Tokyo's obsession with the yen isn't hard to understand.
Restoring Japan to long-term health will mean forcing banks to write down trillions of dollars of bad loans and allowing myriad deadbeat companies to fail. Unemployment will rise.
It'll also mean introducing competition where there's none, wreaking havoc in protected industries. Notice that Japan's only free-trade agreement is with tiny Singapore. Why? The island nation of 4 million has no agricultural sector and, therefore, isn't a threat to one of Japan's most protected industries.
In short, repairing the economy will require pain and determination not seen since 1945, when Japan began rebuilding after World War II.
Lowering the yen is a means of putting off that pain for another few years -- and holding Japan Inc together for a few more quarters. Like Enron Corp CEO Jeffrey Skilling jumping ship when the jumping was good -- just before Enron sank -- folks here don't want the economy to implode on their watch.
Problem is, it's a distraction. At the very least, the inordinate amount of time and energy Japan spends guiding the currency tarnishes its capitalist credentials. At worst, it distracts attention from the nation's real problems. Until banks write down bad loans and companies restructure, Japan will experience anemic growth and a weak stock market.
Of course, Tokyo's efforts to weaken the yen anew may not work. The US dollar may be in for a sharp downward correction.
Admittedly, analysts have predicted the dollar's demise every year since 1995 -- one that's never come. This time, however, the dollar could be in for a rocky year.
One reason is fear the US recovery may not help asset markets very much, encouraging investors to look elsewhere. Even the long-suffering euro is rising these days -- a sign of how wobbly the dollar has become. Another is that Treasury Secretary Paul O'Neill isn't as attached to Washington's "strong dollar" policy as his predecessors.
Whatever happens with the dollar, Tokyo has reminded the world a weak yen is in Japan's best interest. It's sticking with that view no matter how disingenuous it makes Tokyo look.
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