Japan's Trade Problem and the Yen

Abstract

7he Japanese economy iis now at the crucial crossroads. The post-war policy of export-led, high-investment growth has resulted in a set of serious distortions and tensions both inside and outside of Japan. Domestically, the problems are inflation, paucity of social capital and social services, and environmental decay. The 1970 Economic White Paper prepared by Japan's Economic Planning Agency declared that the Japanese economy in the 1970s must strive for balance and harmony in the growth process. Specifically, it recommended that Japan move toward increasing the welfare of its citizens. The fruits of economic growth must be used positively for the construction of a truly affluent society with adequate provision of social services that enhance the quality of life. The White Paper further stated that the Japanese economy must become truly integrated with the world economy. It deplored the continued existence of protectionism in Japan, and recommended that the programs of further liberalization of imports and capital flows be pursued more vigorously.1 Prosperity of any nation today depends heavily on achieving and maintaining an economically harmonious relationship with the rest of the world. Because of Japan's paucity in natural resources, its reliance on other nations is especially high. It is an indisputable fact that for prosperity and even for survival, Japan needs foreign raw materials and foreign markets for its products. It is estimated that by 1975 more than 50% of almost all of its raw-material needs will have to be met with imports. The import de. pendency ratios will be 80% for copper, 90% for iron and coal, and 100% for petroleum, nickel and aluminum.2 In order to pay for the imported materials, Japan must export its products. Japan therefore cannot afford to lose its overseas markets, especially the important U.S. markets, to protectionism. This is the fundamental fact of the Japanese economic life.