore of Foreign Exchange Analytics as odd that the United States is far less critical of Japan, where tens of billions of dollars have been bought this year to prevent the yen from rising.
.
"Not only has this unprecedented intervention distorted the dollar-yen relationship but it has impacted and distorted the U.S. Treasury market," Gilmore explains. Dollars bought by Japan to cap the yen end up invested in U.S. government debt. Tokyo has helped fuel what many view as a bubble in the U.S. bond market.
.
Japan's weak-yen policy arguably does more harm to Asian economies than China's: At least China's booming economy is buying a growing share of exports from its neighbors. As the yen slides, officials in Bangkok, Jakarta, Manila, Seoul and elsewhere also feel pressure to lower their own currencies.
.
That may not lead to 1997-like currency devaluations, but it distracts governments from fixing the underlying cracks in economies. Besides, it is a terrible waste of money: Central banks are spending billions of dollars on currency intervention that could be used more productively elsewhere.
.
An end-justifies-the-means-argument could be made here. Japan is by far Asia's biggest economy and if a weaker yen boosts growth there, the entire region will benefit. That might be true if Tokyo were acting to shore up its economy like ridding banks of bad loans. A lower yen is Japan's only consistent policy these days.
.
A major theme of last week's Asean meeting was cooperation on currencies. Asian governments also want to create a liquid regional bond market and perhaps a euro-like single currency someday.
.
Yet how possible is that if the region's biggest economy, which boasts its only international currency, continues to devalue its way to growth? Not only does it set a bad example for smaller, less developed economies, but it also limits export growth elsewhere in Asia.
.
When it comes to economics, countries tend to act in their own self-interest. Japan, it could be argued, is just more successful at manipulating its currency than neighbors who would do the same thing if they could. But then why bother putting on a cooperative face with Southeast Asian officials?
.
Finance ministers here have caught on to the duplicity of Japan's Asia policies. They know Tokyo wants closer trade ties with Southeast Asia and the benefits that come with it. But they are also aware that Tokyo is more than happy to undercut far less affluent economies with a cheaper yen.
.
There is little public griping about Tokyo because Asians don't want to bite the hand that feeds them. Many countries here benefit from Japan's overseas development assistance program, which offers billions of dollars in aid. Yet resentment may grow over Japan's beggar-thy-neighbor currency strategy. And it should. MANILA The economies of Brunei, Cambodia, Laos, Myanmar and Vietnam have something intriguing in common: Each produces less annually than the ? trillion, or $76 billion, Japan has spent since January weakening the yen.
.
The irony is that these countries constitute half of the 10 countries with which Japan wants to build closer economic ties. Finance Minister Masajuro Shiokawa came to Manila last week to bolster trade and cooperation with the 10 members of the Association of Southeast Asian Nations.
.
Yet with Japan spending the equivalent of entire Southeast Asian economies to make its exports more competitive, Tokyo clearly has a unique definition of "cooperation" in mind. Japan's currency policies are a sensitive issue here in Southeast Asia and they may only become more controversial.
.
Tokyo's beggar-thy-neighbor approach is hardly good news for Asia's economies. Holding down the yen means Japan grabs a bigger share of the region's export business. And there are two reasons efforts to lower the yen may increase as the year unfolds.
.
First, China's currency policy may encourage Tokyo to weaken the yen more aggressively. The yuan is pegged to the dollar, and China has become more competitive over the last 12 months as the dollar has slid 14 percent versus the euro. Chinese officials are making it clear they are not about to let the yuan rise.
.
Second, a U.S. recovery isn't panning out as hoped. That could weaken the dollar still further at a time when many Asian stock markets are offering two, three or four times the returns investors got in the Dow Jones industrial average and Standard Poor's 500 so far this year.
.
Shiokawa couldn't have been happy with events in Manila last week. He came to the Philippines hoping Southeast Asian finance ministers would support his desire to see China's currency rise. They didn't.
.
Japan isn't alone in hoping China will revise the yuan's exchange rate. The Bush administration also appears to be losing patience with an undervalued yuan. U.S. Treasury Secretary John Snow has been raising the issue more and more in speeches and interviews. So are U.S. industry groups.
.
Yet it strikes currency observers like David Gilmore of Foreign Exchange Analytics as odd that the United States is far less critical of Japan, where tens of billions of dollars have been bought this year to prevent the yen from rising.
.
"Not only has this unprecedented intervention distorted the dollar-yen relationship but it has impacted and distorted the U.S. Treasury market," Gilmore explains. Dollars bought by Japan to cap the yen end up invested in U.S. government debt. Tokyo has helped fuel what many view as a bubble in the U.S. bond market.
.
Japan's weak-yen policy arguably does more harm to Asian economies than China's: At least China's booming economy is buying a growing share of exports from its neighbors. As the yen slides, officials in Bangkok, Jakarta, Manila, Seoul and elsewhere also feel pressure to lower their own currencies.
.
That may not lead to 1997-like currency devaluations, but it distracts governments from fixing the underlying cracks in economies. Besides, it is a terrible waste of money: Central banks are spending billions of dollars on currency intervention that could be used more productively elsewhere.
.
An end-justifies-the-means-argument could be made here. Japan is by far Asia's biggest economy and if a weaker yen boosts growth there, the entire region will benefit. That might be true if Tokyo were acting to shore up its economy like ridding banks of bad loans. A lower yen is Japan's only consistent policy these days.
