894.5151/12–2347
The Acting Political Adviser in Japan (Sebald) to the Secretary of State
for use of department only
No. 1473
Sir: I have the honor to enclose9 copy of a summary of the recommendations on exchange problems prepared by the Exchange Committee of the Japanese Government and approved by the Conference of Economic Ministers on December 15, 1947, and subsequently submitted to the Foreign Exchange Rate Committee of the Economic and Scientific Section of this Headquarters. A list of the members of the Exchange Committee of the Japanese Government, a committee of experts, the Chairman of which is Tsuru Shigeto, Vice Chairman of the Coordinating Committee of the Economic Stabilization Board, is also enclosed. The Conference of Economic Ministers is a conference of ministers of cabinet rank holding economic portfolios and is comprised of the following members: Wada Hiroo, Director General of the Economic Stabilization Board; Kurusu Takeo, Minister of Finance; Mizutani Chozaburo, Minister of Commerce and Industry; Hatano Kanae, Minister of Agriculture and Forestry; Kitamura [Page 338] Tokutaro, Minister of Transportation; Miki Takeo, Minister of Communications; and Yonekubo Mitsusuke, Minister of Labor.
The position is taken by the Japanese Government that a general rate of exchange, to be determined by reference to price indexes, should be established as soon as possible. Further, that where commodity transactions cannot be carried on at the general rate, a special rate, either above or below the general rate, will be established for each such specific commodity. For the most part, it is anticipated that commodity imports, invisible exports, capital imports and other capital transfers will be conducted at the general rate. On the other hand a multiple exchange rate or factor system would be established for commodity exports with the approval of a Yen Committee to be set up by the Japanese Government.
It is believed that the decision by the Japanese Government to establish a multiple system of exchange rates or factors for commodity exports rather than a single rate has been predicated in large measure upon the recognition of, and belief in the probable continued existence of, the present wide disparity in the ratios of dollar and yen prices of the various goods represented in Japanese foreign trade, by commodity groups as well as by individual items within these groups, as indicated in the tables transmitted in this Mission’s despatch No. 1437 of December 6, 1947 on the subject of Transmission of Tables Concerning Yen/Dollar Relationship Represented in Japan’s Foreign Trade.10 As was pointed out in that despatch, dollar prices placed upon exportable items are not controlled by the yen cost of those items. Furthermore, exports from Japan have been sold on a competitive basis in most instances, whereas imports into Japan have been set at an artificially low yen price in order to support price stabilization policies of the Japanese Government.
The Japanese Government has apparently decided, in view of the above, that the establishment of a single yen-dollar rate would not only compel sellers of those commodities in which prices are currently at a yen-dollar ratio above this rate to reduce the yen price and presumably sell at a loss or stop production, but also would enable sellers of commodities at a ratio below the general rate to raise their yen prices and contribute to the inflation, or permit purchasers to buy for less and thereby realize a “windfall profit” at the expense of the Japanese foreign currency position. It is understood that consideration was given by Japanese Government officials concerned to the desirability of establishing a single rate of exchange and utilizing a governmental subsidization program (within the scope of the subsidy provisions embodied in the draft Charter for an International Trade [Page 339] Organization) to meet the needs of those industries whose costs of production would not permit them to continue at the established rate, as well as the imposition of a type of export fee to reduce large profits derived by those industries whose costs of production would permit substantial price increases. However, the belief was expressed that a system of multiple exchange rates would provide a more suitable frame of reference for the conduct of private trade than a single rate, and that a subsidization program on the other hand would present opportunities for corruption of officials and businessmen. In this connection, it is to be noted that no consideration has apparently been given in the enclosed statement to the problem of administration of a multiple system of exchange rates, which would involve, it is believed, in addition to the problem of rate determination, continual pressures to raise individual commodity rates as well as manifold opportunities for corruption of officials and businessmen.
Although the general rate, once established, is to be maintained at that level as long as possible, the plan as outlined envisages a periodic revision of the general rate in accordance with a “balancing formula” (as set forth in Enclosure No. 1), which is intended eventually to effect a balance between the general rate and the ratio of all yen-dollar ratios of commodity transactions carried on above and below the general rate in Japanese foreign trade transactions. In this connection, it is to be noted that unanimity of opinion does not exist within the Exchange Committee of the Japanese Government concerning the mathematical accuracy of the “balancing formula”. Apart from the question of mathematical accuracy, however, the Japanese Government officials concerned anticipate that through periodic revision of the general rate in the light of some “balancing formula” and through realistic adjustment of the rates above and below the general rate, a balance will be reached resulting in the use of a single factor or rate for all types of transactions.
Information available to this Mission through contacts established with Japanese officials concerned would indicate that the views expressed by the Japanese Government in regard to exchange matters conform for the most part to the tentative views expressed thus far by the Foreign Exchange Rate Committee of this Headquarters.
Although the enclosed statement does not treat the problem of currency conversion after the establishment of a rate or rates of exchange, it is assumed that at least for the near future the Japanese would not be permitted to receive foreign currency and non-Japanese would be permitted to convert only limited quantities of foreign currency for yen.
Respectfully yours,