JAPAN'S DILEMMA

Evening Post, Volume CXIX, Issue 128, 1 June 1935, Page 9

JAPAN'S DILEMMA

DEPRECIATED EXCHANGE

AND RECKLESS BORROWING

The following significant leader appeared recently in the "Scotsman." The writer says:—

"This country and Japan left the gold standard almost simultaneously. Today the yen stands at a discount of 43 per cent, in relation to gold, while the £1 has fallen by some 38 per cent. The Japanese, advantage, in exchange is measured by the relative difference between these two, and evidently amounts lo less than 10 per cent. "Moreover, this advantage, such as it is, has been offset by the considerable rise in costs which has resulted from internal inflation. As is well known, sterling prices have remained remarkably stable since our departure from gold, and our competitive position has thus benefited to the full from the fall in the £1. In Japan, on the other hand, according to her own statistics (not necessarily wholly trustworthy), prices have risen by about a third. ANOTHER SIDE. "This is not enough to wipe out the advantage of exchange depreciation in competing with countries still on the gold standard, but it does mean that, in appearance at any rate, she is in no better position than we are to compete in foreign markets. If Japan's power _to export were really due to exchange depreciation and nothing else, 'our own export industries might take comfort in the reflection that their difficulties were temporary, and would be bound to pass. Only on the assumption that the depreciation of the yen will disappear, while that of the £1 will remain permanent, can Lancashire afford merely to live on its name and wait in security for better times. "Meanwhile there can be no doubt that Japan is manifesting every sign of industrial prosperity. Most manufacturers show, a record output, and unemployment has been falling steadily. But there is another side to the picture! The countryside has not fared so well. "The Japanese farmer depends for his prosperity on the rice field and the cocoon; last year he was doubly unfortunate. The rice crop was a failure, and America bought less silk than ever. Japan has her debt problem like the rest of us. Every rice farmer is heavily indebted, and at such times the burden becomes intolerable. He does not pay. And so the shopkeepers and local banks are affected. FARMER HIT. "Moreover, the farmer is also hit at present by the rising cost of manufactures. It is no wonder, therefore, that the Government has a serious agrarian problem to deal with. An even more serious danger to Japan's economic position lies in her budgetary .situation. Expenditure on the army and navy is admittedly the chief cause of a budget deficit of 900 million yen ;C£50,000,000). But Budget deficits have become chronic, and a better indication of the seriousness of the situation is perhaps given by the growth of the National Debt, which has risen by more than 50 per cent, in the short space of three years. New taxation is being imposed, but this will scarcely cover 5 per cent, of the current deficit. The Government has been driven to finance itself by borrowing and years of inflatory finance have had their usual effects. Indeed, the Japanese industrial revival is due as much to inflation as to anything else. "But the cost of living is soaring in the towns/and strikes are increasingly frequent. We may wonder whether the pace is not too hot to last. It is still to be hoped that we are not on the brink of an era of competitive naval building. But if we are, it is clear that the strain will be a particularly heavy one for Japan. "Most nations can stand a few years of budgetary deficit without the deluge appearing. But Japan starts the race with many years of reckless finance behind her. More ships mean more money, and more money means more borrowing. A bigger and more awe-inspiring navy means a bigger and more awe-inspirihg inflation to finance it. The yen might not become entirely worthless, as dfd the mark in 1923. Long before that point industrial collapse would have supervened. From such a prospect Japan may yet recoil."