Letters to the Editor

The yen and Japanese subsidy myths

If the Monday Commentary article by J.T. Young were to be believed (Japan’s subtle subsidy), the Japanese government would be guilty of more than a “subtle subsidy.” It would be in wholesale violation of international trade agreements going back years.

Mr. Young, through a mixture of lopsided economics and anecdotes, claims that Japan manipulates the yen to such an extent that it amounts to a 25 percent subsidy on its exports. In fact, this argument is one frequently advanced by defenders of the Detroit Three automakers to explain their current market and financial difficulties. This comes as little surprise to those of us who know Mr. Young in his day job with Ford Motor Co. in Washington, which his byline neglects to mention. Truth be told, this is the “subtle” case developed here.

Despite his assertions, two U.S. government studies, including one released just last month by the Treasury Department, concluded the Japanese government is in fact not manipulating its currency. This makes sense: Despite the selective use of numbers to suggest otherwise, the immense size of the yen-dollar currency market underscores the exceedingly slim influence that the government of Japan can ever hope to have on exchange rates.

In fact, approximately $230 billion worth of yen-dollar currency transactions take place each day, which amounts to $80 trillion worth in currency trades every year.

In 2004, total Japanese government purchases of dollars and sales of yen amounted to only 0.17 percent of all yen-dollar transactions. The government has not intervened since March of that year.

Mr. Young also claims that the Japanese government is now verbally intervening in currency markets. The government could not successfully talk investors into a weak yen if it cannot spend its way there itself. Simply stated, the Japanese yen is weak because U.S. interest rates are higher and our economy is stronger. Currency traders and investors respond first and foremost to these macroeconomic indicators. Japanese companies cannot be “subsidized” by an exchange rate their government cannot control.

The U.S. auto industry is undergoing a new and potentially far-reaching transition. Of that there is no question. Neither is it debatable that this transition will be difficult and painful for some. The issues involved should be addressed thoughtfully and with considerable empathy. Accusations hurled against easy and convenient targets are unhelpful because they mask rather than illuminate possible solutions to real problems, including those involving our nation’s health care and pension systems.

TIMOTHY C. MACCARTHY

President and CEO

Association of International Automobile Manufacturers

Arlington

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