Two men in maintenance uniforms stand before a bank of computer screens, transfixed by a jamboree of flickering lights. Flashing before them are the latest yen quotes against the US dollar.
Across town, a 20-something university student stares intently at the lead story in the morning newspaper: "Yen hits 7-month high versus dollar." Between sips of her coffee, she brings herself up to date on the currency's surprising rise in global markets and what it means for Japan's economy.
PHOTO: AP
The yen's powerful advance is big news in Japan, and not just in major cities such as Tokyo, Osaka and Nagoya. There's a growing unease in rural Japan too over the yen's strength -- a huge problem for a nation that's depending on exports to pull its economy out of recession.
"We're very concerned about our export business," explains Terutoshi Mizuguchi, who heads research at Hokkaido's prefectural economic planning office. "The strong yen could hurt our businesses even further."
Even though Japan remains mired in an 11-year slump, the yen has surged against the dollar and euro over the past two weeks. The trend owes much to the Sept. 11 terrorist attacks on New York and Washington. Figuring that the formerly bulletproof dollar is now vulnerable, many investors are buying yen instead.
Considering that more than 40 percent of Hokkaido's exports go to the US, the dollar's decline versus the yen isn't being taken lightly. After decades of waiting for the national government to steer funds and economic stimulus packages their way, rural areas are increasingly taking matters into their own hands.
In Hokkaido's case, that's meant exporting more to the US, Europe and the rest of Asia.
Trouble is, the competitiveness of this island north of Tokyo is being hurt by the yen's exchange rate. The same is true of the area's tourism. If a firmer yen prompts fewer Chinese, Taiwanese and Westerners to visit Hokkaido's hot springs and ski resorts, unemployment could soar in the months ahead.
"It certainly makes our situation much, much harder," says Hideaki Shimura, deputy secretary general at the Hokkaido Economic Federation.
Tokyo is losing enthusiasm for building its way out of recession with highways, bridges, tunnels and amusement parks.
For all the concrete Japan has poured into public works projects over the last decade the economy has benefited little. Hence Prime Minister Junichiro Koizumi's determination to spend taxpayers' money on more productive investments such as technology and education.
Koizumi's push is decidedly bad news for Hokkaido, which has lived almost solely from highway project to bridge project for 11 years now. That's why officials here are focusing their attention away from construction and toward exports. It's Hokkaido's vast potato, corn and mountain vegetable farms that economic planners are looking to now. The same is true of the engine parts, iron, steel, paper, ships and electronics the island sends to the US, Spain, China, Panama, South Korea and Taiwan.
"The yen's strength couldn't come at a worse time for us," says Mizuguchi.
The same is true on the national level. Japan is again sliding into recession at a time when policy makers have few options to revive growth. Interest rates already are at zero percent, and fiscal measures are limited by a government debt that's equal to 130 percent of gross domestic product and rising. That's why Tokyo is pinning its hopes to a softer yen.
Instead, it's the dollar that has fallen, a trend that's sending shockwaves through corporate Japan. Take Honda Motor Co, Japan's No. 2 automaker, which last week said that each yen the dollar falls eats up ?14 billion (US$119 million) of operating profit.
The dollar, now changing hands above ?117, fell as low as ?115.96 in recent days. It was a seven-month low.
Things could get far worse. For the first time in years, Washington has a genuine reason to rethink its strong dollar policy.
"The very notion that the US now needs a strong currency when exporters are borderline survival in some sectors, is suddenly suspect," says David Gilmore, a partner at Foreign Exchange Analytics in Essex, Connecticut.
True, the US doesn't want capital racing out of its economy and markets. But then neither does Washington want to see loads of US manufacturers lining up for government bailouts or going bust.
Already, Washington has stepped up to save the airline industry. A softer dollar may provide a cushion for many companies, including American automakers.
If the US Treasury Department does begin favoring a weaker dollar, Japan's exporters would be in an extraordinary bind. Even before hijacked jets destroyed New York's World Trade Center and hit the Pentagon in Washington, Tokyo was having trouble lowering the yen.
Now that fears of a US recession and a change in dollar policy are ricocheting around markets, investors may have fewer incentives to buy dollars. The yen could surge as a result.
"The strength of the yen is coming at exactly the wrong time for the Japanese economy," explains Masaaki Kanno, chief economist at J.P. Morgan Securities (Asia) Ltd in Tokyo.
The trend is exacerbating deflationary pressures and contributing to the extraordinary weakness of Japanese stocks at a time when the nation already is in recession. That's complicating things for a Japan's troubled banking system.
Just as banks are working to write off mountains of bad loans, they're also moving to mark-to-market accounting techniques.
The change is expected to validate fears that many banks are insolvent.
Local governments will increasingly feel the pain. Taxes collected throughout Japan -- including from Tokyo's most affluent citizens and companies -- are redistributed in rural areas. Regional economies are even more heavily dependent on these funds than the public works projects that create jobs here in Hokkaido and just about everywhere else in the country.
If the yen makes exports less competitive and companies even less profitable than they are now, rural Japan could be in for some rough times.
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