>I guess it follows from the Gowan framework (thanks for the review in the
>last LBO, Doug) that a few more victories like this ('structural
>reform' as the Anglo American financial press puts it)and the US may
>finally help to engineer a devaluation of the yen?!
Today's WSJ has an op-ed by Martin Feldstein arguing that the other G-7 countries not cooperate with Japan to suppress the yen's appreciation. His concluding paragraphs:
<quote> Coordinated intervention would run counter to the interests of the U.S. and Europe. A weak yen would exacerbate the U.S. trade deficit and would jeopardize Europe's nascent recovery. Even more significantly, the expectation that the yen-dollar rate would rise at 8% a year would cause investors to borrow dollars and invest in yen until the interest differential just balances the 8% expected rate of yen appreciation. Since Japanese interest rates cannot fall further, the adjustment of the interest differential would have to occur by an increase of the dollar interest rates to at least 8% from today's 5% level.
There is no reason why the G-7 countries should participate in an exercise in yen devaluation that would inevitably raise dollar and euro interest rates and weaken its trade balance. The key issue for the G-7 finance ministers is whether Japan should be free to pursue such a yen devaluation policy by itself or whether such a policy should be opposed on the grounds that it is an unacceptable interference with trade. If the ministers conclude that such exchange-rate intervention is unacceptable, the yen will continue to appreciate and the Japanese will have to seek to expand the economy through structural policies at home. In the long run, that may be for the best. </quote>
In other words, to quote that great Watergate-era aphorism, let them twist slowly, slowly in the wind - until they do things our way.
Doug