.
A major theme of last week's Asean meeting was cooperation on currencies. Asian governments also want to create a liquid regional bond market and perhaps a euro-like single currency someday.
.
Yet how possible is that if the region's biggest economy, which boasts its only international currency, continues to devalue its way to growth? Not only does it set a bad example for smaller, less developed economies, but it also limits export growth elsewhere in Asia.
.
When it comes to economics, countries tend to act in their own self-interest. Japan, it could be argued, is just more successful at manipulating its currency than neighbors who would do the same thing if they could. But then why bother putting on a cooperative face with Southeast Asian officials?
.
Finance ministers here have caught on to the duplicity of Japan's Asia policies. They know Tokyo wants closer trade ties with Southeast Asia and the benefits that come with it. But they are also aware that Tokyo is more than happy to undercut far less affluent economies with a cheaper yen.
.
There is little public griping about Tokyo because Asians don't want to bite the hand that feeds them. Many countries here benefit from Japan's overseas development assistance program, which offers billions of dollars in aid. Yet resentment may grow over Japan's beggar-thy-neighbor currency strategy. And it should. MANILA The economies of Brunei, Cambodia, Laos, Myanmar and Vietnam have something intriguing in common: Each produces less annually than the ? trillion, or $76 billion, Japan has spent since January weakening the yen.
.
The irony is that these countries constitute half of the 10 countries with which Japan wants to build closer economic ties. Finance Minister Masajuro Shiokawa came to Manila last week to bolster trade and cooperation with the 10 members of the Association of Southeast Asian Nations.
.
Yet with Japan spending the equivalent of entire Southeast Asian economies to make its exports more competitive, Tokyo clearly has a unique definition of "cooperation" in mind. Japan's currency policies are a sensitive issue here in Southeast Asia and they may only become more controversial.
.
Tokyo's beggar-thy-neighbor approach is hardly good news for Asia's economies. Holding down the yen means Japan grabs a bigger share of the region's export business. And there are two reasons efforts to lower the yen may increase as the year unfolds.
.
First, China's currency policy may encourage Tokyo to weaken the yen more aggressively. The yuan is pegged to the dollar, and China has become more competitive over the last 12 months as the dollar has slid 14 percent versus the euro. Chinese officials are making it clear they are not about to let the yuan rise.
.
Second, a U.S. recovery isn't panning out as hoped. That could weaken the dollar still further at a time when many Asian stock markets are offering two, three or four times the returns investors got in the Dow Jones industrial average and Standard Poor's 500 so far this year.
.
Shiokawa couldn't have been happy with events in Manila last week. He came to the Philippines hoping Southeast Asian finance ministers would support his desire to see China's currency rise. They didn't.
.
Japan isn't alone in hoping China will revise the yuan's exchange rate. The Bush administration also appears to be losing patience with an undervalued yuan. U.S. Treasury Secretary John Snow has been raising the issue more and more in speeches and interviews. So are U.S. industry groups.
.
Yet it strikes currency observers like David Gilmore of Foreign Exchange Analytics as odd that the United States is far less critical of Japan, where tens of billions of dollars have been bought this year to prevent the yen from rising.
.
"Not only has this unprecedented intervention distorted the dollar-yen relationship but it has impacted and distorted the U.S. Treasury market," Gilmore explains. Dollars bought by Japan to cap the yen end up invested in U.S. government debt. Tokyo has helped fuel what many view as a bubble in the U.S. bond market.
.
Japan's weak-yen policy arguably does more harm to Asian economies than China's: At least China's booming economy is buying a growing share of exports from its neighbors. As the yen slides, officials in Bangkok, Jakarta, Manila, Seoul and elsewhere also feel pressure to lower their own currencies.
.
That may not lead to 1997-like currency devaluations, but it distracts governments from fixing the underlying cracks in economies. Besides, it is a terrible waste of money: Central banks are spending billions of dollars on currency intervention that could be used more productively elsewhere.
.
An end-justifies-the-means-argument could be made here. Japan is by far Asia's biggest economy and if a weaker yen boosts growth there, the entire region will benefit. That might be true if Tokyo were acting to shore up its economy like ridding banks of bad loans. A lower yen is Japan's only consistent policy these days.
.
A major theme of last week's Asean meeting was cooperation on currencies. Asian governments also want to create a liquid regional bond market and perhaps a euro-like single currency someday.
.
Yet how possible is that if the region's biggest economy, which boasts its only international currency, continues to devalue its way to growth? Not only does it set a bad example for smaller, less developed economies, but it also limits export growth elsewhere in Asia.
.
When it comes to economics, countries tend to act in their own self-interest. Japan, it could be argued, is just more successful at manipulating its currency than neighbors who would do the same thing if they could. But then why bother putting on a cooperative face with Southeast Asian officials?
.
Finance ministers here have caught on to the duplicity of Japan's Asia policies. They know Tokyo wants closer trade ties with Southeast Asia and the benefits that come with it. But they are also aware that Tokyo is more than happy to undercut far less affluent economies with a cheaper yen.
.
There is little public griping about Tokyo because Asians don't want to bite the hand that feeds them. Many countries here benefit from Japan's overseas development assistance program, which offers billions of dollars in aid. Yet resentment may grow over Japan's beggar-thy-neighbor currency strategy. And it should.
iht.com |
