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Strategies & Market Trends : World Outlook -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (1112)	12/19/2002 4:08:40 PM
From: Don Green	Respond to of 48800

OPINION: Shiokawa Vows To Correct Yen Overvaluation Friday, December 20, 2002 TOKYO (Nikkei)--Masajuro Shiokawa, minister of finance, has contributed an article to The Nihon Keizai Shimbun titled, "Structural Reform Also Needed To Overcome Deflation." He reiterated his view that the yen is being overvalued in comparison with its purchasing power parity. Shiokawa's article follows: Wild fluctuations in foreign exchange rates over a short period of time have been seen recently. While I think exchange rates are to be determined by various market factors, the government also regards foreign exchange policy as one of its key economic policies, and the Ministry of Finance is always ready to take appropriate steps when necessary, while keeping a close watch on the market. The Japanese term "kawase" (exchange) originally meant a tool for carrying out an exchange of goods between different remote places. The proper role of an exchange rate is to work as a tool to secure the equality of value for commodities traded, that is to say, purchasing power parity. When it comes to the yen's purchasing power parity, international (economic) institutions estimate the U.S. dollar should be valued at around 150 yen. In fact, however, the dollar is currently being quoted at well below 130 yen. For some time now, I have been saying that the recent strength of the yen is somewhat excessive, and stressing that this problem should be redressed. The yen's continued strength, which puts the currency above its purchasing power parity in value, may be a reflection of the high rating the world gives to the competitiveness of Japanese industry in foreign trade, which has allowed the country to hold more than 400 billion dollars in foreign currency reserves. Moreover, Japanese people might well have more confidence in and responsibility for the economy here, given that it still has an important position in the world despite the high exchange rate. If Japan is to regain and maintain its confidence, it is vital to press ahead with structural reform, the strengthening of economic fundamentals and further boosting of its industrial competitiveness. Based on this understanding, the government is already grappling with four key goals adopted in its comprehensive package of economic measures, namely reform of the financial system, overhaul of the tax system, reform of the structure of government expenditures and promotion of deregulation. As for nonperforming loans held by commercial banks, the government is now vigorously taking steps to accelerate bad-debt cleanups, while providing better safety-net measures and promoting joint efforts by the nonfinancial and financial sectors of industry. In response to these steps, I earnestly hope that every citizen will push forward with his or her own reform measures. Under these circumstances, the continuing decline in prices is worsening the pains of structural reform and impeding our efforts. Viewed from a different perspective, however, deflation also stems from the adjustment that the world economy is now experiencing, as economic globalization progresses due to such factors as the entry of China into the global market. Instead of simply criticizing China as the source of deflation, I think that other countries should seek coexistence with China, asking the country to perform its responsibilities commensurate with its weight in the world economy. Some argue that the government should prioritize fighting deflation before anything else, seeing it as a problem peculiar to Japan. Although I acknowledge the need to take anti-deflation measures such as more active monetary-relaxation policies, I believe it is also vital to come to grips with structural reform. Deflationary pressures sap the country's economic strength, slacken corporate business activity, increase unemployment and lower purchasing power, and these phenomena form a chain that spirals to aggravate deflation. It is because of this that Japan must make further efforts to revitalize the country's industrial and financial sectors. Prime Minster Junichiro Koizumi also notes the vital importance of bolstering the productivity of Japanese industry. As he says, it is important for individual companies to restructure their operations by actively making investment in plant and equipment and introducing new technologies, thereby heightening their competitiveness on world markets. Any fiscal policy aiming to temporarily boost demand would only indicate a passive stance, being little more than a stopgap measure that would not work on the substance of the economy. Politicians should tackle these economic problems by cutting deeper into the very core of them. I believe that the best and shortest way toward persuading the public to regain confidence in the economy will be for individual citizens, whether they belong to the public or private sector, to make steady efforts to carry out structural reform and boost the country's economic strength in the true sense of the word. (The Nihon Keizai Shimbun Friday morning edition)