By Big Mac Measure, Yen's Slide Makes Prices About Right

The rising dollar has been a very good thing for Sony Corp. How good? How does nearly a billion dollars sound?

Sony reckons that in the last three months of 1996, the strong dollar boosted sales by $957 million - driving a 23.4 percent revenue increase from the same period a year earlier.

"These exporters are making money hand over fist," says Richard Jerram, an economist at ING Baring Securities (Japan) Ltd. in Tokyo.

The rise of the dollar benefits Sony and other Japanese exporters mainly in two ways. Goods they make in Japan become cheaper overseas, allowing companies to earn higher profits or reduce prices and increase sales. The dollars they bring home can be exchanged for larger amounts of yen.

Profits tripled at Honda Motor Company for the third quarter, for example, due in large part to the strengthening dollar.

Good for the economy

"The bottom line," Mr. Jerram says, "is that a weak yen is good for the Japanese economy."

Not every Japanese firm is an exporter, however, and this economy has a lot of problems that a favorable exchange rate can't fix.

Even so, Japanese research institutes estimate that every 10-yen increase in the value of the dollar means that the Japanese economy - the world's second largest - will expand by half a percentage point.

In April 1995 a dollar was worth 79.75 yen. On Feb. 24, it traded at a little under 123 yen.

This turnaround, in which the yen's value has diminished by close to 50 percent, is a historical anomaly. Generally speaking, the yen has strengthened against the dollar - at the end of 1971, for instance, one greenback bought 315 yen.

There are dangers in a weak yen, however. One is that a free-falling currency could cause a panic in the Japanese stock market, since foreign investors would likely sell their holdings. Another is that a weak yen makes imports - such as oil, raw materials, and consumer goods - more expensive. If the yen gets too weak, the result could be inflation.

So the Japanese have been hinting that enough is enough since last November.

There was speculation in early February that the Bank of Japan, the central bank, was using some of its vast supplies of dollars to buy yen - something it hasn't done in years - in order to bolster the value of its currency.

The truth won't be known until the Bank releases information about its foreign-exchange reserves in March.

New equilibrium?

There seems to be a certain amount of comfort with the yen's current rate, although many investment banks here forecast further weakening of the yen this year. The 120 range "is very, very positive for Japan, and will help a lot in Japan's recovery," says Toyoharu Tsutsui, managing director of Capital Partners, a Tokyo-based financial consulting firm.

By one measure, the yen/dollar rate is at a happy equilibrium. At 122 yen to the dollar, the price in Japan of a McDonald's Big Mac sandwich - a standard The Economist magazine has popularized - is $2.29.

That's just about what the same burger costs in the US: $2.36.