Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, August 18, 1993 TAG: 9308180066
SECTION: BUSINESS PAGE: B6 EDITION: METRO
SOURCE: Associated Press
DATELINE: NEW YORK LENGTH: Medium
And rises. And rises.
"It's hitting me," Culligan exclaimed after the yen hit a postwar record high against the dollar for the fourth straight day. "When I see price increases at the end of a model year, it scares me."
The yen's meteoric rise, which brought it to the brink of 100 against the dollar Tuesday, is proving to be a mixed blessing for U.S. businesses.
Some will pose their toughest challenge in years to Japanese competitors, whose products will grow increasingly expensive. That's why the U.S. government has urged a stronger yen - to shrink its trade deficit by making Japanese goods cost more here and U.S. products cheaper in Japan.
But other businesses, which import goods from Japan or have plants there, are watching in dread as their costs soar. Some say the rising yen will discourage U.S. companies from investing in Japan, which they say is essential to penetrate the tough Japanese market.
For the Big Three automakers, it's good news. This year, their share of the U.S. market has risen 3.2 percentage points to 74.3 percent. Japanese carmakers have lost 3.2 points, to 23.6 percent.
But cheaper products alone won't enable U.S. companies to succeed in the Japanese market, experts said, because Japanese consumers often favor domestically made goods, tailored more to Japanese tastes.
And with a higher yen, it is more expensive for U.S. companies to maintain operations in Japan.
"It [the strong yen] is a short-sighted benefit," complained Charles Cook, vice president of MEMC Electronic Materials Inc. in St. Louis.
The company, which exports silicon metal and wafers, increased its sales to Japan seven-fold, to $70 million, since 1985 - in part by investing in a local assembly plant.
Now, he says, "to maintain our position in the Japanese market becomes increasingly expensive."
However, other companies say their higher costs in Japan will be outweighed by higher profits.
Since the yen began rising against the dollar in 1985, Japanese companies have tended to take lower profits rather than pass along price increases to U.S. customers. Now they may be less able to do so.
Still, it will likely be months, or even years, for the full impact of the rising yen to be felt. G. Mutafa Mohatarem, an economist at General Motors Corp., said most automotive companies can hedge their exposure to foreign currency swings at least three months into the future. Many companies have long-term contracts locking in prices.
That means they haven't yet felt the surge in the yen, which has risen about 19 percent against the dollar since early February.
The rising yen should help the profits of companies such as Compaq Computer Corp. The Houston-based firm sparked Japan's PC price war in October by introducing low-priced computers. While the cheaper dollar means Compaq can cut prices further, it has no plans to do so.
The company's director of international marketing, Tom Howard, said Compaq was trying to convince Japanese consumers its products were as good as Japanese computers.
"If we take too much of a price action that goes in the face of that, they won't believe us," he said.
by CNB