Exporters Could Feel Japan’s Pain Turmoil In Southeast Asia Has U.S. Implications

Currency turmoil and slowing economies in Southeast Asia will make a bad situation worse for Japan, and that could hurt U.S. exporters, analysts say.

Thailand, Indonesia, Malaysia and the Philippines have all seen their currencies plummet - as much as 31.5 percent in Indonesia’s case - over the past couple of months, eroding their ability to pay for imported goods.

While the U.S. sends just 3 percent of its exports to those countries, they account for more than 10 percent of Japanese exports.

If declining sales to the region worsen Japan’s economic slump, that would be bad news for the U.S., too. “Anything that undermines the outlook for Japan is a negative for the U.S.,” said James Glassman, chief domestic economist at Chase Securities Inc. in New York.

As Japan’s second-largest trading partner, the U.S. could see slumping sales to Japan. At the same time, U.S. manufacturers could feel pressure from Japanese efforts to remain competitive - such as cutting prices or allowing further depreciation in the yen.

Reflecting weaker demand from Southeast Asia, the Japanese government reported Monday exports rose only 0.7 percent in August, down from the 2.0 percent increase in July and far less than the 13.8 percent increase over the past year.

If that continues, economists at Bridgewater Associates in Wilton, Connecticut calculate the contraction of the Southeast Asian market could slice 0.75 percentage points off Japanese growth in the months ahead. After a 2.9 percent drop in gross domestic product in the second quarter, that’s growth Japan can’t afford to lose.

“They’re going to need to devalue the yen,” said Bridgewater’s Greg Jensen. “We’re looking at something in the range of 10 percent.” Just to keep export growth at its current level, Jensen said, would require an exchange rate of 130 yen to the dollar, a level not seen since May, 1992.

Unless that happens, he said, Japanese export growth will slow to a point where it could “push its fragile economy off a cliff.” Monday’s trade figures pushed the yen lower. It was recently quoted at 120.80 yen to the dollar, up from 120.10 Friday. By making Japanese products cheaper in relation to those made here, a further slide in the yen would create more problems for U.S. companies, the big three automakers in particular, and raise political tensions with the Clinton administration. “It’s bad news if you’re an American exporter,” said Glassman. “It means they’ll be less competitive on prices.”

Indeed, over the past year the dollar has gained 8 percent against the yen. That strength will take a toll on the U.S. trade balance in the months ahead, Glassman said. “All of the big economic (computer) models are expecting a very major deceleration” in exports, he said.

That should mean slower growth ahead. U.S. exports, up 14.4 percent in the second quarter, have played a big role in keeping U.S. growth high.