AS economists debate the impact on Japan of the yen's record high rate against the dollar, Honda Motor Corporation has already made a historic decision: It plans to stop exporting its Accord model to the United States.
In fact, the yen's 16 percent rise in value over the past year has led the carmaker to actually increase imports into Japan from its American assembly plants.
Honda's "reverse imports," as they are misnamed, have now become the bestselling "foreign" car in Japan, beating Mercedes and other European models.
That's just what Washington would like to see: Japan turning away from promotion of its giant export machine and developing a strong domestic market among Japanese consumers, who have been long deprived of the wealth of their own nation.
President Clinton and Treasury Secretary Lloyd Bentsen have effectively "jawboned" the dollar down in value against the yen in recent weeks, hoping to reduce the $49 billion US-Japan trade imbalance by making American products cheaper in Japan.
Of all Japan's leading industries, carmakers will be the hardest hit by the yen's rapid appreciation, according to officials at Japan's Ministry of International Trade and Industry (MITI).
Compared with the last dramatic hike in the yen eight years ago, the damage will be more severe this time. The difference is that market demand for automobiles in the US, Japan, and Europe is much weaker.
MITI officials estimate that Japan's five leading carmakers have lost a total of about $318 million in car sales for every one-yen rise against the dollar. So far, that amounts to a $7 billion loss over the year that the yen has strengthened from 133 to its present range of 111 against the dollar. First-ever subsidies
For the first time, Japan's Labor Ministry will provide government subsidies to the auto industry to help it "readjust" (early retirement, reassignments, but few actual layoffs) its bloated work force. Such subsidies began for many other industries after the 1973-74 oil shock.
With about 20 percent of Japan's economy relying directly or indirectly on vehicle manufacturing, losses from the yen appreciation could leave the economy stuck in a recession that has already lasted almost a year.
"In 1985, 25 percent of Japan's total imports were manufactured goods. Today it is 55 percent," Paul Summerville, senior economist with Jardine Fleming Securities in Tokyo. "So, a lot of people are saying, `Great, the yen's strong, it will be really wonderful for Japan.' But the high yen is a curse, it's not a blessing." He argues that the high yen prevents Japan from boosting its exports to counter the slump in demand for goods at home.
A stalled economy also would further depress imports and thus increase the trade surplus, leading to yet more pressure from Washington to push up the yen, causing an even longer recession.
"Japan is facing a vicious cycle," says Geoffrey Barker, economist at Baring Securities (Japan) Ltd. The solution, he says, depends on how much Japanese officials deregulate the economy - especially to free up capital flows and spur domestic demand to help recycle the trade surplus.
The reduced imports, especially for luxuries such as Van Gogh paintings and Gucci fashion goods, has resulted in a record surplus in Japan's current account (a broad measure of international dealings). In the fiscal year that ended March 31, the surplus hit $126 billion, up 40 percent from the previous year.
After the 1985 yen appreciation, Japan's exporters went on an overseas investment binge, building factories in Asia, Europe, and the US, and buying up assets such as Columbia Pictures and the Rockefeller Center.
Overseas investment surged nearly sixfold from 1985 to 1989. Since then, such investment has declined steadily, with a 28 percent falloff in the last fiscal year, as Japan's economic "bubble" slowly imploded. Governments intervene
When the yen recently dipped below 110 to the dollar, both the US Treasury and the Bank of Japan decided that it had fallen far enough, and intervened in currency markets. Japanese officials had openly scolded US officials, including President Clinton, for making comments that had pushed up the yen. At the same time, US officials were less than impressed with Japan's $113 billion stimulus package unveiled last month.
So far, Japanese consumers are not seeing cheaper imports, bringing criticism against importers for allegedly pocketing "windfall" profits caused by the yen's sky-high rise. Okuro Ishikawa, chairman of the Japan Chamber of Commerce and Industry, says his group will probe the issue.
MITI has threatened to expose foreign companies that charge higher prices for their goods in Japan than elsewhere. It did not threaten Japanese companies that do the same.